PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 5
TO REGISTRATION STATEMENT No. 33-50968
Under
The Securities Act of 1933
IDS Life Insurance Company
(Exact name of registrant as specified in charter)
Minnesota
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
41-0823832
(I.R.S. Employer Identification No.)
IDS Tower 10, Minneapolis, MN 55440-0010
(612) 671-3131
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Bruce Kohn, Counsel
IDS Life Insurance Company
IDS Tower 10, Minneapolis, Minnesota 55440-0010
(612) 671-2221
(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 30, 1996.
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]
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Calculation of Registration Fee
Proposed
Title of each class Amount Proposed maximum Amount of
of securities to be to be maximum offering aggregate registration
registered registered price per unit offering price fee
Interests in a flexible N/A
premium group market
value annuity contract
and individual market
value annuity contracts
for non-tax qualified
purchases.
PAGE 3
IDS LIFE ACCOUNT MGA
GROUP AND INDIVIDUAL FLEXIBLE PREMIUM
MARKET VALUE ANNUITY CONTRACTS ISSUED BY
IDS LIFE INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
Form S-1 Item Number and Caption Location in Prospectus
1. Forepart of the Registration Statement
and Outside Front Cover Page of Prospectus.... Outside Front Cover
2. Inside Front and Outside Back
Cover Pages of Prospectus .................... Table of Contents
(inside front cover)
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges ....... Summary or, as to ratio
of earnings to fixed
charges, Not Applicable
4. Use of Proceeds .............................. Investments by IDS Life
5. Determination of Offering Price .............. Not Applicable
6. Dilution ..................................... Not Applicable
7. Selling Security Holders ..................... Not Applicable
8. Plan of Distribution ......................... Distribution of Contracts
9. Description of Securities to Be
Registered ................................... Description of Contracts
10. Interests of Named Experts and Counsel ....... Not Applicable
11. Information with Respect to the
Registrant ................................... The Company;
Directors and Executive
Officers of the Registrant;
Executive Compensation;
Security Ownership of
Management;
Legal Proceedings and
Opinion; and
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities ............................. See Item 14 in Part II
PAGE 4
PART I.
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus.
PAGE 5
IDS Life Flexible Payment Market Value Annuity
Prospectus, April 30, 1996
This prospectus describes interests in a flexible premium group
market value annuity contract and individual market value annuity
contracts offered by IDS Life Insurance Company (IDS Life) to the
general public for non-tax qualified purchases. With respect to
the group contract, eligible individuals include members of the
general public.
Participation in a group contract will be accounted for separately
by the issuance of a certificate showing the owner's interest under
the group contract. Participation in an individual contract is
shown by the issuance of an individual annuity contract. The
certificate and the individual contract are both referred to as the
"Contract."
In addition, IDS Life may offer these Contracts to fund retirement
programs that qualify under the following Sections of the Internal
Revenue Code of 1986, as amended (the Code): (1) plans qualified
under Section 401 (including 401(k)); (2) Tax-Sheltered Annuity
(TSA) plans adopted by public school systems and certain tax-exempt
organizations pursuant to Section 403(b); (3) individual retirement
annuities (IRAs) and simplified employee pensions (SEP/IRAs)
qualified under Section 408; and (4) deferred compensation plans
eligible under Section 457.
A minimum purchase payment of at least $5,000 must accompany the
application for a Contract. Additional purchase payments of at
least $2,000 are permitted under a Contract. The Contract
accumulation value will be guaranteed by the general assets of IDS
Life. IDS Life generally intends to invest funds received in
relation to Contracts in a variety of debt instruments having price
durations which tend to match the applicable guarantee periods
under the Contract.
IDS Life Account MGA
Group and Individual Flexible Premium
Market Value Annuity Contracts
Sold by:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Telephone: 800-422-3542
THESE SECURITIES MAY BE SUBJECT TO A SUBSTANTIAL SURRENDER CHARGE
AND/OR MARKET VALUE ADJUSTMENT IF NOT HELD TO THE END OF A
GUARANTEE PERIOD WHICH COULD RESULT IN RECEIPT OF LESS THAN THE
ORIGINAL PURCHASE PAYMENT.
GUARANTEED INTEREST RATES THAT APPLY TO FUTURE GUARANTEE PERIODS
WILL BE DECLARED BY IDS LIFE BASED ON VARIOUS FACTORS. THESE
INTEREST RATES MAY BE HIGHER OR LOWER THAN THE RATES PREVIOUSLY
GUARANTEED.
PAGE 6
THE MINIMUM GUARANTEED RATE IS 3 PERCENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
IDS LIFE INSURANCE COMPANY IS NOT A BANK AND THE SECURITIES IT
OFFERS ARE NOT BACKED OR GUARANTEED BY ANY BANK, NOR ARE THEY
INSURED BY THE FDIC.
PAGE 7
Table of Contents Page
Summary...................................................
Glossary of Special Terms.................................
Description of Contracts..................................
General...................................................
Application and Purchase Payment..........................
Right to Cancel...........................................
Guarantee Periods.........................................
Surrenders, Free Withdrawals and Systematic Withdrawals...
Surrender Charge..........................................
Transfers.................................................
Market Value Adjustment...................................
Premium Taxes.............................................
Death Benefit Prior to Settlement.........................
Death Benefit After Settlement............................
Statement.................................................
Electing the Settlement Date and Annuity Payment Plan.....
Investments by IDS Life...................................
Amendment of Contracts....................................
Distribution of Contracts.................................
Assignment of Contracts...................................
Federal Tax Considerations................................
The Company...............................................
Business..................................................
Selected Financial Data...................................
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.............
Reserves..................................................
Investments...............................................
Competition...............................................
Employees.................................................
Properties................................................
State Regulation..........................................
Directors and Executive Officers..........................
Executive Compensation....................................
Security Ownership of Management..........................
Legal Proceedings and Opinion.............................
Experts...................................................
PAGE 8
Appendix A (Total Surrender Illustration).................
Appendix B (Market Value Adjustment Illustration).........
IDS Life Financial Information............................
PAGE 9
Summary
IDS Life is offering group and individual flexible premium market
value annuity Contracts to the general public for non-tax qualified
and tax qualified purchases. IDS Life is a wholly owned subsidiary
of American Express Financial Corporation, which itself is a wholly
owned subsidiary of American Express Company. As described in this
prospectus, each subaccount of the Contracts has a guaranteed rate
of interest that is credited to the purchase payment when it is
held to the end of the subaccount guarantee period. Surrenders or
transfers before the end of a subaccount guarantee period are
subject to a market value adjustment and a surrender charge (if
applicable). Surrenders or transfers are available without market
value adjustment on the last day of each subaccount guarantee
period and during the first ten days of each new subaccount
guarantee period. A free withdrawal amount is available under each
subaccount.
When an initial purchase payment is made under an application, or
when additional purchase payments or transfers are made, the owner
allocates the payment or transfer to one or more subaccounts then
offered by IDS Life. A subaccount is established for each
combination of guarantee period and guarantee rate to which the
owner allocates a purchase payment or transfer. The purchase
payment or transfer allocated to each subaccount earns interest at
the applicable rate for that subaccount guarantee period as
established by IDS Life. Since interest is credited on a daily
basis, the interest credited also earns interest at the applicable
rate established for the guarantee period. The guarantee rate
established by IDS Life will always be at least 3 percent (See
Guarantee Periods page ).
When a subaccount guarantee period ends, a new guarantee period
will begin. IDS Life will transfer the subaccount accumulation
value without market value adjustment to a new subaccount. The new
subaccount guarantee period will be for one year unless the owner
elects a different period from those IDS Life then offers. The new
guarantee period may never extend beyond the settlement date (See
Guarantee Periods page ).
Each Contract year, the owner may surrender or transfer free
withdrawal amounts. These free withdrawal amounts are not subject
to either a surrender charge or a market value adjustment.
However, they are subject to federal income tax and may be subject
to a federal penalty tax and, under certain tax qualified
Contracts, to 20 percent income tax withholding. Free withdrawal
amounts are calculated separately for each subaccount. From the
time a subaccount is established by payment or transfer up to the
next Contract anniversary, the free withdrawal amount is 10 percent
of the subaccount payment or transfer. During each Contract year
thereafter, the free withdrawal amount is 10 percent of the prior
Contract anniversary subaccount accumulation value. The owner also
may establish systematic withdrawals of amounts up to the free
withdrawal amount. (See Surrenders, Free Withdrawals and Systematic
Withdrawals page ).
PAGE 10
Subject to certain restrictions, partial or total surrenders are
permitted. IDS Life may defer payment of any surrender for a
period up to six months from the date it receives notice of
surrender, or for the period permitted by state law, if less. IDS
Life will not defer a payment for a period greater than seven days
except under extraordinary circumstances. IDS Life will pay annual
interest of at least 3 percent of any amounts deferred for more
than thirty days during such period if it chooses to exercise this
deferral right (See Surrenders, Free Withdrawals and Systematic
Withdrawals page ).
Surrenders may be subject to a surrender charge. Surrender charges
are calculated separately for each subaccount. The surrender
charge depends on the number of Contract years a purchase payment
to a subaccount has been in the Contract. For purchase payments
that have been in the Contract for less than eight Contract years,
a surrender charge, beginning at a maximum of 7 percent, will be
assessed on a surrender. There are no surrender charges for
payments that have been in the Contract for eight or more Contract
years or if the surrender occurs on the last day of a subaccount
guarantee period or during the first ten days of the new subaccount
guarantee period. In addition, IDS Life will waive the surrender
charge in certain instances (See Surrender Charge page ).
The owner may transfer the accumulation value from an existing
subaccount to a new subaccount at any time before the settlement
date as long as a subaccount is established for at least one
calendar year prior to the transfer. The minimum accumulation
value the owner may transfer is $2,000 or the entire subaccount
accumulation value, if less. For transfers before the end of a
subaccount guarantee period, there will be a market value
adjustment to the accumulation value in excess of the free
withdrawal amount (See Transfers page ).
A market value adjustment will be applied to a surrender or
transfer that occurs before the end of a subaccount guarantee
period. A market value adjustment is a positive or negative
adjustment of the subaccount accumulation value. Therefore, the
amount distributed from a subaccount on surrender or transfer may
be more or less than the total purchase payments or transfers made
to that subaccount (plus accrued interest). The market value
adjustment reflects the relationship, at the time of surrender or
transfer, between the subaccount guarantee rate and the interest
rate IDS Life then is crediting on purchase payments or transfers
made to new subaccounts with guarantee periods of the same duration
as the time remaining in the subaccount guarantee period (See
Market Value Adjustment page ).
IDS Life reserves the right to deduct applicable premium taxes from
the accumulation value of the Contract. State premium taxes range
from 0 to 3.5 percent of the gross purchase payments (See Premium
Taxes page ).
The Contract provides for a guaranteed death benefit. In the event
of the death of the annuitant or owner prior to the settlement
date, IDS Life will pay to the owner or beneficiary the death
PAGE 11
benefit in lieu of any other payment under the Contract. The
amount of the death benefit will equal the accumulation value (See
Death Benefit Prior to Settlement page ).
On the settlement date specified by the owner, IDS Life will pay
the owner a lump sum payment or start to pay a series of payments.
A series of payments may be elected under certain annuity payment
plans (See Electing the Settlement Date and Annuity Payment Plan
page ).
Glossary of Special Terms
As used in this prospectus, the following terms have the indicated
meanings:
Accumulation Value - The value of the net purchase and transfer
payments plus interest credited, adjusted for any surrenders. The
Contract accumulation value is the sum of all subaccount
accumulation values.
Annuitant - The person on whose life monthly annuity payments
depend.
Contract Anniversary - The same day and month as the Contract date
each year that the Contract remains in force.
Contract Date - The date from which Contract anniversaries,
Contract years and Contract months are determined.
Free Withdrawal Amount - The amount of surrenders and transfers
that may be made each Contract year without market value adjustment
or surrender charge. Free withdrawal amounts are calculated
separately for each subaccount. From the time a subaccount is
established by payment or transfer to the next Contract
anniversary, the free withdrawal amount is 10 percent of the
subaccount payment or transfer. During each Contract year
thereafter, the free withdrawal amount is 10 percent of the prior
Contract anniversary subaccount accumulation value.
Guarantee Period - The period for which IDS Life guarantees a
particular declared effective annual interest rate.
Guarantee Rate - The particular declared effective annual interest
rate IDS Life guarantees for a guarantee period.
Market Adjusted Value - The accumulation value in excess of the
free withdrawal amount, adjusted by the market value adjustment
formula, plus the free withdrawal amount. The adjustment is for
interest rate changes since a subaccount begins. The adjustment is
calculated separately for each subaccount. The Contract market
adjusted value is the sum of all subaccount market adjusted values.
Market Value Adjustment - The difference between the market
adjusted value and the accumulation value. It is positive if the
market adjusted value is greater than the accumulation value. It
is negative if the accumulation value is greater than the market
adjusted value.
PAGE 12
Owner - The person or entity to whom the Contract is issued. The
owner may be someone other than the annuitant.
Settlement - The application of the accumulation value of the
Contract to provide annuity payments.
Settlement Date - The date on which annuity payments are to begin.
Subaccount - An account IDS Life establishes for each combination
of guarantee period and guarantee rate to which the owner allocates
a purchase or transfer payment. Each subaccount is distinguished
by the guarantee period and the date the guarantee period begins.
Surrender Value - The accumulation value plus any applicable market
value adjustment, less any applicable surrender charge.
Written Request - A request in writing signed by the owner and
delivered to IDS Life at its Home Office.
Description of Contracts
General
This prospectus describes interests in a flexible premium group
market value annuity and individual market value annuity Contracts
offered by IDS Life to the general public for non-tax qualified
purchases. In addition, IDS Life may offer the Contracts in the
following tax qualified programs: (1) Section 401(a) (including
401(k)) plans; (2) TSA plans; (3) IRAs and IRA/SEPs; and (4)
deferred compensation plans eligible under Section 457.
As described in this prospectus, each subaccount of the Contracts
has a guaranteed interest rate that is credited to a purchase
payment when it is held to the end of the subaccount guarantee
period. Surrenders or transfers before the end of a subaccount
guarantee period are subject to a market value adjustment and a
surrender charge (if applicable).
Subject to insurance department approval of the Contract, IDS Life
will be offering this Contract in the District of Columbia and all
states except New York.
Application and Purchase Payment
To apply for a Contract, the owner must complete an application and
make a minimum purchase payment of $5,000. Additional purchase
payments of at least $2,000 are permitted under a Contract. These
additional purchase payments may be made until the date the
Contract terminates or the date on which annuity payments begin,
whichever is earlier. The maximum total purchase payments in the
first and later Contract years is $500,000. IDS Life reserves the
right to change this maximum. If the owner purchases the Contract
to fund a tax qualified plan, that plan's limit on contributions
also will apply.
PAGE 13
IDS Life will return an improperly completed application, along
with the corresponding purchase payment, five days after its
receipt if the application has not, by that time, been properly
completed.
A payment is credited to a Contract on the date IDS Life receives a
properly completed application along with the purchase payment.
Interest is earned the next day. IDS Life then issues a Contract
and confirms the purchase payment in writing.
When an initial purchase payment is made under an application, or
when additional purchase payments or transfers are made, the owner
allocates the payment to one or more subaccounts then offered by
IDS Life. The minimum amount the owner may allocate to a
subaccount is $2,000 or, in the case of a transfer, the entire
subaccount accumulation value if less than $2,000. The owner has a
subaccount for each guarantee period to which an initial purchase
payment is allocated. The owner also has a subaccount for each
guarantee period to which an additional purchase payment is
allocated or to which a transfer of all or a portion of an existing
subaccount is made. Each subaccount is distinguished by the
guarantee period and the date the guarantee period begins.
Right to Cancel
The owner has the right to cancel the Contract within 10 days after
receipt of the Contract and receive a refund of the entire purchase
payment. For cancellation to be effective, mailing or delivery of
notice of cancellation must be made in writing to IDS Life's Home
Office at IDS Tower 10, Minneapolis, Minnesota 55440-0010.
Guarantee Periods
The owner selects guarantee periods from among those offered by IDS
Life. As of the date of this prospectus, IDS Life is offering
guarantee periods with annual durations from one to 10 years;
however, the guarantee periods IDS Life offers in the future could
be different. The guarantee period selected will determine the
guarantee rate. The purchase payment (less surrenders made and
less applicable premium taxes, if any) or any transfer will earn
interest at this guarantee rate during the entire guarantee period.
All interest earned will be credited daily; this compounding effect
is reflected in the guarantee rate.
Below is an illustration of how IDS Life will credit interest
during the guarantee period. For the purpose of this example, IDS
Life has made the assumptions as indicated.
PAGE 14
Example of Guarantee Rate
Beginning Subaccount Accumulation Value: $50,000
Guaranteed Period: 10 years
Guarantee Rate: 5 percent Annual Effective Rate
Interest Credited Cumulative Interest
Year During Year Credited to the Account
1 $2,500.00 $ 2,500.00
2 2,625.00 5,125.00
3 2,756.25 7,881.25
4 2,894.06 10,775.31
5 3,038.77 13,814.08
6 3,190.70 17,004.78
7 3,350.24 20,355.02
8 3,517.75 23,872.77
9 3,693.64 27,566.41
10 3,878.32 31,444.73
Guaranteed Accumulation Value at the End of 10 Years is:
$50,000 + $31,444.73 = $81,444.73
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 in excess of
the free withdrawal amount (See Surrenders, Free Withdrawals and
Systematic Withdrawals). The hypothetical interest rates are
illustrative only and are not intended to predict future interest
rates to be declared by IDS Life. Actual interest rates declared
for any given time may be more or less than those shown.
End of a Subaccount Guarantee Period - When a subaccount guarantee
period ends, a new guarantee period will begin. IDS Life will
transfer the owner's subaccount accumulation value to a new
subaccount without applying a market value adjustment. At the end
of a guarantee period, or during the first ten days of the new
subaccount guarantee period, the owner also will be able to totally
or partially surrender the subaccount accumulation value without
market value adjustment or surrender charge. However, such a
surrender will be subject to federal income tax and may be subject
to a federal penalty tax. Surrenders from certain tax qualified
Contracts also may be subject to 20 percent income tax withholding.
If the owner surrenders less than the entire subaccount
accumulation value, at least $1,000 must remain in the subaccount.
IDS Life will mail the owner a notice twenty-one calendar days
before the guarantee period ends to remind the owner to select a
new guarantee period. If IDS Life does not receive the written
selection request within ten calendar days after the guarantee
period ends, the new guarantee period will be one year. The new
guarantee period will never extend beyond the settlement date. For
example, if the annuitant is age 62 at the end of a guarantee
period and the settlement date is the annuitant's age 65, a
three-year guarantee period is the maximum guarantee period that
may be selected under the Contract.
PAGE 15
The accumulation value transferred to the new subaccount is
guaranteed by IDS Life's general assets and will earn interest at a
guarantee rate that IDS Life has declared for the guarantee period.
This guarantee rate may be higher or lower than previous guarantee
rates. IDS Life may declare new schedules of guaranteed interest
rates as frequently as daily.
At the owner's written request, IDS Life will provide notice of the
guarantee rate that applies to a specific guarantee period. The
owner also may call IDS Life to inquire about guarantee rates.
Establishment of Guarantee Rates - The guaranteed rate of interest
for a chosen guarantee period will be known at the time a purchase
payment is received or a transfer is made. IDS Life will send the
owner a confirmation that will show the amount paid or transferred
and the applicable guarantee rate. When one subaccount guarantee
period ends and another begins, IDS Life will establish a guarantee
rate for the new period that is equal to or greater than the rate
credited on new comparable purchase payments at the time. The
minimum guarantee rate established by IDS Life will always be at
least 3 percent per year.
IDS Life has no specific formula for determining the rates of
interest that it will declare as guarantee rates in the future.
IDS Life will declare the guarantee rates from time to time based
on its analysis of current market conditions. (See Investments by
IDS Life). In addition, IDS Life also may consider various other
factors in determining guarantee rates for a given period,
including regulatory and tax requirements; sales commission and
administrative expenses; general economic trends; and competitive
factors. IDS Life management will make the final determination as
to the guarantee rates to be declared. IDS Life cannot predict or
guarantee future guarantee rates above the 3 percent rate.
Surrenders, Free Withdrawals and Systematic Withdrawals
General - Subject to certain tax law and retirement plan
restrictions noted below, total and partial surrenders may be made
under a Contract at any time.
In the case of all surrenders, the accumulation value will be
reduced by the amount surrendered on the surrender date and that
amount will be payable to the owner. The accumulation value also
will be reduced by any applicable surrender charge and either
reduced or increased by any market value adjustment applicable to
the surrender. IDS Life will, on request, inform the owner of the
amount payable in a total or partial surrender. Any total or
partial surrender may be subject to tax and tax penalties and
surrenders from certain tax qualified Contracts may be subject to
20 percent income tax withholding. (See Federal Tax
Considerations.)
Tax-Sheltered Annuities - The Code imposes certain restrictions on
an owner's right to receive early distributions attributable to
salary reduction contributions from a Contract purchased for a
retirement plan qualified under Section 403(b) of the Code as a
TSA.
PAGE 16
Distributions attributable to salary reduction contributions made
after Dec. 31, 1988, plus the earnings on them, or to transfers or
rollovers of such amounts from other contracts may be made from the
TSA Contract only if the owner has attained age 59-1/2, has become
disabled as defined in the Code, has separated from the service of
the employer that purchased the Contract or has died.
Additionally, if the owner should encounter a financial hardship
(within the meaning of the Code), he or she may receive a
distribution of all Contract values attributable to salary
reduction contributions made after Dec. 31, 1988, but not of the
earnings on them.
Even though a distribution may be permitted under these rules
(e.g., for hardship or after separation from service), it may
nonetheless be subject to a 10 percent IRS penalty tax (in addition
to income tax) as a premature distribution and to 20 percent income
tax withholding. (See Federal Tax Considerations.)
These restrictions do not apply to transfers of Contract values to
another TSA investment vehicle available through the employer.
Free Withdrawal Amounts - Each Contract year, the owner may
surrender or transfer free withdrawal amounts. These free
withdrawal amounts are not subject to either a surrender charge or
a market value adjustment. However, they are subject to federal
income tax and may be subject to a federal penalty tax and, if made
from certain tax qualified Contracts, to 20 percent income tax
withholding. Free withdrawal amounts are calculated separately for
each subaccount. From the time a subaccount is established by
payment or transfer up to the next Contract anniversary, the free
withdrawal amount is 10 percent of the subaccount payment or
transfer. During each Contract year thereafter, the free
withdrawal amount is 10 percent of the prior Contract anniversary
subaccount accumulation value.
Systematic Withdrawals - The owner may establish systematic
withdrawals of amounts up to the free withdrawal amount by written
request or other method acceptable to IDS Life. The minimum
systematic withdrawal amount from the Contract is $100, and these
withdrawals can be made on a monthly, quarterly, semi-annual or
annual basis. The owner may designate the systematic withdrawal to
be made from the Contract in one of the following ways:
o withdrawing interest earnings up to the free withdrawal amount
from each subaccount over the systematic withdrawal period;
o withdrawing the entire free withdrawal amount over the
systematic withdrawal period; or
o withdrawing a specific dollar amount less than the free
withdrawal amount. Under this option, the specific dollar
amount will be withdrawn on a pro-rata basis from all the
subaccounts in which the owner has a balance, unless the owner
instructs otherwise.
PAGE 17
The minimum Contract accumulation value required to begin
systematic withdrawals is $5,000. The owner may start or stop this
service at any time, but must give IDS Life 30 days' notice to
change any systematic withdrawal instructions that are currently in
place.
Systematic withdrawals may result in taxes, tax penalties and 20
percent income tax withholding being applied to all or a portion of
the amount withdrawn. The owner should consult a tax advisor
regarding the tax consequences of systematic withdrawals.
Partial Surrenders - The minimum Contract accumulation value the
owner may surrender is $1,000 (except for free withdrawal amounts
and systematic withdrawals as explained above). The minimum
balance in a subaccount after surrender is $1,000.
The owner may make a surrender by written request. This request
must specify the subaccount(s) from which the surrender is to be
made and the surrender amount. A partial surrender request not
exceeding $50,000 also may be made by telephone. IDS Life has 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, IDS Life will take special
measures to ensure that calls are answered as promptly as possible.
A telephone surrender request will not be allowed within 30 days of
a phoned-in address change.
The owner may request the net check amount that he or she wishes to
receive. IDS Life 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.
Total Surrenders - IDS Life will compute the value of the Contract
at the close of business after receipt of the owner's request for a
complete surrender. A Contract terminates upon total surrender.
IDS Life may request return of the Contract prior to a total
surrender.
Payment on Surrender - IDS Life may defer payment of any partial or
total surrender for a period not exceeding 6 months from the date
it receives the owner's notice of surrender or the period permitted
by state insurance law, if less. Only under extraordinary
circumstances will IDS Life defer a surrender payment more than 7
days. If payment is deferred for more than 30 days, IDS Life will
pay annual interest of at least 3 percent on the amount deferred.
While all circumstances under which IDS Life could defer payment
upon surrender may not be foreseeable at this time, such
circumstances could include, for example, IDS Life's inability to
liquidate assets due to a general financial crisis. IDS Life will
notify the owner in writing if it intends to withhold payment more
than 30 days.
PAGE 18
Surrender at the End of a Guarantee Period - A subaccount surrender
at the end of the guarantee period or during the first ten days of
the new guarantee period will not incur a surrender charge or
market value adjustment, nor will it reflect any interest earned
during this ten day period.
Surrender Charge
A surrender charge may be assessed on any total or partial
surrender of purchase payments that have been in the Contract for
less than eight Contract years unless the surrender occurs on the
last day of a subaccount guarantee period or during the first ten
days of the new subaccount guarantee period. Surrender charges are
calculated separately for each subaccount. The surrender charge
depends on the number of Contract years a purchase payment to a
subaccount has been in the Contract. The surrender charge
decreases each year on the Contract anniversary date. There are no
surrender charges for payments that have been in the Contract for
eight or more Contract years.
The surrender charge is determined by multiplying the applicable
surrender charge percentage by the subaccount market adjusted value
in excess of the free withdrawal amount. The surrender charge
percentages are as follows:
Contract Years Since Surrender Charge
Payment Received Percentage
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 or more 0
For an example of how the surrender charge is calculated for the
total surrender of a subaccount, please see Appendix A.
No Surrender Charge - There will be no surrender charge for:
o exercise of the cancellation right;
o free withdrawal amounts;
o payments that have been in the Contract for eight or more
Contract years;
o transfers between subaccounts;
o surrenders from a subaccount at the end of its guarantee period
and during the first ten days of the new subaccount guarantee
period;
o application of the accumulation value to provide annuity
payments using an annuity payment plan; or
o death benefits.
PAGE 19
In some cases, such as when an employer makes this annuity
available to employees, IDS Life 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 IDS Life may be able to reduce or
eliminate surrender charges. However, IDS Life expects this to
occur infrequently.
Transfers
The owner may transfer the accumulation value from an existing
subaccount to a new subaccount at any time before the settlement
date. A subaccount must have been established for at least one
calendar year before the owner can make a transfer from it. IDS
Life will not charge a fee for these transfers. However, the
transfers are subject to a market value adjustment.
For transfers before the end of a guarantee period, there will be a
market value adjustment to the accumulation value in excess of the
free withdrawal amount. There will not be a market value
adjustment for transfers at the end of a guarantee period.
The minimum accumulation value the owner may transfer is $2,000 or
the entire subaccount accumulation value, if less. The owner may
transfer less than the entire subaccount accumulation value only if
a minimum accumulation value of $1,000 remains in the subaccount
after the transfer.
The owner may make a transfer by written request. This request
must specify the subaccount from which the transfer is to be made
and the amount of the transfer if it is less than the entire
subaccount accumulation value. The request must also specify the
length of the new guarantee period.
Market Value Adjustment
The subaccount accumulation value, including the interest credited,
is guaranteed if the value is held in the subaccount until the end
of the guarantee period. However, IDS Life will apply a market
value adjustment if a surrender or transfer occurs prior to the end
of the guarantee period.
A market value adjustment is a positive or negative adjustment of
the subaccount accumulation value. The market value adjustment
reflects the relationship, at the time of surrender or transfer,
between the subaccount guarantee rate and the interest rate IDS
Life then is crediting on purchase payments or transfers made to
new subaccounts with guarantee periods of the same duration as the
time remaining in the subaccount guarantee period.
The market adjusted value is the subaccount accumulation value (in
excess of the free withdrawal amount) adjusted by the market value
adjustment, plus the free withdrawal amount. A subaccount's market
adjusted value may be lower or higher than its accumulation value.
PAGE 20
For example, assume the owner made a purchase payment to a
subaccount with a guarantee period of 10 years and a guarantee rate
of 4.5 percent annually. Assume that after 3 years the owner
decides to surrender the value of that subaccount (with 7 years
left in the subaccount guarantee period). If, at the time of
surrender, the guarantee rate IDS Life is crediting on subaccounts
with 7-year guarantee periods is 5 percent, the market adjusted
value will be lower than the accumulation value. On the other
hand, if the current guarantee rates on subaccounts with 7-year
guarantee periods is 4 percent, the market adjusted value will be
higher than the accumulation value.
Determining the Market Value Adjustment - The market value
adjustment is determined by:
o Calculating the subaccount accumulation value to be adjusted.
This is the amount to be surrendered or transferred from the
subaccount;
o Calculating the market adjusted value of that accumulation value
using the market adjusted value formula below; and
o Subtracting the accumulation value from the market adjusted
value.
Market Adjusted Value Formula:
Market Adjusted Value = [(AVc - FWA) X F] + FWA
where:
AVc = the subaccount accumulation value to be surrendered
or transferred
FWA = free withdrawal amount
F = (1 + ig)(N + t)
_____________________
(1 + ic + .0025)(N + t)
where:
ig = the subaccount guarantee rate
N = the number of complete years to the end of the
guarantee period for the subaccount
t = the fraction of a year remaining to the end of the
guarantee period (for example, if 180 days remain in
a 365 day year, t would be .493 for the subaccount)
ic = the subaccount guarantee rate IDS Life then is
crediting on purchase payments or transfers made to
new subaccounts with guarantee periods of the same
duration as the time remaining in the subaccount
guarantee period (straight line interpolation
between whole year rates. If N is zero, ic is the
rate for a one year guarantee period)
PAGE 21
For an illustration showing an upward and downward market value
adjustment, please see Appendix B.
No Market Value Adjustment - There will be no market value
adjustment for:
o exercise of the cancellation right;
o free withdrawal amounts;
o surrenders or transfers from a subaccount at the end of its
guarantee period and during the first ten days of the new
subaccount guarantee period;
o application of the accumulation value to provide annuity
payments using an annuity payment plan; or
o death benefits.
Premium Taxes
IDS Life reserves the right to deduct an amount from the
accumulation value of the Contract at the time that any applicable
premium taxes not previously deducted are payable. If a tax is
payable at the time of the purchase payment and IDS Life chooses
not to deduct it at that time, it further reserves the right to
deduct it at a later date. Current premium taxes range in an
amount up to 3.5 percent depending on jurisdiction.
Death Benefit Prior to Settlement
If the annuitant or owner dies before the settlement date while the
Contract is in force, the death benefit payable to the beneficiary
will equal the accumulation value as determined at the next close
of business after IDS Life's death claim requirements are
fulfilled.
If the Spouse is Sole Beneficiary or Co-Owner - If the owner or
co-owner dies before the settlement date and the spouse is the only
beneficiary or co-owner, the spouse may keep the Contract as owner.
To do this, the spouse must, within 60 days after IDS Life receives
proof of death, give IDS Life written instructions to keep the
Contract in force.
Tax qualified Plans - If the Contract is purchased under a plan
qualified under Code Section 401 (including 401(k)), a TSA plan, a
plan eligible under Code Section 457, a custodial or trusteed plan,
or as an IRA or a SEP/IRA and IDS Life receives proof of the
annuitant's death before the settlement date, IDS Life will pay the
beneficiary the death benefit described above. If the annuitant
dies before reaching age 70-1/2 and the spouse is the only
beneficiary, the spouse may keep the Contract in force until the
date on which the annuitant would have reached 70-1/2 or such other
date as permitted by the Code. To do this, the spouse must, within
60 days after IDS Life receives proof of death, give IDS Life
written instructions to keep the Contract in force.
PAGE 22
Paying the Beneficiary - Unless the owner has given other written
instructions, IDS Life will pay the beneficiary in a single
payment. Payment from a tax qualified Contract (except an IRA or
SEP/IRA) made to a surviving spouse instead of being directly
rolled over to an IRA may be subject to 20 percent income tax
withholding. The beneficiary may elect to receive this payment at
any time within 5 years after the date of death. Instead of a
single payment, IDS Life may make payments under any annuity
payment plan available under this Contract if:
o the beneficiary elects the plan in writing within 60 days after
IDS Life receives proof of death;
o payments begin no later than one year after death; and
o the plan provides payments over a period that does not extend
beyond the beneficiary's life or life expectancy.
Death Benefit After Settlement
If the annuitant dies after settlement, the amount payable, if any,
will be as provided in the annuity payment plan then in effect.
Statement
Prior to the settlement date, at least annually, IDS Life will send
a statement showing a summary of the Contract.
Electing the Settlement Date and Annuity Payment Plan
Upon processing the owner's application IDS Life will establish the
settlement date to the maximum age or date as specified below. The
owner can also select a date within the maximum limits. This date
can be aligned with the owner's actual retirement from a job, or it
can be a different future date, depending on the owner's needs and
goals and on certain restrictions. The owner can also change the
date, provided IDS Life receives written instructions at least 30
days before annuity payouts begin.
The settlement date cannot be later than the latest of:
o the Contract anniversary nearest the annuitant's 85th birthday;
or
o the 10th Contract anniversary.
Annuity Payments - The first payment will be made as of the
settlement date. Once annuity payments have started for an
annuitant, no surrender of the annuity benefit can be made for the
purpose of receiving a lump sum in lieu of payments.
Annuity Payment Plans - On the settlement date, the owner may
receive a lump sum payment of the surrender value (see Surrenders,
Free Withdrawals and Systematic Withdrawals) or begin receiving
annuity payments. If a lump sum payment is made from a tax
qualified Contract (except an IRA or SEP/IRA), 20 percent income
tax withholding may apply. There are different ways to receive
annuity payments called payment plans. The owner may elect one of
PAGE 23
these payment plans, or another payment arrangement to which IDS
Life agrees, by giving IDS Life written notice at least 30 days
before the settlement date. In the absence of an election, IDS
Life will make annuity payments according to Plan B with payments
guaranteed for ten years.
If the amount to be applied to a payment plan is not at least
$2,000 or if payments are to be made to other than a natural
person, IDS Life has the right to make a lump sum payment of the
surrender value.
o Plan A - This provides monthly annuity payments for the lifetime
of the annuitant. No payments will be made after the annuitant
dies.
o Plan B - This provides monthly annuity payments for the lifetime
of the annuitant with a guarantee by IDS Life that payments will
be made for a period of at least 5, 10 or 15 years. The owner
must select the guaranteed period.
o Plan C - This provides monthly annuity payments for the lifetime
of the annuitant with a guarantee by IDS Life that payments will
be made for a certain number of months. IDS Life determines the
number of months by dividing the accumulation value applied
under this plan by the amount of the monthly annuity payment.
o Plan D - This is a Joint and Survivor life annuity. Monthly
payments will be paid for the lifetime of the annuitant and a
joint annuitant. When either the annuitant or joint annuitant
dies, IDS Life will continue to make monthly payments for the
lifetime of the survivor. No payments will be made after the
death of both the annuitant and joint annuitant.
o Plan E - This provides monthly fixed dollar annuity payments for
a period of years. The period of years may be no less than 10
or more than 30.
The Contract provides for annuity payments on a fixed basis only.
The amount of each annuity payment will not change during the
annuity payment period. The amount of the annuity payment will
depend on:
o the annuity table IDS Life then is 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
percent per year. The table for Plan E is based on an interest
rate of 4 percent. IDS Life may, at its discretion, if mortality
appears more favorable and interest rates justify, apply other
tables that will result in higher monthly payments.
PAGE 24
Restrictions for Some Tax qualified Plans - If the Contract was
purchased under a plan qualified under Code Section 401( including
401(k)), a TSA plan, a plan eligible under Code Section 457, a
custodial or trusteed plan, or as an IRA or a SEP/IRA, the owner
must elect a payment plan that provides for payments:
o during the life of the annuitant;
o during the joint lives of the annuitant and beneficiary;
o for a period not exceeding the life expectancy of the annuitant;
or
o for a period not exceeding the joint life expectancies of the
annuitant and beneficiary.
Reference also must be made to the terms of the tax qualified plan
and applicable law for any limitations or restrictions on the
settlement date or annuity payment plan that may be selected.
Investments by IDS Life
Assets of IDS Life must be invested in accordance with requirements
established by applicable state laws regarding the nature and
quality of investments that may be made by life insurance companies
and the percentage of their assets that may be committed 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, 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.
IDS Life intends to construct and manage the investment portfolio
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.
Immunization is achieved 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 flexibility and efficiency to IDS Life in creating and
managing the asset portfolio, while still assuring safety and
soundness for funding liability obligations.
IDS Life's 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;
PAGE 25
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;
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 10 percent of assets at the time of
purchase; and
o Real estate mortgages, limited to 30 percent 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.
Amendment of Contracts
IDS Life reserves the right to amend the Contracts to meet the
requirements of applicable federal or state laws or regulations.
IDS Life will notify the owner of the Contract in writing of any
such amendments.
Distribution of Contracts
IDS Life is the principal underwriter for the Contracts. IDS Life
is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 (1934 Act) as a broker-dealer and
is a member of the National Association of Securities Dealers,
Inc. IDS Life may enter into Distribution Agreements with certain
broker-dealers registered under the 1934 Act. IDS Life will pay a
maximum commission of 5 percent for the sale of a Contract. In the
future, IDS Life may pay a commission on an election of a
subsequent guarantee period by an owner or when an owner maintains
a Contract in force.
Assignment of Contracts
The owner may change ownership of the Contract at any time by
filing a change of ownership with IDS Life at its home office. No
change of ownership will be binding upon IDS Life until it receives
and records the change. IDS Life takes no responsibility for the
validity of the change. If the Contract is purchased under a tax
qualified plan, the Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as
security for the performance of an obligation or for any other
purpose to any person other than IDS Life; provided, however, that
PAGE 26
if the owner is a trustee or custodian, or an employer acting in a
similar capacity, ownership of a Contract may be transferred to the
annuitant.
The value of any part of a non-tax qualified Contract assigned or
pledged is taxed like a surrender to the extent allocable to
investment in annuity contracts after Aug. 13, 1982.
Transfer of a non-tax qualified Contract to another person without
adequate consideration is considered a gift and the transfer will
be considered a surrender of the Contract for federal income tax
purposes. The income in the Contract will be taxed to the
transferor who may be subject to the 10 percent IRS penalty tax for
early withdrawal. The transferee's investment in the Contract will
be the value of the Contract at the time of the transfer. The
owner should consult with a tax advisor before taking any action.
Federal Tax Considerations
Under current law, there is no liability for federal income tax on
any increase in the Contract's value until payments are made
(except for change of ownership discussed above in "Assignment of
Contracts"). However, since federal tax consequences cannot always
be anticipated, the owner should consult a tax advisor regarding
any questions about the taxation of the Contract.
The owner is not taxed on the investment in the Contract. The
investment in the Contract generally includes purchase payments
made into the Contract with after-tax dollars. If the investment
in the Contract was made by or on behalf of the owner with pre-tax
dollars as part of a tax qualified retirement plan, such amounts
are not considered to be part of the investment in the Contract and
will be taxed when payment is made.
If the owner surrenders part or all of the Contract or takes a free
withdrawal amount, the owner will be taxed on the payments
received, to the extent that the value of the Contract exceeds the
investment in the Contract, and the owner may have to pay an IRS
penalty tax for early withdrawal.
A portion of each annuity payment under a non-tax qualified
Contract will be subject to tax and a portion of each payment will
be considered to be part of the investment in the Contract and will
not be taxed. All amounts received after the investment in the
Contract is recovered will be subject to tax. All annuity payments
from a tax qualified Contract, for example an IRA, TSA or a plan
eligible under Code Section 457, generally will be subject to
taxation except to the extent that the contributions were made with
after-tax dollars.
Unlike life insurance proceeds, the death benefit under a Contract
is not tax exempt. The gain, if any, is taxable as ordinary income
to the beneficiary in the year(s) he or she receives the payments.
Tax law requires that all non-tax qualified deferred annuity
contracts issued by the same company to the same contract owner
during a calendar year are to be treated as a single, unified
PAGE 27
contract. The amount of income included and taxed in a
distribution (or a transaction deemed a distribution under tax law)
taken from any one of such contracts is determined by summing all
such contracts.
The income earned on a Contract held by such entities as
corporations, partnerships or trusts generally will be treated as
ordinary income received during that year.
A 10 percent IRS penalty tax may apply on any amount includible in
ordinary income. This penalty will not apply to any amount
received:
o after the owner reaches age 59-1/2;
o after the owner dies;
o after the owner becomes disabled (as defined in the Code);
o as a distribution that is part of a series of substantially
equal periodic payments over the life or life expectancy of the
owner (or joint lives or life expectancies of the owner and
beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except
for Contracts in tax qualified plans).
These are the major exceptions to the 10 percent IRS penalty tax.
Additional exceptions may apply depending upon whether or not the
Contract is tax qualified.
For tax qualified Contracts, other penalties apply if a Contract
bought under a plan is surrendered before the plan specifies that
payments can be made under the plan.
If the owner receives all or part of the Contract value from a tax
qualified annuity (except an IRA or SEP/IRA), mandatory 20 percent
income tax withholding generally will be imposed at the time the
payment is made. In addition, federal income tax and the 10
percent IRS penalty tax for early withdrawals may apply to amounts
properly includible in income. This mandatory 20 percent income
tax withholding will not be imposed if:
o instead of receiving the payment, the owner elects to have the
payment rolled over directly to an IRA or another eligible plan;
o the payment is one of a series of substantially equal periodic
payments, made at least annually, over the life or life
expectancy of the owner (or joint lives or life expectancies of
the owner and beneficiary) or made over a period of 10 years or
more; or
o the payment is a minimum distribution required under the Code.
These are the major exceptions to the mandatory 20 percent income
tax withholding. Payments made to a surviving spouse instead of
being directly rolled over to an IRA may be subject to 20 percent
income tax withholding. For taxable distributions that are not
PAGE 28
subject to the mandatory 20 percent withholding, federal income tax
will be withheld from the taxable part of the owner's distribution
unless he or she elects otherwise. State withholding also may be
imposed on taxable distributions.
IDS Life will send the owner and/or annuitant, as appropriate, a
tax statement for any year that a taxable distribution from the
Contract is received.
The Contract is intended to qualify as an annuity for federal
income tax purposes. To that end, the provisions of the Contract
are to be interpreted to ensure or maintain such tax qualification,
notwithstanding any other provisions of the Contract. We reserve
the right to amend the Contract to reflect any clarifications that
may be needed or are appropriate to maintain such qualification or
to conform the Contract to any applicable changes in the tax
qualification requirements. We will send you a copy of any such
amendments.
This discussion of federal tax laws is based upon IDS Life's
understanding of these laws as they are currently interpreted.
Either federal tax laws or current interpretations of them may
change. Please consult a tax advisor concerning specific
circumstances.
The Company
Business
IDS Life is a stock life insurance company organized in 1957 under
the laws of the State of Minnesota. IDS Life is a wholly owned
subsidiary of American Express Financial Corporation, which is a
wholly owned subsidiary of American Express Company. IDS Life acts
as a direct writer of insurance policies and annuities and as the
investment manager of various investment companies. IDS Life is
licensed to write life insurance and annuity contracts in 49 states
and the District of Columbia. The headquarters of IDS Life is IDS
Tower 10, Minneapolis, MN 55440-0010.
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 included in the prospectus beginning
on page __.
Years ended Dec. 31, (thousands)
1995 1994 1993 1992 1991
Premiums $ 161,530 $ 144,640 $ 127,245 $ 114,379 $ 102,338
Net investment income 1,907,309 1,781,873 1,783,219 1,616,821 1,422,866
Net realized loss on investments (4,898) (4,282) (6,737) (3,710) (5,837)
Other 472,035 384,105 304,344 240,959 198,344
Total revenues 2,535,976 2,306,336 2,208,071 1,968,449 1,717,711
Income before income taxes 560,782 512,512 412,726 315,821 259,467
Net income $ 364,940 $ 336,169 $ 270,079 $ 211,170 $ 182,037
Total assets $42,900,078 $35,747,543 $33,057,753 $27,295,773 $22,558,809
PAGE 29
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Results of Operations
1995 Compared to 1994:
Consolidated net income increased 8.6 percent to $365 million in
1995, compared to $336 million in 1994. Earnings growth resulted
primarily from increases in management fees and policyholder and
contractholder charges partially offset by a slight decrease in
investment margins. These increases reflect higher average
insurance and annuities in force during 1995. Investment margins
were below prior year levels primarily due to higher interest
credited rates during the first two quarters of 1995.
Consolidated income before income taxes totaled $561 million in
1995, compared with $513 million in 1994. In 1995, $125 million
was from the life, disability income, health and long-term care
insurance segment, compared with $123 million in 1994. In 1995,
$440 million was from the annuity segment, compared with $394
million in 1994. There was a $4.9 million net realized loss on
investments in 1995, compared with a net realized loss on
investments of $4.3 million in 1994.
Total premiums received decreased to $5.0 billion in 1995, compared
with $5.7 billion in 1994. This decrease is primarily due to a
decrease in sales of variable annuities, reflecting very strong
sales of variable products during 1994.
Total revenues increased to $2.5 billion in 1995, compared with
$2.3 billion in 1994. The increase is primarily due to increases
in net investment income, policyholder and contractholder charges,
and management fees. Net investment income, the largest component
of revenues, increased from the prior year, reflecting an increase
in investments owned.
Policyholder and contractholder charges, which consist primarily of
cost of insurance charges on universal life-type policies,
increased 16 percent to $256 million in 1995, compared with $220
million in 1994. This increase reflects higher total life
insurance in force which grew 13 percent to $59.4 billion at
December 31, 1995.
Management and other fees increased 32 percent to $216 million in
1995, compared with $164 million in 1994. This is primarily due to
an increase in separate account assets, which grew 38 percent to
$15 billion at December 31, 1995, due to market appreciation and
sales. The Company provides investment management services for the
mutual funds used as investment options for variable annuities and
variable life insurance. The Company also receives a mortality and
expense risk fee from the separate accounts.
Total benefits and expenses increased to $2.0 billion in 1995. The
largest component of expenses, interest credited to policyholder
accounts for universal life-type insurance and investment
PAGE 30
contracts, increased to $1.3 billion. This was due to higher
aggregate amounts in force and an increase in average interest
credited rates.
1994 Compared to 1993:
Consolidated net income increased 24 percent to $336 million in
1994, compared to $270 million in 1993. Earnings growth resulted
primarily from increases in spread income, policyholder and
contractholder charges, and management fees. These increases
reflect higher average insurance and annuities in force during
1994. For the full year, investment margins were comparable to
1993 levels, although investment margins for the fourth quarter of
1994 were below prior year levels.
Consolidated income before income taxes totaled $513 million in
1994, compared with $413 million in 1993. In 1994, $123 million
was from the life, disability income, health and long-term care
insurance segment, compared with $104 million in 1993. In 1994,
$394 million was from the annuity segment, compared with $315
million in 1993. There was a $4.3 million net realized loss on
investments in 1994, compared with a net realized loss on
investments of $6.7 million in 1993.
Total premiums received increased to $5.7 billion in 1994, compared
with $5.3 billion in 1993. This increase is primarily due to
continued strong sales of variable annuities. In addition, the
Company reported small increases in its fixed single premium
deferred annuity line. Universal life-type insurance and variable
universal life insurance premiums received also increased from the
prior year.
Total revenues increased to $2.3 billion in 1994, compared with
$2.2 billion in 1993. The increase is primarily due to increases
in policyholder and contractholder charges, and management fees.
Net investment income, the largest component of revenues, was
basically unchanged from the prior year, reflecting a slight
increase in investments owned offset by a decrease in the rate
earned on those investments.
Policyholder and contractholder charges, which consist primarily of
cost of insurance charges on universal life-type policies,
increased 19 percent to $220 million in 1994, compared with $184
million in 1993. This increase reflects higher total life
insurance in force which grew 14 percent to $52.7 billion at
December 31, 1994.
Management and other fees increased 37 percent to $164 million in
1994, compared with $120 million in 1993. This is primarily due to
an increase in separate account assets, which grew 21 percent to
$11 billion at December 31, 1994, resulting from strong sales of
variable products. The Company provides investment management
services for the mutual funds used as investment options for
variable annuities and variable life insurance. The Company also
receives a mortality and expense risk fee from the separate
accounts.
PAGE 31
Total benefits and expenses decreased slightly to $1.8 billion in
1994. The largest component of expenses, interest credited to
policyholder accounts for universal life-type insurance and
investment contracts, decreased to $1.2 billion. This is primarily
due to a decrease in interest credited rates, partially offset by
higher aggregate amounts in force.
Amortization of deferred policy acquisition costs increased to $280
million in 1994, compared with $212 million in 1993. This increase
is a result of a higher level of amortizable deferred costs and a
high level of surrenders as a result of an exchange plan announced
during the first quarter of 1994 and completed prior to the end of
1994.
Other insurance and operating expenses, which include non-
capitalized commissions and indirect selling expenses, direct and
indirect operating expenses, premium taxes and guaranty association
expenses, decreased to $210 million in 1994, compared with $242
million in 1993. This decrease primarily reflects a decrease in
amounts accrued for future guaranty association assessments.
Risk Management
The Company primarily invests in fixed income securities over a
broad range of maturities for the purpose of providing fixed
annuity clients with a competitive rate of return on their
investments while minimizing risk, and to provide a dependable and
targeted spread between the interest rate earned on investments and
the interest rate credited to clients' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly
scheduled meetings and, when necessary, special meetings. At these
meetings, the committee reviews models projecting different
interest rate scenarios and their impact on profitability. The
objective of the committee is to structure the investment security
portfolio based upon the type and behavior of products in the
liability portfolio so as to achieve targeted levels of
profitability.
Rates credited to clients' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore,
margins may be negatively impacted by increases in the general
level of interest rates. Part of the committee's strategy includes
the purchase of some types of derivatives, such as interest rate
caps, for hedging purposes. These derivatives protect margins by
increasing investment returns if there is a sudden and severe rise
in interest rates, thereby mitigating the impact of an increase in
rates credited to clients' accounts.
PAGE 32
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided
from operations and investment activity. The primary components of
the funds provided are premiums, investment income, proceeds from
sales of investments as well as maturities and periodic repayments
of investment principal.
The primary uses of funds are policy benefits, commissions and
operating expenses, policy loans, dividends and investment
purchases.
The Company has available lines of credit with three banks
aggregating $100 million, which are used strictly as short-term
sources of funds. Borrowings outstanding under the agreements were
$nil at December 31, 1995. At December 31, 1995, outstanding
reverse repurchase agreements totalled $103 million.
At December 31, 1995, investments in fixed maturities comprised 86
percent of the Company's total invested assets. Of the fixed
maturity portfolio, approximately 43 percent is invested in GNMA,
FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
At December 31, 1995, approximately 9.2 percent of the Company's
investments in fixed maturities were below investment grade bonds.
These investments may be subject to a higher degree of risk than
the high-rated issues because of the borrower's generally greater
sensitivity to adverse economic conditions, such as recession or
increasing interest rates, and in certain instances, the lack of an
active secondary market. Expected returns on below investment
grade bonds reflect consideration of such factors. The Company has
identified those fixed maturities for which a decline in fair value
is determined to be other than temporary, and has written them down
to fair value with a charge to earnings.
At December 31, 1995, net unrealized appreciation on fixed
maturities held to maturity included $667 million of gross
unrealized appreciation and $47 million of gross unrealized
depreciation. Net unrealized appreciation on fixed maturities
available for sale included $398 million of gross unrealized
appreciation and $28 million of gross unrealized depreciation.
At December 31, 1995, the Company had an allowance for losses for
mortgage loans totaling $37 million and for real estate investments
totaling $4.7 million.
The economy and other factors have caused an increase in the number
of insurance companies that are under regulatory supervision. This
circumstance has resulted in an increase in assessments by state
guaranty associations to cover losses to policyholders of insolvent
or rehabilitated companies. Some assessments can be partially
recovered through a reduction in future premium taxes in certain
states. The Company established an asset for guaranty association
assessments paid to those states allowing a reduction in future
premium taxes over a reasonable period of time. The asset will be
amortized as future premium taxes are reduced. The Company has
also estimated the potential effect of future assessments on the
PAGE 33
Company's financial position and results of operations and has
established a reserve for such potential assessments.
In the first quarter of 1996, the Company paid a $40 million
dividend to its parent. In 1995, dividends paid to its parent were
$180 million.
The National Association of Insurance Commissioners has established
risk-based capital standards to determine the capital requirements
of a life insurance company based upon the risks inherent in its
operations. These standards require the computation of a risk-
based capital amount which is then compared to a company's actual
total adjusted capital. The computation involves applying factors
to various statutory financial data to address four primary risks:
asset default, adverse insurance experience, interest rate risk and
external events. These standards provide for regulatory attention
when the percentage of total adjusted capital to authorized control
level risk-based capital is below certain levels. As of December
31, 1995, the Company's total adjusted capital was well in excess
of the levels requiring regulatory attention.
Segment Information
The Company's operations consist of two business segments:
Individual and group life, disability income, long-term care and
health insurance; and fixed and variable annuity products designed
for individuals, pension plans, small businesses and employer-
sponsored groups. The Company is not dependent upon any single
customer and no single customer accounted for more than 10 percent
of revenue in 1995, 1994 or 1993. Additionally, no single
distributor accounted for more than 10 percent of premiums received
in 1995, 1994 or 1993. (See Note 10, Segment information, in the
"Notes to Consolidated Financial Statements".)
Reinsurance
Reinsurance arrangements are used to reduce exposure to large
losses. The maximum amount of risk retained by the Company on any
one life is $750,000 of life and waiver of premium benefits plus
$50,000 of accidental death benefits. The excesses are reinsured
with other life insurance companies. At December 31, 1995,
traditional life and universal life-type insurance in force
aggregated $59.7 billion, of which $3.8 billion was reinsured.
Reserves
In accordance with the insurance laws and regulations under which
IDS Life operates, it is obligated to carry on its books, as
liabilities, actuarially determined reserves to meet its
obligations on its outstanding life and health insurance policies
and annuity contracts. Reserves for policies and contracts are
based on mortality and morbidity tables in general use in the
United States. These reserves are computed amounts that, with
additions from premiums to be received, and with interest on such
reserves compounded annually at assumed rates, will be sufficient
to meet IDS Life's policy obligations at their maturities or in the
event of an insured's death. In the accompanying financial
statements these reserves are determined in accordance with
PAGE 34
generally accepted accounting principles. (See Note 1, Liabilities
for future policy benefits, in the "Notes to Consolidated Financial
Statements.")
Investments
Of IDS Life's consolidated total investments of $25.3 billion at
Dec. 31, 1995, 39 percent was invested in mortgage-backed
securities, 46 percent in corporate and other bonds, 12 percent in
primary mortgage loans on real estate, 1.7 percent in policy loans
and the remaining 1.3 percent in other investments.
Competition
IDS Life is engaged in a business that is highly competitive due to
the large number of stock and mutual life insurance companies and
other entities marketing insurance products. There are over 2,600
stock, mutual and other types of insurers in the life insurance
business. Best's Insurance Reports, Life-Health edition, 1995,
assigned IDS Life one of its highest classifications, A+
(Superior).
Employees
As of Dec. 31, 1995, IDS Life and its subsidiaries had 234
employees; including 180 employed at the home office in
Minneapolis, MN, and 54 employed at IDS Life Insurance Company of
New York located in Albany, NY.
Properties
IDS Life occupies office space in Minneapolis, MN, which is rented
by its parent, American Express Financial Corporation. IDS Life
reimburses American Express Financial Corporation for rent based on
direct and indirect allocation methods. Facilities occupied by IDS
Life and its subsidiaries are believed to be adequate for the
purposes for which they are used and are well maintained.
State Regulation
IDS Life is subject to the laws of the State of Minnesota governing
insurance companies and to the regulations of the Minnesota
Department of Commerce. An annual statement in the prescribed form
is filed with the Minnesota Department of Commerce each year
covering IDS Life's operation for the preceding year and its
financial condition at the end of such year. Regulation by the
Minnesota Department of Commerce includes periodic examination to
determine IDS Life's contract liabilities and reserves so that the
Minnesota Department of Commerce may certify that these items are
correct. IDS Life's books and accounts are subject to review by
the Minnesota Department of Commerce at all times. Such regulation
does not, however, involve any supervision of the account's
management or IDS Life's investment practices or policies. In
addition, IDS Life is subject to regulation under the insurance
laws of other jurisdictions in which it operates. A full
examination of IDS Life's operations is conducted periodically by
the National Association of Insurance Commissioners.
PAGE 35
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.
Directors and Executive Officers*
The members of the Board of Directors and the principal executive
officers of IDS Life, together with the principal occupation of
each during the last five years, are as follows:
Directors
David R. Hubers
Born in 1943
Director since September 1989; president and chief executive
officer, AEFC, since August 1993, and director since January
1984.Senior vice president, Finance and chief financial officer,
AEFC, from January 1984 to August 1993.
Richard W. Kling
Born in 1940
Director since February 1984; president since March 1994.
Executive vice president, Marketing and Products from January 1988
to March 1994. Senior vice president, AEFC, since May 1994.
Director of IDS Life Series Fund, Inc. and member of the board of
managers of IDS Life Variable Annuity Funds A and B.
Paul F. Kolkman
Born in 1946
Director since May 1984; executive vice president since March 1994;
vice president, Finance from May 1984 to March 1994; vice
president, AEFC, since January 1987.
Janis E. Miller
Born in 1951
Director and executive vice president, Variable Assets since March
1994; vice president, AEFC, since June 1990. Director of IDS Life
Series Fund, Inc. and member of the board of managers of IDS Life
Variable Annuity Funds A and B.
James A. Mitchell
Born in 1941
Chairman of the board since March 1994; director since July 1984;
chief executive officer since November 1986; president from July
1984 to March 1994; executive vice president, AEFC, since March
1994; director, AEFC, since July 1984; senior vice president, AEFC,
from July 1984 to March 1994.
PAGE 36
Barry J. Murphy
Born in 1951
Director and executive vice president, Client Service, since March
1994; senior vice president, AEFC, since May 1994; senior vice
president, Travel Related Services (TRS), a subsidiary of American
Express Company, from July 1992 to April 1994; vice president, TRS,
from November 1989 to July 1992.
Stuart A. Sedlacek
Born in 1957
Director and executive vice president, Assured Assets since March
1994; vice president, AEFC, since September 1988.
Melinda S. Urion
Born in 1953
Director and controller since September 1991; executive vice
president since March 1994; vice president and treasurer from
September 1991 to March 1994; senior vice president, chief
financial officer and director, AEFC, since November 1995;
corporate controller, AEFC, from April 1994 to November 1995; vice
president, AEFC, from September 1991 to November 1995; chief
accounting officer, AEFC, from July 1988 to September 1991.
Officers Other Than Directors
Timothy V. Bechtold
Born in 1953
Vice president, Risk Management Products, since February 1995.
Vice president, Insurance Product Development, from May 1989 to
February 1995. Vice president, Risk Management Products, AEFC,
since March 1995.
David J. Berry
Born in 1944
Vice president since October 1989.
Alan R. Dakay
Born in 1952
Vice president, Institutional Insurance Marketing, since September
1991. Vice President, Institutional Products Group, AEFC, since
March 1995; vice president, Institutional Insurance Marketing,
AEFC, from May 1990 to March 1995.
Robert M. Elconin
Born in 1957
Vice president since March 1994. Vice president, Government
Relations, AEFC, since April 1994; Legal counsel, IDS Life and AEFC
from October 1989 to March 1994.
PAGE 37
Morris Goodwin Jr.
Born in 1951
Vice president and treasurer since March 1994; vice president and
corporate treasurer, AEFC, since July 1989.
Lorraine R. Hart
Born in 1951
Vice president, Investments, since March 1992; member of the
investment committee. Vice president, Insurance Investments, AEFC,
since October 1989.
James M. Jensen
Born in 1955
Vice president, Insurance Product Development, since February 1995;
Actuary, Insurance Product Development, since June 1979.
Ryan R. Larson
Born in 1950
Vice president since August 1995. Vice president, Annuity Product
Development, from September 1983 to August 1995. Vice president,
IPG Product Development, AEFC, since July 1989.
James R. Palmer
Born in 1945
Vice president, Taxes, since May 1989. Vice president, Taxes,
AEFC, since June 1995. Vice president, Insurance Operations, AEFC,
from February 1987 to June 1995.
F. Dale Simmons
Born in 1937
Vice president, Real Estate Loan Management, since November 1993.
Vice president, senior portfolio manager, Insurance Investments,
AEFC, since August 1990.
William A. Stoltzmann
Born in 1948
Vice president, general counsel and secretary since 1985; vice
president and assistant general counsel, AEFC, since November 1985.
*The address for all of the directors and principal officers is:
IDS Tower 10, Minneapolis, MN 55440-0010.
Executive Compensation
Executive officers of IDS Life also may serve one or more
affiliated companies. The following table reflects cash
compensation paid to the five most highly compensated executive
officers as a group for services rendered in 1995 to IDS Life and
its affiliates. The table also shows the total cash compensation
paid to all executive officers of IDS Life, as a group, who were
executive officers at any time during 1995.
PAGE 38
Name of individual Cash
or number in group Position held compensation
Five most highly compensated
executive officers as a group: $ 2,386,534
James A. Mitchell Chairman of the Board
and Chief Executive
Officer
Richard W. Kling President
Barry J. Murphy Exec. Vice President,
Client Service
Stuart A. Sedlacek Exec. Vice President,
Assured Assets
Lorraine R. Hart Vice President,
Investments
All executive officers
as a group (18) $4,996,584
Security Ownership of Management
IDS Life's directors and officers do not beneficially own any
outstanding shares of stock of IDS Life. All of the outstanding
shares of stock of IDS Life are beneficially owned by its parent,
American Express Financial Corporation. The percentage of shares
of American Express Financial Corporation owned by any director,
and by all directors and officers of IDS Life as a group, does not
exceed one percent of the class outstanding.
Legal Proceedings and Opinion
Legal matters in connection with federal laws and regulations
affecting the issue and sale of the Contracts described in this
prospectus and the organization of IDS Life, its authority to issue
Contracts under Minnesota law and the validity of the forms of the
Contracts under Minnesota law have been passed on by the General
Counsel of IDS Life.
Experts
The consolidated financial statements of IDS Life Insurance Company
at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
PAGE 39
Appendix A
Total Surrender of a Subaccount
This example shows how surrender charges are calculated for the
total surrender of one subaccount.
Assumptions:
The Contract is dated January 15, 1995. The Contract year is
January 15 to January 14 and the anniversary date is January 15th
each year.
Subaccount P is established with a $5,000 payment on July 1, 1996.
The surrender charge percentages for Subaccount P will be:
Surrender Date Surrender Charge Percentage
7-1-96 to 1-14-97 7%
1-15-97 to 1-14-98 6
1-15-98 to 1-14-99 5
1-15-99 to 1-14-00 4
1-15-00 to 1-14-01 3
1-15-01 to 1-14-02 2
1-15-02 to 1-14-03 1
January 15, 2003+ 0
The Subaccount P market adjusted value is transferred to Subaccount
Q on September 1, 1997. The above surrender charge percentage date
limits do not change even though Subaccount P transferred to
Subaccount Q.
Subaccount Q is entirely surrendered November 4, 2000, when the
Subaccount Q accumulation value is $8,300. Interest rates have
increased since Subaccount Q started. The January 15, 2000 (prior
Contract anniversary) Subaccount Q accumulation value was $8,000.
Assume that the November 4, 2000 market adjusted value is $8,000.
This includes the $800 free withdrawal amount (10 percent of the
January 15, 2000 Subaccount Q accumulation value) and an assumed
($300) negative market value adjustment due to interest rate
increases.
What is the Surrender Charge Amount?
The $8,000 market adjusted value less the $800 free withdrawal
amount is subject to a 3 percent surrender charge. The surrender
charge is 3 percent of $7,200 which is $216.
What Net Amount does the Owner Receive?
The owner receives a net surrender check of $7,784 which is:
Subaccount Q Market adjusted value $8,000
(Which includes the $800 free withdrawal amount
and the ($300) market value adjustment)
PAGE 40
Less Subaccount Q surrender charge - 216
Net Subaccount Q surrender check $7,784
PAGE 41
Appendix B
Market Value Adjustment Illustration
Assumptions:
Contract Date: January 1, 1995
Subaccount Established: July 1, 1995
Purchase Payment: $50,000
Subaccount Guarantee Period: 10 Years
Subaccount Guarantee Rate: 4.5 percent effective annual yield
Market Value Adjustment Assumptions: These examples show how the
market value adjustment may affect your Contract subaccount values.
The surrenders in these examples occur on July 1, 1996, one year
after the subaccount is established. There are no previous
surrenders.
The subaccount accumulation value at the end of one year is
$52,250. If there are no surrenders, the subaccount accumulation
value at the end of the 10-year guarantee period will be
$77,648.47.
The subaccount accumulation value on January 1, 1996, the Contract
anniversary, is: $50,000 x (1 + .045)(184/365) = $51,121.87. The
free withdrawal amount for the next year is $5,112.19. This free
withdrawal amount (10 percent of the Contract anniversary
subaccount accumulation value) is free of both market value
adjustment and surrender charge.
The market value adjustment reflects the relationship (at the time
of surrender) between the subaccount guarantee rate and the
interest rate IDS Life then is crediting on purchase payments or
transfers made to new subaccounts with guarantee periods of the
same duration as the time remaining in the subaccount guarantee
period. After one year, there are 9 years left of the 10-year
subaccount 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) which would be calculated
separately after the market value adjustment. Surrender charge
calculations are shown in Appendix A.
Market Adjusted Value Formula:
Market Adjusted Value = [(AVc - FWA) x F] + FWA
where:
AVc = the subaccount accumulation value to be surrendered or
transferred
FWA = free withdrawal amount
F = (1 + ig)(N + t)
(1 + ic + .0025)(N + t)
PAGE 42
where:
ig = the subaccount guarantee rate
N = the number of complete years to the end of the guarantee
period for the subaccount
t = the fraction of a year remaining to the end of the
guarantee period (for example, if 180 days remain in a
365 day year, t would be .493 for the subaccount)
ic = the subaccount guarantee rate IDS Life then is crediting
on purchase payments or transfers made to new subaccounts
with guarantee periods of the same duration as the time
remaining in the subaccount guarantee period (straight
line interpolation between whole year rates. If N is
zero, ic is the rate for a one year guarantee period)
Example I - Downward Market Value Adjustment
A surrender results in a downward market value adjustment when
interest rates have increased. Assume after one year, IDS Life is
crediting 5 percent for a new subaccount with a 9-year guarantee
period. If the owner totally surrenders the subaccount, the market
adjusted value is:
[(AVc - FWA) x F] + FWA
[($52,250.00 - $5,112.19) x (1 + .045)9]+ 5,112.19 = $49,311.66
(1 + .05 + .0025)9]
The market value adjustment is a $2,938.34 reduction of the
accumulation value:
($2,938.34) = $49,311.66 - $52,250.00
Example II - Upward Market Value Adjustment
A surrender results in an upward market value adjustment when
interest rates have decreased. Assume after one year, IDS Life is
crediting 4 percent for a new subaccount with a 9-year guarantee
period. If the owner totally surrenders the subaccount, the market
adjusted value is:
[(AVc - FWA) x F] + FWA
[$52,250.00 - $5,112.19) x (1 + .045)9] + $5,112.19 = $53,277.18
(1 + .04 + .0025)9]
The market value adjustment is a $1,027.18 increase of the
accumulation value:
$1,027.18 = $53,277.18 - $52,250.00
PAGE 43
IDS Life Financial Information
The financial statements shown below are those of the insurance
company and not those of any other entity. They are included in
the prospectus for the purpose of informing investors as to the
financial condition of the insurance company and its ability to
carry out its obligations under its variable contracts.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1995 1994
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1995, $11,878,377; 1994 $10,694,800) $11,257,591 $11,269,861
Available for sale, at fair value (Amortized cost:
1995, $10,146,136; 1994 $8,459,128) 10,516,212 8,017,555
Mortgage loans on real estate
(Fair value: 1995, $3,184,666; 1994, $2,342,520) 2,945,495 2,400,514
Policy loans 424,019 381,912
Other investments 146,894 51,795
Total investments 25,290,211 22,121,637
Cash and cash equivalents 72,147 267,774
Receivables:
Reinsurance 114,387 80,304
Amounts due from brokers - 7,933
Other accounts receivable 33,667 49,745
Premiums due 5,441 1,594
Total receivables 153,495 139,576
Accrued investment income 348,008 317,510
Deferred policy acquisition costs 2,025,725 1,865,324
Deferred income taxes - 124,061
Other assets 36,410 30,426
Separate account assets 14,974,082 10,881,235
Total assets $42,900,078 $35,747,543
========== ==========
PAGE 44
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
(thousands)
Liabilities:
Fixed annuities--future policy benefits $21,404,836 $19,361,979
Universal life-type insurance--future policy benefits 3,076,847 2,896,100
Traditional life insurance--future policy benefits 209,249 206,754
Disability income, health and long-term care
insurance--future policy benefits 327,157 244,077
Policy claims and other policyholders' funds 56,323 50,068
Deferred income taxes 112,904 -
Amounts due to brokers 121,618 226,737
Other liabilities 285,354 291,902
Separate account liabilities 14,974,082 10,881,235
Total liabilities 40,568,370 34,158,852
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding 3,000 3,000
Additional paid-in capital 278,814 222,000
Net unrealized gain (loss) on investments 230,129 (275,708)
Retained earnings 1,819,765 1,639,399
Total stockholder's equity 2,331,708 1,588,691
Total liabilities and stockholder's equity $42,900,078 $35,747,543
========== ==========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
PAGE 45
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended Dec. 31,
1995 1994 1993
(thousands)
Revenues:
Premiums:
Traditional life insurance $ 50,193 $ 48,184 $ 48,137
Disability income and long-term care insurance 111,337 96,456 79,108
Total premiums 161,530 144,640 127,245
Policyholder and contractholder charges 256,454 219,936 184,205
Management and other fees 215,581 164,169 120,139
Net investment income 1,907,309 1,781,873 1,783,219
Net realized loss on investments (4,898) (4,282) (6,737)
Total revenues 2,535,976 2,306,336 2,208,071
Benefits and expenses:
Death and other benefits - Traditional life
insurance 29,528 28,263 32,136
Death and other benefits - Universal life-type
insurance and investment contracts 71,691 52,027 49,692
Death and other benefits - Disability income,
health and long-term care insurance 16,259 13,393 13,148
Increase (decrease) in liabilities for future
policy benefits:
Traditional life insurance (1,315) (3,229) (4,513)
Disability income, health and
long-term care insurance 51,279 37,912 32,528
Interest credited on universal life-type
insurance and investment contracts 1,315,989 1,174,985 1,218,647
Amortization of deferred policy acquisition costs 280,121 280,372 211,733
Other insurance and operating expenses 211,642 210,101 241,974
Total benefits and expenses 1,975,194 1,793,824 1,795,345
Income before income taxes 560,782 512,512 412,726
Income taxes 195,842 176,343 142,647
Net income $ 364,940 $ 336,169 $ 270,079
========= ========= =========
See accompanying notes to consolidated financial statements.
PAGE 46
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1995 (thousands)
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital Investments Earnings Total
Balance, December 31, 1992 $3,000 $ 22,000 $ 214 $1,223,151 $1,248,365
Net income 270,079 270,079
Change in net unrealized
gain (loss) on investments - - (100) - (100)
Capital contribution from parent - 200,000 - - 200,000
Cash dividends - - - (25,000) (25,000)
Balance, December 31, 1993 3,000 222,000 114 1,468,230 1,693,344
Net income - - - 336,169 336,169
Change in net unrealized
gain (loss) on investments - - (275,822) - (275,822)
Cash dividends - - - (165,000) (165,000)
Balance, December 31, 1994 3,000 222,000 (275,708) 1,639,399 1,588,691
Net income - - - 364,940 364,940
Change in net unrealized
gain (loss) on investments - - 505,837 - 505,837
Capital contribution from parent - 56,814 - - 56,814
Loss on reinsurance transaction
with affiliate - - - (4,574) (4,574)
Cash dividends - - - (180,000) (180,000)
Balance, December 31, 1995 $3,000 $278,814 $230,129 $1,819,765 $2,331,708
====== ======== ======== ========== ==========
See accompanying notes to consolidated financial statements.
PAGE 47
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1995 1994 1993
(thousands)
Cash flows from operating activities:
Net income $ 364,940 $ 336,169 $ 270,079
Adjustments to reconcile net income to
net cash provided by operating activities:
Policy loans issuances, excluding universal
life-type insurance: (46,011) (37,110) (35,886)
Policy loan repayments, excluding universal
life-type insurance 36,416 33,384 29,557
Change in reinsurance receivable (34,083) (25,006) (55,298)
Change in other accounts receivable 16,078 (28,286) (1,364)
Change in accrued investment income (30,498) (10,333) (22,057)
Change in deferred policy acquisition costs, net (196,963) (192,768) (211,509)
Change in liabilities for future policy
benefits for traditional life, disability income,
health and long-term care insurance 85,575 55,354 79,695
Change in policy claims and other policyholders' funds 6,255 5,552 (5,383)
Change in deferred income taxes (33,810) (19,176) (44,237)
Change in other liabilities (6,548) (122) 56,515
Amortization of premium (accretion
of discount), net (22,528) 30,921 (27,438)
Net loss on investments 4,898 4,282 6,737
Premiums related to universal life--type insurance 465,631 409,035 397,883
Surrenders and death benefits related to
universal life--type insurance (306,600) (290,427) (255,133)
Interest credited to account balances related
to universal life--type insurance 162,222 150,955 156,885
Policyholder and contractholder charges, non-cash (140,506) (126,918) (115,140)
Other, net 2 (8,974) (1,907)
Net cash provided by operating activities $ 324,470 $ 286,532 $ 221,999
PAGE 48
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1995 1994 1993
(thousands)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $(1,007,208) $ (879,740) $ -
Maturities, sinking fund payments and calls 538,219 1,651,762 -
Sales 332,154 58,001 -
Fixed maturities available for sale:
Purchases (2,452,181) (2,763,278) -
Maturities, sinking fund payments and calls 861,545 1,234,401 -
Sales 136,825 374,564 -
Fixed maturities:
Purchases - - (6,548,852)
Maturities, sinking fund payments and calls - - 3,934,055
Sales - - 487,983
Other investments, excluding policy loans:
Purchases (823,131) (634,807) (553,694)
Sales 160,521 243,862 123,352
Change in amounts due from brokers 7,933 (2,214) 14,483
Change in amounts due to brokers (105,119) (124,749) 92,832
Net cash used in investing activities (2,350,442) (842,198) (2,449,841)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 3,723,894 3,157,778 2,843,668
Surrenders and death benefits (2,834,804) (3,311,965) (1,765,869)
Interest credited to account balances 1,153,767 1,024,031 1,071,917
Policy loans issuances, universal
life-type insurance (84,700) (78,239) (70,304)
Policy loan repayments, universal
life-type insurance 52,188 50,554 46,148
Capital contribution from parent - - 200,000
Cash dividend to parent (180,000) (165,000) (25,000)
Net cash provided by financing activities 1,830,345 677,159 2,300,560
Net (decrease) increase in cash and
cash equivalents (195,627) 121,493 72,718
Cash and cash equivalents at
beginning of year 267,774 146,281 73,563
Cash and cash equivalents at
end of year $ 72,147 $ 267,774 $ 146,281
========== ========== ==========
See accompanying notes to consolidated financial statements.
PAGE 49
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance
company organized under the laws of the State of Minnesota. The
Company is a wholly owned subsidiary of American Express Financial
Corporation, which is a wholly owned subsidiary of American Express
Company. The Company serves residents of all states except New
York. IDS Life Insurance Company of New York is a wholly owned
subsidiary of the Company and serves New York State residents. The
Company also wholly owns American Enterprise Life Insurance
Company, American Centurion Life Assurance Company (ACLAC), and
American Partners Life Insurance Company.
The Company's principal products are deferred annuities and
universal life insurance, which are issued primarily to
individuals. It offers single premium and annual premium deferred
annuities on both a fixed and variable dollar basis. Immediate
annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single
premium life and term products (including waiver of premium and
accidental death benefits). The Company also markets disability
income and long-term care insurance.
The Company's principal annuity product in terms of amount in force
is the fixed deferred annuity. The annuity contract guarantees a
minimum interest rate during the accumulation period (the time
before annuity payments begin), although the Company normally pays
a higher rate reflective of current market rates. The fixed
annuity provides for a surrender charge during the first seven to
ten years after a purchase payment is made. The Company has also
adopted a practice whereby the higher current rate is guaranteed
for a specified period. The Company also offers a variable annuity
product under the name Flexible Annuity. This is a fixed/variable
annuity offering the purchasers a choice among mutual funds with
portfolios of equities, bonds, managed assets and/or short-term
securities, and the Company's general account, as the underlying
investment vehicles. With respect to funds applied to the variable
portion of the annuity, the purchaser, rather than the Company,
assumes the investment risks and receives the rewards inherent in
the ownership of the underlying investment. The Flexible Annuity
provides for a surrender charge during the first six years after a
purchase payment is made.
The Company's principal insurance product is the flexible-premium,
adjustable-benefit universal life insurance policy. In this type
of insurance policy, each premium payment accumulates interest in
a cash value account. The policyholder has access to the cash
surrender value in whole or in part after the first year. The size
of the cash value of the fund can also be controlled by the
policyholder by increasing or decreasing premiums, subject only to
PAGE 50
1. Summary of significant accounting policies (continued)
maintaining a required minimum to keep the policy in force.
Monthly deductions from the cash value of the policy are made for
the cost of insurance, expense charges and any policy riders.
Basis of presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, IDS Life
Insurance Company of New York, American Enterprise Life Insurance
Company, American Centurion Life Assurance Company and American
Partners Life Insurance Company. All material intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles which vary in certain respects from reporting practices
prescribed or permitted by state insurance regulatory authorities.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Investments
Fixed maturities that the Company has both the positive intent and
the ability to hold to maturity are classified as held to maturity
and carried at amortized cost. All other fixed maturities and all
marketable equity securities are classified as available for sale
and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are carried as a
separate component of stockholder's equity.
Management determines the appropriate classification of fixed
maturities at the time of purchase and reevaluates the
classification at each balance sheet date.
Mortgage loans on real estate are carried principally at the unpaid
principal balances of the related 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. Other
investments include interest rate caps, equity securities and real
estate investments. When evidence indicates a decline, which is
other than temporary, in the underlying value or earning power of
individual investments, such investments are written down to the
fair value by a charge to income. Equity securities are carried
at market value and the related net unrealized appreciation or
depreciation is reported as a credit or charge to stockholder's
equity.
Realized investment gain or loss is determined on an identified
cost basis.
PAGE 51
1. Summary of significant accounting policies (continued)
Prepayments are anticipated on certain investments in mortgage-
backed securities in determining the constant effective yield used
to recognize interest income. Prepayment estimates are based on
information received from brokers who deal in mortgage-backed
securities.
Statement of cash flows
The Company considers investments with a maturity at the date of
their acquisition of three months or less to be cash equivalents.
These securities are carried principally at amortized cost which
approximates fair value.
Supplementary information to the consolidated statement of cash
flows for the years ended Dec. 31 is summarized as follows:
1995 1994 1993
Cash paid during the year for:
Income taxes $191,011 $226,365 $188,204
Interest on borrowings 5,524 1,553 2,661
Recognition of profits on fixed annuity contracts and insurance
policies
The Company issues single premium deferred annuity contracts that
provide for a service fee (surrender charge) at annually decreasing
rates upon withdrawal of the annuity accumulation value by the
contract owner. No sales fee is deducted from the contract
considerations received on these contracts ("no load" annuities).
All of the Company's single premium deferred annuity contracts
provide for crediting the contract owners' accumulations at
specified rates of interest. Such rates are revised by the Company
from time to time based on changes in the market investment yield
rates for fixed-income securities.
Profits on single premium deferred annuities and installment
annuities are recognized by the Company over the lives of the
contracts and represent the excess of investment income earned from
investment of contract considerations over interest credited to
contract owners and other expenses.
The retrospective deposit method is used in accounting for
universal life-type insurance. This method recognizes profits over
the lives of the policies in proportion to the estimated gross
profits expected to be realized.
Premiums on traditional life, disability income, health and long-
term care insurance policies are recognized as revenue when
collected or due, and related benefits and expenses are associated
with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association
is accomplished by means of the provision for future policy
benefits and the deferral and subsequent amortization of policy
acquisition costs.
PAGE 52
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales
compensation, policy issue costs, underwriting and certain sales
expenses, have been deferred on insurance and annuity contracts.
The deferred acquisition costs for single premium deferred
annuities and installment annuities are amortized based upon
surrender charge revenue and a portion of the excess of investment
income earned from investment of the contract considerations over
the interest credited to contract owners. The costs for universal
life-type insurance are amortized over the lives of the policies as
a percentage of the estimated gross profits expected to be realized
on the policies. For traditional life, disability income, health
and long-term care insurance policies, the costs are amortized over
an appropriate period in proportion to premium revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance, single premium
deferred annuities and installment annuities are accumulation
values.
Liabilities for fixed annuities in a benefit status are based on
the Progressive Annuity Table with interest at 5 percent, the 1971
Individual Annuity Table with interest at 7 percent or 8.25
percent, or the 1983a Table with various interest rates ranging
from 5.5 percent to 9.5 percent, depending on year of issue.
Liabilities for future benefits on traditional life insurance have
been computed principally by the net level premium method, based on
anticipated rates of mortality (approximating the 1965-1970 Select
and Ultimate Basic Table for policies issued after 1980 and the
1955-1960 Select and Ultimate Basic Table for policies issued prior
to 1981 and the 1975-1980 Select and Ultimate Basic Table for term
insurance policies issued after 1984), policy persistency derived
from Company experience data (first year rates ranging from
approximately 70 percent to 90 percent and increasing rates
thereafter), and estimated future investment yields of 4 percent
for policies issued before 1974 and 5.25 percent for policies
issued from 1974 to 1980. Cash value plans issued in 1980 and
later assume future investment rates that grade from 9.5 percent to
5 percent over 20 years. Term insurance issued from 1981 to 1984
assumes an 8 percent level investment rate, term insurance issued
from 1985-1993 assumes investment rates that grade from 10 percent
to 6 percent over 20 years and term insurance issued after 1993
assumes investment rates that grade from 8 percent to 6.5 percent
over 7 years.
Liabilities for future disability income policy benefits have been
computed principally by the net level premium method, based on the
1964 Commissioners Disability Table with the 1958 Commissioners
Standard Ordinary Mortality Table at 3 percent interest for persons
disabled in 1980 and prior, 8 percent interest for persons disabled
from 1981 to 1991, 7 percent interest for persons disabled in 1992
and 6 percent interest for persons disabled after 1992.
PAGE 53
1. Summary of significant accounting policies (continued)
Liabilities for future benefits on long-term care insurance have
been computed principally by the net level premium method, using
morbidity rates based on the 1985 National Nursing Home Survey and
mortality rates based on the 1983a Table. The interest rate basis
is 9.5 percent grading to 7 percent over ten years for policies
issued from 1989 to 1992, 7.75 percent grading to 7 percent over
four years for policies issued after 1992, 8 percent for claims
incurred in 1989 to 1991, 7 percent for claims incurred in 1992 and
6 percent for claims incurred after 1992.
Reinsurance
The maximum amount of life insurance risk retained by the Company
on any one life is $750 of life and waiver of premium benefits plus
$50 of accidental death benefits. The maximum amount of disability
income risk retained by the Company on any one life is $6 of
monthly benefit for benefit periods longer than three years. The
excesses are reinsured with other life insurance companies on a
yearly renewable term basis. Graded premium whole life and long-
term care policies are primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated
federal income tax return of American Express Company. The Company
provides for income taxes on a separate return basis, except that,
under an agreement between American Express Financial Corporation
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 American Express Financial Corporation to
reimburse a subsidiary for any tax benefit.
Included in other liabilities at Dec. 31, 1995 is $13,415 payable
to American Express Financial Corporation for federal income taxes.
Included in other receivables at Dec. 31, 1994 is $22,034
receivable from American Express Financial Corporation for federal
income taxes.
Separate account business
The separate account assets and liabilities represent funds held
for the exclusive benefit of the variable annuity and variable life
insurance contract owners. The Company receives investment
management and mortality and expense assurance fees from the
variable annuity and variable life insurance mutual funds and
separate accounts. The Company also deducts a monthly cost of
insurance charge and receives a minimum death benefit guarantee fee
and issue and administrative fee from the variable life insurance
separate accounts.
The Company makes contractual mortality assurances to the variable
annuity contract owners that the net assets of the separate
accounts will not be affected by future variations in the actual
life expectancy experience of the annuitants and the beneficiaries
from the mortality assumptions implicit in the annuity contracts.
PAGE 54
1. Summary of significant accounting policies (continued)
The Company makes periodic fund transfers to, or withdrawals from,
the separate accounts for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company
guarantees, for the variable life insurance policyholders, the
contractual insurance rate and that the death benefit will never be
less than the death benefit at the date of issuance.
Accounting changes
The Financial Accounting Standards Board's (FASB) SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," is effective January 1, 1996. The
new rule is not expected to have a material impact on the Company's
results of operations or financial condition.
The Company's adoption of SFAS No. 114 as of January 1, 1995 is
discussed in Note 2.
The Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The effect of adopting
the new rule was to increase stockholder's equity by approximately
$181 million, net of tax, as of January 1, 1994, but the adoption
had no impact on the Company's net income.
Reclassification
Certain 1994 and 1993 amounts have been reclassified to conform to
the 1995 presentation.
2. Investments
Fair values of investments in fixed maturities represent quoted
market prices and estimated values when quoted prices are not
available. Estimated values are determined by established
procedures involving, among other things, review of market indices,
price levels of current offerings of comparable issues, price
estimates and market data from independent brokers and financial
files.
Net realized gain (loss) on investments for the years ended Dec. 31
is summarized as follows:
1995 1994 1993
Fixed maturities $ 9,973 $(1,575) $ 20,583
Mortgage loans (13,259) (3,013) (25,056)
Other investments (1,612) 306 (2,264)
$ (4,898) $(4,282) $ (6,737)
Changes in net unrealized appreciation (depreciation) of
investments for the years ended Dec. 31 are summarized as follows:
PAGE 55
2. Investments (continued)
1995 1994 1993
Fixed maturities:
Held to maturity $1,195,847 $(1,329,740) $ --
Available for sale 811,649 (720,449) --
Investment securities -- -- 323,060
Equity securities 3,118 (2,917) (156)
The amortized cost, gross unrealized gains and losses and fair
values of investments in fixed maturities and equity securities at
Dec. 31, 1995 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
U.S. Government agency
obligations $ 64,523 $ 3,919 $ -- $ 68,442
State and municipal obligations 11,936 362 32 12,266
Corporate bonds and obligations 8,921,431 620,327 36,786 9,504,972
Mortgage-backed securities 2,259,701 42,684 9,688 2,292,697
$11,257,591 $667,292 $46,506 $11,878,377
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency
obligations $ 84,082 $ 3,248 $ 50 $ 87,280
State and municipal obligations 11,020 1,476 -- 12,496
Corporate bonds and obligations 2,514,308 186,596 3,451 2,697,453
Mortgage-backed securities 7,536,726 206,288 24,031 7,718,983
Total fixed maturities 10,146,136 397,608 27,532 10,516,212
Equity securities 3,156 361 -- 3,517
$10,149,292 $397,969 $27,532 $10,519,729
The amortized cost, gross unrealized gains and losses and fair
values of investments in fixed maturities and equity securities at
Dec. 31, 1994 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
U.S. Government agency
obligations $ 21,500 $ 43 $ 4,372 $ 17,171
State and municipal obligations 9,687 132 -- 9,819
Corporate bonds and obligations 8,806,707 100,468 459,568 8,447,607
Mortgage-backed securities 2,431,967 10,630 222,394 2,220,203
$11,269,861 $111,273 $686,334 $10,694,800
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency
obligations $ 128,093 $ 756 $ 1,517 $ 127,332
State and municipal obligations 11,008 702 -- 11,710
Corporate bonds and obligations 1,142,321 24,166 7,478 1,159,009
Mortgage-backed securities 7,177,706 9,514 467,716 6,719,504
Total fixed maturities 8,459,128 35,138 476,711 8,017,555
Equity securities 4,663 -- 2,757 1,906
$8,463,791 $ 35,138 $479,468 $ 8,019,461
PAGE 56
2. Investments (continued)
The amortized cost and fair value of investments in fixed
maturities at Dec. 31, 1995 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 268,363 $ 272,808
Due from one to five years 1,692,030 1,783,047
Due from five to ten years 5,467,302 5,833,309
Due in more than ten years 1,570,195 1,696,516
Mortgage-backed securities 2,259,701 2,292,697
$11,257,591 $11,878,377
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 118,996 $ 120,019
Due from one to five years 849,800 913,175
Due from five to ten years 1,301,191 1,397,237
Due in more than ten years 339,423 366,798
Mortgage-backed securities 7,536,726 7,718,983
$10,146,136 $10,516,212
During the year ended Dec. 31, 1995, fixed maturities classified as
held to maturity were sold with proceeds of $332,154 and gross
realized gains and losses on such sales were $14,366 and $15,720,
respectively. The sale of these fixed maturities was due to
significant deterioration in the issuers' creditworthiness. As a
result of adopting the FASB Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities," the Company
reclassified securities with a book value of $91,760 and net
unrealized gains of $881 from held to maturity to available for
sale in December 1995.
In addition, fixed maturities available for sale were sold during
1995 with proceeds of $136,825 and gross realized gains and losses
on such sales were $nil and $5,781, respectively.
During the year ended Dec. 31, 1994, fixed maturities classified as
held to maturity were sold with proceeds of $58,001 and gross
realized gains and losses on such sales were $226 and $3,515,
respectively. The sale of these fixed maturities was due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during
1994 with proceeds of $374,564 and gross realized gains and losses
on such sales were $1,861 and $7,602, respectively.
At Dec. 31, 1995, bonds carried at $12,761 were on deposit with
various states as required by law.
Net investment income for the years ended Dec. 31 is summarized as
follows:
PAGE 57
2. Investments (continued)
1995 1994 1993
Interest on fixed maturities $1,656,136 $1,556,756 $1,589,802
Interest on mortgage loans 232,827 196,521 175,063
Other investment income 35,936 38,366 29,345
Interest on cash equivalents 5,363 6,872 2,137
1,930,262 1,798,515 1,796,347
Less investment expenses 22,953 16,642 13,128
$1,907,309 $1,781,873 $1,783,219
At Dec. 31, 1995, investments in fixed maturities comprised 86
percent of the Company's total invested assets. These securities
are rated by Moody's and Standard & Poor's (S&P), except for
securities carried at approximately $2.3 billion which are rated by
American Express Financial Corporation internal analysts using
criteria similar to Moody's and S&P. A summary of investments in
fixed maturities, at amortized cost, by rating on Dec. 31 is as
follows:
Rating 1995 1994
Aaa/AAA $ 9,907,664 $ 9,708,047
Aaa/AA 3,112 --
Aa/AA 279,403 242,914
Aa/A 154,846 119,952
A/A 3,104,122 2,567,947
A/BBB 871,782 725,755
Baa/BBB 4,417,654 3,849,188
Baa/BB 657,633 796,063
Below investment grade 2,007,511 1,719,123
$21,403,727 $19,728,989
At Dec. 31, 1995, 95 percent of the securities rated Aaa/AAA are
GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer are greater than 1 percent of the Company's total
investments in fixed maturities.
At Dec. 31, 1995, approximately 11.6 percent of the Company's
invested assets were mortgage loans on real estate. Summaries of
mortgage loans by region of the United States and by type of real
estate at Dec. 31, 1995 and 1994 are as follows:
Dec. 31, 1995 Dec. 31, 1994
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
East North Central $ 720,185 $ 67,206 $ 581,142 $ 62,291
West North Central 303,113 34,411 257,996 7,590
South Atlantic 732,529 111,967 597,896 63,010
Middle Atlantic 508,634 37,079 408,940 34,478
New England 244,816 40,452 209,867 23,087
Pacific 168,272 23,161 138,900 --
West South Central 61,860 27,978 50,854 --
East South Central 58,462 10,122 67,503 --
Mountain 184,964 16,774 122,668 18,750
2,982,835 369,150 2,435,766 209,206
Less allowance
for losses 37,340 -- 35,252 --
$2,945,495 $369,150 $2,400,514 $209,206
PAGE 58
2. Investments (continued)
Dec. 31, 1995 Dec. 31, 1994
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
Apartments $1,038,446 $ 84,978 $ 904,012 $ 56,964
Department/retail stores 985,660 134,538 802,522 88,325
Office buildings 464,381 62,664 321,761 21,691
Industrial buildings 255,469 22,721 232,962 18,827
Nursing/retirement homes 80,864 4,378 89,304 4,649
Mixed Use 53,169 -- -- --
Hotels/motels 31,335 48,816 32,666 --
Medical buildings 57,772 2,495 36,490 15,651
Other 15,739 8,560 16,049 3,099
2,982,835 369,150 2,435,766 209,206
Less allowance
for losses 37,340 -- 35,252 --
$2,945,495 $369,150 $2,400,514 $209,206
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real
estate at the time of origination of the loan. The Company holds
the mortgage document, which gives the right to take possession of
the property if the borrower fails to perform according to the
terms of the agreement. The fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage
interest rates currently offered for mortgages of similar
maturities. Commitments to purchase mortgages are made in the
ordinary course of business. The fair value of the mortgage
commitments is $nil.
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114), as amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures".
The adoption of the new rules did not have a material impact on the
Company's results of operations or financial condition.
SFAS No. 114 applies to all loans except for smaller-balance
homogeneous loans, that are collectively evaluated for impairment.
Impairment is measured as the excess of the loan's recorded
investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate,
or the fair value of collateral. The amount of the impairment is
recorded as a reserve for investment losses.
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 until it
has been recovered. Once the recorded investment has been
recovered, any additional payments are recognized as interest
income.
The reserve for investment losses is maintained at a level that
management believes is adequate to absorb estimated credit losses
in the portfolio. The level of the reserve account is determined
based on several factors, including historical experience, expected
future principal and interest payments, estimated collateral
values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the
reserve for investment losses.
PAGE 59
2. Investments (continued)
At Dec. 31, 1995, the Company's recorded investment in impaired
loans was $83,874 with a reserve of $19,307. During the year, the
average recorded investment in impaired loans was $74,567.
The Company recognized $5,014 of interest income related to
impaired loans for the year ended Dec. 31, 1995.
The following table presents changes in the reserve for investment
losses related to all loans:
1995
Balance, January 1 $35,252
Provision for investment losses 15,900
Sales of related loans (6,600)
Loan payoffs (5,300)
Other (1,912)
Balance, Dec. 31 $37,340
At Dec. 31, 1995, the Company had commitments to purchase real
estate investments for $54,897. Commitments to purchase real
estate investments are made in the ordinary course of
business. The fair value of these commitments is $nil.
3. Income taxes
The Company qualifies as a life insurance company for federal
income tax purposes. As such, the Company is subject to the
Internal Revenue Code provisions applicable to life insurance
companies.
Income tax expense consists of the following:
1995 1994 1993
Federal income taxes:
Current $218,040 $186,508 $180,558
Deferred (33,810) (19,175) (44,237)
184,230 167,333 136,321
State income taxes-current 11,612 9,010 6,326
Income tax expense $195,842 $176,343 $142,647
Increases (decreases) to the federal tax provision applicable to
pretax income based on the statutory rate are attributable to:
PAGE 60
3. Income taxes (continued)
1995 1994 1993
Provision Rate Provision Rate Provision Rate
Federal income
taxes based on
the statutory rate $196,274 35.0% $179,379 35.0% $144,454 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (8,524) (1.5) (9,939) (2.0) (11,002) (2.7)
Other, net (3,520) (0.6) (2,107) (0.4) 2,869 0.7
Federal income taxes $184,230 32.9% $167,333 32.6% $136,321 33.0%
A portion of life insurance company income earned prior to 1984 was
not subject to current taxation but was accumulated, for tax
purposes, in a policyholders' surplus account. At Dec. 31, 1995,
the Company had a policyholders' surplus account balance of
$20,114. The policyholder's surplus account balance increased in
1995 due to the acquisition of ACLAC. The policyholders' surplus
account is only taxable if dividends to the stockholder exceed the
stockholder's surplus account or if the Company is liquidated.
Deferred income taxes of $7,040 have not been established because
no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and
liabilities as of Dec. 31 are as follows:
1995 1994
Deferred tax assets:
Policy reserves $ 600,176 $533,433
Investments -- 116,736
Life insurance guarantee
fund assessment reserve 26,785 32,235
Total deferred tax assets 626,961 682,404
Deferred tax liabilities:
Derred policy acquisition costs 590,762 553,722
Investments 146,805 --
Other 2,298 4,621
Total deferred tax
liabilities 739,865 558,343
Net deferred tax assets
(liabilities) $(112,904) $124,061
The Company is required to establish a valuation allowance for any
portion of the deferred tax assets that management believes will
not be realized. In the opinion of management, it is more
likely than not that the Company will realize the benefit of the
deferred tax assets, and, therefore, no such valuation allowance
has been established.
PAGE 61
4. Stockholder's equity
During 1995, the Company received a $39,700 capital contribution
from its parent, American Express Financial Corporation, in the
form of investments in fixed maturities and mortgage loans. In
addition, effective January 1, 1995, the Company began
consolidating the financial results of ACLAC. This change
reflected the transfer of ownership of ACLAC from Amex Life
Assurance Company (Amex Life), a former affiliate, to the Company
prior to the sale of Amex Life to an unaffiliated third party on
October 2, 1995. This transfer of ownership to the Company has
been reflected as a capital contribution of $17,114 in the
accompanying financial statements. The effect of this change in
reporting entity was not significant and prior periods have not
been restated.
As discussed in Note 5, the Company entered into a reinsurance
agreement with Amex Life during 1995. As a result of this
transaction, a loss of $4,574 was realized and reported as a
direct charge to retained earnings.
Retained earnings available for distribution as dividends to the
parent are limited to the Company's surplus as determined in
accordance with accounting practices prescribed by state
insurance regulatory authorities. Statutory unassigned surplus
aggregated $1,103,993 as of Dec. 31, 1995 and $1,020,981 as of Dec.
31, 1994 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in
1996 in excess of approximately $290,988 would require approval of
the Department of Commerce of the State of Minnesota.
Statutory net income for the years ended Dec. 31 and capital and
surplus as of Dec. 31 are summarized as follows:
1995 1994 1993
Statutory net income $ 326,799 $ 294,699 $ 275,015
Statutory capital and surplus 1,398,649 1,261,958 1,157,022
Dividends paid to American Express Financial Corporation were
$180,000 in 1995, $165,000 in 1994, and $25,000 in 1993.
5. Related party transactions
The Company has loaned funds to American Express Financial
Corporation under two loan agreements. The balance of the first
loan was $25,800 and $40,000 at Dec. 31, 1995 and 1994,
respectively. This loan can be increased to a maximum of $75,000
and pays interest at a rate equal to the preceding month's
effective new money rate for the Company's permanent investments.
It is collateralized by equities valued at $122,978 at Dec. 31,
1995. The second loan was used to fund the construction of the IDS
Operations Center. This loan was paid off during 1994. The loan
was secured by a first lien on the IDS Operations Center property
and had an interest rate of 9.89 percent. The Company also had a
loan to an affiliate which was used to fund construction of the IDS
Learning Center. This loan was sold to the American Express
PAGE 62
5. Related party transactions (continued)
Financial Corporation during 1994. The loan was secured by a first
lien on the IDS Learning Center property and had an interest rate
of 9.82 percent. Interest income on the above loans totaled
$1,371, $2,894 and $11,116 in 1995, 1994 and 1993, respectively.
The Company purchased a five year secured note from an affiliated
company which had an outstanding balance of $19,444 and $23,333 at
Dec. 31, 1995 and 1994, respectively. The note bears a fixed rate
of 8.42 percent. Interest income on the above note totaled $1,937,
$2,278 and $2,605 in 1995, 1994 and 1993, respectively.
The Company has a reinsurance agreement whereby it assumed 100
percent of a block of single premium life insurance business from
Amex Life. The accompanying consolidated balance sheets at Dec.
31, 1995 and 1994 include $764,663 and $765,366, respectively, of
future policy benefits related to this agreement.
The Company has a reinsurance agreement to cede 50 percent of its
long-term care insurance business to Amex Life. The accompanying
consolidated balance sheets at Dec. 31, 1995 and 1994 include
$95,484 and $65,123, respectively, of reinsurance receivables
related to this agreement. Premiums ceded amounted to $25,553,
$20,360 and $16,230 and reinsurance recovered from reinsurers
amounted to $760, $62 and $404 for the years ended Dec. 31, 1995,
1994 and 1993, respectively.
The Company has a reinsurance agreement to assume deferred annuity
contracts from Amex Life. At October 1, 1995 a $803,618 block of
deferred annuities and $28,327 of deferred policy acquisition costs
were transferred to the Company. The accompanying consolidated
balance sheet at Dec. 31, 1995 includes $828,298 of future policy
benefits related to this agreement.
Until July 1, 1995 the Company participated in the IDS Retirement
Plan of American Express Financial Corporation which covered all
permanent employees age 21 and over who had met certain employment
requirements. Effective July 1, 1995, the IDS Retirement Plan was
merged with American Express Company's American Express Retirement
Plan, which simultaneously was amended to include a cash balance
formula and a lump sum distribution option. Employer contributions
to the plan are based on participants' age, years of service
and total compensation for the year. Funding of retirement costs
for this plan complies with the applicable minimum funding
requirements specified by ERISA. The Company's share of the total
net periodic pension cost was $nil in 1995, 1994 and 1993.
The Company also participates in defined contribution pension plans
of American Express Company which cover all employees who have met
certain employment requirements. Company contributions to the
plans are a percent of either each employee's eligible compensation
or basic contributions. Costs of these plans charged to operations
in 1995, 1994 and 1993 were $815, $957 and $2,008, respectively.
PAGE 63
5. Related party transactions (continued)
The Company participates in defined benefit health care plans of
American Express Financial Corporation 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 American Express Financial
Corporation. American Express Financial Corporation expenses these
benefits and allocates the expenses to its subsidiaries.
Accordingly, costs of such benefits to the Company are included in
employee compensation and benefits and cannot be identified on a
separate company basis. At Dec. 31, 1995 and 1994, the total
accumulated post retirement benefit obligation has been recorded as
a liability by American Express Financial Corporation.
Charges by American Express Financial Corporation for use of joint
facilities, marketing services and other services aggregated
$377,139, $335,183, and $243,346 for 1995, 1994 and 1993,
respectively. Certain of these costs are included in deferred
policy acquisition costs. In addition, the Company rents its home
office space from American Express Financial Corporation on an
annual renewable basis.
6. Commitments and contingencies
At Dec. 31, 1995 and 1994, traditional life insurance and universal
life-type insurance in force aggregated $59,683,532 and
$52,666,567, respectively, of which $3,771,204 and $3,246,608
were reinsured at the respective year ends. The Company also
reinsures a portion of the risks assumed under disability income
policies. Under the agreements, premiums ceded to reinsurers
amounted to $29,146, $29,489 and $28,276 and reinsurance recovered
from reinsurers amounted to $5,756, $5,505, and $3,345 for the
years ended Dec. 31, 1995, 1994 and 1993.
Reinsurance contracts do not relieve the Company from its primary
obligation to policyholders.
The Company is a defendant in various lawsuits, none of which, in
the opinion of Company counsel, will result in a material
liability.
The IRS has completed its audit of the Company's 1987 through 1989
tax years. The Company is currently contesting one issue at the
IRS Appeals Level. Management does not believe there will be a
material impact as a result of this audit.
7. Lines of credit
The Company has available lines of credit with three banks
aggregating $100,000 at 40 to 80 basis points over the banks' cost
of funds or equal to the prime rate, depending on which line of
credit agreement is used. Borrowings outstanding under these
agreements were $nil at Dec. 31, 1995 and 1994, respectively.
PAGE 64
8. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including
hedging specific transactions. The Company manages risks
associated with these instruments as described below. The Company
does not hold derivative instruments for trading purposes.
Market risk is the possibility that the value of the derivative
financial instruments will change due to fluctuations in a factor
from which the instrument derives its value, primarily an interest
rate. The Company is not impacted by market risk related to
derivatives held for non-trading purposes beyond that inherent in
cash market transactions. Derivatives held for purposes other than
trading are largely used to manage risk and, therefore, the cash
flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not
fulfill the terms of the contract. The Company monitors credit
exposure related to derivative financial instruments through
established approval procedures, including setting concentration
limits by counterparty and industry, and requiring collateral,
where appropriate. A vast majority of the Company's counterparties
are rated A or better by Moody's and Standard & Poor's.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional
amounts are not recorded on the balance sheet. Notional amounts
far exceed the related credit exposure.
Credit exposure related to interest rate caps is measured by the
replacement cost of the contracts. The replacement cost
represents the fair value of the instruments. Financial futures
contracts are settled in cash daily.
Notional Carrying Fair Total Credit
Dec. 31, 1995 Amount Value Value Exposure
Assets:
Interest rate caps $5,100,000 $26,680 $ 8,366 $ 8,366
Dec. 31, 1994
Assets:
Financial futures
contracts $ 159,800 $ 2,072 $ 2,072 $ --
Interest rate caps 4,400,000 29,054 42,365 42,365
$4,559,800 $31,126 $44,437 $42,365
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The financial
futures contracts expired in 1995. The interest rate caps expire
on various dates from 1996 to 2000.
PAGE 65
8. Derivative financial instruments (continued)
Financial futures contracts and interest rate caps are used
principally to manage the Company's exposure to rising interest
rates. These instruments are used primarily to protect the margin
between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
Changes in the fair value of financial futures contracts are
accounted for as adjustments to the carrying amount of the hedged
investments and amortized over the remaining lives of such
investments. The cost of interest rate caps is amortized to
interest expense over the life of the contracts and payments
received as a result of these agreements are recorded as a
reduction of interest expense when realized. The amortized cost of
interest rate cap contracts is included in other investments.
9. Fair values of financial instruments
The Company discloses fair value information for most on- and
off-balance sheet financial instruments for which it is practical
to estimate that value. Fair values of life insurance obligations,
receivables and all non-financial instruments, such as deferred
acquisition costs are excluded. Off-balance sheet intangible
assets, such as the value of the field force, are also excluded.
Management believes the value of excluded assets is significant.
The fair value of the Company, therefore, cannot be estimated by
aggregating the amounts presented.
1995 1994
Carrying Fair Carrying Fair
Financial Assets Value Value Value Value
Investments:
Fixed maturities (Note 2):
Held to maturity $11,257,591 $11,878,377 $11,269,861 $10,694,800
Available for sale 10,516,212 10,516,212 8,017,555 8,017,555
Mortgage loans on
real estate (Note 2) 2,945,495 3,184,666 2,400,514 2,342,520
Other:
Equity securities (Note 2) 3,517 3,517 1,906 1,906
Derivative financial
instruments (Note 8) 26,680 8,366 31,126 44,437
Other 52,182 52,182 -- --
Cash and cash
equivalents (Note 1) 72,147 72,147 267,774 267,774
Separate account assets
(Note 1) 14,974,082 14,974,082 10,881,235 10,881,235
Financial Liabilities
Future policy benefits
for fixed annuities 20,259,265 19,603,114 18,325,870 17,651,897
Separate account
liabilities 14,208,619 13,665,636 10,398,861 9,943,672
At Dec. 31, 1995 and 1994, the carrying amount and fair value of
future policy benefits for fixed annuities exclude life
insurance-related contracts carried at $1,070,598 and $971,897,
respectively, and policy loans of $74,973 and $64,212,
respectively. The fair value of these benefits is based on the
status of the annuities at Dec. 31, 1995 and 1994. The fair value
of deferred annuities is estimated as the carrying amount less any
PAGE 66
9. Fair values of financial instruments (continued)
applicable surrender charges and related loans. The fair value for
annuities in non-life contingent payout status is estimated as the
present value of projected benefit payments at rates appropriate
for contracts issued in 1995 and 1994.
At Dec. 31, 1995 and 1994, the fair value of liabilities related to
separate accounts is estimated as the carrying amount less any
applicable surrender charges and less variable insurance contracts
carried at $765,463 and $482,374, respectively.
10. Segment information
The Company's operations consist of two business segments; first,
individual and group life insurance, disability income, health and
long-term care insurance, and second, annuity products designed for
individuals, pension plans, small businesses and employer-sponsored
groups. The consolidated condensed statements of income for the
years ended Dec. 31, 1995, 1994 and 1993 and total assets at Dec.
31, 1995, 1994 and 1993 by segment are summarized as follows:
1995 1994 1993
Net investment income:
Life, disability income, health
and long-term care insurance $ 256,242 $ 247,047 $ 250,224
Annuities 1,651,067 1,534,826 1,532,995
$ 1,907,309 $ 1,781,873 $ 1,783,219
Premiums, charges and fees:
Life, disability income, health
and long-term care insurance $ 384,008 $ 335,375 $ 287,713
Annuities 249,557 193,370 143,876
$ 633,565 $ 528,745 $ 431,589
Income before income taxes:
Life, disability income, health
and long-term care insurance $ 125,402 $ 122,677 $ 104,127
Annuities 440,278 394,117 315,336
Net loss on investments (4,898) (4,282) (6,737)
$ 560,782 $ 512,512 $ 412,726
Total assets:
Life, disability income, health
and long-term care insurance $ 6,195,870 $ 5,269,188 $ 4,810,145
Annuities 36,704,208 30,478,355 28,247,608
$42,900,078 $35,747,543 $33,057,753
Allocations of net investment income and certain general expenses
are based on various assumptions and estimates.
Assets are not individually identifiable by segment and have been
allocated principally based on the amount of future policy benefits
by segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
PAGE 67
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying consolidated balance sheets of IDS
Life Insurance Company (a wholly owned subsidiary of American
Express Financial Corporation) as of December 31, 1995 and 1994,
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, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of IDS Life Insurance Company at December 31, 1995 and
1994, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for certain
investments in debt and equity securities in 1994.
February 2, 1996
Minneapolis, Minnesota
PAGE 68
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses of the issuance and distribution of the interests
in the IDS Life Account MGA of IDS Life Insurance Company to be
registered, other than commissions on sales of the Contracts, are
to be borne by the registrant.
Item 14. Indemnification of Directors and Officers
Section 300.083 of Minnesota Law provides in part that a
corporation organized under such law shall have power to indemnify
anyone made, or threatened to be made, a party to a threatened,
pending or completed proceeding, whether civil or criminal,
administrative or investigative, because he is or was a director or
officer of the corporation, or served as a director or officer of
another corporation at the request of the corporation.
Indemnification in such a proceeding may extend to judgments,
penalties, fines and amounts paid in settlement, as well as to
reasonable expenses, including attorneys' fees and disbursements.
In a civil proceeding, there can be no indemnification under the
statute, unless it appears that the person seeking indemnification
has acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation and
its shareholders and unless such person has received no improper
personal benefit; in a criminal proceeding, the person seeking
indemnification must also have no reasonable cause to believe his
conduct was unlawful.
Article IX of the By-laws of the IDS Life Insurance Company
requires the IDS Life Insurance Company to indemnify directors and
officers to the extent indemnification is permitted as stated by
the preceding paragraph, and contains substantially the same
language as the above-mentioned Section 300.083.
Article IX, paragraph (2), of the By-laws of the IDS Life
Insurance Company provides as follows:
"Section 2. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party, by reason of the
fact that he is or was a director, officer, employee or agent of
this Corporation, or is or was serving at the direction of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
to any threatened, pending or completed action, suit or proceeding,
wherever brought, to the fullest extent permitted by the laws of
the State of Minnesota, as now existing or hereafter amended,
provided that this Article shall not indemnify or protect any such
director, officer, employee or agent against any liability to the
Corporation or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of his duties or by reason of his
reckless disregard of his obligations and duties."
PAGE 69
The parent company of IDS Life Insurance Company maintains an
insurance policy which affords liability coverage to directors and
officers of the IDS Life Insurance Company while acting in that
capacity. IDS Life Insurance Company pays its proportionate share
of the premiums for the policy.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 Copy of Certificate of Incorporation of IDS Life
Insurance Company filed electronically as Exhibit 3.1 to
Post-Effective Amendment No. 2 to Registration Statement
No. 33-50968 is incorporated herein by reference.
3.2 Copy of the Amended By-laws of IDS Life Insurance Company
filed electronically as Exhibit 3.2 to Post-Effective
Amendment No. 2 to Registration Statement No. 33-50968 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. 2 to Registration Statement
No. 33-50968 is incorporated herein by reference.
4.1 Copy of Group Annuity Contract, Form 30363D, filed
electronically as Exhibit 4.1 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-50968 is
incorporated herein by reference.
PAGE 70
4.2 Copy of Group Annuity Certificate, Form 30360D, filed
electronically as Exhibit 4.2 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-50968 is
incorporated herein by reference.
4.3 Form of Deferred Annuity Contract, Form 30365E, filed
electronically as Exhibit 4.3 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-50968 is
incorporated herein by reference.
5. Copy of Opinion of Counsel regarding legality of
Contracts, dated Sept. 28, 1992, filed electronically as
Exhibit 5 to Post-Effective Amendment No. 2 to
Registration Statement No. 33-50968 is incorporated
herein by reference.
22. Copy of List of Subsidiaries is filed electronically
herewith.
24. Consent of Independent Auditors is filed electronically
herewith.
25. Power of Attorney, dated April 1, 1996 is filed
electronically herewith.
(b) Financial Statement Schedules
27.1 Schedule I - Consolidated Summary of Investments Other
than Investments in Related Parties
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Report of Independent Auditors dated February 2, 1996
All other schedules to the consolidated financial statements
required by Article 7 of Regulation S-X are not required under
the related instructions or are inapplicable and, therefore,
have been omitted.
27.2 Financial Data Schedule is filed electronically herewith.
Item 17. Undertakings
A. The Registrant undertakes: (a) 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
PAGE 71
such information in the Registration Statement, (b) that, for the
purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment may be deemed to be a new
Registration Statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof, (c) 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 (d) to remove from registration
by means of a post-effective amendment any of the securities being
registered which will remain 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.
PAGE 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IDS
Life Insurance Company has duly caused this Registration Statement
to be signed on behalf of the Registrant by the undersigned,
thereunto duly authorized in this City of Minneapolis, and State of
Minnesota on the 3rd day of April, 1996.
IDS Life Insurance Company
(Registrant)
By IDS Life Insurance Company
By /s/ James A. Mitchell*
James A. Mitchell
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities indicated on the 3rd day of April, 1996.
Signature Title
/s/ James A. Mitchell* Chairman of the Board
James A. Mitchell and Chief Executive
Officer
/s/ Richard W. Kling* Director and President
Richard W. Kling
/s/ David R. Hubers* Director
David R. Hubers
/s/ Paul F. Kolkman* Director and Executive Vice
Paul F. Kolkman President
/s/ Janis E. Miller* Director and Executive Vice
Janis E. Miller President, Variable Assets
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
PAGE 73
Signature Title
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President, Assured Assets
/s/ Melinda S. Urion* Director, Exective Vice
Melinda S. Urion President and Controller
*Signed pursuant to Power of Attorney dated April 1, 1996, filed
electronically herewith for IDS Life Insurance Company (IDS Life
Account MGA).
By:
Mary Ellyn Minenko