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IDS Life Group Variable Annuity Contract
Prospectus
April 30, 1996
The Group Variable Annuity Contract is a group, unallocated
deferred fixed/variable annuity contract (the contract) offered by
IDS Life Insurance Company (IDS Life) a subsidiary of American
Express Financial Corporation. This contract is designed to fund
employer group retirement plans (the plans) that qualify as
retirement programs under Sections 401 (including 401(k)) and 457
of the Internal Revenue Code of 1986, as amended (the Code). The
contracts provide for the accumulation of values on a fixed and/or
variable basis. Retirement payments are made on a fixed basis.
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
Sold by: IDS Life Insurance Company, IDS Tower 10, Minneapolis, MN
55440-0010 Telephone: 612-671-3131.
THIS PROSPECTUS CONTAINS THE INFORMATION ABOUT THE VARIABLE
ACCOUNTS THAT YOU SHOULD KNOW BEFORE INVESTING. Refer to "The
variable accounts" in this prospectus.
THE PROSPECTUS IS ACCOMPANIED OR PRECEDED BY THE RETIREMENT ANNUITY
MUTUAL FUND PROSPECTUS FOR IDS LIFE AGGRESSIVE GROWTH FUND, IDS
LIFE INTERNATIONAL EQUITY FUND, IDS LIFE CAPITAL RESOURCE FUND, IDS
LIFE MANAGED FUND, IDS LIFE SPECIAL INCOME FUND, IDS LIFE
MONEYSHARE FUND, IDS LIFE GROWTH DIMENSIONS FUND, IDS LIFE GLOBAL
YIELD FUND AND IDS LIFE INCOME ADVANTAGE FUND. PLEASE KEEP THESE
PROSPECTUSES FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IDS LIFE IS NOT A FINANCIAL INSTITUTION AND THE SECURITIES IT
OFFERS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY FINANCIAL INSTITUTION NOR ARE THEY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY.
A Statement of Additional Information (SAI) dated April 30, 1996
(incorporated by reference into this prospectus) has been filed
with the Securities and Exchange Commission (SEC), and is available
without charge by contacting IDS Life at the telephone number above
or by completing and sending the order form on the last page of
this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
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Table of contents
Key Terms
The Group Variable Annuity Contract in brief
Expense summary
Condensed financial information
Financial statements
Performance information
The variable accounts
The funds
Aggressive Growth Fund
International Equity Fund
Capital Resource Fund
Managed Fund
Special Income Fund
Moneyshare Fund
Growth Dimensions Fund
Global Yield Fund
Income Advantage Fund
The fixed account
Buying the annuity
How to make purchase payments
Charges
Contract administrative charge
Mortality and expense risk fee
Withdrawal charge
Premium taxes
Valuing the investment
Number of units
Accumulation unit value
Net investment factor
Factors that affect variable account
accumulation units
Making the most of your annuity
Transferring money between accounts
How to request a transfer or a withdrawal
Cash withdrawals, loans and conversions
Withdrawal policies
Loans
1Receiving payout when the owner
requests a withdrawal
Special withdrawal provisions
Conversions
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Changing ownership
Contract transfer, termination and
market value adjustment
The annuity payout period
Annuity payout plans
Taxes
Voting rights
Substitution
Other contractual provisions
Distribution of contracts
Recordkeeper
Additional information about IDS Life
Directors and executive officers
Executive compensation
Security ownership of management
Legal proceedings and opinion
Experts
Appendix
IDS Life financial information
About IDS Life
Periodic reports
Table of contents of the Statement of
Additional Information
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Key Terms
These terms can help you understand details about your annuity.
Annuity - A contract purchased from an insurance company that
offers tax-deferred growth of the investment until earnings are
withdrawn.
Accumulation unit - A measure of the value of each variable account
before annuity payouts begin.
Annuity payouts - A fixed amount paid at regular intervals to a
payee.
Close of business - When the New York Stock Exchange (NYSE) closes,
normally 3:00 p.m. Central Time.
Code - Internal Revenue Code of 1986, as amended.
Contract anniversary - An anniversary of the effective date of this
Contract.
Contract value - The total value of your annuity before any
applicable withdrawal charge, market value adjustment, contract
administrative charge or any other applicable charge has been
deducted.
Contract year - A period of 12 months, starting on the effective
date of your contract and on each anniversary of the effective
date.
Fixed account - An account to which you may allocate purchase
payments. Amounts allocated to this account earn interest at rates
that are declared periodically by IDS Life.
IDS Life - In this prospectus, "we," "us," "our" and "IDS Life"
refer to IDS Life Insurance Company.
Mutual funds (funds) - Nine IDS Life Retirement Annuity mutual
funds, each with a different investment objective. (See "The
funds.") You may allocate your purchase payments into variable
accounts investing in shares of any or all of these funds.
Owner (you, your) - The plan sponsor or trustee of the Plan.
Participant - An eligible employee or other person who is entitled
to benefits under the Plan.
Plan - The retirement Plan under which the Contract is issued and
which meets the requirements of Code Sections 401 (including
401(k)) or 457.
Purchase payments - Payments made to IDS Life for an annuity.
Retirement date - The date when a participant's annuity payouts are
scheduled to begin.
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Valuation date - Any normal business day, Monday through Friday,
that the New York Stock Exchange is open. The value of each
variable account is calculated at the close of business on each
valuation date.
Valuation period - The interval of time commencing at the close of
business on each valuation date and ending at the close of business
on the next valuation date. Close of business is normally 3 p.m.
(Central time).
Variable accounts - Nine separate accounts to which you may
allocate purchase payments; each invests in shares of one mutual
fund. (See "The variable accounts.") The value of your investment
in each variable account changes with the performance of the
particular fund.
Withdrawal charge - A deferred sales charge that may be applied if
the owner takes a total or partial withdrawal or the contract is
transferred or terminated.
The Group Variable Annuity Contract in brief
Purpose: The Group Variable Annuity Contract is used for plans
that meet the requirements of Code sections 401 (including 401(k))
and 457.
Accounts: The owner can elect to have contract values accumulate
in any or all of:
o nine variable accounts, each of which invests in mutual funds
with a particular investment objective. The value of each
variable account varies with the performance of the
particular fund. We cannot guarantee that the value at the
retirement date will equal or exceed the total of purchase
payments allocated to the variable accounts. (p.)
o one fixed account, which earns interest at rates that are
adjusted periodically by IDS Life. (p.)
Buying the annuity: A financial advisor will help the owner
complete and submit an application. Applications are subject to
acceptance at our Minneapolis office. Generally, payments may be
made annually, semiannually, quarterly or monthly or any other
frequency we accept.
Transfers: Subject to certain restrictions, you may redistribute
investments among accounts without charge at any time while the
contract is in force. (p.)
Cash Withdrawals, Loans and Conversions: The owner may withdraw
all or part of the contract's value at any time. Withdrawals may
be subject to charges and tax penalties and may have tax
consequences. Total withdrawals may be subject to a market value
adjustment. (p.)
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The owner also may request a withdrawal for the purpose of funding
loans for participants. A withdrawal for a loan is not subject to
withdrawal charges. However, we reserve the right to deduct
withdrawal charges from the remaining contract value to the extent
of any unpaid loans at the time of a total withdrawal of contract
value or at contract transfer or termination. (p.)
If a participant terminates employment, the owner may direct us to
withdraw a part of the contract value so that the participant can
purchase an individual deferred annuity contract from us. No
withdrawal charges will apply at the time of withdrawal for this
conversion. (p.)
Contract Transfer, Termination and Market Value Adjustment: The
owner may direct us to withdraw the total contract value and
transfer that value to another funding agent. (p.)
Under certain circumstances, we may terminate the contract. (p.)
If the value of the fixed account is canceled due to total
withdrawal, contract transfer or contract termination, a market
value adjustment may be imposed in addition to applicable contract
charges. The amount of the market value adjustment approximates
the gain or loss resulting from our sale of assets purchased by the
purchase payments. (p.)
Annuity payouts: The owner can direct us to begin retirement
payouts to a payee under an annuity payout plan that begins on the
participant's retirement date. The owner may choose from a variety
of plans, or the owner and IDS Life can mutually agree on other
payout arrangements. The annuity payout plan selected must meet
the requirements of the plan. Payouts will be made on a fixed
basis. (p.)
Taxes: Generally there is no federal income tax to participants on
contributions to the contract made by the owner or on increases in
the contract's value until distributions are made. (Under certain
circumstances, tax penalties and other tax consequences may apply.)
IDS Life is taxed as a life insurance company under the Code. The
income and capital gains of the variable accounts, to the extent
applied to increase reserves under the contract, are not taxable to
IDS Life. (p.)
Charges: The Group Variable Annuity Contract is subject to a $125
per quarter ($500 annual) contract administrative charge. We
reserve the right to increase this charge, but it will never exceed
$1,000 per year. We also deduct a 1% mortality and expense risk
charge and a withdrawal charge. Currently there are no premium
taxes under this contract, but certain state and local governments
may impose premium taxes when the owner selects an annuity payout
plan. (p.)
Changing ownership: In general, ownership of the contract may not
be transferred. (p.)
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Prohibited investments: The owner will not offer under the plan as
a funding vehicle to which future contributions may be made: (1)
guaranteed investment contracts; (2) bank investment contracts; (3)
annuity contracts; or (4) funding vehicles providing a guarantee of
principal. (p.)
Recordkeeper - Any person or entity authorized by the owner to
administer recordkeeping services for the plan and participants
must be approved by IDS Life. (p.)
Expense summary
The purpose of this summary is to help the owner understand the
various costs and expenses associated with the Group Variable
Annuity Contract.
There is no sales charge when the owner purchases the annuity. All
costs that the owner bears directly or indirectly for the variable
accounts and underlying mutual funds are shown below. Some
expenses may vary as explained under "Contract charges."
Direct charges. These are deducted directly from the contract
value. They include:
Withdrawal charge: 6% of the amount withdrawn in the first two
contract years and reduced by 1% per year thereafter; no withdrawal
charge in the eighth and later contract years.
Annual contract administrative charge: $500 ($125 per quarter).
Indirect charges. The variable account pays these expenses out of
its assets. They are reflected in the variable account's daily
accumulation unit value and are not charged directly to the
account. They include:
Mortality and expense risk fee: 1% per year, deducted from the
variable account as a percentage of the average daily net assets of
the underlying fund.
Operating expenses of underlying mutual funds: management fees and
other expenses deducted as a percentage of average net assets as
follows:
Aggressive International Capital Special Growth Global Income
Growth Equity Resource Managed Income Moneyshare Dimensions Yield Advantage
Management fees .64% .86% .63% .62% .63% .54% .63% .84% .62%
Other expenses .04 .09 .04 .03 .04 .05 .05 .06 .05
Total* .68% .95% .67% .65% .67% .59% .68% .90% .67%
*Annualized operating expenses of underlying mutual funds at Dec.
31, 1995.
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Example:* The owner would pay the following expenses on a $1,000 investment, assuming 5% annual return and withdrawal at the
end of each time period:
Aggressive International Capital Special Growth Global Income
Growth Equity Resource Managed Income Moneyshare Dimensions Yield Advantage
1 year $ 81.46 $ 84.06 $ 81.36 $ 81.17 $ 81.36 $ 80.59 $ 81.46 $ 83.58 $ 81.36
3 years 115.42 123.55 115.12 114.53 115.12 112.77 115.42 121.88 115.12
5 years 139.18 152.76 138.67 137.66 138.67 134.62 139.18 150.26 138.67
10 years 225.51 254.04 224.44 222.30 224.44 215.84 225.51 248.81 224.44
The owner would pay the following expenses on the same investment assuming no withdrawal or selection of an annuity payout
plan at the end of each time period:
Aggressive International Capital Special Growth Global Income
Growth Equity Resource Managed Income Moneyshare Dimensions Yield Advantage
1 year $ 19.64 $ 22.41 $ 19.54 $ 19.33 $ 19.54 $ 18.72 $ 19.64 $ 21.89 $ 19.54
3 years 60.72 69.09 60.41 59.79 60.41 57.92 60.72 67.55 60.41
5 years 104.34 118.39 103.82 102.77 103.82 99.62 104.34 115.80 103.82
10 years 225.51 254.04 224.44 222.30 224.44 215.84 225.51 248.81 224.44
This example should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
* In this example, the $500 annual contract administrative charge
is approximated as a .236% charge based on our average contract
size.
Condensed financial information
(unaudited)
The following tables give per-unit information about the financial
history of each variable account.
Years Ended Dec. 31,
______________________________________________________________________________________
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
______________________________________________________________________________________________________________________
Account F (investing in shares of Capital Resource Fund)
Accumulation unit value at
beginning of period.......... $4.94 $4.93 $4.82 $4.67 $3.22 $3.23 $2.57 $2.31 $2.07 $1.92
______________________________________________________________________________________________________________________
Accumulation unit value at
end of period................ $6.25 $4.94 $4.93 $4.82 $4.67 $3.22 $3.23 $2.57 $2.31 $2.07
______________________________________________________________________________________________________________________
Number of accumulation units
outstanding at end of period
(000 omitted)................ 641,903 576,724 488,632 402,977 309,984 242,767 204,645 186,639 180,907 148,626
______________________________________________________________________________________________________________________
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
______________________________________________________________________________________________________________________
Account IZ1 (investing in shares of International Equity Fund)
Accumulation unit value at
beginning of period.......... $1.25 $1.29 $0.98 $1.00 - - - - - -
______________________________________________________________________________________________________________________
Accumulation unit value at
end of period................ $1.38 $1.25 $1.29 $0.98 - - - - - -
______________________________________________________________________________________________________________________
Number of accumulation units
outstanding at end of period
(000 omitted)................ 1,088,874 913,364 405,536 69,874 - - - - - -
______________________________________________________________________________________________________________________
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Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% - - - - - -
______________________________________________________________________________________________________________________
Account JZ2 (investing in shares of Aggressive Growth Fund)
Accumulation unit value at
beginning of period.......... $1.12 $1.21 $1.08 $1.00 - - - - - -
______________________________________________________________________________________________________________________
Accumulation unit value at
end of period................ $1.46 $1.12 $1.21 $1.08 - - - - - -
______________________________________________________________________________________________________________________
Number of accumulation units
outstanding at end of period
(000 omitted)................ 1,007,976 780,423 347,336 115,574 - - - - - -
______________________________________________________________________________________________________________________
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% - - - - - -
______________________________________________________________________________________________________________________
Account G (investing in shares of Special Income Fund)
Accumulation unit value at
beginning of period.......... $3.80 $3.99 $3.48 $3.21 $2.76 $2.67 $2.48 $2.27 $2.27 $1.93
______________________________________________________________________________________________________________________
Accumulation unit value at
end of period................ $4.59 $3.80 $3.99 $3.48 $3.21 $2.76 $2.67 $2.48 $2.27 $2.27
______________________________________________________________________________________________________________________
Number of accumulation units
outstanding at end of period
(000 omitted)................ 393,697 361,640 405,429 330,000 270,858 236,926 222,248 175,878 170,241 156,811
______________________________________________________________________________________________________________________
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
______________________________________________________________________________________________________________________
Account H (investing in shares of Moneyshare Fund)
Accumulation unit value at
beginning of period.......... $2.18 $2.12 $2.09 $2.04 $1.95 $1.82 $1.69 $1.59 $1.51 $1.43
_______________________________________________________________________________________________________________________
Accumulation unit value at
end of period................ $2.27 $2.18 $2.12 $2.09 $2.04 $1.95 $1.82 $1.69 $1.59 $1.51
_______________________________________________________________________________________________________________________
Number of accumulation units
outstanding at end of period
(000 omitted)................ 102,568 84,475 74,935 102,277 126,489 139,005 108,690 63,005 51,578 38,126
_______________________________________________________________________________________________________________________
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
_______________________________________________________________________________________________________________________
Simple yield3 3.97% 4.16% 1.89% 1.76% 3.26% 6.25% 6.81% 7.30% 5.72% 4.14%
_______________________________________________________________________________________________________________________
Compound yield3 4.05% 4.24% 1.90% 1.77% 3.31% 6.44% 7.04% 7.57% 5.88% 4.22%
_______________________________________________________________________________________________________________________
Account N4 (investing in shares of Managed Fund)
Accumulation unit value at
beginning of period........... $2.09 $2.21 $1.98 $1.86 $1.45 $1.42 $1.14 $1.06 $1.01 $1.00
_______________________________________________________________________________________________________________________
Accumulation unit value at
end of period................ $2.56 $2.09 $2.21 $1.98 $1.86 $1.45 $1.42 $1.14 $1.06 $1.01
_______________________________________________________________________________________________________________________
Number of accumulation units
outstanding at end of period
(000 omitted)................1,212,021 1,127,834 910,254 650,797 496,554 400,961 331,315 325,918 321,395 101,678
_______________________________________________________________________________________________________________________
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
_______________________________________________________________________________________________________________________
1Account IZ commenced operations on Jan. 13, 1992.
2Account JZ commenced operations on Jan. 13, 1992.
3Net of annual contract administrative charge and mortality and expense risk fee.
4Account N commenced operations on April 30, 1986.
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Financial statements
The SAI dated April 30, 1996, contains:
o complete audited financial statements of the variable
accounts including:
- statements of net assets as of Dec. 31, 1995;
- statements of operations for the year ended Dec. 31, 1995;
and
- statements of changes in net assets for the years ended
Dec. 31, 1995 and Dec. 31, 1994.
This prospectus contains:
o complete audited financial statements for IDS Life including:
- consolidated balance sheets as of Dec. 31, 1995 and Dec.
31, 1994; and
- related consolidated statements of income, stockholder's
equity and cash flows for each of the three years in the
period ended Dec. 31, 1995.
Performance information
Performance information for the variable accounts may appear from
time to time in advertisements or sales literature. In all cases,
such information reflects the performance of a hypothetical
investment in a particular account during a particular time period.
Calculations are performed as follows:
Simple yield - Account H (investing in Moneyshare Fund): Income
over a given seven-day period (not counting any change in the
capital value of the investment) is annualized (multiplied by 52)
by assuming that the same income is received for 52 weeks. This
annual income is then stated as an annual percentage return on the
investment.
Compound yield - Account H: Calculated like simple yield, except
that, when annualized, the income is assumed to be reinvested.
Compounding of reinvested returns increases the yield as compared
to a simple yield.
Yield - For accounts investing in income funds: Net investment
income (income less expenses) per accumulation unit during a given
30-day period is divided by the value of the unit on the last day
of the period. The result is converted to an annual percentage.
Average annual total return: Expressed as an average annual
compounded rate of return of a hypothetical investment over a
period of one, five and 10 years (or up to the life of the account
if it is less than 10 years old). This figure reflects deduction
of all applicable charges, including the contract administrative
charge, mortality and expense risk fee and withdrawal charge,
assuming a withdrawal at the end of the illustrated period.
Optional total return quotations may be made that do not reflect a
withdrawal charge deduction (assuming no withdrawal).
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Aggregate total return: Represents the cumulative change in the
value of an investment over a specified period of time (reflecting
change in an account's accumulation unit value). The calculation
assumes reinvestment of investment earnings and reflects the
deduction of all applicable charges, including the contract
administrative charge, mortality and expense risk fee and surrender
charge, assuming a surrender at the end of the illustrated period.
Optional total return quotations may be made that do not reflect a
surrender charge deduction (assuming no surrender). The
calculation assumes reinvestment of investment earnings. Aggregate
total return may be shown by means of schedules, charts or graphs.
Performance information should be considered in light of the
investment objectives and policies, characteristics and quality of
the fund in which the account invests and the market conditions
during the given time period. Such information is not intended to
indicate future performance. Because advertised yields and total
return figures include all charges attributable to the annuity,
which has the effect of decreasing advertised performance, account
performance should not be compared to that of mutual funds that
sell their shares directly to the public. (See the SAI for a
further description of methods used to determine yield and total
return for the accounts.)
If you would like additional information about actual performance,
contact your financial advisor.
The variable accounts
Purchase payments can be allocated to any or all of the variable
accounts that invest in shares of the following funds:
IDS Life Account Established
Aggressive Growth Fund JZ Sept. 20, 1991
International Equity Fund IZ Sept. 20, 1991
Capital Resource Fund F May 13, 1981
Managed Fund N April 12, 1985
Special Income Fund G May 13, 1981
Moneyshare Fund H May 13, 1981
Growth Dimensions Fund MZ April 2, 1996
Global Yield Fund KZ April 2, 1996
Income Advantage Fund LZ April 2, 1996
Each variable account meets the definition of a separate account
under federal securities laws. Income, capital gains and capital
losses of each account are credited or charged to that account
alone. No variable account will be charged with liabilities of any
other account or of our general business. Each variable account's
net assets are held in relation to the contracts described in this
prospectus as well as other variable annuity contracts that we
issue that are not described in this prospectus. All obligations
arising under the contracts are general obligations of IDS Life.
PAGE 12
All variable accounts were established under Minnesota law and are
registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration
does not involve any supervision of our management or investment
practices and policies by the SEC.
The funds
Aggressive Growth Fund
Objective: capital appreciation. Invests primarily in common stock
of small- and medium-size companies. The fund also may invest in
warrants or debt securities or in large well-established companies
when the portfolio manager believes such investments offer the best
opportunity for capital appreciation.
International Equity Fund
Objective: capital appreciation. Invests primarily in common stock
of foreign issuers and foreign securities convertible into common
stock. The fund also may invest in certain international bonds if
the portfolio manager believes they have a greater potential for
capital appreciation than equities.
Capital Resource Fund
Objective: capital appreciation. Invests primarily in U.S. common
stocks and other securities convertible into common stock,
diversified over many different companies in a variety of
industries.
Managed Fund
Objective: maximum total investment return. Invests primarily in
U.S. common stocks, securities convertible into common stock,
warrants, fixed income securities (primarily high-quality corporate
bonds) and money-market instruments. The fund invests in many
different companies in a variety of industries.
Special Income Fund
Objective: to provide a high level of current income while
conserving the value of the investment for the longest time period.
Invests primarily in high-quality, lower-risk corporate bonds
issued by many different companies in a variety of industries and
in government bonds.
Moneyshare Fund
Objective: maximum current income consistent with liquidity and
conservation of capital. Invests in high-quality money market
securities with remaining maturities of 13 months or less. The
fund also will maintain a dollar-weighted average portfolio
maturity not exceeding 90 days. The fund attempts to maintain a
constant net asset value of $1 per share.
Growth Dimensions Fund
Objective: long-term growth of capital. Invests primarily in
common stocks of U.S. and foreign companies showing potential for
significant growth.
Global Yield Fund
Objective: high total return through income and growth of capital.
PAGE 13
Invests primarily in a non-diversified portfolio of debt securities
of U.S. and foreign issuers.
Income Advantage Fund
Objective: high current income, with capital growth as a secondary
objective. Invests in long-term, high-yielding, high risk debt
securities below investment grade issued by U.S. and foreign
corporations.
The Internal Revenue Service (IRS) has issued final regulations
relating to the diversification requirements under Section 817(h)
of the Code. Each mutual fund intends to comply with these
requirements.
The U.S. Treasury and the IRS have indicated they may provide
additional guidance concerning how many variable accounts may be
offered and how many exchanges among variable accounts may be
allowed before the owner is considered to have investment control
and thus is currently taxed on income earned within variable
account assets. We do not know at this time what
the additional guidance will be or when action will be taken. We
reserve the right to modify the contract, as necessary, to ensure
that the owner will not be subject to current taxation as the owner
of the variable account assets.
We intend to comply with all federal tax laws to ensure that the
contract continues to qualify as an annuity for federal income tax
purposes. We reserve the right to modify the contract as necessary
to comply with any new tax laws.
IDS Life is the investment advisor for each of the funds. IDS Life
cannot guarantee that the funds will meet their investment
objectives. Please read the Retirement Annuity Mutual Fund
prospectus for complete information on investment risks,
deductions, expenses and other facts you should know before
investing. It is available by contacting IDS Life at the address
or telephone number on the front of this publication, or from your
financial advisor.
The fixed account
Purchase payments can also be allocated to the fixed account. The
cash value of the fixed account increases as interest is credited
to the account. Purchase payments and transfers to the fixed
account become part of the general account of IDS Life, the
company's main portfolio of investments. Interest is credited
daily and compounded annually. We may change the interest rates
from time to time (including contract administrative charge).
In addition, a market value adjustment is imposed on the fixed
account if the owner cancels the value of the fixed account due to
total withdrawal, contract transfer or contract termination. The
amount of the market value adjustment approximates the gain or loss
resulting from sale by IDS Life of assets purchased with purchase
payments. (See "Market value adjustment.")
PAGE 14
Because of exemptive and exclusionary provisions, interests in the
fixed account have not been registered under the Securities Act of
1933 (1933 Act), nor is the fixed account registered as an
investment company under the 1940 Act. Accordingly, neither the
fixed account nor any interests in it are generally subject to the
provisions of the 1933 or 1940 Acts, and we have been advised that
the staff of the SEC has not reviewed the disclosures in this
prospectus that relate to the fixed account. Disclosures regarding
the fixed account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to
the accuracy and completeness of statements made in prospectuses.
Buying the annuity
A financial advisor will help the owner prepare and submit an
application and send it along with the initial purchase payment to
our Minneapolis office.
When applying, you can select
o the account(s) in which to invest
o how to make purchase payments
If the application is complete, we will process it and apply the
purchase payment to your account(s) within two days after we
receive it. If the application is accepted, we will send the owner
a contract. If we cannot accept the application within five days,
we will decline it and return the payment unless the parties agree
otherwise. We will credit additional purchase payments to the
contract's account(s) at the next close of business.
How to make purchase payments
1 By letter
Send your check along with your name and account number to:
Regular mail:
IDS Life Insurance Company
P.O. Box 74
Minneapolis, MN 55440-0074
Express mail:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
2 By scheduled payment plan
A financial advisor can help set up:
o participant salary reduction
PAGE 15
Charges
Contract administrative charge
This fee is for establishing and maintaining your records. We
deduct $125 from the contract value at the end of each contract
quarter (each three-month period measured from the effective date
of your contract). We deduct this charge on a pro-rata basis from
the fixed and variable accounts. Annual charge: $500. We reserve
the right to increase the contract administrative charge in the
future, but we guarantee that it will never exceed $250 per quarter
($1,000 per year).
Mortality and expense risk fee
This fee is to cover the mortality risk and expense risk and is
applied daily to the variable accounts and reflected in the unit
values of the accounts. The variable accounts pay this fee at the
time that dividends are distributed from the funds in which they
invest. Annually, the fee totals 1% of the variable accounts'
average daily net assets. Approximately two-thirds of this amount
is for our assumption of mortality risk and one-third is for our
assumption of expense risk. This fee does not apply to the fixed
account.
Mortality risk arises because of our guarantee to make annuity
payouts according to the terms of the contract, no matter how long
a specific participant lives and no matter how long the entire
group of IDS Life annuitants live.
Expense risk arises because the contract administrative charge
cannot be increased above $1,000 per year and may not cover our
expenses. Any deficit would have to be made up from our general
assets.
We do not plan to profit from the contract administrative charge.
However, we do hope to profit from the mortality and expense risk
fee. We may use any profits realized from this fee for any proper
corporate purpose, including, among others, payment of distribution
(selling) expenses. We do not expect that the withdrawal charge,
discussed in the following paragraphs, will cover sales and
distribution expenses.
Withdrawal charge
If the owner withdraws part or all of the contract, a withdrawal
charge may apply. This withdrawal charge represents a percentage
of the amount withdrawn as follows:
PAGE 16
Withdrawal charge as
percentage of amount
Contract year: withdrawn:
__________________________________________________________________
1 6%
2 6
3 5
4 4
5 3
6 2
7 1
8 and later 0
__________________________________________________________________
In the case of partial withdrawal, the withdrawal charge is
deducted from the contract value remaining after the owner is paid
the amount requested.
Example of withdrawal charge:
Owner requests $1,000 partial withdrawal, and the withdrawal charge
is 5%:
$1,000 partial withdrawal = $1,052.63
.95
Total amount withdrawn...............$1,052.63
x 0.05
Total withdrawal charge..............$ 52.63
There are no withdrawal charges for withdrawals on behalf of a
participant if the participant:
o attains age 59 1/2;
o purchases an immediate annuity under the annuity payout
plans of this contract after separation from service;
o retires under the plan after age 55;
o becomes disabled (as defined by the Code);
o dies;
o encounters financial hardship as permitted under the plan
and the Code;
o receives a loan as requested by the owner;
o converts contract value to an individual retirement annuity
or other qualified annuity offered by IDS life as requested
by the owner.
Under no circumstance will withdrawal charges exceed 8.5% of
aggregate purchase payments made.
Possible group reductions: In some cases lower sales and
administrative expenses may be incurred or we may perform fewer
services. In such cases, we may be able to reduce or eliminate
certain contract charges. However, we expect this to occur
infrequently.
PAGE 17
Premium taxes
Currently, there are no premium taxes under this contract.
However, a charge will be made by IDS Life against the contract
value for any state and local premium taxes to the extent the taxes
are payable in connection with the purchase of an annuity contract
under the annuity payout plans.
Valuing your investment
Here is how the accounts are valued:
Fixed account: The amounts allocated to the fixed account are
valued directly in dollars and equal the sum of your purchase
payments, plus interest earned, less any amounts withdrawn or
transferred (including contract administrative charge).
Variable accounts: Amounts allocated to the variable accounts are
converted into accumulation units. Each time the owner makes a
purchase payment or transfer amounts into one of the variable
accounts, a certain number of accumulation units are credited to
the contract for that account. Conversely, each time the owner
takes a partial withdrawal, transfer amounts out of a variable
account or is assessed a contract administrative charge, a certain
number of accumulation units are subtracted from the contract.
The accumulation units are the true measure of investment value in
each account during the accumulation period. They are related to,
but not the same as, the net asset value of the underlying fund.
The dollar value of each accumulation unit can rise or fall daily
depending on the performance of the underlying mutual fund and on
certain fund expenses. Here is how unit values are calculated:
Number of units
To calculate the number of accumulation units for a particular
account, we divide the investment by the current accumulation unit
value.
Accumulation unit value
The current accumulation unit value for each variable account
equals the last value times the account's current net investment
factor.
Net investment factor
o Determined each business day by adding the underlying mutual
fund's current net asset value per share, plus per share amount
of any current dividend or capital gain distribution; then
o dividing that sum by the previous net asset value per share; and
o subtracting the percentage factor representing the mortality and
expense risk fee from the result.
Because the net asset value of the underlying mutual fund may
fluctuate, the accumulation unit value may increase or decrease.
The owner bears this investment risk in a variable account.
PAGE 18
Factors that affect variable account accumulation units
Accumulation units may change in two ways; in number and in value.
Here are the factors that influence those changes:
The number of accumulation units owned may fluctuate due to:
o additional purchase payments allocated to the variable
account(s);
o transfers into or out of the variable account(s);
o partial withdrawals;
o withdrawal charges; and/or
o contract administrative charges.
Accumulation unit values may fluctuate due to:
o changes in underlying mutual fund(s) net asset value;
o dividends distributed to the variable account(s);
o capital gains or losses of underlying mutual funds;
o mutual fund operating expenses; and/or
o mortality and expense risk fees.
Making the most of the annuity
Transferring money between accounts
The owner may transfer money from one account, including the fixed
account, to another before the annuity payouts begin. If we
receive the request before the close of business, we will process
it that day. Requests received after the close of business will be
processed the next business day. There is no charge for transfers.
Before making a transfer, the owner should consider the risks
involved in switching investments.
We may suspend or modify transfer privileges at any time. Any
restriction imposed by the plan will apply.
How to request a transfer or a withdrawal
A transfer or withdrawal request can be made by letter or we can
agree to another method. Send the plan name, account number,
Social Security Number or Taxpayer Identification Number and signed
request for a transfer or withdrawal to:
Regular mail:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
As owner, you may withdraw all or part of the annuity contract
value at any time by sending a written request or by any other
method we accept. For total withdrawals, we will compute the value
of the contract at the close of business after we receive the
PAGE 19
request. We may ask the owner to return the contract. The owner
may have to pay withdrawal charges (see "Charges") and IRS taxes
and penalties (see "Taxes").
Withdrawal policies
o If the owner requests a total withdrawal, payment will equal the
total contract value less the contract administrative charge, any
applicable premium tax and withdrawal charge.
o The owner or the recordkeeper must state the reason for a
partial withdrawal.
o If the contract has a balance in more than one account and
request for a partial withdrawal is made, we will withdraw money
from all the accounts in the same proportion as the value in each
account correlates to the total contract value, unless requested
otherwise.
o For total withdrawals from the fixed account, a market value
adjustment may apply. (See "Contract transfer, termination and
market value adjustment" below.)
Loans
The owner may request withdrawals for the purpose of funding loans
for participants. At the time of the loan request, the owner must
specify from which accounts the withdrawal for the loan should be
made. The amount and terms of the loan must be in accordance with
the applicable requirements of the plan and the Code. IDS Life
assumes no responsibility for the validity of the loan or whether
the loan complies with such applicable requirements.
Withdrawals for the purpose of funding a loan under the plan will
not be subject to withdrawal charges when the loan is made.
However, we reserve the right to deduct any such withdrawal charges
from the remaining contract value to the extent of any unpaid loans
at the time of a total withdrawal of the contract value or at
contract transfer or termination. (See "Charges.")
Receiving payout when the owner requests a withdrawal
By regular or express mail
o Payable to owner
o Normally mailed to address of record within seven days after
receiving the request. However, we may postpone the payout if:
-the withdrawal amount includes a purchase payment check that
has not cleared
-the NYSE is closed, except for normal holiday and weekend
closings
-trading on the NYSE is restricted, according to SEC rules
-an emergency, as defined by SEC rules, makes it impractical
to sell securities or value the net assets of the accounts
-the SEC permits us to delay payment for the protection of
security holders.
PAGE 20
Special withdrawal provisions
o The rights of any person to any benefits under the plans under
which these contracts are issued will be subject to the terms and
conditions of the plans themselves, regardless of the terms and
conditions of the contract issued in connection with the plans.
o IDS Life reserves the right to defer the payment of amounts
withdrawn from the fixed account for a period not to exceed six
months from the date we receive the request for withdrawal.
o Since contracts offered will be issued in connection with plans
that meet the requirements of Code Sections 401 (including 401(k))
and 457, reference should be made to the terms of the particular
plan for any further limitations or restrictions on cash
withdrawals.
o A withdrawal charge will be deducted from the amount withdrawn
subject to certain limitations and exceptions. (See "Charges.") A
cash withdrawal is also subject to federal income taxes and may
incur federal tax penalties. The tax consequences of a cash
withdrawal payment should be carefully considered. (See "Taxes.")
Conversion
In the event of a participant's termination of employment or for
other reasons that meet the requirements of the plan and the Code
and which are acceptable to us, the owner may elect to transfer, on
the participant's behalf, part of the contract value to an
individual deferred annuity contract then offered by IDS Life.
This individual contract will be qualified as an individual
retirement annuity under Section 408 or will qualify under other
applicable sections of the Code. Such contract will be in a form
then customarily issued by us for business under such qualified
plans. No withdrawal charges will apply at the time of such
conversion.
Changing ownership
Ownership of the contract may not be transferred except to:
o a trustee or successor trustee of a pension or profit
sharing trust that is qualified under the Code; or
o as otherwise permitted by laws and regulations governing
the plans under which the contract is issued.
Subject to the provisions above, 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 except IDS Life.
Contract transfer, termination and market value adjustment
Withdrawals by owner for transfer of funds
The owner may direct IDS Life to withdraw the total contract value
and transfer that value to another funding agent. All applicable
PAGE 21
contract charges including withdrawal charges will be payable by
the owner and will be deducted from the first payout unless the
total contract value is transferred to a plan offered by IDS Life
or its affiliates. (See "Charges.")
The owner must provide IDS Life with a written request to make such
a withdrawal. This written request must be sent to our Minneapolis
office and must specify the initial withdrawal date and payee to
whom the payouts are to be made.
At the owner's option, we will pay the contract value less any
applicable charges in annual installments or in a lump sum as
follows:
1. The contract value may be paid in five annual installments
beginning on the initial withdrawal date and then on each of the
next four anniversaries of such date as follows:
% of Then Remaining
Installment Payment Contract Value Balance
1 20%
2 25
3 33
4 50
5 100
No additional withdrawals for benefits or other transfers of
contract values will be allowed and no additional purchase payments
will be accepted after the first withdrawal payment is made. We
will continue to credit interest to any contract value balance
remaining after an installment payment at the interest crediting
rate then in effect for the fixed account.
2. The contract value may be paid in a lump sum. Any amount
attributable to the fixed account value will be based on the market
value of such balance. The market value will be determined by us
by applying the formula described below under "Market value
adjustment." We will make lump sum payments according to the
provisions of the above section titled "Receiving a payment when
you request a withdrawal."
Market value adjustment - A market value adjustment (MVA) applies
only when we pay out the fixed account value in a lump sum when:
o the owner withdraws the total contract value to transfer that
value to another funding vehicle;
o the owner makes a total withdrawal of the fixed account contract
value; or
o we terminate the contract as described below. (See "Contract
termination.")
The MVA will be applied to the amount being withdrawn from the
fixed account after deduction of any applicable contract
administrative charge and withdrawal charge. (See "Charges.")
PAGE 22
The MVA will reflect the relationship between the current interest
rate being credited to new purchase payments allocated to the fixed
account and the rate being credited to all prior purchase payments.
The MVA is calculated as follows:
MVA = fixed account value x (A - B) x C
Where:
A = the weighted average interest rate (in decimal form) being
credited to all fixed account purchase payments made by the
owner at the time of termination, rounded to 4 decimal
places;
B = the interest rate (in decimal form) being credited to new
purchase payments to the contract at the time of termination
or total withdrawal, rounded to 4 decimal places; and
C = the annuity factor, which represents the relationship between
the contract year and the average duration of underlying
investments from the following table:
Contract Year Annuity Factor
1-3 6.0
4-6 5.0
7+ 4.0
For an example showing an upward and downward MVA, please see
Appendix A.
No MVA applies if:
o the owner makes a partial withdrawal of the fixed account
contract value;
o installment payments are made when the owner withdraws the total
contract value to transfer that value to another funding vehicle or
we terminate the contract; or
o the owner transfers contract values from the fixed account to the
variable accounts as described above under "Transfer money between
accounts."
Contract termination
We reserve the right upon 30 days' written notice to the owner to
declare a contract termination date that will be any date on or
after the expiration of the 30-day notification period.
A contract termination date may be declared if:
o The owner adopts an amendment to the plan that causes the plan to
be materially different from the plan originally in existence when
the contract was purchased. To be "materially different," the
amendment must cause a substantial change in the level of the
dollar amounts of purchase payments or contract benefits to be paid
by us;
PAGE 23
o The plan fails to qualify or becomes disqualified under the
appropriate sections of the Code;
o The owner offers under the plan as a funding vehicle to which
future contributions may be made a guaranteed investment contract,
bank investment contract, annuity contract or funding vehicle
providing a guarantee of principal. See "Prohibited Investments;"
or
o The owner changes to a recordkeeper that is not approved by us.
If we waive our rights to terminate the contract under any
provision of this section at any time, such waiver will not be
considered a precedent and will not prohibit us from exercising the
right to terminate this contract, for the reasons noted above, at
any future time.
Procedures at contract termination
On the contract termination date, we will withdraw any outstanding
charges, including any contract administrative charges, from the
contract value. A withdrawal charge may apply and be payable by
the owner on account of any termination under this provision and
will be deducted from the first termination payment. (See
"Charges.")
At the owner's option, we will pay the contract value in a lump sum
or in annual installment payouts according to the table under
"Withdrawals by owner for transfer of funds" above. A lump sum
payout will be subject to an applicable MVA to the fixed account
value. If the owner does not select an option, we will pay the
contract value to you under the installment option.
The annuity payout period
When a plan participant reaches his or her retirement date, the
owner of the contract may select one of the annuity payout plans
outlined below or the owner and IDS Life will mutually agree on
other payout arrangements. No withdrawal charges are deducted
under the payout plans listed below.
Retirement payouts will be made on a fixed basis. We will make
these retirement payouts under a supplemental fixed immediate
annuity in the form customarily offered by us at the time of
purchase.
Annuity payout plans
The owner may choose any one of these annuity payout plans by
giving us written instructions at least 30 days before contract
values are to be used to purchase the payout plan.
o Plan A - Life annuity - no refund: Monthly payouts are made
until the annuitant's death. Payouts end with the last payout
before the annuitant's death; no further payouts will be made.
This means that if the annuitant dies after only one monthly payout
has been made, no more payouts will be made.
PAGE 24
o Plan B - Life annuity with five, 10 or 15 years certain: Monthly
payouts are made for a guaranteed payout period of five, 10 or 15
years that the annuitant elects. This election will determine the
length of the payout period to the beneficiary if the annuitant
should die before the elected period has expired. The guaranteed
payout period is calculated from the retirement date. If the
annuitant outlives the elected guaranteed payout period, payouts
will continue until the annuitant's death.
o Plan C - Life annuity - installment refund: Monthly payouts are
made until the annuitant's death, with our guarantee that payouts
will continue for some period of time. Payouts will be made for at
least the number of months determined by dividing the amount
applied under this option by the first monthly payout, whether or
not the annuitant is living.
o Plan D - Joint and last survivor life annuity - no refund:
Monthly payouts are made to the annuitant and a joint annuitant
while both are living. If either annuitant dies, monthly payouts
continue at the full amount until the death of the surviving
annuitant. Payouts end with the death of the second annuitant.
o Plan E - Payouts for a specified period: Monthly payouts are
made for a specific payout period of 10 to 30 years chosen by the
annuitant. Payouts will be made only for the number of years
specified whether the annuitant is living or not. Depending on the
time period selected, it is foreseeable that an annuitant can
outlive the payout period selected. In addition, a 10% IRS penalty
tax could apply under this payout plan. (See "Taxes.")
Restrictions on payout options:
Since the contract is issued in connection with plans that meet the
requirements of code section 401 (including 401(k)) and 457, the
payout schedule must meet the applicable requirements of the
particular plan and of the code, including the distribution and
incidental death benefit requirements. In general, the plan must
provide for retirement payouts:
o over the life of the participant;
o over the joint lives of the participant and a designated
beneficiary;
o for a period not exceeding the life expectancy of the
participant; or
o for a period not exceeding the joint life expectancies of the
participant and a designated beneficiary.
If monthly payouts would be less than $20: We will calculate the
amount of monthly payouts at the time the immediate annuity is
purchased to provide retirement payouts. If the calculations show
that monthly payouts would be less than $20, we have the right to
pay the contract value to the owner in a lump sum.
PAGE 25
Taxes
Tax treatment of IDS Life and the variable accounts: IDS Life is
taxed as a life insurance company under the Code. Although the
operations of the variable accounts are accounted for separately
from other operations of IDS Life for purposes of federal income
taxation, the variable accounts are not taxable as entities
separate from IDS Life. Under existing federal income tax laws,
the income and capital gains of the variable accounts, to the
extent applied to increase reserves under the contracts, are not
taxable to IDS Life.
Taxation of annuities in general: Generally, there is no tax to a
participant on contributions made by the owner to the contract or
on any increases in the value of the contract. However, when
distribution to a participant occurs, the distribution will be
subject to taxation (except contributions that were made with
after-tax dollars).
Penalties: If participants receive amounts from the contract
before reaching age 59-1/2, they may have to pay a 10% IRS penalty
on the amount includable in their ordinary income. However, this
penalty will not apply to any amount received by the participant or
designated beneficiary:
o because of the participant's death;
o because the participant becomes disabled (as defined in the
Code);
o if the distribution is part of a series of substantially
equal periodic payments, made at least annually, over the
participant's life or life expectancy (or joint lives or life
expectancies of the participant and designated beneficiary);
or
o if the participant retires under the plan after age 55.
Other penalties or exceptions may apply if distributions are made
from the annuity before your plan specifies that payouts can be
made.
Withholding: If the participant receives a distribution, mandatory
20% income tax withholding generally will be imposed at the time
the payout is made. Any withholding that is done represents a
prepayment of the participant's tax due for the year and the
participant will take credit for such amounts when filing an annual
tax return. This mandatory withholding will not be imposed if:
o instead of receiving the distribution check, the participant
elects to have the distribution rolled over directly to an
IRA or another eligible plan;
o the payout is one in a series of substantially equal periodic
payouts, made at least annually, over the participant's life
or life expectancy (or the joint lives or life expectancies
of the participant and designated beneficiary) or over a
specified period of 10 years or more; or
o the payout is a minimum distribution required under the Code.
Payouts made to a surviving spouse instead of being directly rolled
over to an IRA may also be subject to 20% income tax withholding.
PAGE 26
Elective withholding: If the distribution is not subject to
mandatory withholding as described above, the participant can elect
not to have any withholding occur. To do this we must be provided
with a valid Social Security Number or Taxpayer Identification
Number.
If this election is not made and if the payout is part of an
annuity payout plan, the amount of withholding generally is
computed using payroll tables. Please send us a statement of how
many exemptions to use in calculating the withholding. If the
distribution is any other type of payment (such as a partial or
full withdrawal), withholding is computed using 10% of the taxable
portion.
Some states also impose withholding requirements similar to the
federal withholding described above. If this should be the case,
any payments from which federal withholding is deducted may also
have state withholding deducted. The withholding requirements may
differ if payment is being made to a non-U.S. citizen or if the
payment is being delivered outside the United States.
Important: Our discussion of federal tax laws is based upon our
understanding of these laws as they are currently interpreted.
Federal tax laws or current interpretations of them may change.
For this reason and because tax consequences are complex and highly
individual and cannot always be anticipated, please consult a tax
advisor regarding any questions about taxation of the annuity
contract.
Tax qualification
The contract is intended to qualify as an annuity contract for
federal income tax purposes. To that end, the provisions of this
contract are to be interpreted to ensure or maintain such tax
qualification, notwithstanding any other provisions to the
contrary. We reserve the right to amend this contract to reflect
any clarifications that may be needed or are appropriate to
maintain such qualification or to conform this contract to any
applicable changes in the tax qualification requirements. We will
send the owner a copy of any such amendment.
Voting rights
The contract owner or other authorized party with investments in
the variable account(s) may vote on important mutual fund policies.
We will vote fund shares according to the instructions we receive.
The number of votes is determined by applying the percentage
interest in each variable account to the total number of votes
allowed to the account.
We calculate votes separately for each account not more than 60
days before a shareholders' meeting. Notice of these meetings,
proxy materials and a statement of the number of votes to which the
voter is entitled, will be sent.
PAGE 27
We will vote shares for which we have not received instructions in
the same proportion as the votes for which we have received
instructions. We also will vote the shares for which we have
voting rights in the same proportion as the votes for which we have
received instructions.
Substitution
Shares of any of the underlying funds may not always be available
for purchase by the variable accounts, or we may decide that
further investment in any such fund's shares is no longer
appropriate in view of the purposes of the variable account. In
either event, shares of another registered open-end management
investment company may be substituted both for fund shares already
purchased by the variable account and for purchases to be made in
the future. In the event of any substitution pursuant to this
provision, we may make appropriate endorsement to the contract and
certificates to reflect the substitution.
We reserve the right to split or combine the value of accumulation
units. In effecting such change of unit values, strict equity will
be preserved and no change will have a material effect on the
benefits under the contract or on any other provisions of the
contract.
Other contractual provisions
Modification
Upon notice to the owner, the contract may be modified by IDS Life
if such modification:
o is necessary to make the contract or the variable accounts
comply with any law or regulation issued by a governmental
agency to which we or the variable accounts are subject;
o is necessary to assure continued qualification of the
contract under the Code or other federal or state laws
relating to retirement annuities or annuity contracts;
o is necessary to reflect a change in the variable accounts; or
o provides additional accumulation options for the variable
accounts.
In the event of any such modification, we may make appropriate
endorsement to the contract to reflect such modification.
Prohibited investments
While the contract is in force, and prior to any withdrawal or
contract termination, the owner will not offer under the plan as a
funding vehicle to which future contributions may be made any of
the following:
o guaranteed investment contracts;
o bank investment contracts;
o annuity contracts with fixed and/or variable accounts; or
o funding vehicles providing a guarantee of principal.
IDS Life reserves the right to terminate the contract if one or
more of these prohibited investments is offered.
PAGE 28
Proof of condition or event
Where any payments under the contract depend on the recipient being
alive and/or being a certain age on a given date, or depend on the
occurrence of a specific event, IDS Life may require proof
satisfactory to it that such a condition has been met prior to
making the payment.
Distribution of contracts
IDS Life is the principal underwriter for the contracts. We are
registered with the SEC under the Securities Exchange Act of 1934
(1934 Act) as a broker-dealer and are a member of the National
Association of Securities Dealers, Inc.
We may enter into distribution agreements with certain broker-
dealers registered under the 1934 Act. We will pay a maximum
commission of 7% for the sale of a contract. In addition, we may
pay a service commission when the owner maintains the contract in
force.
Recordkeeper
We provide a contract to fund plans that meet the requirements of
Code Sections 401 (including 401(k)) and 457. We do not provide
any administrative or recordkeeping services in connection with the
Plan. We will rely on information and/or instructions provided by
the Plan administrator and/or recordkeeper in order to properly
administer the contract. For this reason, any person or entity
authorized by the owner to administer recordkeeping services for
the Plan and participants must be approved by IDS Life.
Additional information about IDS Life
Selected financial data
The following selected financial data for IDS Life and its
subsidiaries should be read in conjunction with the consolidated
financial statements and notes.
Years ended Dec. 31, (thousands)
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
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
PAGE 29
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
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
PAGE 30
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.
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
PAGE 31
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.
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.
PAGE 32
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
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
PAGE 33
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
generally accepted accounting principles. (See Note 1,
"Liabilities for future policy benefits", in the "Notes to
Consolidated Financial Statements.")
Investments
Of the Company's consolidated total investments of 25.3 billion at
Dec. 31, 1995, 39% was invested in mortgage-backed securities, 46%
in corporate and other bonds, 12% in primary mortgage loans on real
estate, 2% in policy loans and the remaining 1% in other
investments.
PAGE 34
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 corporate 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 our subsidiaries are believed to be adequate for the
purposes for which they are used and are well maintained.
State Regulation
IDS Life is subject to the laws of the State of Minnesota governing
insurance companies and to the regulations of the Minnesota
Department of Commerce. An annual statement in the prescribed form
is filed with the Minnesota Department of Commerce each year
covering our operation for the preceding year and its financial
condition at the end of such year. Regulation by the Minnesota
Department of Commerce includes periodic examination to determine
IDS Life's contract liabilities and reserves so that the Minnesota
Department of Commerce may certify that these items are correct.
The Company's books and accounts are subject to review by the
Minnesota Department of Commerce at all times. Such regulation
does not, however, involve any supervision of the account's
management or the company's investment practices or policies. In
addition, IDS Life is subject to regulation under the insurance
laws of other jurisdictions in which it operates. A full
examination of IDS Life's operations is conducted periodically by
the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing
business therein can be assessed up to prescribed limits for
policyholder losses incurred by insolvent companies. Most of these
laws do provide however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
PAGE 35
Directors and executive officers*
The directors and principal executive officers of IDS Life and the
principal occupation of each during the last five years is as
follows:
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 chairman 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, Mutual
Funds Product Development and Marketing, AEFC, from May 1987 to May
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.
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.
PAGE 36
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 and chief
financial officer, 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.
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 Marketing,
AEFC, from May 1990 to March 1995.
Robert M. Elconin
Born in 1957
Vice president since March 1994. Vice president, Government
Relations, AEFC.
Morris Goodwin Jr.
Born in 1951
Vice president and treasurer since March 1994; vice president and
corporate treasurer, AEFC, since July 1989; chief financial officer
and treasurer, American Express Trust Company, from January 1988 to
July 1989.
PAGE 37
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. Vice president-Investments, IDS Certificate
Company, IDS Property Casualty Insurance Company, AMEX Assurance
Company, American Enterprise Life Insurance Company and American
Partners Life Insurance Company.
James W. Jensen
Born in 1955
Vice President, Insurance Product Development, since February 1995.
Ryan R. Larson
Born in 1950
Vice president, Annuity Product Development, since September 1983.
Vice president, IPG Product Development, AEFC, since July 1989;
vice president, Product Development, American Centurion Life
Assurance Company, qualified actuary, American Enterprise Life
Insurance Company.
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. Vice president, real estate loan
management, American Enterprise Life Insurance Company, American
Partners Life Insurance Company, IDS Certificate Company; vice
president and assistant treasurer, IDS Life of New York.
William A. Stoltzmann
Born in 1948
Vice president, general counsel and secretary since 1985; vice
president and assistant general counsel, AEFC, since November 1985.
Vice president, general counsel and secretary, American Enterprise
Life Insurance Company, American Partners Life Insurance Company.
The address for all of the directors and principal officers is:
IDS Tower 10, Minneapolis, MN 55440-0010.
PAGE 38
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.
Name of individual Cash
or number in group Position held compensation
Five most highly
compensated executive $ 2,386,534
officers as a group:
James A. Mitchell Chairman of the
Board and Chief
Exec. Officer
Richard W. Kling President
Stuart A. Sedlacek Exec. Vice President,
Assured Assets
Lorraine R. Hart Vice President,
Investments
Barry J. Murphy Executive Vice President,
Client Service
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 the company. 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 1% 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.
PAGE 39
Experts
The consolidated financial statements of IDS Life Insurance Company
at Dec. 31, 1995 and 1994, and for each of the three years in the
period ended Dec. 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 40
Appendix
1. Assume: contract effective date of October 1, 1993
contract termination date of July 1, 1998
contract year at termination is 5
Purchase Initial Current Accumulation
Year Payments Rate Rate Account Value
_________________________________________________________________
1 $10,000 6.50% 6.25% $12,560
2 8,000 6.00 6.25 9,870
3 12,000 6.25 6.25 13,960
4 15,000 7.50 6.75 16,660
5 20,000 6.50 6.50 20,640
_________________________________________________________________
Total Accumulation Account Value = $73,690
Withdrawal Charge = .03 x 73,690 = 2,211
Fixed Account Value = 73,690 - 2,211 = 71,479
Weighted Average Interest Rate = 6.433%
Interest Rate on New Purchase Payments = 6.750
MVA = $71,479 x (.06433 - .06750) x 5.0 = $(1,132.94)
Market Value = 71,479 - 1,132.94 = 70,346.06
2. Assume: contract effective date of January 15, 1994
contract termination date of September 20, 1996
contract year at termination is 3
Purchase Initial Current Accumulation
Year Payments Rate Rate Account Value
_________________________________________________________________
1 $15,000 7.00% 6.25% $17,710
2 20,000 6.50 6.00 22,140
3 25,000 5.50 5.50 25,910
_________________________________________________________________
Total Accumulation Account Value = $65,760
Withdrawal Charge = .05 x 65,760 = 3,288
Fixed Account Value = 65,760 - 3,288 = 62,472
Weighted Average Interest Rate = 5.870%
Interest Rate on New Purchase Payments = 5.250
MVA = $62,472 x (.05870 - .05250) x 6 = $2,323.96
Market Value = 62,472 + 2,323.96 = 64,795.96
PAGE 41
STATEMENT OF ADDITIONAL INFORMATION
for
GROUP, UNALLOCATED FIXED/VARIABLE ANNUITY CONTRACTS
IDS LIFE ACCOUNTS F, IZ, JZ, G, H, N, KZ, LZ and MZ
April 30, 1996
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ are separate
accounts established and maintained by IDS Life Insurance Company
(IDS Life).
This Statement of Additional Information, dated April 30, 1996, is
not a prospectus. It should be read together with the Accounts'
prospectus, dated April 30, 1996, which may be obtained from your
financial advisor, or by writing or calling IDS Life at the address
or telephone number below.
IDS Life Insurance Company
P10/199
P.O. Box 74
Minneapolis, MN 55440-0074
612-671-3131
PAGE 42
TABLE OF CONTENTS
Performance Information.......................................p. 3
Rating Agencies...............................................p. 6
Principal Underwriter.........................................p. 6
Independent Auditors..........................................p. 6
Mortality and Expense Risk Fee................................p. 6
Prospectus....................................................p. 7
Financial Statements
- IDS Life Accounts F, IZ, JZ, G, H and N..........p. 8
PAGE 43
PERFORMANCE INFORMATION
Calculation of yield for Account H
IDS Life Account H, which invests in IDS Life Moneyshare
Fund, Inc., calculates an annualized simple yield and compound
yield based on a seven-day period.
The simple yield is calculated by determining the net change in the
value of a hypothetical account having the balance of one
accumulation unit at the beginning of the seven-day period. (The
net change does not include capital change, but does include a pro
rata share of the annual charges, including the annual contract
administrative charge and the mortality and expense risk fee.) The
net change in the account value is divided by the value of the
account at the beginning of the period to obtain the return for the
period. That return is then multiplied by 365/7 to obtain an
annualized figure. The value of the hypothetical account includes
the amount of any declared dividends, the value of any shares
purchased with any dividend paid during the period and any
dividends declared for such shares. The variable account's
(account) yield does not include any realized or unrealized gains
or losses, nor does it include the effect of any applicable
withdrawal charge.
The account calculates its compound yield according to the
following formula:
Compound Yield = [(return for seven-day period +1)365/7 ] - 1
On Dec. 31, 1995, the account's annualized simple yield was 3.97%
and its compound yield was 4.05%.
The rate of return, or yield, on the account's accumulation unit
may fluctuate daily and does not provide a basis for determining
future yields. Investors must consider, when comparing an
investment in Account H with fixed annuities, that fixed annuities
often provide an agreed-to or guaranteed fixed yield for a stated
period of time, whereas the variable account's yield fluctuates.
In comparing the yield of Account H to a money market fund, you
should consider the different services that the annuity provides.
Calculation of yield for accounts investing in income funds
IDS Life Account G invests in IDS Life Special Income Fund, Inc.
Quotations of yield will be based on all investment income earned
during a particular 30-day period, less expenses accrued during the
period (net investment income) and will be computed by dividing net
investment income per accumulation unit by the value of an
accumulation unit on the last day of the period, according to the
following formula:
YIELD = 2[(a-b + 1)6 - 1]
cd
PAGE 44
where: a = dividends and investment income earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of accumulation units
outstanding during the period that were entitled to
receive dividends.
d = the maximum offering price per accumulation unit on
the last day of the period.
Yield on the account is earned from the increase in the net asset
value of shares of the fund in which the account invests and from
dividends declared and paid by the fund, which are automatically
invested in shares of the fund.
On Dec. 31, 1995, the annualized yield for account G was 8.45%.
Calculation of average annual total return
Quotations of average annual total return for an account will be
expressed in terms of the average annual compounded rate of return
of a hypothetical investment in the annuity contract over a period
of one, five and 10 years (or, if less, up to the life of the
Account), calculated according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the one, five,
or ten year (or other) period at the end of the
one, five, or ten year (or other) period (or
fractional portion thereof).
Account total return figures reflect the deduction of the contract
administrative charge and mortality and expense risk fee.
Performance figures will be shown with the deduction of the
applicable withdrawal charge; in addition, performance figures may
be shown without the deduction of a withdrawal charge. The
Securities and Exchange Commission requires that an assumption be
made that the contract owner withdraws the entire contract at the
end of the one, five and ten year periods (or, if less, up to the
life of the account) for which performance is required to be
calculated.
The following performance figures are calculated on the basis of
historical performance of the funds.
PAGE 45
Average Annual Total Return For Period Ended: Dec. 31, 1995
Average Annual Total Return with Withdrawal
Since
Account investing in: 1 Year 5 Year 10 Year Inception
IDS LIFE
Aggressive Growth Fund (1/92)* 23.28 % - % - % 8.74 %
Capital Resource Fund (10/81) 19.42 13.22 12.41 -
International Equity Fund (1/92) 3.32 - - 6.98
Managed Fund (4/86) 15.81 10.98 - 10.12
Moneyshare Fund (10/81) -2.68 1.76 4.58 -
Special Income Fund (10/81) 13.96 9.67 8.93 -
Average Annual Total Return without Withdrawal
Since
Account investing in: 1 Year 5 Year 10 Year Inception
IDS LIFE
Aggressive Growth Fund (1/92)* 30.28 % - % - % 10.09 %
Capital Resource Fund (10/81) 26.42 14.06 12.41 -
International Equity Fund (1/92) 10.32 - - 8.40
Managed Fund (4/86) 22.81 11.89 - 10.12
Moneyshare Fund (10/81) 4.32 3.03 4.58 -
Special Income Fund (10/81) 20.96 10.62 8.93 -
* inception dates of the funds are shown in parentheses.
Aggregate total return
Aggregate total return represents the cumulative change in the
value of an investment over a specified period of time (reflecting
change in an account's accumulation unit value) and is computed by
the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the one, five, or
ten year (or other) period at the end of the one,
five, or ten year (or other) period (or fractional
portion thereof).
Performance of the accounts may be quoted or compared to rankings,
yields, or returns as published or prepared by independent rating
or statistical services or publishers or publications such as The
Bank Rate Monitor National Index, Barron's, Business Week,
Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report,
Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
PAGE 46
RATING AGENCIES
The following chart reflects the ratings given to IDS Life by
independent rating agencies. These agencies evaluate the financial
soundness and claims-paying ability of insurance companies based on
a number of different factors. This information does not relate to
the management or performance of the variable accounts of the
annuity. This information relates only to the fixed account and
reflects IDS Life's ability to make annuity payouts and to pay
death benefits and other distributions from the annuity.
Rating agency Rating
A.M. Best A+
(Superior)
Duff & Phelps AAA
Moody's Aa2
PRINCIPAL UNDERWRITER
The principal underwriter for the accounts is IDS Life which offers
the variable annuities on a continuous basis.
Withdrawal charges received by IDS Life for 1995, 1994 and 1993,
aggregated $10,125,762, $6,969,493 and $4,408,562, respectively.
Commissions paid by IDS Life for 1995, 1994 and 1993, aggregated
$9,019,184, $17,331,801 and $16,783,495, respectively. The
withdrawal charges were applied toward payment of commissions.
INDEPENDENT AUDITORS
The financial statements of IDS Life Accounts F, IZ, JZ, G, H and N
including the statements of net assets as of December 31, 1995, and
the related statements of operations for the year then ended and
the related statements of changes in net assets for each of the two
years in the period then ended, appearing in this SAI, have been
audited by Ernst & Young LLP, independent auditors, as stated in
their reports appearing herein.
MORTALITY AND EXPENSE RISK FEE
IDS Life has represented to the SEC that:
IDS Life has reviewed publicly available information regarding
products of other companies. Based upon this review, IDS Life has
concluded that the mortality and expense risk charge is within the
range of charges determined by industry practice. IDS Life will
maintain at its principal office, and make available on request of
the SEC or its staff, a memorandum setting forth in detail the
variable products analyzed and the methodology, and results of, its
comparative review.
PAGE 47
IDS Life has concluded that there is a reasonable likelihood that
the proposed distribution financing arrangements made with respect
to the annuities will benefit the variable account and investors in
the annuities. The basis for such conclusion is set forth in a
memorandum which will be made available to the SEC or its staff on
request.
PROSPECTUS
The prospectus dated April 30, 1996, is hereby incorporated in this
Statement of Additional Information by reference.
PAGE 48
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 the 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 49
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 50
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 51
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 52
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 loan 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 53
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 loan 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 54
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 55
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 56
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 57
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 58
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 59
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 60
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 61
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 62
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 63
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
PAGE 64
2. Investments (continued)
values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the
reserve for investment losses.
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 65
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 66
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 67
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 68
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 69
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 70
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 71
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 72
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 73
IDS Life Accounts F, IZ, JZ, G, H, and N
Statements of Operations Year ended Dec. 31, 1995
Combined
Segregated Asset Account Retirement
Investment income (loss): F IZ JZ G H N Annuity
Dividend income from
mutual funds............ $417,740,145 $29,744,100 $ 8,895,964 $123,999,760 $11,021,408 $ 75,726,294 $ 667,127,671
Mortality and expense
risk fee (Note 3)....... 35,435,819 12,932,868 12,167,426 15,658,147 2,058,873 28,070,691 106,323,824
Investment income
(loss) -- net........... 382,304,326 16,811,232 (3,271,462) 108,341,613 8,962,535 47,655,603 560,803,847
Realized and Unrealized Gain (Loss) on Investments -- net
Realized gain (loss)
on sales of investments
in mutual funds:
Proceeds from sales..... 15,542,422 14,776,607 13,318,686 22,599,066 91,438,589 14,749,886 172,425,256
Cost of investments
sold.................... 13,560,730 14,543,880 11,039,051 23,828,487 91,438,864 13,498,500 167,909,512
Net realized gain (loss)
on investments.......... 1,981,692 232,727 2,279,635 (1,229,421) (275) 1,251,386 4,515,744
Net change in unrealized
appreciation or
depreciation of
investments............. 416,704,333 119,413,997 312,088,997 188,951,733 (8) 512,608,047 1,549,767,099
Net gain (loss) on
investments............. 418,686,025 119,646,724 314,368,632 187,722,312 (283) 513,859,433 1,554,282,843
Net increase
from operations......... $800,990,351 $136,457,956 $311,097,170 $296,063,925 $ 8,962,252 $561,515,036 $2,115,086,690
See accompanying notes to financial statements.
PAGE 74
Statements of Changes in Net Assets Year ended Dec. 31, 1995
Combined
Segregated Asset Account Retirement
Operations F IZ JZ G H N Annuity
Investment income (loss)
- -- net.................. $ 382,304,326 $ 16,811,232 $ (3,271,462) $ 108,341,613 $ 8,962,535 $ 47,655,603 $ 560,803,847
Net realized gain (loss)
on investments.......... 1,981,692 232,727 2,279,635 (1,229,421) (275) 1,251,386 4,515,744
Net change in unrealized
appreciation or
depreciation of
investments............. 416,704,333 119,413,997 312,088,997 188,951,733 (8) 512,608,047 1,549,767,099
Net increase
from operations......... 800,990,351 136,457,956 311,097,170 296,063,925 8,962,252 561,515,036 2,115,086,690
Contract Transactions
Variable annuity
contract purchase
payments................ 322,088,024 166,423,047 160,903,570 211,623,765 124,651,412 238,185,358 1,223,875,176
Net transfers*.......... 225,750,236 115,024,536 178,588,839 24,885,088 (65,080,217) 103,698,960 582,867,442
Loan repayments......... 5,346,926 1,706,764 1,590,494 1,874,596 498,840 3,315,089 14,332,709
Annuity payments........ (305,244) (61,793) (110,594) (146,183) (12,430) (250,512)
(886,756)
Contract charges
(Note 3)................ (4,315,769) (1,655,121) (1,462,175) (1,623,209) (193,070) (3,278,764)
(12,528,108)
Contract terminations:
Surrender benefits...... (168,713,260) (54,092,983) (45,135,117) (81,995,494) (17,710,675) (128,865,985)
(496,513,514)
Death benefits.......... (13,025,950) (4,773,415) (4,031,004) (11,829,653) (1,744,859) (15,779,578)
(51,184,459)
Increase from
contract transactions... 366,824,963 222,571,035 290,344,013 142,788,910 40,409,001 197,024,568 1,259,962,490
Net assets at beginning
of year................. 2,848,063,331 1,143,044,343 877,999,197 1,374,142,219 184,069,016 2,352,866,629 8,780,184,735
Net assets at end of
year....................$4,015,878,645 $1,502,073,334 $1,479,440,380 $1,812,995,054 $233,440,269 $3,111,406,233 $12,155,233,915
Accumulation Unit Activity
Units outstanding at
beginning of year....... 576,723,791 913,363,825 780,422,772 361,639,812 84,475,351 1,127,833,738
Contract purchase
payments................ 57,636,862 131,707,429 125,753,542 49,975,261 56,237,498 102,978,794
Net transfers*.......... 40,143,198 90,463,426 139,820,238 4,867,638 (29,247,982) 44,116,848
Transfers for policy
loans................... 947,593 1,338,975 1,217,057 446,825 221,952 1,420,549
Contract charges........ (777,408) (1,312,071) (1,134,381) (392,206) (88,252) (1,423,957)
Contract terminations:
Surrender benefits...... (30,273,815) (42,742,065) (34,796,218) (19,834,181) (8,256,611) (55,615,949)
Death benefits.......... (2,497,460) (3,945,920) (3,307,491) (3,006,422) (774,416) (7,288,637)
Units outstanding at end
of year................. 641,902,761 1,088,873,599 1,007,975,519 393,696,727 102,567,540 1,212,021,386
*Includes transfer activity from (to) other Accounts and transfers (from) to IDS Life for conversion from (to) Fixed Account.
See accompanying notes to financial statements.
PAGE 75
IDS Life Accounts F, IZ, JZ, G, H, and N
Statements of Changes in Net Assets Year ended Dec. 31, 1994
Combined
Segregated Asset Account Retirement
Operations F IZ JZ G H N Annuity
Investment income
(loss) -- net........... $ 292,316,457 $ 22,499,782 $ (5,155,789) $ 105,388,501 $ 4,706,400 $ 121,099,907 $ 540,855,258
Net realized gain (loss)
on investments.......... 85,711 31 16,969 (5,861,389) (176) 64,603
(5,694,251)
Net change in unrealized
appreciation or
depreciation of
investments............. (285,085,781) (59,427,638) (27,460,080) (180,870,854) (212) (245,132,378)
(797,976,943)
Net increase (decrease)
from operations......... 7,316,387 (36,927,825) (32,598,900) (81,343,742) 4,706,012 (123,967,868)
(262,815,936)
Contract Transactions
Variable annuity
contract purchase
payments................ 339,325,569 296,792,048 219,219,644 276,166,501 131,497,539 368,996,274 1,631,997,575
Net transfers*.......... 190,936,076 384,718,948 286,639,920 (373,201,534) (97,336,277) 180,480,671 572,237,804
Loan repayments......... 4,579,640 1,249,415 1,097,529 1,683,555 314,621 3,205,194 12,129,954
Annuity payments........ (152,217) (36,207) (65,026) (79,359) (16,218) (131,778)
(480,805)
Contract charges
(Note 3)................ (3,854,998) (1,224,695) (940,741) (1,775,930) (191,660) (3,018,066)
(11,006,090)
Contract terminations:
Surrender benefits...... (90,212,060) (20,356,976) (14,738,072) (54,837,796) (12,471,195) (69,087,185)
(261,703,284)
Death benefits.......... (9,109,536) (2,664,292) (1,879,624) (11,703,499) (1,291,622) (11,436,756)
(38,085,329)
Increase (decrease) from
contract transactions... 431,512,474 658,478,241 489,333,630 (163,748,062) 20,505,188 469,008,354 1,905,089,825
Net assets at beginning
of year................. 2,409,234,470 521,493,927 421,264,467 1,619,234,023 158,857,816 2,007,826,143 7,137,910,846
Net assets at end of
year....................$2,848,063,331 $1,143,044,343 $877,999,197 $1,374,142,219 $184,069,016 $2,352,866,629 $8,780,184,735
Accumulation Unit Activity
Units outstanding at
beginning of year....... 488,632,295 405,535,877 347,336,270 405,428,501 74,934,517 910,254,254
Contract purchase
payments................ 69,409,978 230,140,233 194,182,234 70,904,101 61,497,139 172,372,885
Net transfers*.......... 39,022,621 296,391,908 254,597,323 (97,050,500) (45,409,236) 83,777,064
Transfers for policy
loans................... 935,113 962,061 977,880 437,024 142,245 1,498,112
Contract charges........ (793,830) (955,777) (846,781) (463,580) (91,899) (1,425,215)
Contract terminations:
Surrender benefits...... (18,521,414) (16,526,366) (14,010,347) (14,402,198) (5,966,351) (32,963,969)
Death benefits.......... (1,960,972) (2,184,111) (1,813,807) (3,213,536) (631,064) (5,679,393)
Units outstanding at end
of year................. 576,723,791 913,363,825 780,422,772 361,639,812 84,475,351 1,127,833,738
*Includes transfer activity from (to) other Accounts and transfers (from) to IDS Life for conversion from (to) Fixed Account.
See accompanying notes to financial statements.
PAGE 76
IDS Life Accounts F, IZ, JZ, G, H and N
Notes to Financial Statements
___________________________________________________________________
1. Organization
IDS Life Accounts F, G, H and N were established as segregated
asset accounts of IDS Life Insurance Company (IDS Life) under
Minnesota law and are registered collectively as a single unit
investment trust under the Investment Company Act of 1940.
Accounts F, G and H were established on May 13, 1981. Account N
was established on April 22, 1985 and commenced operations on April
30, 1986. Accounts IZ and JZ were established as segregated asset
accounts on Sept. 20, 1991 and commenced operations on Jan. 13,
1992. IDS Life Accounts F, IZ, JZ, G, H and N are collectively
referred to as "the Accounts."
The assets of the Accounts are held for the exclusive benefit of
the Retirement Annuity contract owners and are not chargeable with
liabilities arising out of the business conducted by any other
segregated asset accounts or by IDS Life. Contract owners allocate
their variable purchase payments to one or more of the six
segregated asset accounts. Such funds are then invested in shares
of six mutual funds organized by IDS Life as the investment
vehicles for variable annuity contracts issued by IDS Life and its
subsidiaries.
All of the IDS Life mutual funds, except IDS Life Managed Fund,
Inc., commenced operations Oct. 13, 1981. IDS Life Managed Fund,
Inc. commenced operations April 30, 1986. These mutual funds are
registered under the Investment Company Act of 1940 as diversified,
open-end management investment companies. Funds allocated to IDS
Life Account F are invested in the shares of IDS Life Capital
Resource Fund; IDS Life Account IZ invests in the shares of IDS
Life International Equity Fund; IDS Life Account JZ invests in the
shares of IDS Life Aggressive Growth Fund; IDS Life Account G
invests in the shares of IDS Life Special Income Fund, Inc.; IDS
Life Account H invests in the shares of IDS Life Moneyshare Fund,
Inc. and IDS Life Account N invests in the shares of IDS Life
Managed Fund, Inc.
IDS Life serves as manager, investment adviser and distributor for
the Accounts and the underlying six mutual funds.
___________________________________________________________________
2. Summary of Significant Accounting Policies
Investments in Mutual Funds
Investments in shares of the mutual funds are stated at market
value, which is the net asset value per share as determined by the
respective funds. Investment transactions are accounted for on the
date the shares are purchased and sold. The cost of investments
sold and redeemed is determined on the average cost method.
Dividend distributions received from the mutual funds are
PAGE 77
IDS Life Accounts F, IZ, JZ, G, H and N
Notes for Financial Statements (continued)
________________________________________________________________
2. Summary of Significant Accounting Policies (continued)
reinvested, net of any expenses payable to IDS Life, in additional
shares of the mutual funds and are recorded as income by the
Accounts on the ex-dividend date.
Unrealized appreciation or depreciation of investments in the
accompanying financial statements represents the Accounts' share of
the mutual funds' undistributed net investment income,
undistributed realized gain or loss and the unrealized appreciation
or depreciation on their investment securities.
Federal Income Taxes
IDS Life is taxed as a life insurance company. The Accounts are
treated as part of IDS Life for federal income tax purposes. Under
existing tax law, no income taxes are payable with respect to any
income of the Accounts.
___________________________________________________________________
3. Mortality and Expense Risk Fee and Contract Charges
IDS Life makes contractual assurances to the Accounts that possible
future adverse changes in administrative expenses and mortality
experience of the annuitants and beneficiaries will not affect the
Accounts. The mortality and expense risk fee paid to IDS Life is
computed daily and is equal, on an annual basis, to 1 percent of
the average daily net assets of the Accounts.
An annual charge of $20 is deducted from the contract value of each
Variable Retirement Annuity contract. An annual charge of $30 is
deducted from the contract value of each Combination Retirement
Annuity contract. An annual charge of $500 is deducted from the
contract value of each Group Variable Annuity contract. An annual
charge of $30 is deducted from the certificate value of each
Employee Benefit Annuity certificate. A quarterly charge of $6 is
deducted from the contract value of each Flexible Annuity contract.
The annual charges are deducted at contract year end and the
quarterly charges are deducted at contract quarter end, during the
accumulation period, for administrative services provided to the
Accounts by IDS Life.
A contingent deferred sales charge (surrender charge or withdrawal
charge) will be imposed upon:
a) certain Variable Retirement Annuity contract surrenders during
the first seven years,
b) Combination Retirement Annuity contract surrenders during the
first seven, eight or eleven years, depending on type of
contract,
c) Group Variable Annuity contract withdrawals during the first
seven years,
PAGE 78
IDS Life Accounts F, IZ, JZ, G, H and N
Notes for Financial Statements (continued)
___________________________________________________________________
3. Mortality and Expense Risk Fee and Contract Charges (continued)
d) Employee Benefit Annuity certificate surrenders during the first
eleven years, and
e) Flexible Annuity contract surrenders of amounts other than those
representing earnings or those representing purchase payments
more than six years old.
Charges by IDS Life for surrenders are not available on an
individual segregated asset account basis. Charges for all
segregated asset accounts amounted to $10,125,762 in 1995 and
$6,969,493 in 1994. Such charges are not an expense of the
Accounts. They are deducted from contract surrender benefits paid
by IDS Life.
___________________________________________________________________
4. Investment Transactions
The Accounts' purchases of mutual fund shares (net of charges),
including reinvestment of dividend distributions, were as follows:
Year Ended Dec. 31,
Account Investment 1995 1994
F IDS Life Capital Resource Fund..................... $ 765,524,150 $ 724,607,219
IZ IDS Life International Equity Fund................. 254,418,892 681,492,412
JZ IDS Life Aggressive Growth Fund.................... 300,849,208 485,898,077
G IDS Life Special Income Fund, Inc.................. 273,349,783 168,109,635
H IDS Life Moneyshare Fund, Inc...................... 140,810,125 70,433,338
N IDS Life Managed Fund, Inc......................... 259,968,265 592,997,615
$1,994,920,423 $2,723,538,296
___________________________________________________________________
5. Annuity Contracts in Payment Period
Net assets and annuity units relating to contracts in the payment
period as of Dec. 31, 1995, are as follows:
F IZ JZ G H N
Net assets applicable to contracts
in payment period................... $4,695,551 $1,698,168 $3,287,523 $4,853,734 $215,447 $2,848,203
Annuity units in payment period..... 15,979 8,997 13,151 9,239 953 24,258
PAGE 79
Annual Financial Information
Report of Independent Auditors
The Board of Directors IDS Life Insurance Company
We have audited the accompanying individual and combined statements
of net assets of IDS Life Accounts F, IZ, JZ, G, H and N as of
December 31, 1995, and the related statements of operations for the
year then ended, and the statements of changes in net assets for
each of the two years in the period then ended. These financial
statements are the responsibility of the management of IDS Life
Insurance Company. 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. Our
procedures included confirmation of securities owned at December
31, 1995 with the affiliated mutual fund manager. 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 individual and combined
financial position of IDS Life Accounts F, IZ, JZ, G, H and N at
December 31, 1995, and the individual and combined results of their
operations and changes in their net assets for the periods
described above, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Minneapolis, Minnesota
March 15, 1996