SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 7
TO REGISTRATION STATEMENT No. 33-50968
Under
The Securities Act of 1933
IDS Life Insurance Company
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(Exact name of registrant as specified in charter)
Minnesota
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(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
41-0823832
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(I.R.S. Employer Identification No.)
IDS Tower 10, Minneapolis, MN 55440-0010 (612) 671-3131
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(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Bruce Kohn, Counsel
IDS Life Insurance Company
IDS Tower 10, Minneapolis, Minnesota 55440-0010
(612) 671-2221
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
It is proposed that this filing become effective on May 1, 1998.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
Calculation of Registration Fee
- ------------------------------------ ----------------- ----------------------- ----------------------- -------------------
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered price per unit price registration fee
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Interests in a flexible N/A
premium group market
value annuity contract
and individual market
value annuity contracts
for non-tax qualified
purchases.
IDS LIFE ACCOUNT MGA
GROUP AND INDIVIDUAL FLEXIBLE PREMIUM
MARKET VALUE ANNUITY CONTRACTS ISSUED BY
IDS LIFE INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
Form S-1 Item Number and Caption Location in Prospectus
1. Forepart of the Registration Statement
and Outside Front Cover Page of Prospectus........................ Outside Front Cover
2. Inside Front and Outside Back
Cover Pages of Prospectus......................................... Table of Contents
(inside front cover)
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges............................ The Flexible Payment Market Value
Annuity in brief, Not Applicable
4. Use of Proceeds................................................... Investments by IDS Life
5. Determination of Offering Price................................... Not Applicable
6. Dilution.......................................................... Not Applicable
7. Selling Security Holders.......................................... Not Applicable
8. Plan of Distribution.............................................. Distribution of contracts
9. Description of Securities to Be Registered........................ Description of contracts
10. Interests of Named Experts and Counsel............................ Not Applicable
11. Information with Respect to the Registrant........................ The Company; Directors and
executive officers; Executive
compensation; Security ownership
of management; Legal proceedings
and opinion; and Financial
statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................................................... See Item 14 in Part II
PART I.
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus.
IDS Life Flexible Payment Market Value Annuity
Prospectus, May 1, 1998
This prospectus describes interests in a flexible premium group market value
annuity contract and individual market value annuity contracts offered by IDS
Life Insurance Company (IDS Life) to the general public for non-tax qualified
and tax qualified purchases. Participation in a group contract will be accounted
for separately by the issuance of a certificate showing the owner's interest
under the group contract. Participation in an individual contract is shown by
the issuance of an individual annuity contract. The certificate and the
individual contract are both referred to as the "contract."
IDS Life may offer this contract to fund retirement programs that qualify under
the following sections of the Internal Revenue Code of 1986, as amended (the
Code): (1) plans qualified under Section 401 of the Code (including 401(k)); (2)
Tax-Sheltered Annuity (TSA) plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code; (3) individual
retirement annuities (IRAs), SIMPLE IRAs and Simplified Employee Pension (SEP)
Plans eligible under Section 408 of the Code; and (4) deferred compensation
plans eligible under Section 457 of the Code.
A minimum purchase payment of at least $5,000 must accompany the application for
a contract. Additional purchase payments of at least $2,000 are permitted under
a contract. The contract accumulation value will be guaranteed by the general
assets of IDS Life. IDS Life generally intends to invest funds received in
relation to contracts in a variety of debt instruments having price durations
which tend to match the applicable guarantee periods under the contract.
IDS Life Account MGA
Group and Individual Flexible Premium
Market Value Annuity Contracts
Sold by:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Telephone: 800-437-0602
These securities may be subject to a substantial surrender charge and/or market
value adjustment if not held to the end of the guarantee period that could
result in receipt of less than the original purchase payment.
Guaranteed interest rates that apply to future guarantee periods will be
declared by IDS Life based on various factors. These interest rates may be
higher or lower than the rates previously guaranteed.
The minimum guaranteed rate is 3%.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
IDS Life is not a bank or financial institution, and the securities it offers
are not deposits or obligations of, backed or guaranteed or endorsed by any bank
or financial institution nor are they insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investments in this
annuity involve investment risk including the possible loss of principal.
Table of contents Page
The Flexible Payment Market Value Annuity in brief......................
Key terms...............................................................
Description of contracts................................................
General.................................................................
Application and purchase payment........................................
Right to cancel.........................................................
Guarantee periods.......................................................
Surrenders, free withdrawals and systematic withdrawals.................
Surrender charge........................................................
Transfers...............................................................
Market value adjustment.................................................
Premium taxes...........................................................
Death benefit prior to settlement.......................................
Death benefit after settlement..........................................
Statement...............................................................
Electing the settlement date and annuity payment plan...................
Amendment, distribution and assignment of contracts.....................
Amendment of contracts..................................................
Distribution of contracts...............................................
Assignment of contracts.................................................
Federal tax considerations..............................................
The Company.............................................................
Business................................................................
Investments by IDS Life.................................................
Selected financial data.................................................
Management's discussion and analysis of consolidated
financial condition and results of operations...........................
Directors and executive officers........................................
Executive compensation..................................................
Security ownership of management........................................
Legal proceedings and opinion...........................................
Experts.................................................................
Appendix A - Total surrender illustration...............................
Appendix B - Market value adjustment illustration.......................
IDS Life financial information..........................................
The Flexible Payment Market Value Annuity in brief
Contracts: IDS Life is offering group and individual flexible premium market
value annuity contracts to the general public for non-tax qualified and tax
qualified purchases. IDS Life is a wholly owned subsidiary of American Express
Financial Corporation, which itself is a wholly owned subsidiary of American
Express Company. As described in this prospectus, each subaccount of the
contracts has a guaranteed rate of interest that is credited to the purchase
payment when it is held to the end of the subaccount guarantee period.
Surrenders or transfers before the end of a subaccount guarantee period are
subject to a market value adjustment and a surrender charge (if applicable).
Surrenders or transfers are available without market value adjustment on the
last day of each subaccount guarantee period and during the first ten days of
each new subaccount guarantee period. A free withdrawal amount is available
under each subaccount.
Guarantee periods: When an initial purchase payment is made under an
application, or when additional purchase payments or transfers are made, the
owner allocates the payment or transfer to one or more subaccounts then offered
by IDS Life. A subaccount is established for each combination of guarantee
period and guarantee rate to which the owner allocates a purchase payment or
transfer. The purchase payment or transfer allocated to each subaccount earns
interest at the applicable rate for that subaccount guarantee period as
established by IDS Life. Since interest is credited on a daily basis, the
interest credited also earns interest at the applicable rate established for the
guarantee period. The guarantee rate established by IDS Life will always be at
least 3%. (p.)
When a subaccount guarantee period ends, a new guarantee period will begin. IDS
Life will transfer the subaccount accumulation value without market value
adjustment to a new subaccount. The new subaccount guarantee period will be for
one year unless the owner elects a different period from those IDS Life then
offers. The new guarantee period may never extend beyond the settlement date.
(p.)
Surrenders, free withdrawals and systematic withdrawals: Each contract year, the
owner may surrender or transfer free withdrawal amounts. These free withdrawal
amounts are not subject to either a surrender charge or a market value
adjustment. However, they are subject to federal income tax and may be subject
to a federal penalty tax and, under certain tax qualified contracts, to 20%
income tax withholding. Free withdrawal amounts are calculated separately for
each subaccount. From the time a subaccount is established by payment or
transfer up to the next contract anniversary, the free withdrawal amount is 10%
of the subaccount payment or transfer. During each contract year thereafter, the
free withdrawal amount is 10% of the prior contract anniversary subaccount
accumulation value. The owner also may establish systematic withdrawals of
amounts up to the free withdrawal amount. (p.)
Subject to certain restrictions, partial or total surrenders are permitted. IDS
Life may defer payment of any surrender for a period up to six months from the
date it receives notice of surrender, or for the period permitted by state law,
if less. IDS Life will not defer a payment for a period greater than seven days
except under extraordinary circumstances. IDS Life will pay annual interest of
at least 3% of any amounts deferred for more than thirty days during such period
if it chooses to exercise this deferral right. (p.)
Surrender charge: Surrenders may be subject to a surrender charge. Surrender
charges are calculated separately for each subaccount. The surrender charge
depends on the number of contract years a purchase payment to a subaccount has
been in the contract. For purchase payments that have been in the contract for
less than eight contract years, a surrender charge, beginning at a maximum of
7%, will be assessed on a surrender. There are no surrender charges for payments
that have been in the contract for eight or more contract years or if the
surrender occurs on the last day of a subaccount guarantee period or during the
first ten days of the new subaccount guarantee period. In addition, IDS Life
will waive the surrender charge in certain instances. (p.)
Transfers: The owner may transfer the accumulation value from an existing
subaccount to a new subaccount at any time before the settlement date as long as
a subaccount is established for at least one calendar year prior to the
transfer. The minimum accumulation value the owner may transfer is $2,000 or the
entire subaccount accumulation value, if less. For transfers before the end of a
subaccount guarantee period, there will be a market value adjustment to the
accumulation value in excess of the free withdrawal amount. (p.)
Market value adjustment: A market value adjustment will be applied to a
surrender or transfer that occurs before the end of a subaccount guarantee
period. A market value adjustment is a positive or negative adjustment of the
subaccount accumulation value. Therefore, the amount distributed from a
subaccount on surrender or transfer may be more or less than the total purchase
payments or transfers made to that subaccount (plus accrued interest). The
market value adjustment reflects the relationship, at the time of surrender or
transfer, between the subaccount guarantee rate and the interest rate IDS Life
then is crediting on purchase payments or transfers made to new subaccounts with
guarantee periods of the same duration as the time remaining in the subaccount
guarantee period. (p.)
Premium taxes: IDS Life reserves the right to deduct applicable premium taxes
from the accumulation value of the contract. State premium taxes range from 0 to
3.5% of the gross purchase payments. (p.)
Death benefit prior to settlement: The contract provides for a guaranteed death
benefit. In the event of the death of the annuitant or owner prior to the
settlement date, IDS Life will pay to the owner or beneficiary the death benefit
in lieu of any other payment under the contract. The amount of the death benefit
will equal the accumulation value. (p.)
Electing the settlement date and annuity payment plan: On the settlement date
specified by the owner, IDS Life will pay the owner a lump sum payment or start
to pay a series of payments. A series of payments may be elected under certain
annuity payment plans. (p.)
Key terms
These terms can help you understand details about your annuity:
Accumulation value - The value of the net purchase and transfer payments plus
interest credited, adjusted for any surrenders. The contract accumulation value
is the sum of all subaccount accumulation values.
Annuitant - The person on whose life monthly annuity payments depend.
Annuity - A contract purchased from an insurance company that offers
tax-deferred growth of the purchase payment until earnings are withdrawn.
Cash surrender value - The market adjusted value less any applicable surrender
charge. On the last day of a guarantee period, the cash surrender value is the
accumulation value.
Contract anniversary - The same day and month as the contract date each year
that the contract remains in force.
Contract date - The date from which contract anniversaries, contract years and
contract months are determined.
Free withdrawal amount - The amount of surrenders and transfers that may be made
each contract year without market value adjustment or surrender charge. Free
withdrawal amounts are calculated separately for each subaccount. From the time
a subaccount is established by payment or transfer to the next contract
anniversary, the free withdrawal amount is 10% of the subaccount payment or
transfer. During each contract year thereafter, the free withdrawal amount is
10% of the prior contract anniversary subaccount accumulation value.
Guarantee period - The period for which IDS Life guarantees a particular
declared effective annual interest rate.
Guarantee rate - The particular declared effective annual interest rate IDS Life
guarantees for a guarantee period.
Market adjusted value - The accumulation value in excess of the free withdrawal
amount, adjusted by the market value adjustment formula, plus the free
withdrawal amount. The adjustment is for interest rate changes since a
subaccount begins. The adjustment is calculated separately for each subaccount.
The contract market adjusted value is the sum of all subaccount market adjusted
values.
Market value adjustment - The difference between the market adjusted value and
the accumulation value. It is positive if the market adjusted value is greater
than the accumulation value. It is negative if the accumulation value is greater
than the market adjusted value.
Owner - The person or entity to whom the contract is issued. The owner may be
someone other than the annuitant.
Purchase payment - Payment made to IDS Life for an annuity.
Settlement - The application of contract value to provide annuity payments. If
the settlement date is not the last day of a guarantee period, IDS Life applies
the market adjusted value of the contract. On the last day of a guarantee
period, IDS Life applies the accumulation value of the contract.
Settlement date - The date on which annuity payments are to begin.
Subaccount - An account IDS Life establishes for each combination of guarantee
period and guarantee rate to which the owner allocates a purchase or transfer
payment. Each subaccount is distinguished by the guarantee period and the date
the guarantee period begins.
Surrender value - The accumulation value plus any applicable market value
adjustment, less any applicable surrender charge.
Written request - A request in writing signed by the owner and delivered to IDS
Life at its corporate office.
Description of contracts
General
This prospectus describes interests in a flexible premium group market value
annuity and individual market value annuity contracts offered by IDS Life to the
general public for non-tax qualified and tax qualified purchases. The contracts
may be offered in the following tax qualified programs: (1) Section 401(a)
(including 401(k)) plans; (2) TSA plans; (3) IRAs, SIMPLE IRAs and SEPs; and (4)
deferred compensation plans eligible under Section 457.
As described in this prospectus, each subaccount of the contracts has a
guaranteed interest rate that is credited to a purchase payment when it is held
to the end of the subaccount guarantee period. Interest is credited daily to
achieve a stated annual effective rate, based on a 365 day year. Interest is not
paid on leap days (Feb. 29th). Surrenders or transfers before the end of a
subaccount guarantee period are subject to a market value adjustment and a
surrender charge (if applicable).
Subject to insurance department approval of the contract, IDS Life will be
offering this contract in the District of Columbia and all states except New
York.
Application and purchase payment
To apply for a contract, the owner must complete an application and make a
minimum purchase payment of $5,000. Additional purchase payments of at least
$2,000 are permitted under a contract. These additional purchase payments may be
made until the date the contract terminates or the date on which annuity
payments begin, whichever is earlier. The maximum total purchase payments in the
first and later contract years is $500,000. IDS Life reserves the right to
change this maximum. If the owner purchases the contract to fund a tax qualified
plan, that plan's limit on contributions also will apply.
IDS Life will return an improperly completed application, along with the
corresponding purchase payment, five business days after its receipt if the
application has not, by that time, been properly completed.
A payment is credited to a contract on the date IDS Life receives a properly
completed application at our corporate office along with the purchase payment.
Interest is earned the next day. IDS Life then issues a contract and confirms
the purchase payment in writing.
When an initial purchase payment is made under an application, or when
additional purchase payments or transfers are made, the owner allocates the
payment to one or more subaccounts then offered by IDS Life. The minimum amount
the owner may allocate to a subaccount is $2,000 or, in the case of a transfer,
the entire subaccount accumulation value if less than $2,000. The owner has a
subaccount for each guarantee period to which an initial purchase payment is
allocated. The owner also has a subaccount for each guarantee period to which an
additional purchase payment is allocated or to which a transfer of all or a
portion of an existing subaccount is made. Each subaccount is distinguished by
the guarantee period and the date the guarantee period begins.
Right to cancel
The owner has the right to cancel the contract within 10 days after receipt of
the contract and receive a refund of the entire purchase payment. For
cancellation to be effective, mailing or delivery of notice of cancellation must
be made in writing to IDS Life's corporate office at the following address: IDS
Life Insurance Company, Attn: Transactions, P.O. Box 534, Minneapolis, Minnesota
55440-0534.
Guarantee periods
The owner selects guarantee periods from among those offered by IDS Life. As of
the date of this prospectus, IDS Life is offering guarantee periods with annual
durations from one to 10 years; however, the guarantee periods IDS Life offers
in the future could be different. The guarantee period selected will determine
the guarantee rate. The purchase payment (less surrenders made and less
applicable premium taxes, if any) or any transfer will earn interest at this
guarantee rate during the entire guarantee period. All interest earned will be
credited daily; this compounding effect is reflected in the guarantee rate.
Below is an illustration of how IDS Life will credit interest during the
guarantee period. For the purpose of this example, IDS Life has made the
assumptions as indicated.
Example of guarantee rate:
Beginning subaccount accumulation value: $50,000
Guaranteed period: 10 years
Guarantee rate: 6% annual effective rate
Interest credited Cumulative interest
Year during year credited to the account Accumulation value
1 $ 3,000.00 $ 3,000.00 $ 53,000.00
2 3,180.00 6,180.00 56,180.00
3 3,370.80 9,550.80 59,550.80
4 3,573.05 13,123.85 63,123,85
5 3,787.43 16,911.28 66,911.28
6 4,014.68 20,925.96 70,925.96
7 4,255.56 25,181.51 75,181.51
8 4,510.89 29,692.40 79,692.40
9 4,781.54 34,473.95 84,473.95
10 5,068.44 39,542.38 89,542.38
Guaranteed accumulation value at the end of 10 years is:
$50,000 + $39,542.38 = $89,542.38
Note: This example assumes no surrenders of any amount during the entire
ten-year period. A market value adjustment applies and a surrender charge may
apply to any interim surrender in excess of the free withdrawal amount (See
Surrenders, free withdrawals and systematic withdrawals). The hypothetical
interest rates are illustrative only and are not intended to predict future
interest rates to be declared by IDS Life. Actual interest rates declared for
any given time may be more or less than those shown.
End of a subaccount guarantee period: When a subaccount guarantee period ends, a
new guarantee period will begin. IDS Life will transfer the owner's subaccount
accumulation value to a new subaccount without applying a market value
adjustment. At the end of a guarantee period, or during the first ten days of
the new subaccount guarantee period, the owner also will be able to totally or
partially surrender the subaccount accumulation value without market value
adjustment or surrender charge. However, such a surrender will be subject to
federal income tax and may be subject to a federal penalty tax. Surrenders from
certain tax qualified contracts also may be subject to 20% income tax
withholding. If the owner surrenders less than the entire subaccount
accumulation value, at least $1,000 must remain in the subaccount.
IDS Life will mail the owner a notice twenty-one calendar days before the
guarantee period ends to remind the owner to select a new guarantee period. If
IDS Life does not receive the written selection request within ten calendar days
after the guarantee period ends, the new guarantee period will be one year. The
new guarantee period will never extend beyond the settlement date. For example,
if the annuitant is age 82 at the end of a guarantee period and the settlement
date is the annuitant's age 85, a three-year guarantee period is the maximum
guarantee period that may be selected under the contract.
The accumulation value transferred to the new subaccount is guaranteed by IDS
Life's general assets and will earn interest at a guarantee rate that IDS Life
has declared for the guarantee period. This guarantee rate may be higher or
lower than previous guarantee rates. IDS Life may declare new schedules of
guaranteed interest rates as frequently as daily.
At the owner's written request, IDS Life will provide notice of the guarantee
rate that applies to a specific guarantee period. The owner also may call IDS
Life to inquire about guarantee rates.
Establishment of guarantee rates: The guaranteed rate of interest for a chosen
guarantee period will be known at the time a purchase payment is received or a
transfer is made. IDS Life will send the owner a confirmation that will show the
amount paid or transferred and the applicable guarantee rate. When one
subaccount guarantee period ends and another begins, IDS Life will establish a
guarantee rate for the new period that is equal to or greater than the rate
credited on new comparable purchase payments at the time. The minimum guarantee
rate established by IDS Life will always be at least 3% per year.
IDS Life has no specific formula for determining the rates of interest that it
will declare as guarantee rates in the future. IDS Life will declare the
guarantee rates from time to time based on its analysis of current market
conditions. (See Investments by IDS Life). In addition, IDS Life also may
consider various other factors in determining guarantee rates for a given
period, including regulatory and tax requirements; sales commission and
administrative expenses; general economic trends; and competitive factors. IDS
Life management will make the final determination as to the guarantee rates to
be declared. IDS Life cannot predict or guarantee future guarantee rates above
the 3% rate.
Surrenders, free withdrawals and systematic withdrawals
General: Subject to certain tax law and retirement plan restrictions noted
below, total and partial surrenders may be made under a contract at any time.
In the case of all surrenders, the accumulation value will be reduced by the
amount surrendered on the surrender date and that amount will be payable to the
owner. The accumulation value also will be reduced by any applicable surrender
charge and either reduced or increased by any market value adjustment applicable
to the surrender. IDS Life will, on request, inform the owner of the amount
payable in a total or partial surrender. Any total or partial surrender may be
subject to tax and tax penalties and surrenders from certain tax qualified
contracts may be subject to 20% income tax withholding. (See Federal tax
considerations.)
Tax-sheltered annuities: The Code imposes certain restrictions on an owner's
right to receive early distributions attributable to salary reduction
contributions from a contract purchased for a retirement plan qualified under
Section 403(b) of the Code as a TSA.
Distributions attributable to salary reduction contributions made after Dec. 31,
1988, plus the earnings on them, or to transfers or rollovers of such amounts
from other contracts may be made from the TSA contract only if the owner has
attained age 59-1/2, has become disabled as defined in the Code, has separated
from the service of the employer that purchased the contract or has died.
Additionally, if the owner should encounter a financial hardship (within the
meaning of the Code), he or she may receive a distribution of all contract
values attributable to salary reduction contributions made after Dec. 31, 1988,
but not of the earnings on them.
Even though a distribution may be permitted under these rules (e.g., for
hardship or after separation from service), it may nonetheless be subject to a
10% IRS penalty tax (in addition to income tax) as a premature distribution and
to 20% income tax withholding. (See Federal tax considerations.)
These restrictions do not apply to transfers of contract values to another TSA
investment vehicle available through the employer.
Free withdrawal amounts: Each contract year, the owner may surrender or transfer
free withdrawal amounts. These free withdrawal amounts are not subject to either
a surrender charge or a market value adjustment. However, they are subject to
federal income tax and may be subject to a federal penalty tax and, if made from
certain tax qualified contracts, to 20% income tax withholding. Free withdrawal
amounts are calculated separately for each subaccount. From the time a
subaccount is established by payment or transfer up to the next contract
anniversary, the free withdrawal amount is 10% of the subaccount payment or
transfer. During each contract year thereafter, the free withdrawal amount is
10% of the prior contract anniversary subaccount accumulation value.
Systematic withdrawals: The owner may establish systematic withdrawals of
amounts up to the free withdrawal amount by written request or other method
acceptable to IDS Life. The minimum systematic withdrawal amount from the
contract is $100, and these withdrawals can be made on a monthly, quarterly,
semi-annual or annual basis. The owner may designate the systematic withdrawal
to be made from the contract in one of the following ways:
o withdrawing interest earnings up to the free withdrawal amount from each
subaccount over the systematic withdrawal period;
o withdrawing the entire free withdrawal amount over the systematic
withdrawal period; or
o withdrawing a specific dollar amount less than the free withdrawal amount.
Under this option, the specific dollar amount will be withdrawn on a
pro-rata basis from all the subaccounts in which the owner has a balance,
unless the owner instructs otherwise.
The minimum contract accumulation value required to begin systematic withdrawals
is $5,000. The owner may start or stop this service at any time, but must give
IDS Life 30 days' notice to change any systematic withdrawal instructions that
are currently in place.
Systematic withdrawals may result in taxes, tax penalties and 20% income tax
withholding being applied to all or a portion of the amount withdrawn. The owner
should consult a tax advisor regarding the tax consequences of systematic
withdrawals.
Partial surrenders: Unless we agree otherwise, the minimum contract accumulation
value the owner may surrender is $1,000 (except for free withdrawal amounts and
systematic withdrawals as explained above).
The minimum balance in a subaccount after surrender is $1,000.
The owner may make a surrender by written request. This request must specify the
subaccount(s) from which the surrender is to be made and the surrender amount. A
partial surrender request not exceeding $50,000 also may be made by telephone.
IDS Life has the authority to honor any telephone partial surrender request
believed to be authentic and will use reasonable procedures to confirm that they
are. This includes asking identifying questions and tape recording calls. As
long as reasonable procedures are followed, neither IDS Life nor its affiliates
will be liable for any loss resulting from fraudulent requests. At times when
the volume of telephone requests is unusually high, IDS Life will take special
measures to ensure that calls are answered as promptly as possible. A telephone
surrender request will not be allowed within 30 days of a phoned-in address
change.
The owner may request the net check amount that he or she wishes to receive. IDS
Life will determine how much accumulation value needs to be surrendered to yield
the net check amount after any applicable market value adjustments and surrender
charge deductions.
Total surrenders: IDS Life will compute the value of the contract at the next
close of business after receipt of the owner's request for a complete surrender.
A contract terminates upon total surrender. IDS Life may request return of the
contract prior to a total surrender.
Payment on surrender: IDS Life may defer payment of any partial or total
surrender for a period not exceeding 6 months from the date it receives the
owner's notice of surrender or the period permitted by state insurance law, if
less. Only under extraordinary circumstances will IDS Life defer a surrender
payment more than 7 days. If payment is deferred for more than 30 days, IDS Life
will pay annual interest of at least 3% on the amount deferred. While all
circumstances under which IDS Life could defer payment upon surrender may not be
foreseeable at this time, such circumstances could include, for example, IDS
Life's inability to liquidate assets due to a general financial crisis. IDS Life
will notify the owner in writing if it intends to withhold payment more than 30
days.
Surrender at the end of a guarantee period: A subaccount surrender at the end of
the guarantee period or during the first ten days of the new guarantee period
will not incur a surrender charge or market value adjustment, nor will it
reflect any interest earned during this ten day period.
NOTE: The owner will be charged a fee if he or she requests express mail
delivery of the surrender check.
Surrender charge
A surrender charge may be assessed on any total or partial surrender of purchase
payments that have been in the contract for less than eight contract years
unless the surrender occurs on the last day of a subaccount guarantee period or
during the first ten days of the new subaccount guarantee period. Surrender
charges are calculated separately for each subaccount. The surrender charge
depends on the number of contract years a purchase payment to a subaccount has
been in the contract. The surrender charge decreases each year on the contract
anniversary date. There are no surrender charges for payments that have been in
the contract for eight or more contract years.
The surrender charge is determined by multiplying the applicable surrender
charge percentage by the subaccount market adjusted value in excess of the free
withdrawal amount. The surrender charge percentages are as follows:
Contract years since Surrender charge
payment received percentage
- ----------------------------- --------------------------
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 or more 0
For an example of how the surrender charge is calculated for the total surrender
of a subaccount, please see Appendix A.
No surrender charge: There will be no surrender charge for:
o exercise of the cancellation right;
o free withdrawal amounts;
o payments that have been in the contract for eight or more contract
years;
o transfers between subaccounts;
o surrenders from a subaccount at the end of its guarantee period and
during the first ten days of the new subaccount guarantee period;
o application of the accumulation value to provide annuity payments
using an annuity payment plan; or
o death benefits.
In some cases, such as when an employer makes this annuity available to
employees, IDS Life may expect to incur lower sales and administrative expenses
or perform fewer services due to the size of the group, the average contribution
and the use of group enrollment procedures. Then IDS Life may be able to reduce
or eliminate surrender charges. However, IDS Life expects this to occur
infrequently.
Transfers
The owner may transfer the accumulation value from an existing subaccount to a
new subaccount at any time before the settlement date. A subaccount must have
been established for at least one calendar year before the owner can make a
transfer from it. IDS Life will not charge a fee for these transfers.
However, the transfers are subject to a market value adjustment.
For transfers before the end of a guarantee period, there will be a market value
adjustment to the accumulation value in excess of the free withdrawal amount.
There will not be a market value adjustment for transfers at the end of a
guarantee period.
The minimum accumulation value the owner may transfer is $2,000 or the entire
subaccount accumulation value, if less. The owner may transfer less than the
entire subaccount accumulation value only if a minimum accumulation value of
$1,000 remains in the subaccount after the transfer.
The owner may make a transfer by written request. This request must specify the
subaccount from which the transfer is to be made and the amount of the transfer
if it is less than the entire subaccount accumulation value. The request must
also specify the length of the new guarantee period.
Market value adjustment
The subaccount accumulation value, including the interest credited, is
guaranteed if the value is held in the subaccount until the end of the guarantee
period. However, IDS Life will apply a market value adjustment if a surrender or
transfer occurs prior to the end of the guarantee period.
A market value adjustment is a positive or negative adjustment of the subaccount
accumulation value. The market value adjustment reflects the relationship, at
the time of surrender or transfer, between the subaccount guarantee rate and the
interest rate IDS Life then is crediting on purchase payments or transfers made
to new Flexible Payment Market Value Annuity subaccounts with guarantee periods
of the same duration as the time remaining in the subaccount guarantee period.
The market adjusted value is the subaccount accumulation value (in excess of the
free withdrawal amount) adjusted by the market value adjustment, plus the free
withdrawal amount. Upon surrender a subaccount's market adjusted value may be
greater than the contract's accumulation value, equal to it or less than it
depending on how the guaranteed interest rate on the contract compares to the
interest rate of a new Flexible Payment Market Value Annuity for the same number
of years as the guarantee period remaining on the contract.
Relationship between the contract's guaranteed rate and new contract for the
same number of years as the guaranteed period remaining on the contract:
- -------------------------------------------- -------------------------------
The market adjusted
If the annuity rate is: value will be:
- -------------------------------------------- -------------------------------
greater than the new annuity rate + .25% greater than the accumulation
value
equal to the new annuity rate + .25% equal to the accumulation
value
less than the new annuity rate + .25% less than the accumulation
value
- -------------------------------------------- -------------------------------
For example, assume the owner made a purchase payment to a subaccount with a
guarantee period of 10 years and a guarantee rate of 4.5% annually. Assume that
after 3 years the owner decides to surrender the value of that subaccount (with
7 years left in the subaccount guarantee period). If, at the time of surrender,
the guarantee rate IDS Life is offering on new Flexible Payment Market Value
Annuity contracts with 7-year guarantee periods is 5%, the market adjusted value
will be lower than the accumulation value. On the other hand, if the current
guarantee rates on new Flexible Payment Market Value Annuity contracts with
7-year guarantee periods is 4%, the market adjusted value will be higher than
the accumulation value. A 5% surrender charge would then be deducted from the
market adjusted value.
Determining the market value adjustment: The market value adjustment is
determined by:
o Calculating the subaccount accumulation value to be adjusted. This is
the amount to be surrendered or transferred from the subaccount;
o Calculating the market adjusted value of that accumulation value using
the market adjusted value formula below; and
o Subtracting the accumulation value from the market adjusted value.
Market adjusted value formula:
Market adjusted value = [(AVc - FWA) X F] + FWA where:
AVc = the subaccount accumulation value to be surrendered or transferred
FWA = the lesser of AVc or free withdrawal amount
F = (1 + ig)(N + t)
---------------------
(1 + ic + .0025)(N + t)
where:
ig = the subaccount guarantee rate
N = the number of complete years to the end of the guarantee
period for the subaccount
t = the fraction of a year remaining to the end of the guarantee
period (for example, if 180 days remain in a 365 day contract
year, t would be .493 for the subaccount)
ic = the subaccount guarantee rate IDS Life then is crediting on
purchase payments or transfers made to new subaccounts with
guarantee periods of the same duration as the time remaining in
the subaccount guarantee period (straight line interpolation
between whole year rates. If N is zero, ic is the rate for a one
year guarantee period)
For an illustration showing an upward and downward market value adjustment,
please see Appendix B.
No market value adjustment: There will be no market value adjustment for:
o exercise of the cancellation right;
o free withdrawal amounts;
o surrenders or transfers from a subaccount at the end of its guarantee
period and during the first ten days of the new subaccount
guarantee period;
o application of the accumulation value to provide annuity payments
using an annuity payment plan; or
o death benefits.
Premium taxes
IDS Life reserves the right to deduct an amount from the accumulation value of
the contract at the time that any applicable premium taxes not previously
deducted are payable. If a tax is payable at the time of the purchase payment
and IDS Life chooses not to deduct it at that time, it further reserves the
right to deduct it at a later date. Current premium taxes range in an amount up
to 3.5% depending on jurisdiction.
Death benefit prior to settlement
If the annuitant or owner dies before the settlement date while the contract is
in force, the death benefit payable to the beneficiary will equal the
accumulation value as determined at the next close of business after IDS Life's
death claim requirements are fulfilled.
If the spouse is sole beneficiary or joint owner: Unless the owner has given IDS
Life other written instructions, if the owner or joint owner dies before the
settlement date and the spouse is the only beneficiary or joint owner with a
right of survivorship, the spouse may keep the contract as owner. To do this,
the spouse must, within 60 days after IDS Life receives proof of death, give IDS
Life written instructions to keep the contract in force.
Tax qualified plans: If the contract is purchased under a plan qualified under
Code Section 401 (including 401(k)), a TSA plan, a plan eligible under Code
Section 457, a custodial or trusteed plan, or as an IRA, SIMPLE IRA or SEP and
IDS Life receives proof of the annuitant's death before the settlement date, IDS
Life will pay the beneficiary the death benefit described above. If the
annuitant dies before reaching the settlement date and the spouse is the only
beneficiary, the spouse may keep the contract in force until the date on which
the annuitant would have reached 70-1/2 or any other date permitted by the Code.
To do this, the spouse must, within 60 days after IDS Life receives proof of
death, give IDS Life written instructions to keep the contract in force.
Paying the beneficiary: Unless the owner has given other written instructions,
IDS Life will pay the beneficiary in a single payment. Payment from a tax
qualified contract (except an IRA, SIMPLE IRA, SEP or Section 457 plan) made to
a surviving spouse instead of being directly rolled over to an IRA may be
subject to 20% income tax withholding. The beneficiary may elect to receive this
payment at any time within 5 years after the date of death. Instead of a single
payment, IDS Life may make payments under any annuity payment plan available
under this contract if:
o the beneficiary elects the plan in writing within 60 days after IDS
Life receives proof of death;
o payments begin no later than one year after death or any other date
permitted by the Code; and
o the plan provides payments over a period that does not extend beyond
the beneficiary's life or life expectancy.
Death benefit after settlement
If the annuitant dies after settlement, the amount payable, if any, will be as
provided in the annuity payment plan then in effect.
Statement
Prior to the settlement date, at least annually, IDS Life will send a statement
showing a summary of the contract.
Electing the settlement date and annuity payment plan
Upon processing the owner's application IDS Life will establish the settlement
date to the maximum age or date as specified below. The owner can also select a
date within the maximum limits. This date can be aligned with the owner's actual
retirement from a job, or it can be a different future date, depending on the
owner's needs and goals and on certain restrictions. The owner can also change
the date, provided IDS Life receives written instructions at least 30 days
before annuity payouts begin.
For non-tax qualified contracts, the settlement date cannot be later than the
latest of:
o the contract anniversary nearest the annuitant's 85th birthday;
or
o the 10th contract anniversary.
For tax qualified contracts, to avoid IRS penalty taxes, the settlement date
generally must be:
o on or after the date the annuitant reaches 59-1/2; and
o for IRAs, SIMPLE IRAs and SEPs, by April 1 of the year following the
calendar year when the annuitant reaches age 70-1/2; or
o for all other tax qualified contracts, by April 1 of the year following
the calendar year when the annuitant reaches age 70-1/2 or, if later,
retires; except that 5% business owners may not select a settlement
date that is later than April 1 of the year following the calendar year
when they reach age 70-1/2.
If the owner is taking the minimum IRA or TSA distributions as required by the
Code from another tax qualified investment, or in the form of partial surrenders
from this contract, annuity payouts can start as late as the annuitant's 85th
birthday or the 10th contract anniversary.
Annuity payments: The first payment will be made as of the settlement date. Once
annuity payments have started for an annuitant, no surrender of the annuity
benefit can be made for the purpose of receiving a lump sum in lieu of payments.
Annuity payment plans: On the settlement date, the owner may receive a lump sum
payment of the surrender value (see Surrenders, free withdrawals and systematic
withdrawals) or begin receiving annuity payments. If a lump sum payment is made
from a tax qualified contract (except an IRA, SIMPLE IRA, SEP or Section 457
plan), 20% income tax withholding may apply. There are different ways to receive
annuity payments called payment plans. The owner may elect one of these payment
plans, or another payment arrangement to which IDS Life agrees, by giving IDS
Life written notice at least 30 days before the settlement date. In the absence
of an election, IDS Life will make annuity payments according to Plan B with
payments guaranteed for ten years.
If the amount to be applied to a payment plan is not at least $2,000 or if
payments are to be made to other than a natural person, IDS Life has the right
to make a lump sum payment of the surrender value.
o Plan A - This provides monthly annuity payments for the lifetime of the
annuitant. No payments will be made after the annuitant dies.
o Plan B - This provides monthly annuity payments for the lifetime of the
annuitant with a guarantee by IDS Life that payments will be made for a
period of at least 5, 10 or 15 years.
The owner must select the guaranteed period.
o Plan C - This provides monthly annuity payments for the lifetime of the
annuitant with a guarantee by IDS Life that payments will be made for a
certain number of months. IDS Life determines the number of months by
dividing the accumulation value applied under this plan by the amount
of the monthly annuity payment.
o Plan D - This is a joint and survivor life annuity. Monthly payments
will be paid while both the annuitant and a joint annuitant are living.
When either the annuitant or joint annuitant dies, IDS Life will
continue to make monthly payments until the death of the surviving
annuitant. No payments will be made after the death of the second
annuitant.
o Plan E - This provides monthly fixed dollar annuity payments for a
period of years that the owner elects. The period of years may be no
less than 10 or more than 30.
The contract provides for annuity payments on a fixed basis only. The amount of
each annuity payment will not change during the annuity payment period. The
amount of the annuity payment will depend on:
o the annuity table IDS Life then is using for annuity settlements (never
less than the table guaranteed in the contract);
o the annuitant's age; and
o the annuity payment plan selected.
The tables for Plans A, B, C and D are based on the "1983 Individual Annuitant
Mortality Table A" and an assumed rate of 4% per year. The table for Plan E is
based on an interest rate of 4%. IDS Life may, at its discretion, if mortality
appears more favorable and interest rates justify, apply other tables that will
result in higher monthly payments.
Restrictions for some tax qualified plans: If the owner purchased a tax
qualified annuity, the owner must elect a payment plan that provides for
payments:
o during the life of the annuitant;
o during the joint lives of the annuitant and beneficiary;
o for a period not exceeding the life expectancy of the annuitant;
or
o for a period not exceeding the joint life expectancies of the
annuitant and beneficiary.
Reference also must be made to the terms of the tax qualified plan and
applicable law for any limitations or restrictions on the settlement date or
annuity payment plan that may be selected.
Amendment, distribution and assignment of contracts
Amendment of contracts
IDS Life reserves the right to amend the contracts to meet the requirements of
applicable federal or state laws or regulations. IDS Life will notify the owner
of the contract in writing of any such amendments.
Distribution of contracts
IDS Life is the principal underwriter for the contracts. IDS Life is registered
with the Securities and Exchange Commission under the Securities Exchange Act of
1934 (1934 Act) as a broker-dealer and is a member of the National Association
of Securities Dealers, Inc. IDS Life may enter into selling agent agreements
with certain broker-dealers registered under the 1934 Act. IDS Life will pay a
maximum commission of 5% of the purchase payment for the sale of a contract. In
the future, IDS Life may pay a commission on an election of a subsequent
guarantee period by an owner or when an owner maintains a contract in force.
Assignment of contracts
The owner may change ownership of the contract at any time by filing a change of
ownership with IDS Life at its corporate office. No change of ownership will be
binding upon IDS Life until it receives and records the change. IDS Life takes
no responsibility for the validity of the change. If the contract is purchased
under a tax qualified plan, the contract may not be sold, assigned, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other than
IDS Life; provided, however, that if the owner is a trustee or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
The value of any part of a non-tax qualified contract assigned or pledged is
taxed like a surrender to the extent allocable to investment in annuity
contracts after Aug. 13, 1982.
Transfer of a non-tax qualified contract to another person without adequate
consideration is considered a gift and the transfer will be considered a
surrender of the contract for federal income tax purposes. The income in the
contract will be taxed to the transferor who may be subject to the 10% IRS
penalty tax for early withdrawal. The transferee's investment in the contract
will be the value of the contract at the time of the transfer. The owner should
consult with a tax advisor before taking any action.
Federal tax considerations
Under current law, there is no liability for federal income tax on any increase
in the contract's value until payments are made (except for change of ownership
discussed above in "Assignment of contracts"). However, since federal tax
consequences cannot always be anticipated, the owner should consult a tax
advisor regarding any questions about the taxation of the contract.
The owner is not taxed on the purchase payment. The purchase payment generally
includes purchase payments made with after-tax dollars. If the purchase payment
was made by or on behalf of the owner with pre-tax dollars as part of a tax
qualified retirement plan, such amounts are not considered to be part of the
investment in the contract and will be taxed when payment is made.
If the owner surrenders part or all of the contract or takes a free withdrawal
amount, the owner will be taxed on the payments received, to the extent that the
value of the contract exceeds the investment in the contract, and the owner may
have to pay an IRS penalty tax for early withdrawal.
A portion of each annuity payment under a non-tax qualified contract will be
subject to tax and a portion of each payment will be considered to be part of
the investment in the contract and will not be taxed. All amounts received after
the investment in the contract is recovered will be subject to tax. All annuity
payments from a tax qualified contract generally will be subject to taxation
except to the extent that the contributions were made with after-tax dollars.
Unlike life insurance proceeds, the death benefit under a contract is not tax
exempt. The gain, if any, is taxable as ordinary income to the beneficiary in
the year(s) he or she receives the payments. The gain is subject to income tax,
not estate or inheritance tax.
Tax law requires that all non-tax qualified deferred annuity contracts issued by
the same company to the same contract owner during a calendar year are to be
treated as a single, unified contract. The amount of income included and taxed
in a distribution (or a transaction deemed a distribution under tax law) taken
from any one of such contracts is determined by summing all such contracts.
The income earned on a non-tax qualified contract held by such entities as
corporations, partnerships or trusts generally will be treated as ordinary
income received during that year. However, if the trust was set up for the
benefit of a natural person only, the income will continue to be tax-deferred.
If the owner receives amounts from the contract before reaching age 59-1/2, the
owner may have to pay a 10% IRS penalty on the amount includible in ordinary
income. If the owner receives amounts from a SIMPLE IRA before reaching age
59-1/2, generally the IRS 10% penalty provisions apply. However, if the owner
receives these amounts before age 59-1/2 and within the first two years of
participation in the SIMPLE IRA plan, the IRS penalty will be assessed at the
rate of 25% instead of 10%. However, this penalty will not apply to any amount
received:
o after the owner reaches age 59-1/2;
o after the owner dies;
o after the owner becomes disabled (as defined in the Code);
o as a distribution that is part of a series of substantially equal
periodic payments over the life or life expectancy of the owner (or
joint lives or life expectancies of the owner and beneficiary); or
o if it is allocable to a purchase payment before Aug. 14, 1982 (except
for contracts in tax qualified plans).
These are the major exceptions to the 10% IRS penalty tax. Additional exceptions
may apply depending upon whether or not the contract is tax qualified. For tax
qualified contracts, other penalties apply if a contract bought under a plan is
surrendered before the plan specifies that payments can be made under the plan.
In general, if the owner receives all or part of the contract value from an
annuity, withholding may be imposed against the taxable income portion of the
payment. Any withholding that is done represents a prepayment of the tax due for
the year. The owner takes credit for such amounts on the annual tax return that
is filed.
If the payment is part of an annuity payment plan, the amount of withholding
generally is computed using payroll tables. The owner can provide us with a
statement of how many exemptions to use in calculating the withholding. As long
as the owner has provided us with a valid Social Security Number or Taxpayer
Identification Number, the owner can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
surrender), withholding is computed using 10% of the taxable portion. Similar to
above, as long as the owner has provided us with a valid Social Security Number
or Taxpayer Identification Number, the owner can elect not to have this
withholding occur.
If a distribution is taken from a contract offered under a Section 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.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, any payment 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.
If the owner receives all or part of the contract value from a tax qualified
annuity (except an IRA, SIMPLE IRA, SEP or Section 457 plan), mandatory 20%
income tax withholding generally will be imposed at the time the payment is
made. In addition, federal income tax and the 10% IRS penalty tax for early
withdrawals may apply to amounts properly includible in income. This mandatory
20% income tax withholding will not be imposed if:
o instead of receiving the payment, the owner elects to have the payment
rolled over directly to an IRA or another eligible plan;
o the payment is one of a series of substantially equal periodic
payments, made at least annually, over the life or life expectancy of
the owner (or joint lives or life expectancies of the owner and
beneficiary) or made over a period of 10 years or more; or
o the payment is a minimum distribution required under the Code.
These are the major exceptions to the mandatory 20% income tax withholding.
Payments made to a surviving spouse instead of being directly rolled over to an
IRA may be subject to 20% income tax withholding. For taxable distributions that
are not subject to the mandatory 20% withholding, federal income tax will be
withheld from the taxable part of the owner's distribution unless he or she
elects otherwise. State withholding also may be imposed on taxable
distributions.
IDS Life will send the owner and/or annuitant, as appropriate, a tax statement
for any year that a taxable distribution from the contract is received according
to our records.
The contract is intended to qualify as an annuity for federal income tax
purposes. To that end, the provisions of the contract are to be interpreted to
ensure or maintain such tax qualification, notwithstanding any other provisions
of the contract. We reserve the right to amend the contract to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification or to conform the contract to any applicable changes in the tax
qualification requirements. We will send you a copy of any such amendments.
This discussion of federal tax laws is based upon IDS Life's understanding of
these laws as they are currently interpreted. Either federal tax laws or current
interpretations of them may change. Please consult a tax advisor concerning
specific circumstances.
The Company
Business
IDS Life is a stock life insurance company organized in 1957 under the laws of
the State of Minnesota. IDS Life is a wholly owned subsidiary of American
Express Financial Corporation (AEFC), which is a wholly owned subsidiary of
American Express Company. IDS Life acts as a direct writer of insurance policies
and annuities and as the investment manager of various investment companies. IDS
Life is licensed to write life insurance and annuity contracts in 49 states and
the District of Columbia. The headquarters of IDS Life is IDS Tower 10,
Minneapolis, MN 55440-0010.
Investments by IDS Life
Assets of IDS Life must be invested in accordance with requirements established
by applicable state laws regarding the nature and quality of investments that
may be made by life insurance companies and the percentage of their assets that
may be committed to any particular type of investment. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. All claims by purchasers of the contracts, and other general
account products, will be funded by the general account.
IDS Life intends to construct and manage the investment portfolio using a
strategy known as "immunization." Immunization seeks to lock in a defined return
on the pool of assets versus the pool of liabilities over a specified time
horizon. Since the return on the assets versus the liabilities is locked in, it
is "immune" to any potential fluctuations in interest rates during the given
time. Immunization is achieved by constructing a portfolio of assets with a
price sensitivity to interest rate changes (i.e., price duration) that is
essentially equal to the price duration of the corresponding portfolio of
liabilities. Portfolio immunization provides flexibility and efficiency to IDS
Life in creating and managing the asset portfolio, while still assuring safety
and soundness for funding liability obligations.
IDS Life's investment strategy will incorporate the use of a variety of debt
instruments having price durations tending to match the applicable guaranteed
interest periods. These instruments include, but are not necessarily limited to,
the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the
U.S. government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by the nationally recognized
rating agencies;
o Debt instruments that are unrated, but which are deemed by IDS Life to
have an investment quality within the four highest grades;
o Other debt instruments, which are rated below investment grade, limited
to 15% of assets at the time of purchase; and
o Real estate mortgages, limited to 30% of portfolio assets at the time
of acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Minnesota and other state insurance laws.
Selected financial data
The following selected financial data for IDS Life and its subsidiaries should
be read in conjunction with the consolidated financial statements and notes
included in the prospectus beginning on page __.
Years ended Dec. 31, (thousands)
1997 1996 1995 1994 1993
Premiums $ 206,494 $ 182,921 $ 161,530 $ 144,640 $ 127,245
Net investment income 1,988,389 1,965,362 1,907,309 1,781,873 1,783,219
Net realized loss on investments 860 (159) (4,898) (4,282) (6,737)
Other 682,618 574,341 472,035 384,105 304,344
----------- ---------- ----------- ---------- -----------
Total revenues $ 2,878,361 $2,722,465 $ 2,535,976 $2,306,336 $ 2,208,071
----------- ---------- ----------- ---------- -----------
Income before income taxes $ 680,911 $ 621,714 $ 560,782 $ 512,512 $ 412,726
----------- ---------- ----------- ---------- -----------
Net Income $ 474,247 $ 414,576 $ 364,940 $ 336,169 $ 270,079
----------- ---------- ----------- ---------- -----------
Total assets $52,974,124 $47,305,981 $42,900,078 $35,747,543 $33,057,753
Management's discussion and analysis of consolidated financial condition and
results of operations
Results of operations
1997 compared to 1996:
Consolidated net income increased 14% to $474 million in 1997, compared to $415
million in 1996. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges. These increases reflect higher
average insurance and annuities in force during 1997.
Consolidated income before income taxes totaled $681 million in 1997, compared
with $622 million in 1996. In 1997, $179 million was from the life, disability
income and long-term care insurance segment, compared with $161 million in 1996
and $502 million was from the annuity segment, compared with $461 million in
1996.
Total premiums received decreased to $5.2 billion in 1997, compared with $6.1
billion in 1996. This decrease is primarily due to a decrease in sales of fixed
annuities in 1997.
Total revenues increased to $2.9 billion in 1997, compared with $2.7 billion in
1996. 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 slightly from the prior
year, reflecting slight increases in investments owned and investment yields.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 13% to $342 million
in 1997, compared with $303 million in 1996. This increase reflects increased
total life insurance in force which grew 12% to $75 billion at Dec. 31, 1997.
Management and other fees increased 26% to $341 million in 1997, compared with
$271 million in 1996. This is primarily due to an increase in separate account
assets, which grew 25% to $23 billion at Dec. 31, 1997, 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 $2.2 billion in 1997. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, remained steady at $1.4
billion. DAC increased to $323 million compared to $279 million in 1996. These
increases were due primarily to increased aggregate amounts in force.
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 increased 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 increased
total life insurance in force which grew 13% to $67 billion at Dec. 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 Dec. 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 increased aggregate amounts in force and an increase in
average interest credited rates.
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.
The amount of the fee income the Company receives is based upon the daily market
value of the separate account and mutual fund assets. As a result, the Company's
fee income could be impacted significantly by a decline in the equity markets.
Another part of the committee's strategy is to enter into index option collars
(combinations of puts and calls) for hedging purposes. These derivatives protect
fee income by providing option income when there is a significant decline in the
equity markets, which mitigates the impact of the corresponding decline in
separate account and mutual fund assets. The Company finances the cost of this
protection through selling a portion of the upside potential from an increasing
market through written options.
Liquidity and capital resources
The liquidity requirements of the Company are met by funds provided by 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 an available line of credit with its parent aggregating $100
million. The line of credit is used strictly as short-term sources of funds. No
borrowings were outstanding under the agreement at Dec. 31, 1997. At Dec. 31,
1997, outstanding reverse repurchase agreements totaled $163 million.
At Dec. 31, 1997, investments in fixed maturities comprised 83% of the Company's
total invested assets. Of the fixed maturity portfolio, approximately 40% is
invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
At Dec. 31, 1997, approximately 11% 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 investment grade 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, 1997, net unrealized appreciation on fixed maturities held to
maturity included $445 million of gross unrealized appreciation and $17 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $399 million of gross unrealized
appreciation and $37 million of gross unrealized depreciation.
At Dec. 31, 1997, the Company had an allowance for losses for mortgage loans
totaling $39 million and for real estate investments totaling $6 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. The Company has not
adopted Statement of Position 97-3 providing guidance when an insurer should
recognize a liability for guaranty fund assessments. The SOP is effective for
fiscal years beginning after Dec. 15, 1998. Adoption will not have a material
impact on the Company's results of operations or financial condition.
In the first quarter of 1998, the Company paid a $60 million dividend to its
parent. In 1997, dividends paid to its parent were $200 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, 1997, the Company's total adjusted capital was well in
excess of the levels requiring regulatory attention.
Year 2000 issue
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
systems used by the Company are maintained by AEFC and are utilized by multiple
subsidiaries and affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with systems of
third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, has been conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps are being
taken to resolve any potential problems including modification to existing
software and the purchase of new software. These measures are scheduled to be
completed and tested on a timely basis. AEFC's goal is to complete internal
remediation and testing of each system by the end of 1998 and to continue
compliance efforts through 1999.
AEFC is evaluating the Year 2000 readiness of advisors and other third parties
whose system failures could have an impact on the Company's operations. The
potential materiality of any such impact is not known at this time.
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 1997, 1996 or
1995. Additionally, no single distributor accounted for more than 10% of
premiums received in 1997, 1996 or 1995. (See Note 10, Segment information, in
the "Notes to Consolidated Financial Statements".)
Reinsurance
Reinsurance arrangements are used to reduce exposure to large losses. The
maximum amount of risk retained by the Company on any one life is $750,000 of
life and waiver of premium benefits plus $50,000 of accidental death benefits.
The excesses are reinsured with other life insurance companies. At Dec. 31,
1997, traditional life and universal life-type insurance in force aggregated $75
billion, of which $4 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 $27 billion at Dec. 31, 1997,
34% was invested in mortgage-backed securities, 48% in corporate and other
bonds, 14% in primary mortgage loans on real estate, 2% in policy loans and the
remaining 2% 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 1,700 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life Health
edition, 1997, assigned IDS Life one of its highest classifications, A+
(Superior).
Employees
As of Dec. 31, 1997, IDS Life and its subsidiaries had 303 employees; including
245 employed at the corporate office in Minneapolis, MN, 8 employed at American
Centurion Life Assurance Company located in Albany, NY and 50 employed at IDS
Life Insurance Company of New York located in Albany, NY.
Properties
IDS Life occupies office space in Minneapolis, MN, which is rented by its
parent, American Express Financial Corporation. IDS Life reimburses American
Express Financial Corporation for rent based on direct and indirect allocation
methods. Facilities occupied by IDS Life and its subsidiaries are believed to be
adequate for the purposes for which they are used and are well maintained.
State regulation
IDS Life is subject to the laws of the State of Minnesota governing insurance
companies and to the regulations of the Minnesota Department of Commerce. An
annual statement in the prescribed form is filed with the Minnesota Department
of Commerce each year covering IDS Life's operation for the preceding year and
its financial condition at the end of such year. Regulation by the Minnesota
Department of Commerce includes periodic examination to determine IDS Life's
contract liabilities and reserves so that the Minnesota Department of Commerce
may certify that these items are correct. IDS Life's books and accounts are
subject to review by the Minnesota Department of Commerce at all times. Such
regulation does not, however, involve any supervision of the account's
management or IDS Life's investment practices or policies. In addition, IDS Life
is subject to regulation under the insurance laws of other jurisdictions in
which it operates. A full examination of IDS Life's operations is conducted
periodically by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
Directors and executive officers
The members of the Board of Directors and the principal executive officers of
IDS Life, together with the principal occupation of each during the last five
years, are as follows:
Directors*
David R. Hubers
Born in 1943
Director since September 1989; president and chief executive officer, AEFC,
since August 1993, and director since January 1984.Senior vice president,
Finance and chief financial officer, AEFC, from January 1984 to August 1993.
Richard W. Kling
Born in 1940
Director since February 1984; president since March 1994. Executive vice
president, Marketing and Products from January 1988 to March 1994. Senior vice
president, AEFC, since May 1994. Director of IDS Life Series Fund, Inc. and
member of the board of managers 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.
Officers other than directors*
Jeffrey S. Horton
Born in 1961
Vice president and treasurer since December 1997; vice president and corporate
treasurer, AEFC, since December 1997; controller, American Express Technologies
- - Financial Services, AEFC, from July 1997 to December 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
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 1997 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 1997.
Name of individual or number in group Cash
Position held compensation
Five most highly compensated
executive officers as a group:
$8,616,958
James A. Mitchell Chairman of the Board and Chief
Executive Officer
Richard W. Kling President
Pamela J. Moret Exec. Vice President, Variable
Assets
Barry J. Murphy Exec. Vice President, Client
Service
Stuart A. Sedlacek Exec. Vice President, Assured
Assets
All executive officers as a group
(10) $12,523,043
Security ownership of management
IDS Life's directors and officers do not beneficially own any outstanding shares
of stock of IDS Life. All of the outstanding shares of stock of IDS Life are
beneficially owned by its parent, American Express Financial Corporation. The
percentage of shares of American Express Financial Corporation owned by any
director, and by all directors and officers of IDS Life as a group, does not
exceed 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 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 IDS Life and its parent, AEFC. A second action was filed in
March 1997. 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. 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.
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 a 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 December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, 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.
Appendix A
Total surrender of a subaccount
This example shows how surrender charges are calculated for the total surrender
of one subaccount.
Assumptions:
The contract is dated January 15, 1997. The contract year is January 15 to
January 14 and the anniversary date is January 15th each year.
Subaccount P is established with a $5,000 payment on July 1, 1998. The surrender
charge percentages for Subaccount P will be:
Surrender date Surrender charge percentage
- --------------------------------------- -----------------------------------
7-1-98 to 1-14-99 7%
1-15-99 to 1-14-00 6
1-15-00 to 1-14-01 5
1-15-01 to 1-14-02 4
1-15-02 to 1-14-03 3
1-15-03 to 1-14-04 2
1-15-04 to 1-14-05 1
January 15, 2005+ 0
The Subaccount P market adjusted value is transferred to Subaccount Q on
September 1, 1999. The above surrender charge percentage date limits do not
change even though Subaccount P transferred to Subaccount Q.
Subaccount Q is entirely surrendered November 4, 2002, when the Subaccount Q
accumulation value is $8,300. Interest rates have increased since Subaccount Q
started. The January 15, 2002 (prior contract anniversary) Subaccount Q
accumulation value was $8,000.
Assume that the November 4, 2002 market adjusted value is $8,000. This includes
the $800 free withdrawal amount (10% of the January 15, 2002 Subaccount Q
accumulation value) and an assumed ($300) negative market value adjustment due
to interest rate increases.
What is the surrender charge amount?
The $8,000 market adjusted value less the $800 free withdrawal amount is subject
to a 3% surrender charge. The surrender charge is 3% of $7,200 which is $216.
What net amount does the owner receive?
The owner receives a net surrender check of $7,784 which is:
Subaccount Q market adjusted value $8,000
(Which includes the $800 free withdrawal amount
and the ($300) market value adjustment)
Less Subaccount Q surrender charge - 216
------
Net Subaccount Q surrender check $7,784
Appendix B
Market value adjustment illustration
Assumptions:
Contract date: January 1, 1997
Subaccount established: July 1, 1997
Purchase payment: $50,000
Subaccount guarantee period: 10 years
Subaccount guarantee rate: 4.5% effective annual yield
Market value adjustment assumptions: These examples show how the market value
adjustment may affect your contract subaccount values. The surrenders in these
examples occur on July 1, 1998, one year after the subaccount is established.
There are no previous surrenders.
The subaccount accumulation value at the end of one year is $52,250. If there
are no surrenders, the subaccount accumulation value at the end of the 10-year
guarantee period will be $77,648.47.
The subaccount accumulation value on January 1, 1998, the contract anniversary,
is: $50,000 x (1 + .045)(184/365) = $51,121.87. The free withdrawal amount for
the next year is $5,112.19. This free withdrawal amount (10% of the contract
anniversary subaccount accumulation value) is free of both market value
adjustment and surrender charge.
The market value adjustment reflects the relationship (at the time of surrender)
between the subaccount guarantee rate and the interest rate IDS Life then is
crediting on purchase payments or transfers made to new subaccounts with
guarantee periods of the same duration as the time remaining in the subaccount
guarantee period. After one year, there are 9 years left of the 10-year
subaccount guarantee period.
Example I shows a downward market value adjustment. Example II shows an upward
market value adjustment. These examples do not show the surrender charge (if
any) which would be calculated separately after the market value adjustment.
Surrender charge calculations are shown in Appendix A.
Market adjusted value formula:
Market adjusted value = [(AVc - FWA) x F] + FWA where:
AVc = the subaccount accumulation value to be surrendered or transferred
FWA = the lesser of AVc or free withdrawal amount
F = (1 + ig)(N + t)
-----------------------
(1 + ic + .0025)(N + t)
where:
ig = the subaccount guarantee rate
N = the number of complete years to the end of the guarantee period for the
subaccount
t = the fraction of a year remaining to the end of the guarantee period
(for example, if 180 days remain in a 365 day year, t would be .493 for
the subaccount)
ic = the subaccount guarantee rate IDS Life then is crediting on purchase
payments or transfers made to new subaccounts with guarantee periods of
the same duration as the time remaining in the subaccount guarantee
period (straight line interpolation between whole year rates. If N is
zero, ic is the rate for a one year guarantee period)
Example I - Downward market value adjustment
A surrender results in a downward market value adjustment when interest rates
have increased. Assume after one year, IDS Life is crediting 5% for a new
subaccount with a 9-year guarantee period. If the owner totally surrenders the
subaccount, the market adjusted value is:
[(AVc - FWA) x F] + FWA
[($52,250.00 - $5,112.19) x (1 + .045)9]+ 5,112.19 = $49,311.66
------------
(1 + .05 + .0025)9]
The market value adjustment is a $2,938.34 reduction of the accumulation value:
($2,938.34) = $49,311.66 - $52,250.00
Example II - Upward market value adjustment
A surrender results in an upward market value adjustment when interest rates
have decreased. Assume after one year, IDS Life is crediting 4% for a new
subaccount with a 9-year guarantee period. If the owner totally surrenders the
subaccount, the market adjusted value is:
[(AVc - FWA) x F] + FWA
[$52,250.00 - $5,112.19) x (1 + .045)9] + $5,112.19 = $53,277.18
-------------
(1 + .04 + .0025)9]
The market value adjustment is a $1,027.18 increase of the accumulation value:
$1,027.18 = $53,277.18 - $52,250.00
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, 1997 and 1996 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, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
February 5, 1998
IDS Life Financial Information
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1997 1996
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1997, $9,743,410; 1996, $10,521,650) $9,315,450 $10,236,379
Available for sale, at fair value (Amortized cost:
1997, $12,515,030; 199, $11,008,622) 12,876,694 11,146,845
Mortgage loans on real estate 3,618,647 3,493,364
Policy loans 498,874 459,902
Other investments 318,591 251,465
Total investments 26,628,256 25,587,955
Cash and cash equivalents 19,686 224,603
Amounts recoverable from reinsurers 205,716 157,722
Amounts due from brokers 8,400 11,047
Other accounts receivable 37,895 44,089
Accrued investment income 357,390 343,313
Deferred policy acquisition costs 2,479,577 2,330,805
Deferred income taxes, net -- 33,923
Other assets 22,700 37,364
Separate account assets 23,214,504 18,535,160
Total assets $52,974,124 $47,305,981
========= =========
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities $22,009,747 $21,838,008
Universal life-type insurance 3,280,489 3,177,149
Traditional life insurance 213,676 209,685
Disability income and long-term care insurance 533,124 424,200
Policy claims and other policyholders' funds 68,345 83,634
Deferred income taxes, net 61,582 --
Amounts due to brokers 381,458 261,987
Other liabilities 345,383 332,078
Separate account liabilities 23,214,504 18,535,160
Total liabilities 50,108,308 44,861,901
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 290,847 283,615
Net unrealized gain on investments 226,359 86,102
Retained earnings 2,345,610 2,071,363
Total stockholder's equity 2,865,816 2,444,080
Total liabilities and stockholder's equity $52,974,124 $47,305,981
========= =========
See accompanying notes.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended Dec. 31,
1997 1996 1995
(thousands)
Revenues:
Premiums:
Traditional life insurance $ 52,473 $ 51,403 $ 50,193
Disability income and long-term care insurance 154,021 131,518 111,337
Total premiums 206,494 182,921 161,530
Policyholder and contractholder charges 341,726 302,999 256,454
Management and other fees 340,892 271,342 215,581
Net investment income 1,988,389 1,965,362 1,907,309
Net realized gain (loss) on investments 860 (159) (4,898)
Total revenues 2,878,361 2,722,465 2,535,976
Benefits and expenses:
Death and other benefits:
Traditional life insurance 28,951 26,919 29,528
Universal life-type insurance
and investment contracts 92,814 85,017 71,691
Disability income and
long-term care insurance 22,333 19,185 16,259
Increase (decrease) in liabilities for
future policy benefits:
Traditional life insurance 3,946 1,859 (1,315)
Disability income and
long-term care insurance 63,631 57,230 51,279
Interest credited on universal life-type
insurance and investment contracts 1,386,448 1,370,468 1,315,989
Amortization of deferred policy acquisition costs 322,731 278,605 280,121
Other insurance and operating expenses 276,596 261,468 211,642
Total benefits and expenses 2,197,450 2,100,751 1,975,194
Income before income taxes 680,911 621,714 560,782
Income taxes 206,664 207,138 195,842
Net income $ 474,247 $ 414,576 $ 364,940
======== ======== =======
See accompanying notes.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended Dec. 31, 1997
(thousands)
Additional Net Unrealized
Capital Paid-In Gain (Loss)on Retained
Stock Capital on Investments Earnings Total
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
Net income -- -- -- 474,247 474,247
Change in net unrealized
gain (loss) on investments -- -- 140,257 -- 140,257
Capital contribution from parent -- 7,232 -- -- 7,232
Cash dividends -- -- -- (200,000) (200,000)
Balance, Dec. 31, 1997 $3,000 $290,847 $226,359 $2,345,610 $2,865,816
===== ======= ======= ========= ========
See accompanying notes.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1997 1996 1995
(thousands)
Cash flows from operating activities:
Net income $ 474,247 $ 414,576 $ 364,940
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Policy loan issuance, excluding universal
life-type insurance (54,665) (49,314) (46,011)
Policy loan repayment, excluding universal
life-type insurance 46,015 41,179 36,416
Change in amounts recoverable from reinsurers (47,994) (43,335) (34,083)
Change in other accounts receivable 6,194 (4,981) 12,231
Change in accrued investment income (14,077) 4,695 (30,498)
Change in deferred policy acquisition
costs, net (156,486) (294,755) (196,963)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance 112,915 97,479 85,575
Change in policy claims and other
policyholders' funds (15,289) 27,311 6,255
Change in deferred income tax provision (benefit) 19,982 (65,609) (33,810)
Change in other liabilities 13,305 46,724 (6,548)
(Accretion of discount)
amortization of premium, net (5,649) (23,032) (22,528)
Net realized (gain) loss on investments (860) 159 4,898
Policyholder and contractholder
charges, non-cash (160,885) (154,286) (140,506)
Other, net 7,161 (10,816) 3,849
Net cash provided by (used in) operating
activities $ 223,914 $ (14,005) $ 3,217
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1997 1996 1995
(thousands)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (1,996) $ (43,751) $ (1,007,208)
Maturities, sinking fund payments and calls 686,503 759,248 538,219
Sales 236,761 279,506 332,154
Fixed maturities available for sale:
Purchases (3,160,133) (2,299,198) (2,452,181)
Maturities, sinking fund payments and calls 1,206,213 1,270,240 861,545
Sales 457,585 238,905 136,825
Other investments, excluding policy loans:
Purchases (524,521) (904,536) (823,131)
Sales 335,765 236,912 160,521
Change in amounts due from brokers 2,647 (11,047) 7,933
Change in amounts due to brokers 119,471 140,369 (105,119)
Net cash used in investing activities (641,705) (333,352) (2,350,442)
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 2,785,758 3,567,586 4,189,525
Surrenders and death benefits (3,736,242) (4,250,294) (3,141,404)
Interest credited to account balances 1,386,448 1,370,468 1,315,989
Universal life-type insurance policy loans:
Issuance (84,835) (86,501) (84,700)
Repayment 54,513 58,753 52,188
Capital contribution from parent 7,232 4,801 --
Dividends paid (200,000) (165,000) (180,000)
Net cash provided by financing activities 212,874 499,813 2,151,598
Net (decrease) increase in cash and
cash equivalents (204,917) 152,456 (195,627)
Cash and cash equivalents at
beginning of year 224,603 72,147 267,774
Cash and cash equivalents at
end of year $ 19,686 $ 224,603 $ 72,147
======= ======== ========
See accompanying notes.
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ 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 (AEFC), 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), American Partners
Life Insurance Company and American Express Corporation.
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 (see Note 4).
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 reported 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.
1. Summary of significant accounting policies (continued)
------------------------------------------
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 judgment as to the ultimate collectibility of
principal, interest payments received are either recognized as income
or applied to the recorded investment in the loan.
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.
During 1997, 1996 and 1995, the Company purchased and wrote index
options to protect against significant declines in fee income as a
result of a decrease in the market value of its managed assets. These
options were marked-to-market through the income statement.
During 1997, the Company purchased and wrote index options to hedge
1998 management fee and other income from separate accounts and the
underlying mutual funds. These index options are carried at market
value and are included in other investments. Gains or losses on these
instruments are deferred and recognized in management and other fees in
the same period as the hedged fee 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 December 31 is summarized as
follows:
1997 1996 1995
---- ---- ----
Cash paid during the year for:
Income taxes $174,472 $317,283 $191,011
Interest on borrowings 8,213 4,119 5,524
1. Summary of significant accounting policies (continued)
------------------------------------------
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. Under this method, profits are recognized 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
received from the variable annuity and variable life insurance separate
accounts and underlying mutual 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 accumulation values and surrender charge revenue.
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 and deferred annuities
are accumulation values.
Liabilities for fixed annuities in a benefit status are based on
established industry mortality tables and interest rates ranging from
5% to 9.5%, depending on year of issue.
Liabilities for future benefits on traditional life insurance are based
on the net level premium method, using anticipated mortality, policy
persistency and interest earning rates. Anticipated mortality rates
are based on established industry mortality tables. 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
range from 4% to 10%, depending on policy form, issue year and policy
duration.
1. Summary of significant accounting policies (continued)
------------------------------------------
Liabilities for future disability income and long-term care policy
benefits include both policy reserves and claim reserves. Policy
reserves are based on the net level premium method, using anticipated
morbidity, mortality, policy persistency and interest earning rates.
Anticipated morbidity and mortality rates are based on established
industry morbidity and mortality tables. Anticipated policy
persistency rates vary by policy form, issue age, policy duration and,
for disability income policies, occupation class. Anticipated interest
rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 10% over 5
to 10 years.
Claim reserves are calculated based on claim continuance tables and
anticipated interest earnings. Anticipated claim contuance rates are
based on a national survey. Anticipated interest rates for claim
reserves for both disability income and long-term care range from 6% to
8%.
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 AEFC and American Express Company, tax benefit is
recognized for losses to the extent they can be used on the
consolidated tax return. It is the policy of AEFC and its subsidiaries
that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1997 and 1996 are $12,061
and $33,358, respectively, receivable from American Express Financial
Corporation for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for
the exclusive benefit of the variable annuity and variable life
insurance contract owners. The Company receives investment
management fees from the proprietary mutual funds used as investment
options for variable annuities and variable life insurance. The
Company receives mortality and expense risk fees from the separate
accounts.
1. Summary of significant accounting policies (continued)
------------------------------------------
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.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform to the
1997 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.
The amortized cost, gross unrealized gains and losses and fair values
of investments in fixed maturities and equity securities at December
31, 1997 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- --------- ---------- ---------- -----
U.S. Government agency oblitations $41,932 $ 2,950 $ -- $ 44,881
State and municipal obligations 9,684 568 -- 10,252
Corporate bonds and obligations 7,280,646 415,700 9,322 7,687,024
Mortgage-backed securities 1,983,188 25,976 7,911 2,001,253
--------- ------ ----- ---------
$9,315,450 $445,194 $17,233 $9,743,410
========= ======= ====== =========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
U.S. Government agency obligations $ 65,291 $ 4,154 $ -- $69,445
State and municipal obligations 11,045 1,348 -- 12,393
Corporate bonds and obligations 5,308,129 232,761 30,198 5,510,692
Mortgage-backed securities 7,130,565 160,478 6,879 7,284,164
--------- ------- ----- ---------
Total fixed maturities 12,515,030 398,741 37,077 12,876,694
Equity securities 3,000 361 -- 3,361
---------- ------- ------ ----------
$12,518,030 $399,102 $37,077 $12,880,055
========== ======= ====== ==========
2. Investments (continued)
-----------
The amortized cost, gross unrealized gains and losses and fair values
of investments in fixed maturities and equity securities at December
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 and fair value of investments in fixed maturities at
December 31, 1997 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 $ 356,597 $360,956
Due from one to five years 1,536,239 1,619,875
Due from five to ten years 4,337,547 4,577,552
Due in more than ten years 1,101,879 1,183,774
Mortgage-backed securities 1,983,188 2,001,253
--------- ---------
$9,315,450 $9,743,410
========= =========
Amortized Fair
Available for sale Cost Value
--------- -----
Due in one year or less $ 162,663 $ 164,012
Due from one to five years 633,339 679,561
Due from five to ten years 2,418,162 2,517,098
Due in more than ten years 2,170,301 2,231,859
Mortgage-backed securities 7,130,565 7,284,164
---------- ----------
$12,515,030 $12,876,694
========== ==========
2. Investments (continued)
-----------
During the years ended December 31, 1997, 1996 and 1995, fixed
maturities classified as held to maturity were sold with amortized cost
of $229,848, $277,527 and $333,508, 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' credit
worthiness.
Fixed maturities available for sale were sold during 1997 with proceeds
of $457,585 and gross realized gains and losses of $6,639 and $7,518,
respectively. 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.
At December 31, 1997, bonds carried at $14,351 were on deposit with
various states as required by law.
At December 31, 1997, investments in fixed maturities comprised 83
percent of the Company's total invested assets. These securities are
rated by Moody's and Standard & Poor's (S&P), except for securities
carried at approximately $2.7 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 December 31 is as follows:
Rating 1997 1996
--------- --------- ---------
Aaa/AAA $ 9,195,619 $ 9,460,134
Aaa/AA -- 2,870
Aa/AA 232,451 241,914
Aa/A 246,792 192,631
A/A 2,787,936 2,949,895
A/BBB 1,200,345 1,034,661
Baa/BBB 5,226,616 4,531,515
Baa/BB 475,084 768,285
Below investment grade 2,465,637 2,063,096
--------- ---------
$21,830,480 $21,245,001
========== ==========
At December 31, 1997, 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 one percent of the Company's total
investments in fixed maturities.
At December 31, 1997, approximately 14 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:
December 31, 1997 December 31, 1996
------------------------ -----------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------- ---------- ------------ ---------- -----------
East North Central $ 748,372 $ 32,462 $ 777,960 $ 19,358
West North Central 456,934 14,340 389,285 29,620
South Atlantic 922,172 14,619 891,852 35,007
Middle Atlantic 545,601 15,507 553,869 17,959
New England 316,250 2,136 310,177 14,042
Pacific 184,917 3,204 190,770 4,997
West South Central 125,227 -- 105,173 11,246
East South Central 60,274 -- 75,176 --
Mountain 297,545 28,717 236,597 11,401
--------- ------- --------- -------
3,657,292 110,985 3,530,859 143,630
Less allowance for
losses 38,645 -- 37,495 --
--------- ------- --------- -------
$3,618,647 $110,985 $3,493,364 $143,630
========= ======= ========= =======
2. Investments (continued)
-----------
December 31, 1997 December 31, 1996
------------------------ -------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
--------------- ---------- ----------- ---------- -----------
Department/retail
stores $1,189,203 $ 27,314 $1,154,179 $ 68,032
Apartments 1,089,127 16,576 1,119,352 23,246
Office buildings 716,729 34,546 611,395 27,653
Industrial buildings 295,889 21,200 296,944 6,716
Hotels/motels 101,052 -- 97,870 6,257
Medical buildings 99,979 9,748 67,178 8,289
Nursing/retirement
homes 72,359 -- 88,226 1,877
Mixed Use 71,007 -- 73,120 --
Other 21,947 1,601 22,595 1,560
--------- ------- --------- ------
3,657,292 110,985 3,530,859 143,630
Less allowance for
losses 38,645 -- 37,495 --
--------- ------- --------- -------
$3,618,647 $110,985 $3,493,364 $143,630
========= ======= ========= =======
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 it 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 December 31, 1997 and 1996, the Company's recorded investment in
impaired loans was $45,714 and $79,441, respectively, with allowances
of $9,812 and $16,162, respectively. During 1997 and 1996, the average
recorded investment in impaired loans was $61,870 and $74,338,
respectively.
The Company recognized $2,981, $4,889 and $5,014 of interest income
related to impaired loans for the years ended December 31, 1997, 1996
and 1995 respectively.
The following table presents changes in the allowance for investment
losses related to all loans:
1997 1996 1995
------ ------ ------
Balance, January 1 $37,495 $37,340 $35,252
Provision for investment losses 8,801 10,005 15,900
Loan payoffs (3,851) (4,700) (11,900)
Foreclosures (3,800) (5,150) (1,350)
Other -- -- (562)
------ ------ -------
Balance, December 31 $38,645 $37,495 $37,340
====== ====== ======
At December 31, 1997, the Company had commitments to purchase
investments other than mortgage loans for $234,485. Commitments to
purchase investments are made in the ordinary course of business. The
fair value of these commitments is $nil.
2. Investments (continued)
-----------
Net investment income for the years ended December 31 is summarized as
follows:
1997 1996 1995
--------- --------- ---------
Interest on fixed maturities $1,692,481 $1,666,929 $1,656,136
Interest on mortgage loans 305,742 283,830 232,827
Other investment income 25,089 43,283 35,936
Interest on cash equivalents 5,914 5,754 5,363
--------- --------- ---------
2,029,226 1,999,796 1,930,262
Less investment expenses 40,837 34,434 22,953
--------- --------- ---------
$1,988,389 $1,965,362 $1,907,309
========= ========= =========
Net realized gain (loss) on investments for the years ended December 31
is summarized as follows:
1997 1996 1995
------ ----- -----
Fixed maturities $ 16,115 $ 8,736 $ 9,973
Mortgage loans (6,424) (8,745) (13,259)
Other investments (8,831) (150) (1,612)
------- ----- -------
$ 860 $ (159) $ (4,898)
======= ====== ======
Changes in net unrealized appreciation (depreciation) of investments
for the years ended December 31 are summarized as follows:
1997 1996 1995
------- ------- -------
Fixed maturities available
for sale $223,441 $(231,853) $811,649
Equity securities 53 (52) 3,118
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.
The income tax expense consists of the following:
1997 1996 1995
Federal income taxes:
Current $176,879 $260,357 $218,040
Deferred 19,982 (65,609) (33,810)
------- -------- -------
196,861 194,748 184,230
State income taxes-current 9,803 12,390 11,612
------- ------- -------
Income tax expense $206,664 $207,138 $195,842
======= ======= =======
3. Income taxes (continued)
------------
Increases (decreases) to the federal tax provision applicable to pretax
income based on the statutory rate are attributable to:
1997 1996 1995
---------------- --------------- ---------------
Provision Rate Provision Rate Provision Rate
--------- ---- --------- ---- --------- ----
Federal income
taxes based on
the statutory rate $238,319 35.0% $217,600 35.0% $196,274 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (10,294) (1.5) (9,636) (1.5) (8,524) (1.5)
State Taxes, net of federal
benefit 6,372 0.9 8,053 1.3 7,548 1.3
Low income housing
credits (20,705) (3.0) (5,090) (0.8) (861) (0.2)
Other, net (7,028) (1.0) (3,789) (0.7) 1,405 0.3
------- ----- ------- ---- ------- ----
Federal income taxes $206,664 30.4% $207,138 33.3% $195,842 34.9%
======= ==== ======= ==== ======= ====
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 December 31, 1997, 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 December 31 are as follows:
1997 1996
---- ----
Deferred tax assets:
Policy reserves $748,204 $724,412
Life insurance guarantee
fund assessment reserve 20,101 29,854
Other 9,589 2,763
------- -------
Total deferred tax assets 777,894 757,029
------- -------
Deferred tax
liabilities:
Deferred policy acquisition costs 700,032 665,685
Unrealized gain on investments 121,885 48,486
Investments, other 17,559 8,935
------- -------
Total deferred tax liabilities 839,476 723,106
------- -------
Net deferred tax (liabilities) assets $(61,582) $ 33,923
====== ======
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
--------------------
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 $1,468,677 as of
December 31, 1997 and $1,261,592 as of December 31, 1996 (see Note 3
with respect to the income tax effect of certain distributions). In
addition, any dividend distributions in 1998 in excess of approximately
$331,480 would require approval of the Department of Commerce of the
State of Minnesota.
Statutory net income for the years ended December 31 and capital and
surplus as of December 31 are summarized as follows:
1997 1996 1995
---------- ---------- ----------
Statutory net income $ 379,615 $ 365,585 $ 326,799
Statutory capital and surplus 1,765,290 1,565,082 1,398,649
surplus
5. Related party transactions
--------------------------
The Company loans funds to American Express Financial Corporation under
a collateral loan agreement. The balance of the loan was $nil and
$11,800 at December 31, 1997 and 1996, 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. Interest income on related party loans totaled
$103, $780 and $1,371 in 1997, 1996 and 1995, respectively.
The Company purchased a five year secured note from an affiliated
company which was redeemed in 1996. The interest rate on the note was
8.42 percent. Interest income on the above note totaled $1,637 and
$1,937 in 1996 and 1995, respectively.
The Company participates in the American Express Company Retirement
Plan which covers all permanent employees age 21 and over who have met
certain employment requirements. 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 $201, $174
and $155 in 1997, 1996 and 1995, 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 1997,
1996 and 1995 were $1,245, $990 and $815, respectively.
The Company participates in defined benefit health care plans of AEFC
that provide health care and life insurance benefits to retired
employees and retired financial advisors. The plans include
participant contributions and service related eligibility
requirements. Upon retirement, such employees are considered to have
been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. Accordingly, costs of such benefits to
the Company are included in employee compensation and benefits and
cannot be identified on a separate company basis.
5. Related party transactions (continued)
--------------------------
Charges by AEFC for use of joint facilities, marketing services and
other services aggregated $414,155, $397,362 and $377,139 for 1997,
1996 and 1995, respectively. Certain of these costs are included in
deferred policy acquisition costs. In addition, the Company rents its
home office space from AEFC on an annual renewable basis.
6. Commitments and contingencies
-----------------------------
At December 31, 1997 and 1996, traditional life insurance and universal
life-type insurance in force aggregated $74,730,720 and $67,274,354,
respectively, of which $4,351,904 and $3,875,921 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 $60,495, $48,250 and $39,399 and reinsurance recovered from
reinsurers amounted to $19,042, $15,612, and $14,088 for the years
ended December 31, 1997, 1996 and 1995, respectively. 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,
AEFC. A second action was filed in March, 1997. The plaintiffs
purport to represent a class consisting of all persons who replaced
existing Company policies with new Company policies from and after
January 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. 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.
The IRS routinely examines the Company's federal income tax returns,
and is currently auditing the Company's returns for the 1990 through
1992 tax years. Management does not believe there will be a material
adverse effect on the Company's consolidated financial position as a
result of this audit.
7. Lines of credit
---------------
The Company has an available line of credit with its parent aggregating
$100,000. The rate for the line of credit is the parent's cost of
funds, ranging from 20 to 45 basis points over the established index.
Borrowings outstanding under this agreement were $nil at
December 31, 1997 and 1996.
8. Derivative financial instruments
--------------------------------
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk and equity
market 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.
8. Derivative financial instruments (continued)
--------------------------------
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 or
equity market index. 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 risk related to
derivative financial instruments through established approval
procedures, including setting concentration limits by counterparty, 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 risk related to interest rate caps and floors and index options
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 risk.
The Company's holdings of derivative financial instruments are as
follows:
Notional Carrying Fair Total Credit
December 31, 1997 Amount Amount Value Exposure
----------------- -------- -------- ----- ------------
Assets:
Interest rate caps $ 4,600,000 $ 24,963 $ 15,665 $ 15,665
Interest rate floors 1,000,000 1,561 4,551 4,551
Put index options 221,984 11,120 11,120 11,120
Liabilities:
Call index options 221,984 (8,273) (8,273) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (45,799) --
--------- ------ ------ ------
$29,371 $(22,736) $31,336
====== ====== ======
Notional Carrying Fair Total Credit
December 31, 1996 Amount Amount 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
Off balance sheet:
Interest rate swaps 1,000,000 -- (24,715) --
--------- ------ -------- ------
$18,268 $(12,935) $11,780
====== ====== ======
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 1998 to 2003. The interest rate
swaps expire on various dates from 2000 to 2003. All put and call
options expire in 1998.
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.
8. Derivative financial instruments (continued)
--------------------------------
Index options are used to manage the equity market risk related to the
fee income that the Company receives from its separate accounts and the
underlying mutual funds. The amount of the fee income received is
based upon the daily market value of the separate account and mutual
fund assets. As a result, the Company's fee income could be impacted
significantly by changing economic conditions in the equity market.
The Company entered into index option collars (combination of puts and
calls) to hedge anticipated fee income for 1998 related to separate
accounts and mutual funds which invest in equity securities. Testing
has demonstrated the impact of these instruments on the income
statement closely correlates with the amount of fee income the Company
realizes. In the event that testing demonstrates that this correlation
no longer exists, or in the event the Company disposes of the index
options collars, the instruments will be marked-to-market through the
income statement. At December 31, 1997, deferred gains on purchased
put index options were $11,120 and deferred losses on written call
index options were $8,273.
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 and liabilities is significant. The fair value of the
Company, therefore, cannot be estimated by aggregating the amounts
presented.
1997 1996
------------------ ---------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- -------- ------ ------- -----
Investments:
Fixed maturities (Note 2):
Held to maturity $9,315,450 $9,743,410 $10,236,379 $10,521,650
Available for sale 12,876,694 12,876,694 11,146,845 11,146,845
Mortgage loans on
real estate (Note 2) 3,618,647 3,808,570 3,493,364 3,606,077
Other:
Equity securities (Note 2) 3,361 3,361 3,308 3,308
Derivative financial
instruments (Note 8) 37,644 31,336 18,268 11,780
Other 82,347 85,383 63,993 66,242
Cash and
cash equivalents (Note 1) 19,686 19,686 224,603 224,603
Separate account assets
(Note 1) 23,214,504 23,214,504 18,535,160 18,535,160
Financial Liabilities
Future policy benefits
for fixed annuities 20,731,052 19,882,302 20,641,986 19,721,968
Derivative financial
instruments (Note 8) (8,273) (54,072) -- (24,715)
Separate account liabilities 21,488,282 20,707,620 17,358,087 16,688,519
9. Fair values of financial instruments (continued)
------------------------------------
At December 31, 1997 and 1996, the carrying amount and fair value of
future policy benefits for fixed annuities exclude life
insurance-related contracts carried at $1,185,155 and $1,112,155,
respectively, and policy loans of $93,540 and $83,867, respectively.
The fair value of these benefits is based on the status of the
annuities at December 31, 1997 and 1996. 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
1997 and 1996.
At December 31, 1997 and 1996, 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 $1,726,222 and $1,177,073, 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
December 31, 1997, 1996 and 1995 and total assets at December 31, 1997,
1996 and 1995 by segment are summarized as follows:
1997 1996 1995
Net investment income:
Life, disability income
and long-term care insurance $ 269,874 $ 262,998 $ 256,242
Annuities 1,718,515 1,702,364 1,651,067
--------- --------- ---------
$ 1,988,389 $ 1,965,362 $ 1,907,309
========= ========= =========
Premiums, charges and fees:
Life, disability income
and long-term care insurance $ 514,838 $ 448,389 $ 384,008
Annuities 374,274 308,873 249,557
------- ------- -------
$ 889,112 $ 757,262 $ 633,565
======= ======= =======
Income before income taxes:
Life, disability income
and long-term care insurance $ 178,717 $ 161,115 $ 125,402
Annuities 501,334 460,758 440,278
Net gain (loss) on investments 860 (159) (4,898)
------- ------- -------
$ 680,911 $ 621,714 $ 560,782
======= ======= =======
Total assets:
Life, disability income
and long-term care insurance $ 8,193,796 $ 7,028,906 $ 6,195,870
Annuities 44,780,328 40,277,075 36,704,208
---------- ---------- ----------
$52,974,124 $47,305,981 $42,900,078
========== ========== ==========
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.
11. Year 2000 Issue (unaudited)
---------------
The Year 2000 issue is the result of computer programs having been
written using two digits rather than four to define a year. Any
programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than 2000. This could result in the failure of
major systems or miscalculations, which could have a material impact on
the operations of the Company. All of the systems used by the Company are
maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with
systems of third parties.
A comprehensive review of AEFC's computer systems and business
processes, including those specific to the Company, has been conducted to
identify the major systems that could be affected by the Year 2000
issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis.
AEFC's goal is to complete internal remediation and testing of each
system by the end of 1998 and to continue compliance efforts through
1999.
AEFC is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's
operations. The potential materiality of any such impact is not known at
this time.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses of the issuance and distribution of the interests in the
IDS Life Account MGA of IDS Life Insurance Company to be registered, other than
commissions on sales of the Contracts, are to be borne by the registrant.
Item 14. Indemnification of Directors and Officers
Section 300.083 of Minnesota Law provides in part that a corporation
organized under such law shall have power to indemnify anyone made, or
threatened to be made, a party to a threatened, pending or completed proceeding,
whether civil or criminal, administrative or investigative, because he is or was
a director or officer of the corporation, or served as a director or officer of
another corporation at the request of the corporation. Indemnification in such a
proceeding may extend to judgments, penalties, fines and amounts paid in
settlement, as well as to reasonable expenses, including attorneys' fees and
disbursements. In a civil proceeding, there can be no indemnification under the
statute, unless it appears that the person seeking indemnification has acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and its shareholders and unless such
person has received no improper personal benefit; in a criminal proceeding, the
person seeking indemnification must also have no reasonable cause to believe his
conduct was unlawful.
Article IX of the By-laws of IDS Life Insurance Company requires IDS
Life Insurance Company to indemnify directors and officers to the extent
indemnification is permitted as stated by the preceding paragraph, and contains
substantially the same language as the above-mentioned Section 300.083.
Article IX, paragraph (2), of the By-laws of IDS Life Insurance Company
provides as follows:
"Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party, by reason of the fact that he is or
was a director, officer, employee or agent of this Corporation, or is or was
serving at the direction of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to any threatened, pending or completed action, suit or proceeding,
wherever brought, to the fullest extent permitted by the laws of the State of
Minnesota, as now existing or hereafter amended, provided that this Article
shall not indemnify or protect any such director, officer, employee or agent
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of his duties or by reason of his reckless
disregard of his obligations and duties."
The parent company of IDS Life Insurance Company maintains an insurance
policy which affords liability coverage to directors and officers of IDS Life
Insurance Company while acting in that capacity. IDS Life Insurance Company pays
its proportionate share of the premiums for the policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1. - 2. Not applicable.
3.1 Copy of Certificate of Incorporation of IDS Life Insurance
Company filed electronically as Exhibit 3.1 to Post-Effective
Amendment No. 2 to Registration Statement No. 33-50968 is
incorporated herein by reference.
3.2 Copy of the Amended By-laws of IDS Life Insurance Company
filed electronically as Exhibit 3.2 to Post-Effective
Amendment No. 2 to Registration Statement No. 33-50968 is
incorporated herein by reference.
3.3 Copy of Resolution of the Board of Directors of IDS Life
Insurance Company, dated May 5, 1989, establishing IDS Life
Account MGA filed electronically as Exhibit 3.3 to
Post-Effective Amendment No. 2 to Registration Statement No.
33-50968 is incorporated herein by reference.
4.1 Copy of Group Annuity Contract, Form 30363D, filed
electronically as Exhibit 4.1 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-50968 is incorporated
herein by reference.
4.2 Copy of Group Annuity Certificate, Form 30360D, filed
electronically as Exhibit 4.2 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-50968 is incorporated
herein by reference.
4.3 Form of Deferred Annuity Contract, Form 30365E, filed
electronically as Exhibit 4.3 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-50968 is incorporated
herein by reference.
5. Copy of Opinion of Counsel regarding legality of Contracts,
dated Sept. 28, 1992, filed electronically as Exhibit 5 to
Post-Effective Amendment No. 2 to Registration Statement No.
33-50968 is incorporated herein by reference.
6. - 20. Not applicable.
21. Copy of List of Subsidiaries filed electronically as
Exhibit 22 to Post-Effective Amendment No. 5 to Registration
Statement No. 33-50968 is incorporated herein by reference.
22. Not applicable.
23. Consent of Independent Auditors, filed electronically
herewith.
24.1 Power of Attorney, dated August 19, 1997, filed electronically
herewith.
24.2 Power of Attorney, dated April 9, 1998, filed electronically
herewith.
25.-27. Not applicable.
(b) Financial Statement Schedules
Schedule I - Consolidated Summary of Investments Other than
Investments in Related Parties
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Report of Independent Auditors dated February 5, 1998.
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
Item 17. Undertakings
A. The Registrant undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement,
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement,
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time may be deemed to be the initial bona
fide offering thereof,
(3) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in
effect at the time such post-effective amendments are filed,
and
(4) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. The Registrant represents that it is relying upon the no-action assurance
given to the American Council of Life Insurance (pub. avail. Nov. 28, 1988).
Further, the Registrant represents that it has complied with the provisions of
paragraphs (1) - (4) of the no-action letter.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IDS Life Insurance
Company has duly caused this Registration Statement to be signed on behalf of
the Registrant by the undersigned, thereunto duly authorized in this City of
Minneapolis, and State of Minnesota on the 14th day of April, 1998.
IDS Life Insurance Company
(Registrant)
By IDS Life Insurance Company
By /s/ James A. Mitchell*
James A. Mitchell
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 14th day of April, 1998.
Signature Title
/s/ James A. Mitchell* Chairman of the Board
James A. Mitchell and Chief Executive Officer
/s/ Richard W. Kling* Director and President
Richard W. Kling
/s/ Jeffrey S. Horton** Vice President and Treasurer
Jeffrey S. Horton
/s/ David R. Hubers* Director
David R. Hubers
/s/ Paul F. Kolkman* Director and Executive Vice
Paul F. Kolkman President
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President, Assured Assets
/s/ Philip C. Wentzel** Vice President and Controller
Philip C. Wentzel
*Signed pursuant to Power of Attorney dated August 19, 1997, filed
electronically herewith as Exhibit 24.1 for IDS Life Insurance Company (IDS Life
Account MGA).
**Signed pursuant to Power of Attorney dated April 9, 1998, filed electronically
herewith as Exhibit 24.2 for IDS Life Insurance Company (IDS Life Account MGA).
By:
- ------------------------
Bruce A. Kohn
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the consolidated financial statements of IDS Life Insurance
Company as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, and have issued our report thereon dated
February 5, 1998 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in the index to financial
statement schedules of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Ernst & Young LLP
Minneapolis, Minnesota
February 5, 1998
IDS LIFE INSURANCE COMPANY
SCHEDULE I - CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ thousands)
AS OF DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
Type of Investment Cost Value Amount at which
shown in the
balance sheet
- -----------------------------------------------------------------------------------------------------
Fixed maturities:
Held to maturity:
United States Government and
government agencies and
authorities (a) $ 1,829,112 $ 1,846,833 $ 1,829,112
States, municipalities and
political subdivisions 9,684 10,252 9,684
All other corporate bonds (b) 7,476,654 7,886,325 7,476,654
------------ ---------- ----------
Total held to maturity 9,315,450 9,743,410 9,315,450
Available for sale:
United States Government and
government agencies and
authorities (c) 6,798,425 6,944,942 6,944,942
States, municipalities and
political subdivisions 11,045 12,393 12,393
All other corporate bonds (d) 5,705,560 5,919,359 5,919,359
------------ ---------- ----------
Total available for sale 12,515,030 12,876,694 12,876,694
Mortgage loans on real estate 3,618,647 XXXXXXXXX 3,618,647
Policy loans 498,874 XXXXXXXXX 498,874
Other investments 318,591 XXXXXXXXX 318,591
------------ ----------
Total investments $ 26,266,592 $ XXXXXXXXX $ 26,628,256
============ ========== ==========
(a) - Includes mortgage-backed securities with a cost and market value of $1,787,180 and $1,801,952,
respectively.
(b) - Includes mortgage-backed securities with a cost and market value of $196,008 and $199,301,
respectively.
(c) - Includes mortgage-backed securities with a cost and market value of $6,733,134 and $6,875,498,
respectively.
(d) - Includes mortgage-backed securities with a cost and market value of $397,431 and $408,667,
respectively.
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($
thousands)
FOR THE YEAR ENDED DECEMBER 31, 1997
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Annuities $ 1,453,441 $ 22,009,747 $ - $ 35,007 $ - $1,718,515 $ 1,720 $229,729 $262,680 N/A
Life, DI, and
Long-term Care
Insurance 1,026,136 4,027,289 - 33,338 206,494 269,874 209,955 93,002 13,916 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 2,479,577 $ 26,037,036 $ - $ 68,345 $ 206,494 $ 1,988,389 $ 211,675 $322,731 $276,596 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1996
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Annuities $ 1,398,025 $ 21,838,008 $ - $ 50,137 $ - $1,702,364 $ 2,724 $ 189,645 $ 180,942 N/A
Life, DI, and
Long-term
Care Insurance 932,780 3,811,034 - 33,497 182,921 262,998 187,486 88,960 80,526 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,330,805 $ 25,649,042 $ - $ 83,634 $ 182,921 $1,965,362 $ 190,210 $ 278,605 $ 261,468 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Annuities $ 1,227,169 $ 21,404,836 $ - $ 28,191 $ - $1,651,067 $ 2,693 $ 189,626 $ 166,191 N/A
Life, DI,
and Long-term
Care Insurance 798,556 3,613,253 - 28,132 161,530 256,242 164,749 90,495 45,451 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,025,725 $ 25,018,089 $ - $ 56,323 $ 161,530 $1,907,309 $ 167,442 $ 280,121 $ 211,642 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
IDS LIFE INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Gross amount Ceded to other Assumed from Net % of amount
companies other companies Amount assumed to net
- ---------------------------------------------------------------------------------------------------
For the year ended
December 31, 1997
Life insurance in force $ 73,119,122 $ 4,351,904 $ 1,611,596 $ 70,378,814 2.29%
- -------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 55,094 $ 3,124 $ 503 $ 52,473 0.96%
DI & LTC insurance 196,799 42,778 -- 154,021 0.00%
- -------------------------------------------------------------------------------------------
Total premiums $ 251,893 $ 45,902 $ 503 $ 206,494 0.24%
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For the year ended
December 31, 1996
Life insurance in force $ 65,571,173 $ 3,875,921 $ 1,703,181 $ 63,398,433 2.69%
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Premiums:
Life insurance $ 54,111 $ 3,253 $ 545 $ 51,403 1.06%
DI & LTC insurance 164,561 33,043 -- 131,518 0.00%
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Total premiums $ 218,672 $ 36,296 $ 545 $ 182,921 0.30%
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For the year ended
December 31, 1995
Life insurance in force $ 57,895,180 $ 3,771,204 $ 1,788,352 $ 55,912,328 3.20%
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Premiums:
Life insurance $ 53,089 $ 2,648 $ (248) $ 50,193 -0.49%
DI & LTC insurance 137,016 25,679 -- 111,337 0.00%
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Total premiums $ 190,105 $ 28,327 $ (248) $ 161,530 -0.15%
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IDS LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
---------
Balance at Charged to
Description Beginning Charged to Other Accounts- Deductions- Balance at End
of Period Costs & Expenses Describe Describe * of Period
- -------------------------------------------------------------------------------------------------------
For the year ended
December 31, 1997
- ----------------------------
Reserve for Mortgage Loans $37,495 $8,801 $0 $7,651 $38,645
Reserve for Other Investments $3,963 $2,100 $0 $0 $6,063
For the year ended
December 31, 1996
- ----------------------------
Reserve for Mortgage Loans $37,340 $10,005 $0 $9,850 $37,495
Reserve for Other Investments $4,713 ($750) $0 $0 $3,963
For the year ended
December 31, 1995
- ----------------------------
Reserve for Mortgage Loans $35,252 $15,900 $0 $13,812 $37,340
Reserve for Other Investments $7,515 ($2,802) $0 $0 $4,713
* 1997, 1996 and 1995 amounts represent $7,651, $9,850, and $13,812, respectively, for loan
payoffs and foreclosures.