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IDS Life Group Variable Annuity Contract
Prospectus
May 1, 1997
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
(AEFC). 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 read these
documents carefully and keep them 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) (incorporated by reference into this
prospectus) filed with the Securities and Exchange Commission (SEC) 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
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
IDS Life 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
Receiving payout when the owner
requests a withdrawal
Special withdrawal provisions
Conversion
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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 - 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.
During the annuity payout period, you cannot be invested in more than five
variable accounts at any one time unless we agree otherwise. (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.
Owner Expenses
Withdrawal Charge:
(as a percentage of amount withdrawn)
Contract
Year Percentage
- -------- ----------
1 6%
2 5
3 4
4 3
5 2
6 1
7 and later 0
Annual contract administrative charge $500
($125 per quarter)
Separate account annual expense
(as a percentage of average daily net assets of the underlying
fund)
Mortality and expense risk fee 1%
Operating expenses of underlying mutual funds: management fees and other
expenses deducted as a percentage of average net assets as follows:
IDS Life IDS Life IDS Life IDS Life IDS Life IDS Life IDS Life
Aggressive International Capital IDS Life Special IDS Life Growth Global Income
Growth Equity Resource Managed Income Moneyshare Dimensions Yield Advantage
Management fees .60% .82% .60% .59% .59% .50% .63% .84% .63%
Other expenses .09 .16 .08 .07 .10 .06 .22 .62 .54
Total* .69% .98% .68% .66% .69% .56% .85% 1.46% 1.17%
*Annualized operating expenses of underlying mutual funds at Dec.
31, 1996.
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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:
IDS Life IDS Life IDS Life IDS Life IDS Life IDS Life IDS Life
Aggressive International Capital IDS Life Special IDS Life Growth Global Income
Growth Equity Resource Managed Income Moneyshare Dimensions Yield Advantage
1 year $ 80.92 $ 83.72 $ 80.82 $ 80.63 $ 80.92 $ 79.67 $ 82.46 $ 88.34 $ 85.55
3 years 113.77 122.29 113.47 112.88 113.77 109.93 118.48 136.29 127.85
5 years 136.34 150.96 135.84 134.82 136.34 129.73 144.43 174.76 160.44
10 years 219.50 250.28 218.43 216.27 219.50 205.42 236.59 299.32 269.97
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:
IDS Life IDS Life IDS Life IDS Life IDS Life IDS Life IDS Life
Aggressive International Capital IDS Life Special IDS Life Growth Global Income
Growth Equity Resource Managed Income Moneyshare Dimensions Yield Advantage
1 year $ 19.07 $ 22.04 $ 18.96 $ 18.76 $ 19.07 $ 17.73 $ 20.71 $ 26.96 $ 23.99
3 years 58.98 67.98 58.67 58.05 58.98 54.93 63.95 82.75 73.84
5 years 101.41 116.52 100.88 99.83 101.41 94.57 109.77 141.14 126.33
10 years 219.50 250.28 218.43 216.27 219.50 205.42 236.59 299.32 269.97
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 .170% 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,
---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------
Account F (investing in shares
of Capital Resource Fund)
Accumulation unit value at
beginning of period.......... $6.25 $4.94 $4.93 $4.82 $4.67 $3.22 $3.23 $2.57 $2.31 $2.07
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $6.67 $6.25 $4.94 $4.93 $4.82 $4.67 $3.22 $3.23 $2.57 $2.31
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)........... 629 642 577 489 403 310 243 205 187 181
- -------------------------------------------------------------------------------------------------------------------------
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.......... $1.38 $1.25 $1.29 $0.98 $1.00 - - - - -
- -------------------------------------------------------------------------------------------------------------------------
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end of period................ $1.49 $1.38 $1.25 $1.29 $0.98 - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 1,220 1,089 913 406 70 - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% 1.00% - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Account JZ2 (investing in shares
of Aggressive Growth Fund)
Accumulation unit value at
beginning of period.......... $1.46 $1.12 $1.21 $1.08 $1.00 - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $1.68 $1.46 $1.12 $1.21 $1.08 - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 1,173 1,008 780 347 116 - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expense to
average net assets........... 1.00% 1.00% 1.00% 1.00% 1.00% - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Account G (investing in shares
of Special Income Fund)
Accumulation unit value at
beginning of period.......... $4.59 $3.80 $3.99 $3.48 $3.21 $2.76 $2.67 $2.48 $2.27 $2.27
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $4.86 $4.59 $3.80 $3.99 $3.48 $3.21 $2.76 $2.67 $2.48 $2.27
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 362 394 362 405 330 271 237 222 176 170
- -------------------------------------------------------------------------------------------------------------------------
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.......... $2.27 $2.18 $2.12 $2.09 $2.04 $1.95 $1.82 $1.69 $1.59 $1.51
- --------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $2.36 $2.27 $2.18 $2.12 $2.09 $2.04 $1.95 $1.82 $1.69 $1.59
- --------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 90 103 84 75 102 126 139 109 63 52
- --------------------------------------------------------------------------------------------------------------------------
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 3.77% 3.97% 4.16% 1.89% 1.76% 3.26% 6.25% 6.81% 7.30% 5.72%
- --------------------------------------------------------------------------------------------------------------------------
Compound yield3 3.84% 4.05% 4.24% 1.90% 1.77% 3.31% 6.44% 7.04% 7.57% 5.88%
- --------------------------------------------------------------------------------------------------------------------------
Account N4 (investing in shares
of Managed Fund)
Accumulation unit value at
beginning of period........... $2.56 $2.09 $2.21 $1.98 $1.86 $1.45 $1.42 $1.14 $1.06 $1.01
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $2.97 $2.56 $2.09 $2.21 $1.98 $1.86 $1.45 $1.42 $1.14 $1.06
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 1,197 1,212 1,128 910 651 497 401 331 326 321
- -------------------------------------------------------------------------------------------------------------------------
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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 KZ5 (investing in shares
of Global Yield Fund)
Accumulation unit value at
beginning of period........... $1.00 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $1.07 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 25 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expense to
average net assets........... 1.00% -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Account LZ5 (investing in shares
of Income Advantage Fund)
Accumulation unit value at
beginning of period........... $1.00 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $1.05 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 60 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expense to
average net assets........... 1.00% -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Account MZ5 (investing in shares
of Growth Dimensions Fund)
Accumulation unit value at
beginning of period........... $1.00 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at
end of period................ $1.11 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Number of accumulation units
outstanding at end of period
(000,000 omitted)............ 351 -- -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating expense to
average net assets........... 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.
5Accounts KZ, LZ and MZ commenced operations on April 30, 1996.
Financial statements
The SAI dated May 1, 1997, contains:
o complete audited financial statements of the variable
accounts including:
- statements of net assets as of Dec. 31, 1996;
- statements of operations for the year ended Dec. 31, 1996,
except for IDS Life Accounts KZ, LZ and MZ which are for the
period April 30, 1996 (commencement of operations) to Dec.
31, 1996;
and
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- statements of changes in net assets for the years ended
Dec. 31, 1996 and Dec. 31, 1995, except for IDS Life Accounts
KZ, LZ and MZ which are for the period April 30, 1996
(commencement of operations) to Dec. 31, 1996.
This prospectus contains:
o complete audited financial statements for IDS Life including:
- consolidated balance sheets as of Dec. 31, 1996 and Dec.
31, 1995; and
- related consolidated statements of income, stockholder's
equity and cash flows for each of the three years in the
period ended Dec. 31, 1996.
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 IDS Life 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 average
annual total return quotations may be made that do not reflect a withdrawal
charge deduction (assuming no withdrawal).
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 withdrawal
charge, assuming a withdrawal at the end of the
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illustrated period. Optional aggregate total return quotations may be made that
do not reflect a withdrawal charge deduction (assuming no withdrawal). 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
IDS Life Aggressive Growth Fund JZ Sept. 20, 1991
IDS Life International Equity Fund IZ Sept. 20, 1991
IDS Life Capital Resource Fund F May 13, 1981
IDS Life Managed Fund N April 17, 1985
IDS Life Special Income Fund G May 13, 1981
IDS Life Moneyshare Fund H May 13, 1981
IDS Life Growth Dimensions Fund MZ April 2, 1996
IDS Life Global Yield Fund KZ April 2, 1996
IDS Life 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.
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
IDS Life Aggressive Growth Fund
Objective: capital appreciation. Invests primarily in common stock
of small- and medium-size companies. The fund also may invest in
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warrants or debt securities or in large well-established companies when the
portfolio manager believes such investments offer the best opportunity for
capital appreciation.
IDS Life 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.
IDS Life 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.
IDS Life 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.
IDS Life 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.
IDS Life 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.
IDS Life 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.
IDS Life Global Yield Fund
Objective: high total return through income and growth of capital.
Invests primarily in a non-diversified portfolio of debt securities
of U.S. and foreign issuers.
IDS Life 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.
More comprehensive information regarding each fund is contained in the fund
prospectus. You should read the fund prospectus and consider carefully, and on a
continuing basis, which fund or
PAGE 14
combination of funds is best suited to your long-term investment needs. There is
no assurance that the investment objectives of the funds will be attained nor is
there any guarantee that the contract value will equal or exceed the total
purchase payments made. Some funds may involve more risk than others--please
monitor your investments accordingly.
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 that 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 manager and AEFC is the investment advisor for each
of the funds. IDS International, Inc., a wholly owned subsidiary of AEFC, is the
sub-investment advisor for IDS Life International Equity Fund. The investment
manager and advisors 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 prospectus, or from your
financial advisor.
The fixed account
Purchase payments may 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.
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 15
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.
Please remember that investment performance, expenses and deduction of certain
charges affect accumulation unit value.
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
payments to your account(s) within two business days after we receive it in our
Minneapolis office. If the application is accepted, we will send the owner a
contract. If we cannot accept the application within five business 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 after we receive and accept your payments at our Minneapolis
office.
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
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).
PAGE 16
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. If, as a
group, IDS Life annuitants outlive the life expectancy we have assumed in our
actuarial tables, then we must take money from our general assets to meet our
obligations. If, as a group, IDS Life annuitants do not live as long as
expected, we could profit from the mortality risk fee.
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 may use any profits realized from the mortality and expense risk 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:
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.
PAGE 17
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.
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 the 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 the contract administrative
charge).
PAGE 18
Variable accounts: Amounts allocated to the variable accounts are converted into
accumulation units. Each time the owner makes a purchase payment or transfers
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, transfers 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.
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);
PAGE 19
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 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").
Cash withdrawals, loans and conversions
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.
PAGE 20
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.
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.
PAGE 21
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 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.
PAGE 22
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.")
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
PAGE 23
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;
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
PAGE 24
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.
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.
PAGE 25
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 while both the annuitant and a joint annuitant 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.
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.
PAGE 26
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 after separation from service, made at least annually, over
the participant's life or life expectancy (or joint lives or life
expectancies of the participant and designated beneficiary);
o if the participant retires under the plan during or after the
year he or she attains age 55; or
o if the payout is a 457 plan distribution.
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;
o the payout is a minimum distribution required under the Code;
or
o the payout is a 457 plan distribution.
Payouts made to a surviving spouse instead of being directly rolled over to an
IRA may also be subject to 20% income tax withholding.
If a distribution is made to the participant from a contract offered under a 457
plan (deferred compensation plan of state and local governments and tax-exempt
organizations), withholding is computed using payroll methods, depending upon
the type of payment.
PAGE 27
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 28
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 29
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)
1996 1995 1994 1993 1992
Premiums......................... $ 182,921 $ 161,530 $ 144,640 $ 127,245 $ 114,379
Net investment income............ 1,965,362 1,907,309 1,781,873 1,783,219 1,616,821
Net gain (loss) on investments... (159) (4,898) (4,282) (6,737) (3,710)
Other............................ 574,341 472,035 384,105 304,344 240,959
---------- ---------- ---------- ---------- ----------
Total revenues................... $ 2,722,465 $ 2,535,976 $ 2,306,336 $ 2,208,071 $ 1,968,449
========= ========= ========= ========= =========
Income before income taxes....... $ 621,714 $ 560,782 $ 512,512 $ 412,726 $ 315,821
======= ======= ======= ======= =======
Net income....................... $ 414,576 $ 364,940 $ 336,169 $ 270,079 $ 211,170
======= ======= ======= ======= =======
Total assets..................... $47,305,981 $42,900,078 $35,747,543 $33,057,753 $27,295,773
========== ========== ========== ========== ==========
PAGE 30
Management's discussion and analysis of consolidated financial
condition and results of operations
Results of operations
1996 compared to 1995:
Consolidated net income increased 14% to $415 million in 1996, compared to $365
million in 1995. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges partially offset by a slight
decrease in investment margins. These increases reflect higher average insurance
and annuities in force during 1996. Investment margins were below prior year
levels primarily due to increasing interest credited rates throughout 1996.
Consolidated income before income taxes totaled $622 million in 1996, compared
with $561 million in 1995. In 1996, $161 million was from the life, disability
income and long-term care insurance segment, compared with $125 million in 1995.
In 1996, $461 million was from the annuity segment, compared with $440 million
in 1995.
Total premiums received increased to $6.1 billion in 1996, compared with $5.0
billion in 1995. This increase is primarily due to an increase in sales of
variable annuities in 1996.
Total revenues increased to $2.7 billion in 1996, compared with $2.5 billion in
1995. 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 a slight increase in investments owned.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 18% to $303 million
in 1996, compared with $256 million in 1995. This increase reflects higher total
life insurance in force which grew 13% to $67 billion at December 31, 1996.
Management and other fees increased 26% to $271 million in 1996, compared with
$216 million in 1995. This is primarily due to an increase in separate account
assets, which grew 24% to $19 billion at December 31, 1996, 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 slightly to $2.1 billion in 1996. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, increased to $1.4
billion. This was due to higher aggregate amounts in force and an increase in
average interest credited rates.
PAGE 31
1995 compared to 1994:
Consolidated net income increased 8.6% to $365 million in 1995, compared to $336
million in 1994. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges partially offset by a slight
decrease in investment margins. These increases reflect higher average insurance
and annuities in force during 1995. Investment margins were below prior year
levels primarily due to higher interest credited rates during the first two
quarters of 1995.
Consolidated income before income taxes totaled $561 million in 1995, compared
with $513 million in 1994. In 1995, $125 million was from the life, disability
income, health and long-term care insurance segment, compared with $123 million
in 1994. In 1995, $440 million was from the annuity segment, compared with $394
million in 1994. There was a $4.9 million net realized loss on investments in
1995, compared with a net realized loss on investments of $4.3 million in 1994.
Total premiums received decreased to $5.0 billion in 1995, compared with $5.7
billion in 1994. This decrease is primarily due to a decrease in sales of
variable annuities, reflecting very strong sales of variable products during
1994.
Total revenues increased to $2.5 billion in 1995, compared with $2.3 billion in
1994. The increase is primarily due to increases in net investment income,
policyholder and contractholder charges, and management fees. Net investment
income, the largest component of revenues, increased from the prior year,
reflecting an increase in investments owned.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 16% to $256 million
in 1995, compared with $220 million in 1994. This increase reflects higher total
life insurance in force which grew 13% to $59.4 billion at December 31, 1995.
Management and other fees increased 32% 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% 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.
PAGE 32
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 and swaps, 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 two banks and its parent
aggregating $175 million, of which $100 million is with its parent. The $25,000
line of credit with one bank expired on Dec. 31, 1996 and the Company did not
seek renewal. The $50,000 line of credit with the other bank expires on June 30,
1997 and the Company expects to seek renewal. The lines of credit are used
strictly as short-term sources of funds. Borrowings outstanding under the
agreements were $nil at Dec. 31, 1996. At Dec. 31, 1996, outstanding reverse
repurchase agreements totaled $17 million.
At Dec. 31, 1996, investments in fixed maturities comprised 86% of the Company's
total invested assets. Of the fixed maturity portfolio, approximately 42% is
invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
PAGE 33
At Dec. 31, 1996, approximately 9.6% 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 Dec. 31, 1996, net unrealized appreciation on fixed maturities held to
maturity included $380 million of gross unrealized appreciation and $94 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $231 million of gross unrealized
appreciation and $93 million of gross unrealized depreciation.
At Dec. 31, 1996, the Company had an allowance for losses for
mortgage loans totaling $37 million and for real estate investments
totaling $4 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 is being amortized as 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 1997, the Company paid a $45 million dividend to its
parent. In 1996, dividends paid to its parent were $165 million.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of Dec. 31, 1996, the Company's total adjusted capital was well in
excess of the levels requiring regulatory attention.
PAGE 34
Segment information
The Company's operations consist of two business segments: Individual and group
life, disability income and long-term care 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% of revenue in 1996, 1995 or
1994. Additionally, no single distributor accounted for more than 10% of
premiums received in 1996, 1995, or 1994. (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 IDS Life 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 Dec. 31, 1996,
traditional life and universal life-type insurance in force aggregated $67.2
billion, of which $3.9 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 IDS Life's consolidated total investments of $25.6 billion at Dec. 31, 1996,
36% was invested in mortgage-backed securities, 47% in corporate and other
bonds, 14% in primary mortgage loans on real estate, 2% in policy loans and the
remaining 1% in other investments.
Competition
IDS Life is engaged in a business that is highly competitive due to the large
number of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,748 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition, 1996, assigned IDS Life one of its highest classifications, A+
(Superior).
PAGE 35
Employees
As of Dec. 31, 1996, IDS Life and its subsidiaries had 266 employees; including
209 employed at the corporate office in Minneapolis, MN, 8 employed at the
American Centurion Life Assurance Company, located in Albany, NY and 49 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, AEFC. IDS Life reimburses AEFC 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.
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:
Directors
David R. Hubers
Born in 1943
Director since September 1989; president and chief executive officer, AEFC,
since August 1993, and director since January 1984. Senior vice president,
Finance and chief financial officer, AEFC, from January 1984 to August 1993.
PAGE 36
Richard W. Kling
Born in 1940
Director since February 1984; president since March 1994. Executive vice
president, Marketing and Products from January 1988 to March 1994. Senior vice
president, AEFC, since May 1994. Director of IDS Life Series Fund, Inc. and
member of the board of managers and president 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. Vice president and chief actuary of IDS Life Series Fund, Inc.
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.
Stuart A. Sedlacek
Born in 1957
Director and executive vice president, Assured Assets since March 1994; vice
president, AEFC, since September 1988.
Melinda S. Urion
Born in 1953
Director and controller since September 1991; executive vice president since
March 1994; vice president and treasurer from September 1991 to March 1994;
senior vice president, chief financial officer and director, AEFC, since
November 1995; corporate controller, AEFC, from April 1994 to November 1995;
vice president, AEFC, from September 1991 to November 1995; chief accounting
officer, AEFC, from July 1988 to September 1991.
PAGE 37
Officers other than directors
Morris Goodwin Jr.
Born in 1951
Vice president and treasurer since March 1994; vice president and corporate
treasurer, AEFC, since July 1989. Vice president and treasurer of IDS Life
Series Fund, Inc. and IDS Life Variable Annuity Funds A & B.
William A. Stoltzmann
Born in 1948
Vice president, general counsel and secretary since 1989; vice president and
assistant general counsel, AEFC, since November 1985.
*The address for all of the directors and principal officers is:
IDS Tower 10, Minneapolis, MN 55440-0010.
Executive compensation
Executive officers of IDS Life also may serve one or more affiliated companies.
The following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in 1996 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 1996.
Name of individual Cash
or number in group Position held compensation
- -------------------------------------------------------------------
Five most highly
compensated
executive officers
as a group: $3,448,681
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 (10) $4,923,385
- -------------------------------------------------------------------
PAGE 38
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, AEFC. The percentage of shares of AEFC 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
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life does business involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. IDS Life, like other life and health insurers, from time to time
is involved in such litigation. On December 13, 1996, an action of this nature
was commenced in Minnesota state court. The plaintiffs purport to represent a
class consisting of all persons who replaced existing IDS Life policies with new
IDS Life Policies from and after January 1, 1985. Plaintiffs seek damages in an
unspecified amount and also seek to establish a claims resolution facility for
the determination of individual issues. IDS Life filed an answer to the
Complaint on February 18, 1997. A similar action involving the replacement of
existing IDS Life insurance policies and annuity contracts was filed in the same
court on March 21, 1997.
IDS Life believes it has meritorious defenses to these and other actions arising
in connection with the conduct of its business activities and intends to defend
them vigorously. IDS Life believes that it is not party to, nor are any of its
properties the subject of, any pending legal proceedings which would have a
material adverse effect on its consolidated financial condition.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the contracts described in this prospectus and the
organization of IDS Life, its authority to issue contracts under Minnesota law
and the validity of the forms of the contracts under Minnesota law have been
passed on by the general counsel of IDS Life.
Experts
The consolidated financial statements of IDS Life Insurance Company at Dec. 31,
1996 and 1995, and for each of the three years in the period ended Dec. 31,
1996, appearing in this prospectus and registration statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the registration statement, and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
PAGE 39
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
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 for the purpose of informing the
investor as to the financial condition of the insurance company and its ability
to carry out its obligations under its variable contracts.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1996 1995
- ------ ---- ---------
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1996, $10,521,650; 1995, $11,878,377) .............. $10,236,379 $11,257,591
Available for sale, at fair value (Amortized cost:
1996, $11,008,622; 1995, $10,146,136) .............. 11,146,845 10,516,212
Mortgage loans on real estate ...................... 3,493,364 2,945,495
Policy loans ....................................... 459,902 424,019
Other investments .................................. 251,465 146,894
Total investments .................................. 25,587,955 25,290,211
Cash and cash equivalents .......................... 224,603 72,147
Amounts recoverable from reinsurers ................ 157,722 114,387
Amounts due from brokers ........................... 11,047 --
Other accounts receivable .......................... 44,089 39,108
Accrued investment income .......................... 343,313 348,008
Deferred policy acquisition costs .................. 2,330,805 2,025,725
Deferred income taxes .............................. 33,923 --
Other assets ....................................... 37,364 36,410
Separate account assets ............................ 18,535,160 14,974,082
Total assets ....................................... $47,305,981 $42,900,078
=========== ===========
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
- ------------------------------------ ---- ----
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities .................................... $21,838,008 $21,404,836
Universal life-type insurance ...................... 3,177,149 3,076,847
Traditional life insurance ......................... 209,685 209,249
Disability income and long-term care insurance ..... 424,200 327,157
Policy claims and other
policyholders' funds ............................... 83,634 56,323
Deferred income taxes .............................. -- 112,904
Amounts due to brokers ............................. 261,987 121,618
Other liabilities .................................. 332,078 285,354
Separate account liabilities ....................... 18,535,160 14,974,082
Total liabilities .................................. 44,861,901 40,568,370
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 ......................... 283,615 278,814
Net unrealized gain on investments ................. 86,102 230,129
Retained earnings .................................. 2,071,363 1,819,765
Total stockholder's equity ......................... 2,444,080 2,331,708
Total liabilities and stockholder's equity ......... $47,305,981 $42,900,078
=========== ===========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended Dec. 31,
1996 1995 1994
---- ---- ----
(thousands)
Revenues:
Premiums:
Traditional life insurance $ 51,403 $ 50,193 $ 48,184
Disability income and long-term care insurance 131,518 111,337 96,456
Total premiums 182,921 161,530 144,640
Policyholder and contractholder charges 302,999 256,454 219,936
Management and other fees 271,342 215,581 164,169
Net investment income 1,965,362 1,907,309 1,781,873
Net realized loss on investments (159) (4,898) (4,282)
Total revenues 2,722,465 2,535,976 2,306,336
Benefits and expenses:
Death and other benefits:
Traditional life insurance 26,919 29,528 28,263
Universal life-type insurance
and investment contracts 85,017 71,691 52,027
Disability income and
long-term care insurance 19,185 16,259 13,393
Increase (decrease) in liabilities for future policy benefits:
Traditional life insurance 1,859 (1,315) (3,229)
Disability income and
long-term care insurance 57,230 51,279 37,912
Interest credited on universal life-type
insurance and investment contracts 1,370,468 1,315,989 1,174,985
Amortization of deferred policy acquisition costs 278,605 280,121 280,372
Other insurance and operating expenses 261,468 211,642 210,101
Total benefits and expenses 2,100,751 1,975,194 1,793,824
Income before income taxes 621,714 560,782 512,512
Income taxes 207,138 195,842 176,343
Net income $ 414,576 $ 364,940 $ 336,169
========== ========== ==========
See accompanying notes to consolidated financial statements.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended Dec. 31, 1996
(thousands)
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital Investments Earnings Total
----- ------- ----------- -------- -----
Balance, Dec. 31, 1993 $3,000 $ 222,000 $ 114 $1,468,230 $1,693,344
Initial adoption of SFAS No. 115 -- -- 181,269 -- 181,269
Net income -- -- -- 336,169 336,169
Change in net unrealized
gain (loss) on investments -- -- (457,091) -- (457,091)
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 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, Dec. 31, 1995 3,000 278,814 230,129 1,819,765 2,331,708
Net income -- -- -- 414,576 414,576
Change in net unrealized
gain (loss) on investments -- -- (144,027) -- (144,027)
Capital contribution from parent -- 4,801 -- -- 4,801
Other changes -- -- -- 2,022 2,022
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1996 $3,000 $283,615 $ 86,102 $2,071,363 $2,444,080
===== ======= ====== ======== ========
See accompanying notes to consolidated financial statements.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1996 1995 1994
---- ---- ----
(thousands)
Cash flows from operating activities:
Net income $ 414,576 $ 364,940 $ 336,169
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Policy loan issuance, excluding universal
life-type insurance (49,314) (46,011) (37,110)
Policy loan repayment, excluding universal
life-type insurance 41,179 36,416 33,384
Change in amounts recoverable from reinsurers (43,335) (34,083) (25,006)
Change in other accounts receivable (4,981) 12,231 (28,551)
Change in accrued investment income 4,695 (30,498) (10,333)
Change in deferred policy acquisition
costs, net (294,755) (196,963) (192,768)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance 97,479 85,575 55,354
Change in policy claims and other
policyholders' funds 27,311 6,255 5,552
Change in deferred income taxes (65,609) (33,810) (19,176)
Change in other liabilities 46,724 (6,548) (122)
(Accretion of discount)
amortization of premium, net (23,032) (22,528) 30,921
Net realized loss on investments 159 4,898 4,282
Policyholder and contractholder
charges, non-cash (154,286) (140,506) (126,918)
Other, net (10,816) 3,849 (8,709)
Net cash (used in) provided by operating
activities $ (14,005) $ 3,217 $ 16,969
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1996 1995 1994
(thousands)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (43,751) $ (1,007,208) $ (879,740)
Maturities, sinking fund payments and calls 759,248 538,219 1,651,762
Sales 279,506 332,154 58,001
Fixed maturities available for sale:
Purchases (2,299,198) (2,452,181) (2,763,278)
Maturities, sinking fund payments and calls 1,270,240 861,545 1,234,401
Sales 238,905 136,825 374,564
Other investments, excluding policy loans:
Purchases (904,536) (823,131) (634,807)
Sales 236,912 160,521 243,862
Change in amounts due from brokers (11,047) 7,933 (2,214)
Change in amounts due to brokers 140,369 (105,119) (124,749)
Net cash used in investing activities (333,352) (2,350,442) (842,198)
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 3,567,586 4,189,525 3,566,814
Surrenders and death benefits (4,250,294) (3,141,404) (3,602,392)
Interest credited to account balances 1,370,468 1,315,989 1,174,985
Universal life-type insurance policy loans:
Issuance (86,501) (84,700) (78,239)
Repayment 58,753 52,188 50,554
Capital contribution from parent 4,801 -- --
Cash dividends to parent (165,000) (180,000) (165,000)
Net cash provided by financing activities 499,813 2,151,598 946,722
Net increase (decrease) in cash and
cash equivalents 152,456 (195,627) 121,493
Cash and cash equivalents at
beginning of year 72,147 267,774 146,281
Cash and cash equivalents at
end of year $ 224,603 $ 72,147 $ 267,774
========= ======== ========
See accompanying notes to consolidated financial statements.
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 flexible premium deferred annuities on both a fixed and variable
dollar basis. Immediate annuities are offered as well. The Company's
insurance products include universal life (fixed and variable), whole life,
single premium life and term products (including waiver of premium and
accidental death benefits). The Company also markets disability income and
long-term care insurance.
Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. 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, net of deferred
taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received from
brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated 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.
Impairment of mortgage loans is measured as the excess of the loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for
mortgage loan losses. The reserve for mortgage loans losses is maintained at
a level that management believes is adequate to absorb estimated losses in
the portfolio. The level of the reserve account is determined based on
several factors, including historical experience, expected future principal
and interest payments, estimated collateral values, and current and
anticipated economic and political conditions. Management regularly evaluates
the adequacy of the reserve for mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgement as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to the
recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
Amounts paid or received under interest rate swap agreements are recognized
as an adjustment to investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which
do not exceed the cash surrender values of the related policies.
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.
Statements 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 statements of cash flows
for the years ended Dec. 31 is summarized as follows:
1996 1995 1994
--------- -------- -----
Cash paid during the year for:
Income taxes $317,283 $191,011 $226,365
Interest on borrowings 4,119 5,524 1,553
Recognition of profits on annuity contracts and insurance policies
Profits on fixed deferred annuities are recognized by the Company over the
lives of the contracts, using primarily the interest method. Profits
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 and long-term care insurance
policies are recognized as revenue when due, and related benefits and
expenses are associated with premium revenue in a manner that results in
recognition of profits over the lives of the insurance policies. This
association is accomplished by means of the provision for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges and issue and administrative fees. These charges also include the
minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees and mortality and expense risk fees from the variable annuity
and variable life insurance separate accounts and underlying funds.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most
single premium deferred annuities and installment annuities are amortized in
relation to 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 and certain installment annuities are amortized as a percentage of
the estimated gross profits expected to be realized on the policies. For
traditional life, disability income and long-term care insurance policies,
the costs are amortized over an appropriate period in proportion to premium
revenue.
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 are based on
the net level premium method and anticipated rates of mortality, policy
persistency and interest earnings. Anticipated mortality rates generally
approximate the 1955-1960 Select and Ultimate Basic Table for policies issued
prior to 1980, the 1965-1970 Select and Ultimate Basic Table for policies
issued from 1981-1984 and the 1975-1980 Select and Ultimate Basic Table for
policies issued after 1984. Anticipated policy persistency rates vary by
policy form, issue age and policy duration with persistency on cash value
plans generally anticipated to be better than persistency on term insurance
plans. Anticipated interest rates are 4% for policies issued before 1974,
5.25% for policies issued from 1974-1980, and range from 10% to 6% depending
on policy form, issue year and policy duration for policies issued after
1980.
Liabilities for future disability income policy benefits include both policy
reserves and claim reserves. Policy reserves are based on the net level
premium method and anticipated rates of morbidity, mortality, policy
persistency and interest earnings. Anticipated morbidity rates are based on
the 1964 Commissioners Disability Table for policies issued before 1996 and
the 1985 CIDA table for policies issued in 1996. Anticipated mortality rates
are based on the 1958 Commissioners Standard Ordinary Table for policies
issued before 1996 and the 1975-1980 Basic Table for policies issued in 1996.
Anticipated policy persistency rates vary by policy form, occupation class,
issue age and policy duration. Anticipated interest rates are 3% for policies
issued before 1996 and grade from 7.5% to 5% over five years for policies
issued in 1996. Claim reserves are calculated on the basis of anticipated
rates of claim continuance and interest earnings. Anticipated claim
continuance rates are based on the 1964 Commissioners Disability Table for
claims incurred before 1993 and the 1985 CIDA Table for claims incurred after
1992. Anticipated interest rates are 8% for claims incurred prior to 1992, 7%
for claims incurred in 1992 and 6% for claims incurred after 1992.
Liabilities for future long-term care policy benefits include both policy
reserves and claim reserves. Policy reserves are based on the net level
premium method and anticipated rates of morbidity, mortality, policy
persistency and interest earnings. Anticipated morbidity rates are based on
the 1985 National Nursing Home Survey. Anticipated mortality rates are based
on the 1983a Table. Anticipated policy persistency rates vary by policy form,
issue age and policy duration. Anticipated interest rates are 9.5% grading to
7% over 10 years for policies issued from 1989-1992 and 7.75% grading to 7%
over 4 years for policies issued after 1992. Claim reserves are calculated on
the basis of anticipated rates of claim continuance and interest earnings.
Anticipated claim continuance rates are based on the 1985 National Nursing
Home Survey. Anticipated interest rates are 8% for claims incurred prior to
1992, 7% claims incurred in 1992 and 6% 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 subsidiaries for all tax benefits.
Included in other liabilities at Dec. 31, 1996 and 1995 are $33,358 and
($13,415), respectively, receivable from/(payable to) 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 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. 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. For variable life
insurance, the Company guarantees that the rates at which insurance charges
and administrative fees are deducted from contract funds will not exceed
contractual maximums. The Company also guarantees that the death benefit will
continue payable at the initial level regardless of investment performance so
long as minimum premium payments are made.
Accounting changes
The Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was effective
Jan. 1, 1996. The new rule did not have a material impact on the Company's
results of operations or financial condition. 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
$181,269, net of tax, as of Jan. 1, 1994, but the adoption had no impact on
the Company's net income.
Reclassification
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
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:
1996 1995 1994
-------- -------- --------
Fixed maturities ............ $ 8,736 $ 9,973 $ (1,575)
Mortgage loans .............. (8,745) (13,259) (3,013)
Other investments ........... (150) (1,612) 306
-------- -------- --------
$ (159) $ (4,898) $ (4,282)
======== ======== ========
Changes in net unrealized appreciation (depreciation) of investments for the
years ended Dec. 31 are summarized as follows:
1996 1995 1994
---------- ------------ -----------
Fixed maturities:
Held to maturity ....... $ (335,515) $ 1,195,847 $(1,329,740)
Available for sale ..... (231,853) 811,649 (720,449)
Equity securities ......... (52) 3,118 (2,917)
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at Dec. 31, 1996 are as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---- ----- ------ -----
U.S. Government agency obligations $ 44,002 $ 933 $ 1,276 $ 43,659
State and municipal obligations 9,685 412 -- 10,097
Corporate bonds and obligations 8,057,997 356,687 47,639 8,367,045
Mortgage-backed securities 2,124,695 21,577 45,423 2,100,849
------------ --------- ------- ------------
$10,236,379 $379,609 $94,338 $10,521,650
=========== ======== ======= ===========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---- ----- ------ -----
U.S. Government agency obligations $ 77,944 $ 2,607 $ 96 $ 80,455
State and municipal obligations 11,032 1,336 -- 12,368
Corporate bonds and obligations 3,701,604 122,559 24,788 3,799,375
Mortgage-backed securities 7,218,042 104,808 68,203 7,254,647
---------- -------- ------ -----------
Total fixed maturities 11,008,622 231,310 93,087 11,146,845
Equity securities 3,000 308 -- 3,308
----------- -------- ------- -----------
$11,011,622 $231,618 $93,087 $11,150,153
=========== ======== ======= ===========
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 and fair value of investments in fixed maturities at Dec.
31, 1996 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 $ 197,711 $ 200,134
Due from one to five years 2,183,374 2,294,335
Due from five to ten years 4,606,775 4,779,690
Due in more than ten years 1,123,824 1,146,642
Mortgage-backed securities 2,124,695 2,100,849
------------ ------------
$10,236,379 $10,521,650
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 227,051 $ 229,650
Due from one to five years 851,428 899,098
Due from five to ten years 2,140,579 2,182,079
Due in more than ten years 571,522 581,371
Mortgage-backed securities 7,218,042 7,254,647
------------ ------------
$11,008,622 $11,146,845
During the years ended Dec. 31, 1996, 1995 and 1994, fixed maturities
classified as held to maturity were sold with amortized cost of $277,527,
$333,508 and $61,290, respectively. Net gains and losses on these sales were
not significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' 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 1996 with
proceeds of $238,905 and gross realized gains and losses of $571 and $16,084,
respectively. Fixed maturities available for sale were sold during 1995 with
proceeds of $136,825 and gross realized gains and losses of $nil and $5,781,
respectively. Fixed maturities available for sale were sold during 1994 with
proceeds of $374,564 and gross realized gains and losses of $1,861 and
$7,602, respectively.
At Dec. 31, 1996, bonds carried at $13,571 were on deposit with various
states as required by law.
Net investment income for the years ended Dec. 31 is summarized as follows:
1996 1995 1994
--------- ------- -----
Interest on fixed maturities $1,666,929 $1,656,136 $1,556,756
Interest on mortgage loans 283,830 232,827 196,521
Other investment income 43,283 35,936 38,366
Interest on cash equivalents 5,754 5,363 6,872
------------- ------- -----------
1,999,796 1,930,262 1,798,515
Less investment expenses 34,434 22,953 16,642
------------ --------- ----------
$1,965,362 $1,907,309 $1,781,873
========== ========== ==========
At Dec. 31, 1996, investments in fixed maturities comprised 84 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 $1.9
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 1996 1995
------ ----------- -----------
Aaa/AAA ....................... $ 9,460,134 $ 9,907,664
Aaa/AA ........................ 2,870 3,112
Aa/AA ......................... 241,914 279,403
Aa/A .......................... 192,631 154,846
A/A ........................... 2,949,895 3,104,122
A/BBB ......................... 1,034,661 871,782
Baa/BBB ....................... 4,531,515 4,417,654
Baa/BB ........................ 768,285 657,633
Below investment grade ........ 2,063,096 2,007,511
----------- -----------
$21,245,001 $21,403,727
At Dec. 31, 1996, 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, 1996, approximately 13.7 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 are as follows:
Dec. 31, 1996 Dec. 31, 1995
------------------------- ------------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------------ ----------- ----------- ----------- ----------
East North Central $ 777,960 $ 19,358 $ 720,185 $ 67,206
West North Central 389,285 29,620 303,113 34,411
South Atlantic 891,852 35,007 732,529 111,967
Middle Atlantic 553,869 17,959 508,634 37,079
New England 310,177 14,042 244,816 40,452
Pacific 190,770 4,997 168,272 23,161
West South Central 105,173 11,246 61,860 27,978
East South Central 75,176 -- 58,462 10,122
Mountain 236,597 11,401 184,964 16,774
---------- -------- -------- ------
3,530,859 143,630 2,982,835 369,150
Less allowance for losses 37,495 -- 37,340 --
---------- -------- ------- ---
$3,493,364 $143,630 $2,945,495 $369,150
========== ======== ========== ========
Dec. 31, 1996 Dec. 31, 1995
------------------------- ------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
- ----------------------- --------- --------- ----------- -----------
Department/retail stores $1,154,179 $ 68,032 $ 985,660 $ 134,538
Apartments 1,119,352 23,246 1,038,446 84,978
Office buildings 611,395 27,653 464,381 62,664
Industrial buildings 296,944 6,716 255,469 22,721
Hotels/motels 97,870 6,257 31,335 48,816
Nursing/retirement homes 88,226 1,877 80,864 4,378
Mixed Use 73,120 -- 53,169 --
Medical buildings 67,178 8,289 57,772 2,495
Other 22,595 1,560 15,739 8,560
------------ ---------- --------- --------
3,530,859 143,630 2,982,835 369,150
Less allowance for losses 37,495 -- 37,340 --
------------ ------ --------- ------
$3,493,364 $143,630 $2,945,495 $369,150
========== ======== ========== ========
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.
At Dec. 31, 1996 and 1995, the Company's recorded investment in impaired loans
was $79,441 and $83,874 with a reserve of $16,162 and $19,307, respectively.
During 1996 and 1995, the average recorded investment in impaired loans was
$74,338 and $74,567, respectively.
The Company recognized $4,889 and $5,014 of interest income related to impaired
loans for the year ended Dec. 31, 1996 and 1995, respectively.
The following table presents changes in the reserve for investment losses
related to all loans:
1996 1995
--------- --------
Balance, Jan. 1 .................... $ 37,340 $ 35,252
Provision for investment losses .... 10,005 15,900
Loan payoffs ....................... (4,700) (11,900)
Foreclosures ....................... (5,150) (1,350)
Other .............................. -- (562)
-------- --------
Balance, Dec. 31 ................... $ 37,495 $ 37,340
======== ========
At Dec. 31, 1996, the Company had commitments to purchase affordable housing
limited partnership investments of $28,476, which is recorded as a liability in
the accompanying balance sheets. The total amounts committed in 1997 and 1998
are $25,234 and $3,242, respectively. The Company also had commitments to
purchase real estate investments for $35,425. 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:
1996 1995 1994
------ -------- -------
Federal income taxes:
Current $260,357 $218,040 $186,508
Deferred (65,609) (33,810) (19,175)
-------- -------- --------
194,748 184,230 167,333
State income taxes-current 12,390 11,612 9,010
--------- ------- ------
Income tax expense $207,138 $195,842 $176,343
======== ======== ========
Increases (decreases) to the federal tax provision applicable to pretax
income based on the statutory rate are attributable to:
1996 1995 1994
----------------- ----------------- -----------------
Provision Rate Provision Rate Provision Rate
Federal income
taxes based on
the statutory rate $217,600 35.0% $196,274 35.0% $179,379 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (9,636) (1.6) (8,524) (1.5) (9,939) (2.0)
Other, net (13,216) (2.1) (3,520) (0.6) (2,107) (0.4)
--------- ----- -------- ---- -------- ----
Federal income taxes $194,748 31.3% $184,230 32.9% $167,333 32.6%
======== ===== ======== ==== ======== ====
A portion of life insurance company income earned prior to 1984 was not
subject to current taxation but was accumulated, for tax purposes, in a
policyholders' surplus account. At Dec. 31, 1996, the Company had a
policyholders' surplus account balance of $20,114. The policyholders' surplus
account is only taxable if dividends to the stockholder exceed the
stockholder's surplus account or if the Company is liquidated. Deferred
income taxes of $7,040 have not been established because no distributions of
such amounts are contemplated.
Significant components of the Company's deferred tax assets and liabilities
as of Dec. 31 are as follows:
1996 1995
------- -----
Deferred tax assets:
Policy reserves $724,412 $600,176
Life insurance guarantee
fund assessment reserve 29,854 26,785
Other 2,763 --
--------- -------
Total deferred tax assets 757,029 626,961
--------- -------
Deferred tax liabilities:
Deferred policy acquisition costs 665,685 590,762
Unrealized gain on investments 48,486 129,653
Investments, other 8,935 17,152
Other -- 2,298
-------- -------
Total deferred tax liabilities 723,106 739,865
-------- -------
Net deferred tax assets (liabilities)$ 33,923 $(112,904)
========= =========
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.
4. Stockholder's equity
During 1996, the Company received a $4,801 capital contribution from its
parent, American Express Financial Corporation. During 1995, the Company
received a $39,700 capital contribution from its parent in the form of
investments in fixed maturities and mortgage loans. In addition, effective
Jan. 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 Oct. 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.
Other changes in the statements of stockholder's equity are primarily related
to reinsurance transactions with affiliates.
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 $1,261,592 as of Dec. 31, 1996 and $1,103,993
as of Dec. 31, 1995 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in 1997 in
excess of approximately $351,306 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:
1996 1995 1994
------ ------ ------
Statutory net income $ 365,585 $ 326,799 $ 294,699
Statutory capital and surplus 1,565,082 1,398,649 1,261,958
Dividends paid to American Express Financial Corporation were $165,000 in
1996, $180,000 in 1995, and $165,000 in 1994.
5. Related party transactions
The Company has loaned funds to American Express Financial Corporation under
a collateral loan agreement. The balance of the loan was $11,800 and $25,800
at Dec. 31, 1996 and 1995, 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 equity securities valued at $116,543 at Dec. 31, 1996.
Interest income on related party loans totaled $780, $1,371 and $2,894 in
1996, 1995 and 1994, respectively.
The Company purchased a five year secured note from an affiliated company
which had an outstanding balance of $nil and $19,444 at Dec. 31, 1996 and
1995, respectively. The note bears a fixed rate of 8.42 percent. Interest
income on the above note totaled $1,637, $1,937 and $2,278 in 1996, 1995 and
1994, respectively.
The Company has a reinsurance agreement whereby it assumed 100 percent of a
block of single premium life insurance business from Amex Life Assurance
Company (Amex Life), a former affiliate. The accompanying consolidated
balance sheets at Dec. 31, 1996 and 1995 include $758,812 and $764,663,
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, 1996 and 1995 include $134,121 and $95,484, respectively,
of reinsurance receivables related to this agreement. Premiums ceded amounted
to $32,917, $25,553 and $20,360 and reinsurance recovered from reinsurers
amounted to $5,135, $4,998 and $3,022 for the years ended Dec. 31, 1996, 1995
and 1994, respectively.
The Company has a reinsurance agreement to assume deferred annuity contracts
from Amex Life. At Oct. 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, 1996 includes
$828,298 of future policy benefits related to this agreement. Contracts with
future policy benefits totaling $50,400 were still reinsured with the former
affiliate at Dec. 31, 1996. The remaining contracts had been novated to
Company contracts.
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 $174,
$155 and $156 in 1996, 1995 and 1994, respectively.
The Company also participates in defined contribution pension plans of
American Express Company which cover all employees who have met certain
employment requirements. Company contributions to the plans are a percent of
either each employee's eligible compensation or basic contributions. Costs of
these plans charged to operations in 1996, 1995 and 1994 were $990, $815 and
$957, respectively.
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.
Charges by American Express Financial Corporation for use of joint
facilities, marketing services and other services aggregated $397,362,
$377,139, and $335,183 for 1996, 1995 and 1994, 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, 1996 and 1995, traditional life insurance and universal life-type
insurance in force aggregated $67,274,354 and $59,683,532, respectively, of
which $3,875,921 and $3,771,204 were reinsured at the respective year ends.
The Company also reinsures a portion of the risks assumed under disability
income and long-term care policies. Under all reinsurance agreements,
premiums ceded to reinsurers amounted to $48,250, $39,399 and $31,016 and
reinsurance recovered from reinsurers amounted to $15,612, $14,088, and
$10,778 for the years ended Dec. 31, 1996, 1995 and 1994. Reinsurance
contracts do not relieve the Company from its primary obligation to
policyholders.
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company and its subsidiaries do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. In December 1996, an action of this type
was brought against the Company and its parent, American Express Financial
Corporation. The plaintiffs purport to represent a class consisting of all
persons who replaced existing Company policies with new Company policies from
and after Jan. 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties and
alleged violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and seek to establish a claims resolution facility for the
determination of individual issues. The Company and its parent believe they
have meritorious defenses to the claims raised in the lawsuit. The outcome of
any litigation cannot be predicted with certainty, particularly in the early
stages of an action. In the opinion of management, however, the ultimate
resolution of the above lawsuit and others filed against the Company should
not have a material adverse effect on the Company's consolidated financial
position.
During 1996, the Company settled the federal tax audit for 1987 through 1989
tax years. There was no material impact as a result of that audit. Also, the
IRS is currently auditing the Company's 1990 through 1992 tax years.
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 two banks and its parent
aggregating $175,000, of which $100,000 is with its parent. The lines of
credit are at 40 to 80 basis points over the lenders' cost of funds or equal
to the prime rate, depending on which line of credit agreement is used. The
$25,000 line of credit with one bank expired on Dec. 31, 1996 and the Company
did not seek renewal. The $50,000 line of credit with the other bank expires
on June 30, 1997 and the Company expects to seek renewal. Borrowings
outstanding under these agreements were $nil at Dec. 31, 1996 and 1995.
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 does not hold derivative instruments for
trading purposes. The Company manages risks associated with these instruments
as described below.
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.
Credit exposure related to interest rate caps and floors is measured by the
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
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.
The Company's holdings of derivative financial instruments are as follows:
Notional Carrying Fair Total Credit
Dec. 31, 1996 Amount Value Value Exposure
------------- --------- ------- -------- ------------
Assets:
Interest rate caps $ 4,000,000 $16,227 $ 7,439 $ 7,439
Interest rate floors 1,000,000 2,041 4,341 4,341
Interest rate swaps 1,000,000 -- (24,715) --
---------- ------- -------- -------
$6,000,000 $18,268 $(12,935) $11,780
========== ======= ======== =======
Dec. 31, 1995
Assets:
Interest rate caps $5,100,000 $26,680 $ 8,366 $ 8,366
========== ======= ======== =======
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps and floors
expire on various dates from 1996 to 2001. The interest rate swaps are in
effect through 2001.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the
margin between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
9. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair values of life insurance obligations and all non-financial
instruments, such as deferred acquisition costs are excluded. Off-balance
sheet intangible assets, such as the value of the field force, are also
excluded. Management believes the value of excluded assets is significant.
The fair value of the Company, therefore, cannot be estimated by aggregating
the amounts presented.
1996 1995
------ -----
Carrying Fair Carrying Fair
Financial Assets Value Value Value Value
---------------- ----- ----- ----- -----
Investments:
Fixed maturities (Note 2):
Held to maturity $10,236,379 $10,521,650 $11,257,591 $11,878,377
Available for sale 11,146,845 11,146,845 10,516,212 10,516,212
Mortgage loans on
real estate (Note 2) 3,493,364 3,606,077 2,945,495 3,184,666
Other:
Equity securities (Note 2) 3,308 3,308 3,517 3,517
Derivative financial
instruments (Note 8) 18,268 (12,935) 26,680 8,366
Other 63,993 66,242 52,182 52,182
Cash and
cash equivalents (Note 1) 224,603 224,603 72,147 72,147
Separate account assets
(Note 1) 18,535,160 18,535,160 14,974,082 14,974,082
Financial Liabilities
Future policy benefits
for fixed annuities 20,641,986 19,721,968 20,259,265 19,603,114
Separate account
liabilities 17,358,087 16,688,519 14,208,619 13,665,636
At Dec. 31, 1996 and 1995, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,112,155 and $1,070,598, respectively, and policy loans of
$83,867 and $74,973, respectively. The fair value of these benefits is based
on the status of the annuities at Dec. 31, 1996 and 1995. The fair value of
deferred annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. The fair value for annuities in non-life
contingent payout status is estimated as the present value of projected
benefit payments at rates appropriate for contracts issued in 1996 and 1995.
At Dec. 31, 1996 and 1995, 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 $1,177,073 and
$765,463, respectively.
10.Segment information
The Company's operations consist of two business segments; first, individual
and group life insurance, disability income 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, 1996, 1995 and 1994 and
total assets at Dec. 31, 1996, 1995 and 1994 by segment are summarized as
follows:
1996 1995 1994
------ ------ -----
Net investment income:
Life, disability income
and long-term care insurance $ 262,998 $ 256,242 $ 247,047
Annuities 1,702,364 1,651,067 1,534,826
----------- ----------- ------------
$ 1,965,362 $ 1,907,309 $ 1,781,873
=========== =========== ============
Premiums, charges and fees:
Life, disability income
and long-term care insurance $ 448,389 $ 384,008 $ 335,375
Annuities 308,873 249,557 193,370
------------ ------------ -------------
$ 757,262 $ 633,565 $ 528,745
============ ============ =============
Income before income taxes:
Life, disability income
and long-term care insurance $ 161,115 $ 125,402 $ 122,677
Annuities 460,758 440,278 394,117
Net loss on investments (159) (4,898) (4,282)
------------- ------------- --------------
$ 621,714 $ 560,782 $ 512,512
============ ============ =============
Total assets:
Life, disability income
and long-term care insurance $ 7,028,906 $ 6,195,870 $ 5,269,188
Annuities 40,277,075 36,704,208 30,478,355
----------- ----------- -----------
$47,305,981 $42,900,078 $35,747,543
=========== =========== ===========
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.
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, 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.
Ernst & Young LLP
February 7, 1997
Minneapolis, Minnesota
PAGE 40
About IDS Life
The Group Variable Annuity Contract is issued by IDS Life, a wholly owned
subsidiary of AEFC, which itself is a wholly owned subsidiary of the American
Express Company, a financial services company headquartered in New York City.
IDS Life is a stock life insurance company organized in 1957 under the laws of
the State of Minnesota and located at IDS Tower 10, Minneapolis, MN 55440-0010.
We conduct a conventional life insurance business in the District of Columbia
and all states except New York.
American Express Financial Advisors Inc. offers mutual funds,
investment certificates and a broad range of financial management
services. IDS Life offers insurance and annuities.
American Express Financial Advisors Inc. serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7800 financial advisors.
Other subsidiaries provide investment management and related services for
pension, profit-sharing, employee savings and endowment funds of businesses and
institutions.
Periodic reports
We will send the owner quarterly, or more frequently as the Code may require, a
statement showing the number, type and value of accumulation units credited to
the contract. This statement will be accurate as of a date not more than two
months prior to the date of mailing. In addition, every person having voting
rights will receive any required reports or prospectuses. We also will send any
statements that may be required by applicable laws, rules and regulations
showing contract restrictions.
PAGE 41
Table of contents of the Statement of Additional Information
Performance information.......................
Rating agencies...............................
Principal underwriter.........................
Independent auditors..........................
Prospectus....................................
Financial statements -
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and
MZ.......................................
- -------------------------------------------------------------------
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
_____ IDS Life Group Variable Annuity Contract
_____ IDS Life Retirement Annuity Mutual Funds
Please return this request to:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55420
Your name _______________________________________________________
Address _________________________________________________________
City ______________________ State ______________ Zip ___________
PAGE 42
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the prospectus. prospectus is in two
columns.
2) Headings. 2) The headings in the
prospectus are placed
in blue strip at the top
of the page.
3) The page numbers in the 3) The prospectus begins on
electronic document do not page 1 in both documents,
correspond to the printed ends on page 41 in the
prospectus. electronic document, and
page 87 in the printed
prospectus.
4) Prospectus language. 4) On page 14 of the
electronic filing, a
paragraph was deleted at
the end of "The fixed
account" section.
On page 38 of the electronic filing
under the heading, "Legal proceedings
and opinion", the word of was changed to
on in the third to last line of first
paragraph.