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IDS Life Flexible Portfolio Annuity
Prospectus
Feb. 12, 1996
The Flexible Portfolio Annuity is an individual deferred
fixed/variable annuity contract offered by IDS Life Insurance
Company (IDS Life), a subsidiary of American Express Financial
Corporation. Purchase payments may be allocated among different
accounts, providing variable and/or fixed returns and payouts. The
annuity is available for qualified and nonqualified retirement
plans.
IDS Life Variable Account 10
Sold by: IDS Life Insurance Company, IDS Tower 10, Minneapolis, MN
55440-0010, Telephone: 612-671-3131.
THIS PROSPECTUS CONTAINS THE INFORMATION ABOUT THE VARIABLE ACCOUNT
THAT YOU SHOULD KNOW BEFORE INVESTING. Refer to "The variable
account" in this prospectus.
THE PROSPECTUS IS ACCOMPANIED OR PRECEDED BY THE FOLLOWING
PROSPECTUSES: THE RETIREMENT ANNUITY MUTUAL FUND PROSPECTUS
(DESCRIBING IDS LIFE AGGRESSIVE GROWTH FUND, IDS LIFE INTERNATIONAL
EQUITY FUND, IDS LIFE CAPITAL RESOURCE FUND, IDS LIFE MANAGED FUND,
INC., IDS LIFE SPECIAL INCOME FUND, INC. AND IDS LIFE MONEYSHARE
FUND, INC.); AIM VARIABLE INSURANCE FUNDS, INC. PROSPECTUS
(DESCRIBING AIM V.I. GROWTH AND INCOME FUND); THE PUTNAM CAPITAL
MANAGER TRUST (DESCRIBING PCM NEW OPPORTUNITIES FUND); THE
TEMPLETON VARIABLE PRODUCTS SERIES FUND (DESCRIBING TEMPLETON
DEVELOPING MARKETS FUND) AND WARBURG PINCUS TRUST (DESCRIBING
WARBURG PINCUS TRUST SMALL COMPANY GROWTH PORTFOLIO). PLEASE KEEP
THESE PROSPECTUSES FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IDS LIFE IS NOT A FINANCIAL INSTITUTION, AND THE SECURITIES IT
OFFERS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY FINANCIAL INSTITUTION NOR ARE THEY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY. INVESTMENTS IN THIS ANNUITY INVOLVE INVESTMENT
RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (SAI) dated Feb. 12, 1996
(incorporated by reference into this prospectus) has been filed
with the Securities and Exchange Commission (SEC), and is available
without charge by contacting IDS Life at the telephone number above
or by completing and sending the order form on the last page of
this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
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Table of contents
Key Terms.......................................................
The Flexible Portfolio Annuity in brief.........................
Expense summary.................................................
Financial statements............................................
Performance information.........................................
The variable account............................................
The funds.......................................................
IDS Life Aggressive Growth Fund............................
IDS Life International Equity Fund.........................
IDS Life Capital Resource Fund.............................
IDS Life Managed Fund......................................
IDS Life Special Income Fund...............................
IDS Life Moneyshare Fund...................................
AIM V.I. Growth and Income Fund............................
PCM New Opportunities Fund.................................
Templeton Developing Markets Fund..........................
Warburg Pincus Trust Small Company Growth Portfolio.......
The fixed account...............................................
Buying your annuity.............................................
The retirement date........................................
Beneficiary................................................
How to make purchase payments..............................
Charges.........................................................
Contract administrative charge.............................
Mortality and expense risk fee.............................
Surrender charge...........................................
Waiver of surrender charges................................
Premium taxes..............................................
Valuing your investment.........................................
Number of units............................................
Accumulation unit value....................................
Net investment factor......................................
Factors that affect variable subaccount
accumulation units.........................................
Making the most of your annuity.................................
Automated dollar-cost averaging............................
Transferring money between subaccounts.....................
Transfer policies..........................................
How to request a transfer or a surrender..............
Surrendering your contract......................................
Surrender policies.........................................
Receiving payment when you request a surrender.............
TSA special surrender provisions................................
Changing ownership..............................................
Benefits in case of death.......................................
The annuity payout period.......................................
Annuity payout plans.......................................
Death after annuity payouts begin..........................
Taxes...........................................................
Voting rights...................................................
Substitution of investments.....................................
Distribution of the contracts...................................
About IDS Life .................................................
Regular and special reports.....................................
Table of contents of the Statement of Additional Information.... <PAGE>
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Key terms
These terms can help you understand details about your annuity.
Annuity - A contract purchased from an insurance company that
offers tax-deferred growth of the investment until earnings are
withdrawn, and that can be tailored to meet the specific needs of
the individual during retirement.
Accumulation unit - A measure of the value of each variable
subaccount before annuity payouts begin.
Annuitant - The person on whose life or life expectancy the annuity
payouts are based.
Annuity payouts - An amount paid at regular intervals under one of
several plans available to the owner and/or any other payee. This
amount may be paid on a variable or fixed basis or a combination of
both.
Annuity unit - A measure of the value of each variable subaccount
used to calculate the annuity payouts you receive.
Beneficiary - The person designated to receive annuity benefits in
case of the owner's or annuitant's death.
Close of business - When the New York Stock Exchange (NYSE) closes,
normally 3 p.m. Central time.
Code - Internal Revenue Code of 1986, as amended.
Contract value - The total value of your annuity before any
applicable surrender charge and any contract administrative charge
have been deducted.
Contract year - A period of 12 months, starting on the effective
date of your contract and on each anniversary of the effective
date.
Fixed account - An account to which you may allocate purchase
payments. Amounts allocated to this account earn interest at rates
that are declared periodically by IDS Life.
IDS Life - In this prospectus, "we," "us," "our" and "IDS Life"
refer to IDS Life Insurance Company.
Mutual funds (funds) - Mutual funds or portfolios, each with a
different investment objective. (See "The funds.") You may
allocate your purchase payments into variable subaccounts investing
in shares of any or all of these funds.
Owner (you, your) - The person who controls the annuity (decides on
investment allocations, transfers, payout options, etc.). Usually,
but not always, the owner is also the annuitant. The owner is
responsible for taxes, regardless of whether he or she receives the
annuity's benefits.
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Purchase payments - Payments made to IDS Life for an annuity.
Qualified annuity - An annuity purchased for a retirement plan
that is subject to applicable federal law and any rules of the plan
itself. These plans include:
o Individual Retirement Annuities (IRAs)
o Simplified Employee Pension Plans (SEPs)
o Section 401(k) plans
o Custodial and trusteed pension and profit-sharing plans
o Tax-Sheltered Annuities (TSAs)
o Section 457 plans.
All other annuities are considered nonqualified annuities.
Retirement date - The date when annuity payouts are scheduled to
begin. This date is first established when you start your
contract. You can change it in the future.
Surrender charge - A deferred sales charge that may be applied if
you surrender your annuity before the retirement date.
Surrender value - The amount you are entitled to receive if you
surrender your annuity. It is the contract value minus any
applicable surrender charge and contract administrative charge.
Valuation date - Any normal business day, Monday through Friday,
that the NYSE is open. The value of each variable subaccount is
calculated at the close of business on each valuation date.
Variable account - An account consisting of separate subaccounts to
which you may allocate purchase payments; each invests in shares of
one mutual fund. (See "The variable account.") The value of your
investment in each variable subaccount changes with the performance
of the particular fund.
The Flexible Portfolio Annuity in brief
Purpose: The Flexible Portfolio Annuity is designed to allow you
to build up funds for retirement. You do this by making one or more
investments (purchase payments) that may earn returns that increase
the value of the annuity. Beginning at a specified future date
(the retirement date), the annuity provides lifetime or other forms
of payouts to you or to anyone you designate.
Ten-day free look: You may return your annuity to your financial
advisor or our Minneapolis office within 10 days after it is
delivered to you and receive a full refund of the contract value.
No charges will be deducted. However, you bear the investment risk
from the time of purchase until return of the contract; the refund
amount may be more or less than the payment you made. (Exception:
if the law so requires, all of your purchase payment will be
refunded.)
Accounts: You may allocate your purchase payments among any or all
of:
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o variable subaccounts, each of which invests in a mutual fund
with a particular investment objective. The value of each
variable subaccount varies with the performance of the
particular fund. We cannot guarantee that the value at the
retirement date will equal or exceed the total of purchase
payments allocated to the variable subaccounts. (p.14)
o one fixed account, which earns interest at rates that are
adjusted periodically by IDS Life. (p.19)
Buying your annuity: Your financial advisor will help you complete
and submit an application. Applications are subject to acceptance
at our Minneapolis office. You may buy a nonqualified annuity or a
qualified annuity including an IRA. Payment may be made either in
a lump sum or installments:
o Minimum initial purchase payment - $2,000 ($1,000 for qualified
annuities) unless you pay in installments by means of a bank
authorization or under a group billing arrangement such as a
payroll deduction.
o Minimum additional purchase payment - $50.
o Minimum installment payment - $50 monthly; $23.08 biweekly
(scheduled payment plan billing).
o Maximum first-year payment(s) - $50,000 to $1,000,000 depending
on your age.
o Maximum payment for each subsequent year - $50,000 to $100,000
depending upon your age. (p.20)
Transfers: Subject to certain restrictions you may redistribute
your money among accounts without charge at any time until annuity
payouts begin, and once per contract year among the variable
subaccounts thereafter. You may establish automated transfers
among the fixed account and variable subaccount(s). (p.31)
Surrenders: You may surrender all or part of your contract value at
any time before the retirement date. You also may establish
automated partial surrenders. Surrenders may be subject to charges
and tax penalties and may have other tax consequences; also,
certain restrictions apply. (p.35)
Changing ownership: You may change ownership of a nonqualified
annuity by written instruction, however, such changes of
nonqualified annuities may have federal income tax consequences.
Certain restrictions apply concerning change of ownership of a
qualified annuity. (p.38)
Benefits in case of death: If you or the annuitant dies before
annuity payouts begin, we will pay the beneficiary an amount at
least equal to the contract value. (p.39)
Annuity payouts: The contract value of your investment can be
applied to an annuity payout plan that begins on the retirement
date. You may choose from a variety of plans to make sure that
payouts continue as long as they are needed. If you purchased a
qualified annuity, the payout schedule must meet the requirements
of the qualified plan. Payouts may be made on a fixed or variable
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basis, or both. Total monthly payouts may include amounts from
each variable subaccount and the fixed account. During the annuity
payout period, you cannot be invested in more than five variable
subaccounts at any one time unless we agree otherwise. (p.41)
Taxes: Generally, your annuity grows tax-deferred until you
surrender it or begin to receive payouts. (Under certain
circumstances, IRS penalty taxes may apply.) Even if you direct
payouts to someone else, you will still be taxed on the income if
you are the owner. (p.44)
Charges: Your Flexible Portfolio Annuity is subject to a $30
annual contract administrative charge, a 1.25% mortality and
expense risk charge, a surrender charge, and any applicable premium
taxes that may be imposed by state or local governments and
deducted as applicable either from your purchase payments or upon
total withdrawal or when annuity payouts begin. (p.24)
Expense summary
The purpose of this summary is to help you understand the various
costs and expenses associated with your annuity.
You pay no sales charge when you purchase the annuity. All costs
that you bear directly or indirectly for the variable subaccounts
and underlying mutual funds are shown below. Some expenses may
vary as explained under "Contract charges."
Direct charges. These are deducted directly from the contract
value. They include:
Surrender charge: You may pay surrender charges on any surrender
within the first eight contract years. The surrender charge starts
at 7% of any purchase payments surrendered during the first three
contract years, then declines by 1% per year from 6% in the fourth
year to 2% in the eighth year. No charge applies after 8 contract
years. Contract earnings may be surrendered without charge at any
time.
Annual contract administrative charge: $30, waived when contract
value, or total purchase payments (less any payments surrendered)
equals or exceeds $25,000 on your contract anniversary.
Indirect charges. The variable account pays these expenses out of
its assets. They are reflected in the variable subaccount's daily
accumulation unit value and are not charged directly to your
account. They include:
Mortality and expense risk fee: 1.25% per year, deducted from the
variable account as a percentage of the average daily net assets of
the underlying fund.
Operating expenses of underlying mutual funds: management fees and
other expenses deducted as a percentage of average net assets as
follows: *
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<TABLE>
<CAPTION>
IDS Life IDS Life Warburg Pincus
Aggres- Inter- IDS Life IDS Life AIM V.I. PCM New Templeton Trust Small
sive national Capital IDS Life Special IDS Life Growth and Oppor- Developing Company
Growth Equity Resource Managed Income Moneyshare Income*** tunities Markets Growth Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
fees .64% .86% .63% .62% .63% .54% .65% .70% .76% .67%
Other
expenses .04 .09 .04 .03 .04 .05 .41 .01 .94 .58
Total .68%** .95%** .67%** .65%** .67%** .59%** 1.06%** .71%+ 1.70%+++ 1.25%++**
* Premium taxes imposed by some state and local governments are not reflected in this table.
** Annualized operating expenses of underlying mutual funds at Dec. 31, 1995.
+ Annualized operating expenses of the Fund at Dec. 31, 1994. The Manager of PCM New Opportunities Fund has voluntarily limited
the expenses of the Fund. If the expense limitation had not been in effect the Management Fees would have been .70%, Other
expenses would have been .03% and Total expenses would have been .73%.
++ Figures in "Management Fees," "Other expenses" and "Total" reflect waivers and reimbursements of expenses by Warburg Pincus
Trust. If there had been no reimbursement of expenses in 1995, actual expenses of the Portfolio, expressed as a percent of average
daily net assets, would have been as follows: "Management Fees," .90%, "Other expenses" .60% and "Total" 1.50%.
+++This is a new fund: operating expenses are based on annualized estimates of such expenses to be incurred in the current fiscal
year. Net of Management Fees waived. The Fund's Investment Manager has agreed in advance to reduce its fee so as to limit the
total expenses of the Fund to an annual rate of 1.70% of the Fund's average daily net assets until May 1, 1997.
IDS Life IDS Life Warburg Pincus
Aggres- Inter- IDS Life IDS Life AIM V.I. PCM New Templeton Trust Small
sive national Capital IDS Life Special IDS Life Growth and Oppor- Developing Company
Growth Equity Resource Managed Income Moneyshare Income tunities Markets Growth Portfolio
Example:* You would pay the following expenses on a $1,000 investment, assuming 5% annual
return and surrender at the end of each time period:
1 year $ 93.42 $ 96.00 $ 93.33 $ 93.14 $ 93.33 $ 92.57 $ 97.05 $ 93.71 $103.15 $ 98.86
3 years 142.30 150.02 142.01 141.44 142.01 139.71 153.15 143.16 171.25 158.55
5 years 170.98 184.15 170.49 169.50 170.49 166.55 189.48 172.45 219.97 198.61
10 years 243.98 272.02 242.93 240.82 242.93 234.47 283.23 247.13 346.07 302.30
You would pay the following expenses on the same investment assuming no surrender or the
selection of an annuity payout plan at the end of each time period:
1 year $ 21.42 $ 24.19 $ 21.32 $ 21.12 $ 21.32 $ 20.50 $ 25.32 $ 21.73 $ 31.88 $ 27.27
3 years 66.12 74.46 65.81 65.19 65.81 63.33 77.84 67.05 97.38 83.67
5 years 113.41 127.36 112.89 111.85 112.89 108.73 132.99 114.97 165.27 142.67
10 years 243.98 272.02 242.93 240.82 242.93 234.47 283.23 247.13 346.07 302.30
</TABLE>
This example should not be considered a representation of past or
future expenses. Actual expenses may be more or less than those
shown.
* In this example, the $30 annual contract administrative charge is
approximated as a .160% charge based on the expected average
contract size. IDS Life has entered into certain arrangements
under which it is compensated for the administrative services it
provides to the funds.
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Financial statements
The SAI, dated Feb. 12, 1996, contains:
The audited financial statements of IDS Life including:
-balance sheets as of Dec. 31, 1994 and Dec. 31, 1993
-related statements of income, and cash flows for the years
ended Dec. 31, 1994 and 1993
and the unaudited financial statements of IDS Life including:
-balance sheet as of Sept. 30, 1995 and
-related statements of income, and cash flows for the nine
months ended Sept. 30, 1995.
The SAI does not include financial statements of the variable
account because this a new account that does not have any assets.
Performance information
Performance information for the variable subaccounts may appear
from time to time in advertisements or sales literature. In all
cases, such information reflects the performance of a hypothetical
investment in a particular account during a particular time period.
Calculations are performed as follows:
Simple yield - Account HM (investing in Moneyshare Fund): Income
over a given seven-day period (not counting any change in the
capital value of the investment) is annualized (multiplied by 52)
by assuming that the same income is received for 52 weeks. This
annual income is then stated as an annual percentage return on the
investment.
Compound yield - Account HM (investing in Moneyshare Fund):
Calculated like simple yield, except that, when annualized, the
income is assumed to be reinvested. Compounding of reinvested
returns increases the yield as compared to a simple yield.
Yield - Account HS (investing in Special Income): Net investment
income (income less expenses) per accumulation unit during a given
30-day period is divided by the value of the unit on the last day
of the period. The result is converted to an annual percentage.
Average annual total return: Expressed as an average annual
compounded rate of return of a hypothetical investment over a
period of one, five and 10 years (or up to the life of the account
if it is less than 10 years old). This figure reflects deduction
of all applicable charges, including the contract administrative
charge, mortality and expense risk fee and surrender charge,
assuming a surrender at the end of the illustrated period.
Optional total return quotations may be made that do not reflect a
surrender charge deduction (assuming no surrender).
Aggregate total return: Represents the cumulative change in the
value of an investment over a specified period of time (reflecting
change in a subaccount's accumulation unit value). The calculation
assumes reinvestment earnings and reflects the deduction of all
applicable charges, including the contract administrative charge,
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PAGE 9
mortality and expense risk fee and surrender charge, assuming a
surrender at the end of the illustrated period. Optional total
return quotations may be made that do not reflect a surrender
charge deduction (assuming no surrender). The calculation assumes
reinvestment of investment earnings. Aggregate total return may be
shown by means of schedules, charts or graphs.
Performance information should be considered in light of the
investment objectives and policies, characteristics and quality of
the fund in which the subaccount invests, and the market conditions
during the given time period. Such information is not intended to
indicate future performance. Because advertised yields and total
return figures include all charges attributable to the annuity,
which has the effect of decreasing advertised performance,
subaccount performance should not be compared to that of mutual
funds that sell their shares directly to the public. (See the SAI
for a further description of methods used to determine yield and
total return for the subaccounts.)
If you would like additional information about actual performance,
contact your financial advisor.
The variable account
Purchase payments can be allocated to any or all of the subaccounts
of the variable account that invest in shares of the following
funds:
Subaccount
IDS Life Aggressive Growth Fund HA
IDS Life International Equity Fund HI
IDS Life Capital Resource Fund HC
IDS Life Managed Fund HD
IDS Life Special Income Fund HS
IDS Life Moneyshare Fund HM
AIM V.I. Growth and Income Fund HW
PCM New Opportunities Fund HN
Templeton Developing Markets Fund HK
Warburg Pincus Trust Small Company Growth Portfolio HT
Each variable subaccount meets the definition of a separate account
under federal securities laws. Income, capital gains and capital
losses of each subaccount are credited or charged to that
subaccount alone. No variable subaccount will be charged with
liabilities of any other account or of our general business. All
obligations arising under the contracts are general obligations of
IDS Life.
The variable account was established under Minnesota law on August
23, 1995 and is registered as a unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration
does not involve any supervision of our management or investment
practices and policies by the SEC.
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PAGE 10
The funds
IDS Life Aggressive Growth Fund
Objective: capital appreciation. Invests primarily in common stock
of small-and medium-size companies. The fund also may invest in
warrants or debt securities or in large well-established companies
when the portfolio manager believes such investments offer the best
opportunity for capital appreciation.
IDS Life International Equity Fund
Objective: capital appreciation. Invests primarily in common stock
of foreign issuers and foreign securities convertible into common
stock. The fund also may invest in certain international bonds if
the portfolio manager believes they have a greater potential for
capital appreciation than equities.
IDS Life Capital Resource Fund
Objective: capital appreciation. Invests primarily in U.S. common
stocks and other securities convertible into common stock,
diversified over many different companies in a variety of
industries.
IDS Life Managed Fund
Objective: maximum total investment return. Invests primarily in
U.S. common stocks listed on national securities exchanges,
securities convertible into common stock, warrants, fixed income
securities (primarily high-quality corporate bonds) and
money-market instruments. The fund invests in many different
companies in a variety of industries.
IDS Life Special Income Fund
Objective: to provide a high level of current income while
conserving the value of the investment for the longest time period.
Invests primarily in high-quality, lower-risk corporate bonds
issued by many different companies in a variety of industries, and
in government bonds.
IDS Life Moneyshare Fund
Objective: maximum current income consistent with liquidity and
conservation of capital. Invests in high-quality money market
securities with remaining maturities of 13 months or less. The
fund also will maintain a dollar-weighted average portfolio
maturity not exceeding 90 days. The fund attempts to maintain a
constant net asset value of $1 per share.
IDS Life Growth Dimensions Fund
Objective: long-term growth of capital. Invests primarily in
common stocks of U.S. and foreign companies showing potential for
significant growth.
(This fund will be available after May 1, 1996.)
IDS Life Global Yield Fund
Objective: high total return through income and growth of capital.
Invests primarily in a non-diversified portfolio of debt securities
of U.S. and foreign issuers.
(This fund will be available after May 1, 1996.)<PAGE>
PAGE 11
IDS Life Income Advantage Fund
Objective: high current income, with capital growth as a secondary
objective. Invests in long-term, high-yielding, high risk debt
securities below investment grade issued by U.S. and foreign
corporations.
(This fund will be available after May 1, 1996.)
AIM V.I. Growth and Income Fund
Objective: to provide growth of capital, with current income as a
secondary objective. The fund seeks to achieve its objective by
investing primarily in dividend-paying common stocks which have
prospects for both growth of capital and dividend income.
PCM New Opportunities Fund
Objective: long-term capital appreciation. Invests primarily in
common stocks of companies in sectors of the economy which may
possess above average long-term growth potential.
Templeton Developing Markets Fund
Objective: long-term capital appreciation. Invests primarily in
equity securities of issuers in countries having developing
markets.
TCI Value
Objective: long-term capital growth, with income as a secondary
objective. Invests primarily in securities that management
believes to be undervalued at the time of purchase.
(This fund will be available after May 1, 1996.)
Warburg Pincus Trust Small Company Growth Portfolio
Objective: capital growth. Invests primarily in equity securities
of small-sized domestic companies.
All funds are available to serve as the underlying investment for
variable annuities, and some funds are available to serve as the
underlying investment for variable annuities, variable life
insurance contracts and qualified plans. It is conceivable that in
the future it may be disadvantageous for variable annuity separate
accounts, variable life insurance separate accounts and/or
qualified plans to invest in the available funds simultaneously.
Although IDS Life and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the
appropriate funds will monitor events in order to identify any
material conflicts between such contract owners, policy owners and
qualified plans to determine what action, if any, should be taken
in response to a conflict. If a board were to conclude that
separate funds should be established for variable annuities and
variable life insurance and qualified plan separate accounts, the
variable annuity contract holders would not bear any expenses
associated with establishing separate funds.
The Internal Revenue Service (IRS) has issued final regulations
relating to the diversification requirements under Section 817(h)
of the Code. Each mutual fund intends to comply with these
requirements.
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PAGE 12
The U.S. Treasury and the IRS have indicated they may provide
additional guidance concerning how many variable subaccounts may be
offered and how many exchanges among variable subaccounts may be
allowed before the owner is considered to have investment control
and thus is currently taxed on income earned within variable
subaccount assets. We do not know at this time what the additional
guidance will be or when action will be taken. We reserve the
right to modify the contract, as necessary, to ensure that the
owner will not be subject to current taxation as the owner of the
variable subaccount assets.
We intend to comply with all federal tax laws to ensure that the
contract continues to qualify as an annuity for federal income tax
purposes. We reserve the right to modify the contract as necessary
to comply with any new tax laws.
The investment managers for the funds are as follows:
o IDS Life Funds - IDS Life, IDS Tower 10, Minneapolis, MN
55440;
o AIM V.I. Growth and Income Fund - A I M Advisors, Inc., 11
Greenway Plaza, Suite 1919, Houston, TX 77046-1173;
o PCM New Opportunities Fund - Putnam Investment Management,
Inc., One Post Office Square, Boston, MA 02109;
o Templeton Developing Markets Fund - Templeton Asset
Management Ltd., Hong Kong Branch, Two Exchange Square, Hong
Kong, 20 Raffles Place, Singapore;
o Warburg Pincus Trust Small Company Growth Portfolio -
Warburg, Pincus Counsellors, Inc., 466 Lexington Avenue, New
York, NY 10017-3147.
The investment managers cannot guarantee that the funds will meet
their investment objectives. Please read the prospectuses for the
funds for complete information on investment risks, deductions,
expenses and other facts you should know before investing. These
prospectuses are available by contacting IDS Life at the address or
telephone number on the front of this publication, or from your
financial advisor.
The fixed account
Purchase payments can also be allocated to the fixed account. The
cash value of the fixed account increases as interest is credited
to the account. Purchase payments and transfers to the fixed
account become part of the general account of IDS Life, the
company's main portfolio of investments. Interest is credited
daily and compounded annually. We may change the interest rates
from time to time.
Because of exemptive and exclusionary provisions, interests in the
fixed account have not been registered under the Securities Act of
1933 (1933 Act), nor is the fixed account registered as an
investment company under the 1940 Act. Accordingly, neither the <PAGE>
PAGE 13
fixed account nor any interests in it are generally subject to the
provisions of the 1933 or 1940 Acts, and we have been advised that
the staff of the SEC has not reviewed the disclosures in this
prospectus that relate to the fixed account. Disclosures regarding
the fixed account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to
the accuracy and completeness of statements made in prospectuses.
Buying your annuity
Your financial advisor will help you prepare and submit your
application, and send it along with your initial purchase payment
to our Minneapolis office. As the owner, you have all rights and
may receive all benefits under the contract. The annuity cannot be
owned in joint tenancy, except in spousal situations. You cannot
buy an annuity or be an annuitant if you are 91 or older. (In
Pennsylvania, the annuitant must be under age 79.)
When you apply, you can select:
o the account(s) in which you want to invest;
o how you want to make purchase payments; and
o a beneficiary.
The contract provides for allocation of purchase payments to the
subaccounts of the variable account and/or to the fixed account in
even 1% increments.
If your application is complete, we will process it and apply your
purchase payment to your account(s) within two days after we
receive it. If your application is accepted, we will send you a
contract. If we cannot accept your application within five days,
we will decline it and return your payment. We will credit
additional purchase payments to your account(s) at the next close
of business.
The retirement date
Upon processing your application we will establish the retirement
date to the maximum age or date as specified below. You can also
select a date within the maximum limits. This date can be aligned
with your actual retirement from a job, or it can be a different
future date, depending on your needs and goals and on certain
restrictions. You can also change the date, provided you send us
written instructions at least 30 days before annuity payouts begin.
For nonqualified annuities, the retirement date must be:
o no earlier than the 60th day after the contract's effective
date; and
o no later than the annuitant's 85th birthday (or before the 10th
contract anniversary, if purchased after age 75).
For qualified annuities, to avoid IRS penalty taxes, the retirement
date generally must be:
o on or after the annuitant reaches age 59 1/2; and
<PAGE>
PAGE 14
o by April 1 of the year following the calendar year when the
annuitant reaches age 70 1/2.
If you are 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 annuity, annuity payouts can start
as late as the annuitant's 85th birthday or the 10th contract
anniversary.
Certain restrictions on retirement dates apply to participants in
the Texas Optional Retirement Program. (See "Special surrender
provisions.")
Beneficiary
If death benefits become payable before the retirement date, your
named beneficiary will receive all or part of the contract value.
If there is no named beneficiary, then you or your estate will be
the beneficiary. (See "Benefits in case of death" for more about
beneficiaries.)
If single payment:
o Minimum purchase payment
Nonqualified: $2,000
Qualified: $1,000
o Minimum additional purchase payment: $50
If installment payments:
o Minimum installment payment(s): $50 monthly; $23.08 biweekly
(scheduled payment plan billing)
Installments must total at least $600 in the first year.*
*If you make no purchase payments for 24 months, and your previous
payments total $600 or less, we have the right to give you 30 days'
written notice and pay you the total value of your contract in a
lump sum. This right does not apply to contracts sold to New
Jersey residents.
Maximum first-year payment(s):
This maximum is based on your age or age of the annuitant (whomever
is older) on the effective date of the contract.
Up to age 75 $1 million
76 to 85 $500,000
86 to 90 $50,000
Maximum payment for each subsequent year**: $100,000 Up to age 85
$ 50,000 Ages 86-90
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PAGE 15
**These limits apply in total to all IDS Life annuities you own.
We reserve the right to increase maximum limits. For qualified
annuities the qualified plan's limits on annual contributions also
apply.
How to make purchase payments
1 By letter
Send your check along with your name and account number to:
Regular mail:
IDS Life Insurance Company
Box 74
Minneapolis, MN 55440-0074
Express mail:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
2 By scheduled payment plan
Your financial advisor can help you set up:
o an automatic payroll deduction, salary reduction, or other group
billing arrangement; or
o a bank authorization.
Charges
Contract administrative charge
This fee is for establishing and maintaining your records. We
deduct $30 from the contract value on your contract anniversary.
This $30 charge is waived if your contract value, or total purchase
payments less any payments surrendered, equals or exceeds $25,000
on your contract anniversary.
If you surrender your contract, the charge will be deducted at the
time of surrender regardless of the contact value or purchase
payments made. The charge cannot be increased and does not apply
after annuity payouts begin.
Mortality and expense risk fee
This fee is to cover the mortality risk and expense risk and is
applied daily to the variable subaccounts and reflected in the unit
values of the subaccounts. The subaccounts pay this fee at the
time that dividends are distributed from the funds in which they
invest. Annually the fee totals 1.25% of the subaccounts' average
daily net assets. Approximately two-thirds of this amount is for
our assumption of mortality risk, and one-third is for our
assumption of expense risk. This fee does not apply to the fixed
account.
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PAGE 16
Mortality risk arises because of our guarantee to pay a death
benefit and our guarantee to make annuity payouts according to the
terms of the contract, no matter how long a specific annuitant
lives and no matter how long the entire group of IDS Life
annuitants live. If, as a group, IDS Life annuitants outlive the
life expectancy we have assumed in our actuarial tables, then we
must take money from our general assets to meet our obligations.
If, as a group, IDS Life annuitants do not live as long as
expected, we could profit from the mortality risk fee. Expense
risk arises because the contract administrative charge cannot be
increased and may not cover our expenses. Any deficit would have
to be made up from our general assets.
We do not plan to profit from the contract administrative charge.
However, we do hope to profit from the mortality and expense risk
fee. We may use any profits realized from this fee for any proper
corporate purpose, including, among others, payment of distribution
(selling) expenses. We do not expect that the surrender charge,
discussed in the following paragraphs, will cover sales and
distribution expenses.
Surrender charge
A surrender charge applies to all purchase payments surrendered in
the first eight contract years. The surrender amount you request
is determined by drawing from your total contract value in the
following order:
o First we surrender any contract earnings (contract value
minus all purchase payments received and not previously
surrendered). There is no surrender charge on contract
earnings. Note: Contract earnings are determined by looking
at the entire contract value, not the earnings of any
particular variable subaccount or the fixed account.
o If necessary, we surrender amounts representing purchase
payments not previously surrendered. The surrender charge
rate on these purchase payments is as follows:
Surrender charge as
percent of purchase
payments surrendered Contract year
7 1-3
6 4
5
4 6
3 7
2 8
0 After 8 years
The surrender charge is calculated so that the total amount
surrendered, minus any surrender charge, equals the amount you
request.
For a partial surrender, the surrender charge equals the amount
requested, divided by 1 less the surrender charge rate, times the
surrender charge rate.
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Example of surrender charge on purchase payments:
you request a $1,000 partial surrender and the surrender charge
rate is 5%:
$1,000 partial surrender = $1,052.63
.95
Total amount surrendered.........$1,052.63
Surrender charge rate.............X 0.05
Total surrender charge ..........$ 52.63
Waiver of surrender charges
There are no surrender charges for:
o contract earnings
o minimum required distributions after you reach age 70 1/2;
(for certain qualified plans)
o contracts settled using an annuity payout plan; and
o death benefits.
If your contract includes a "Waiver of Surrender Charges for
Nursing Home Confinement" Annuity Endorsement, we will waive
surrender charges that are normally assessed upon full or partial
surrender if you provide proof satisfactory to us that, as of the
date you request the surrender, you or your spouse are confined to
a nursing home and have been for the prior 90 days.
To qualify, the nursing home must meet the following criteria:
o be licensed by an appropriate licensing agency to provide
nursing care;
o provide 24-hour-a-day nursing services;
o have a doctor available for emergency situations;
o have a nurse on duty or on call at all times;
o maintain clinical records; and
o have appropriate methods for administering drugs.
To the extent permitted by state law, this endorsement is included
in contracts issued when the owner is under age 76 on the date that
we issue the contract.
Other information on charges: American Express Financial
Corporation makes certain custodial services available to some
custodial and trusteed pension and profit sharing plans and 401(k)
plans funded by IDS Life annuities. Fees for these services start
at $30 per calendar year per participant. A termination fee for
owners under 59 1/2 will be charged (fee waived in case of death or
disability).
Possible group reductions: In some cases (for example an employer
making the annuity available to employees) lower sales and
administrative expenses may be incurred due to the size of the
group, the average contribution and the use of group enrollment
procedures. In such cases, we may be able to reduce or eliminate
the contract administrative and surrender charges. However, we
expect this to occur infrequently.<PAGE>
PAGE 18
Premium taxes
Certain state and local governments impose premium taxes which may
reach to 3.5%. These taxes are dependent upon the state of
residence or the state in which the contract was sold and are
deducted as applicable. In some cases, premium taxes are deducted
from your purchase payments before they are allocated. In other
cases, the deduction is made when you surrender your contract or
when annuity payouts begin.
Valuing your investment
Here is how your accounts are valued:
Fixed account: The amounts allocated to the fixed account are
valued directly in dollars and equal the sum of your purchase
payments, plus interest earned, less any amounts surrendered or
transferred.
Variable subaccounts: Amounts allocated to the variable
subaccounts are converted into accumulation units. Each time you
make a purchase payment or transfer amounts into one of the
variable subaccounts, a certain number of accumulation units are
credited to your contract for that subaccount. Conversely, each
time you take a partial surrender, transfer amounts out of a
variable subaccount, or are assessed a contract administrative
charge, a certain number of accumulation units are subtracted from
your contract.
The accumulation units are the true measure of investment value in
each subaccount during the accumulation period. They are related
to, but not the same as, the net asset value of the underlying
fund. The dollar value of each accumulation unit can rise or fall
daily depending on the performance of the underlying mutual fund
and on certain fund expenses. Here is how unit values are
calculated:
Number of units
To calculate the number of accumulation units for a particular
subaccount, we divide your investment, after deduction of any
premium taxes, by the current accumulation unit value.
Accumulation unit value
The current accumulation unit value for each variable subaccount
equals the last value times the subaccount's current net investment
factor.
Net investment factor
o Determined each business day by adding the underlying mutual
fund's current net asset value per share, plus per share amount
of any current dividend or capital gain distribution; then
o dividing that sum by the previous net asset value per share; and
o subtracting the percentage factor representing the mortality and
expense risk fee from the result.
Because the net asset value of the underlying mutual fund may
fluctuate, the accumulation unit value may increase or decrease.
You bear this investment risk in a variable subaccount.<PAGE>
PAGE 19
Factors that affect variable subaccount accumulation units
Accumulation units may change in two ways; in number and in value.
Here are the factors that influence those changes:
The number of accumulation units you own may fluctuate due to:
o additional purchase payments allocated to the variable
subaccount(s);
o transfers into or out of the variable subaccount(s);
o partial surrenders;
o surrender charges; and/or
o contract administrative charges.
Accumulation unit values may fluctuate due to:
o changes in underlying mutual fund(s) net asset value;
o dividends distributed to the variable subaccount(s);
o capital gains or losses of underlying mutual funds;
o mutual fund operating expenses; and/or
o mortality and expense risk fees.
Making the most of your annuity
Automated dollar-cost averaging
You can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For
example, you might have a set amount transferred monthly from a
relatively conservative variable subaccount to a more aggressive
one, or to several others.
This systematic approach can help you benefit from fluctuations in
accumulation unit values caused by fluctuations in the market
value(s) of the underlying mutual fund(s). Since you invest the
same amount each period, you automatically acquire more units when
the market value falls, fewer units when it rises. The potential
effect is to lower the average cost per unit. For specific
features contact your financial advisor.
How dollar-cost averaging works
Amount Accumulation Number of units
Month invested unit value purchased
Jan $100 $20 5.00
Feb 100 16 6.25
Mar 100 9 11.11
Apr 100 5 20.00
May 100 7 14.29
June 100 10 10.00
July 100 15 6.67
Aug 100 20 5.00
Sept 100 17 5.88
Oct 100 12 8.33
(footnotes to table) By investing an equal number of dollars each
month...
<PAGE>
PAGE 20
(arrow in table pointing to April) you automatically buy more units
when the per unit market price is low
(arrow in table pointing to August) and fewer units when the per
unit market price is high.
You have paid an average price of only $10.81 per unit over the 10
months, while the average market price actually was $13.10.
Dollar-cost averaging does not guarantee that any variable
subaccount will gain in value, nor will it protect against a
decline in value if market prices fall. However, if you can
continue to invest regularly throughout changing market conditions,
it can be an effective strategy to help meet your long-term goals.
Transferring money between subaccounts
You may transfer money from any one subaccount, or the fixed
account, to another subaccount before the annuity payouts begin.
If we receive your request before the close of business, we will
process it that day. Requests received after the close of business
will be processed the next business day. There is no charge for
transfers. Before making a transfer, you should consider the risks
involved in switching investments.
Certain restrictions apply to transfers involving the fixed
account. We may suspend or modify transfer privileges at any time.
Excessive trading activity can disrupt mutual fund management
strategy and increase expenses, which are borne by all contract
owners participating in the fund regardless of their transfer
activity. We may apply modifications or restrictions in any manner
reasonably designed to prevent any use of the transfer right we
consider to be to the disadvantage of other contract owners.
Transfer policies
o Before annuity payouts begin, you may transfer contract values
between the variable subaccounts, or from the variable
subaccount(s) to the fixed account at any time. However, if you
have made a transfer from the fixed account to the variable
subaccount(s), you may not make a transfer (including automated
transfers) from any variable subaccount back to the fixed
account until the next contract anniversary.
o You may transfer contract values from the fixed account to the
variable subaccount(s) once a year during a 31-day transfer
period starting on each contract anniversary (except for
automated transfers, which can be set up at any time for
transfer periods of your choosing subject to certain minimums.)
o If we receive your transfer request within 30 days before the
contract anniversary date, the transfer from the fixed account
to the variable subaccount(s) will be effective on the
anniversary.
o If we receive your request on or within 30 days after the
contract anniversary date, the transfer from the fixed account
to the variable subaccount(s) will be effective on the day we
receive it.<PAGE>
PAGE 21
o We will not accept requests for transfers from the fixed account
at any other time.
o Once annuity payouts begin, no transfers may be made to or from
the fixed account, but transfers may be made once per contract
year among the variable subaccounts. During the annuity payout
period, you cannot be invested in more than five variable
subaccounts at any one time unless we agree otherwise.
How to request a transfer or a surrender
1 By letter
Send your name, account number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or
surrender to:
Regular mail:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
Minimum amount
Mail transfers: $250 or entire account balance
Mail surrenders: $250 or entire account balance
Maximum amount
Mail transfers: None (up to contract value)
Mail surrenders: None (up to contract value)
2 By phone
Call between 7 a.m. and 6 p.m. Central time:
1-800-437-0602 (toll free) or
(612) 671-4738 (Minneapolis/St. Paul area)
TTY service for the hearing impaired:
1-800-285-8846 (toll free)
Minimum amount
Phone transfers: $250 or entire account balance
Phone surrenders: $250 or entire account balance
Maximum amount
Phone transfers: None (up to contract value)
Phone surrenders: $50,000
We answer phone requests promptly, but you may experience delays
when the call volume is unusually high. If you are unable to get
through, use the mail procedure as an alternative.
<PAGE>
PAGE 22
We will honor any telephone transfer or 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. A telephone surrender will not be allowed within
30 days of a phoned-in address change. As long as the procedures
are followed, neither IDS Life nor its affiliates will be liable
for any loss resulting from fraudulent requests.
Telephone transfers or surrenders are automatically available. You
may request that telephone transfers or surrenders not be
authorized from your account by writing IDS Life.
3 By automated transfers and automated partial surrenders
Your financial advisor can help you set up automated transfers
among your accounts or partial surrenders from the accounts.
You can start or stop this service by written request or other
method acceptable to IDS Life. You must allow 30 days for IDS Life
to change any instructions that are currently in place.
o Automated transfers from the fixed account to any one of the
variable subaccount(s) may not exceed an amount that, if
continued, would deplete the fixed account within 12 months.
o Automated surrenders may be restricted by applicable law under
some contracts.
o You may not make additional purchase payments if automated
partial surrenders are in effect.
o Automated partial surrenders may result in IRS taxes and
penalties on all or part of the amount surrendered.
Minimum amount
Automated transfers or surrenders: $50
Maximum amount
Automated transfers or surrenders: None (except for automated
transfers from the fixed
account)
Surrendering your contract
As owner, you may surrender all or part of your contract at any
time before annuity payouts begin by sending a written request or
calling IDS Life. For total surrenders we will compute the value
of your contract at the close of business after we receive your
request. We may ask you to return the contract. You may have to
pay surrender charges (see "Surrender charge") and IRS taxes and
penalties (see "Taxes"). No surrenders may be made after annuity
payouts begin.
<PAGE>
PAGE 23
Surrender policies
If you have a balance in more than one account and request a
partial surrender, we will withdraw money from all your accounts in
the same proportion as your value in each account correlates to
your total contract value, unless you request otherwise.
Receiving payment when you request a surrender
By regular or express mail:
o Payable to owner.
o Mailed to address of record.
By wire:
o Request that payment be wired to your bank;
o Bank account must be in the same ownership as your contract;
o Pre-authorization required. For instructions, contact your
financial advisor.
Payment normally will be sent within seven days after receiving
your request. However, we may postpone the payment if:
-the surrender amount includes a purchase payment check that
has not cleared;
-the NYSE is closed, except for normal holiday and weekend
closings;
-trading on the NYSE is restricted, according to SEC rules;
-an emergency, as defined by SEC rules, makes it impractical
to sell securities or value the net assets of the accounts;
or
-the SEC permits us to delay payment for the protection of
security holders.
TSA special surrender provisions
Participants in Tax-Sheltered Annuities: The Code imposes certain
restrictions on your right as owner to receive early distributions
from a TSA:
o 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 only if:
-you have attained age 59 1/2;
-you have become disabled as defined in the Code;
-you have separated from the service of the employer who
purchased the annuity; or
-the distribution is made to your beneficiary because of your
death.
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PAGE 24
o If you encounter a financial hardship (within the meaning of the
Code), you may receive a distribution of all contract values
attributable to salary reduction contributions made after Dec.
31, 1988, but not the earnings on them.
o Even though a distribution may be permitted under the above
rules, it still may be subject to IRS taxes and penalties. (See
"Taxes.")
o The above restrictions on the right to receive a distribution do
not affect the availability of the amount credited to the
contract as of Dec. 31, 1988. The restrictions do not apply to
transfers or exchanges of contract value within the annuity, or
to another registered variable annuity contract or investment
vehicle available through the employer.
o If the contract has a loan provision, the right to receive a
loan from your fixed account is described in detail in your
contract. You may borrow from the contract value allocated to
the fixed account.
o For certain types of contributions under a TSA contract to be
excluded from taxable income, the employer must comply with
certain nondiscrimination requirements. You should consult your
employer to determine whether the nondiscrimination rules apply
to you.
Participation in the Portland Public Schools TSA program: IDS Life
will guarantee that your fixed account surrender value will not be
less than the purchase payments paid, less any amounts previously
surrendered, provided:
o all purchase payments under the contract have been allocated
only to the fixed account; and
o there have been no transfers of fixed account contract values to
any variable subaccount. If payments are allocated to a
variable subaccount or monies are transferred from the fixed
account to a variable subaccount, the guarantee does not apply.
Participants in the Texas Optional Retirement Program: You cannot
receive any distribution before retirement unless you become
totally disabled or end your employment at a Texas college or
university. This restriction affects your right to:
o surrender all or part of your annuity at any time; and
o move up your retirement date.
If you are in the program for only one year, the portion of the
purchase payments made by the state of Texas will be refunded to
the state with no surrender charge. These restrictions are based
on an opinion of the Texas Attorney General interpreting Texas law.
Changing ownership
You may change ownership of your nonqualified annuity at any time
by filing a change of ownership with us at our Minneapolis office.
The change will become binding upon us when we receive and record <PAGE>
PAGE 25
it. We will honor any change of ownership request believed to be
authentic and will use reasonable procedures to confirm that it is.
If these procedures are followed, we take no responsibility for the
validity of the change.
If you have a nonqualified annuity, you may lose your tax
advantages by transferring, assigning or pledging any part of it.
(See "Taxes.")
If you have a qualified annuity, you may not sell, assign,
transfer, discount or pledge your contract as collateral for a
loan, or as security for the performance of an obligation or for
any other purpose to any person except IDS Life. However, if the
owner is a trust or custodian, or an employer acting in a similar
capacity, ownership of a contract may be transferred to the
annuitant.
Benefits in case of death
If you or the annuitant dies (or, for qualified annuities, if the
annuitant dies) before annuity payouts begin, we will pay the
beneficiary as follows:
For contracts issued in all states except Oregon, Texas and
Washington:
If death occurs before the annuitant's 75th birthday, the
beneficiary receives the greatest of:
o the contract value;
o the contract value as of the most recent sixth contract
anniversary, minus any surrenders since that anniversary; or
o purchase payments, minus any surrenders.
If death occurs on or after the annuitant's 75th birthday, the
beneficiary receives the greater of:
o the contract value; or
o the contract value as of the most recent sixth contract
anniversary, minus any surrenders since that anniversary.
For contracts issued in Oregon, Texas and Washington:
If death occurs before the annuitant's 75th birthday, the
beneficiary receives the greater of:
o purchase payments minus any surrenders; or
o the contract value.
If death occurs on or after the annuitant's 75th birthday, the
beneficiary receives the contract value.
If your spouse is sole beneficiary under a nonqualified annuity and
you die before the retirement date, your spouse may keep the
annuity as owner. To do this your spouse must, within 60 days
after we receive proof of death, give us written instructions to
keep the contract in force.
<PAGE>
PAGE 26
Under a qualified annuity, if the annuitant dies before reaching
age 70 1/2 and before the retirement date, and the spouse is the
only beneficiary, the spouse may keep the annuity in force until
the date on which the annuitant would have reached age 70 1/2. To
do this, the spouse must give us written instructions within 60
days after we receive proof of death.
Payments: We will pay the beneficiary in a single sum unless you
have given us other written instructions, or the beneficiary may
receive payouts under any annuity payout plan available under this
contract if:
o the beneficiary asks us in writing within 60 days after we
receive proof of death;
o payouts begin no later than one year after death; and
o the payout period does not extend beyond the beneficiary's life
or life expectancy.
When paying the beneficiary, we will determine the contract's value
at the next close of business after our death claim requirements
are fulfilled. Interest, if any, will be paid from the date of
death at a rate no less than required by law. We will mail payment
to the beneficiary within seven days after our death claim
requirements are fulfilled. (See "Taxes.")
The annuity payout period
As owner of the contract, you have the right to decide how and to
whom annuity payouts will be made starting at the retirement date.
You may select one of the annuity payout plans outlined below, or
we will mutually agree on other payout arrangements. The amount
available for payouts under the plan you select is the contract
value on your retirement date. No surrender charges are deducted
under the payout plans listed below.
You also decide whether annuity payouts are to be made on a fixed
or variable basis, or a combination of fixed and variable. Amounts
of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract;
o the amounts you allocated to the account(s) at settlement.
In addition, for variable payouts only, amounts depend on the
investment performance of the subaccount(s) you select. These
payouts will vary from month to month because the performance of
the underlying mutual funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after
annuity payouts begin, see "Transfer policies".
Annuity payout plans
You may choose any one of these annuity payout plans by giving us
written instructions at least 30 days before contract values are to
be used to purchase the payout plan.
<PAGE>
PAGE 27
o Plan A - Life annuity - no refund: Monthly payouts are made
until the annuitant's death. Payouts end with the last payout
before the annuitant's death; no further payouts will be made.
This means that if the annuitant dies after only one monthly payout
has been made, no more payouts will be made.
o Plan B - Life annuity with five, 10 or 15 years certain: Monthly
payouts are made for a guaranteed payout period of five, 10 or 15
years that the annuitant elects. This election will determine the
length of the payout period to the beneficiary if the annuitant
should die before the elected period has expired. The guaranteed
payout period is calculated from the retirement date. If the
annuitant outlives the elected guaranteed payout period, payouts
will continue until the annuitant's death.
o Plan C - Life annuity - installment refund: Monthly payouts are
made until the annuitant's death, with our guarantee that payouts
will continue for some period of time. Payouts will be made for at
least the number of months determined by dividing the amount
applied under this option by the first monthly payout, whether or
not the annuitant is living.
o Plan D - Joint and last survivor life annuity - no refund:
Monthly payouts are made to the annuitant and a joint annuitant
while both are living. If either annuitant dies, monthly payouts
continue at the full amount until the death of the surviving
annuitant. Payouts end with the death of the second annuitant.
o Plan E - Payouts for a specified period: Monthly payouts are
made for a specific payout period of 10 to 30 years chosen by the
annuitant. Payouts will be made only for the number of years
specified whether the annuitant is living or not. Depending on the
time period selected, it is foreseeable that an annuitant can
outlive the payout period selected. In addition, a 10% IRS penalty
tax could apply under this payout plan. (See "Taxes.")
Restrictions for some qualified plans: If you purchased a
qualified annuity, you must select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated
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 a designated beneficiary.
If we do not receive instructions: You must give us written
instructions for the annuity payouts at least 30 days before the
annuitant's retirement date. If you do not, we will make payouts
under Plan B, with 120 monthly payouts guaranteed.
<PAGE>
PAGE 28
If monthly payouts would be less than $20: We will calculate the
amount of monthly payouts at the time the contract value is used to
purchase a payout plan. If the calculations show that monthly
payouts would be less than $20, we have the right to pay the
contract value to the owner in a lump sum.
Death after annuity payouts begin
If you or the annuitant dies after annuity payouts begin, any
amount payable to the beneficiary will be provided in the annuity
payout plan in effect.
Taxes
Generally, under current law, any increase in your contract value
is taxable to you only when you receive a payout or surrender.
(See detailed discussion below.) Any portion of the annuity
payouts and any surrenders you request that represent ordinary
income are normally taxable. You will receive a 1099 tax
information form for any year in which a taxable distribution was
made.
Annuity payouts under nonqualified annuities: A portion of each
payout will be ordinary income and subject to tax, and a portion of
each payout will be considered a return of part of your investment
and will not be taxed. All amounts received after your investment
in the annuity is fully recovered will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts
issued by the same company to the same owner during a calendar year
are to be taxed as a single, unified contract when distributions
are taken from any one of such contracts.
Annuity payouts under qualified annuities: Under a qualified
annuity, the entire payout generally will be includable as ordinary
income and subject to tax except to the extent that contributions
were made with after-tax dollars. If you or your employer invested
in your contract with pre-tax dollars as part of a qualified
retirement plan, such amounts are not considered to be part of your
investment in the contract and will be taxed when paid to you.
Surrenders: If you surrender part or all of your contract before
your annuity payouts begin, your surrender payment will be taxed to
the extent that the value of your contract immediately before the
surrender exceeds your investment. You also may have to pay a 10%
IRS penalty for surrenders before reaching age 59 1/2. For
qualified annuities, other penalties may apply if you surrender
your annuity before your plan specifies that you can receive
payouts.
Death benefits to beneficiaries: The death benefit under an
annuity is not tax-exempt. Any amount received by the beneficiary
that represents previously deferred earnings within the contract,
is taxable as ordinary income to the beneficiary in the year(s) he
or she receives the payment(s).
<PAGE>
PAGE 29
Annuities owned by corporations, partnerships or trusts: Any
annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that
year. This provision is effective for purchase payments made after
Feb. 28, 1986. However, if the trust was set up for the benefit of
a natural person only, the income will continue to be tax-deferred.
Penalties: If you receive amounts from your contract before
reaching age 59 1/2, you may have to pay a 10% IRS penalty on the
amount includable in your ordinary income. However, this penalty
will not apply to any amount received by you or your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal
periodic payments, made at least annually, over your life or
life expectancy (or joint lives or life expectancies of you and
your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except
for qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if
you surrender your annuity before your plan specifies that payouts
can be made.
Withholding, generally: If you receive all or part of the contract
value from an annuity, withholding may be imposed against the
taxable income portion of the payout. Any withholding that is done
represents a prepayment of your tax due for the year. You take
credit for such amounts on the annual tax return that you file.
If the payout is part of an annuity payout plan, the amount of
withholding generally is computed using payroll tables. You can
provide us with a statement of how many exemptions to use in
calculating the withholding. As long as you've provided us with a
valid Social Security Number or Taxpayer Identification Number, you
can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial
or full surrender) withholding is computed using 10% of the taxable
portion. Similar to above, as long as you've provided us with a
valid Social Security Number or Taxpayer Identification Number, you
can elect not to have this withholding occur.
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.
Withholding from qualified annuities: If you receive directly all
or part of the contract value from a qualified annuity (except an
IRA), mandatory 20% income tax withholding generally will be
imposed at the time the payout is made. This mandatory withholding
is in place of the elective withholding discussed above. This
mandatory withholding will not be imposed if:
<PAGE>
PAGE 30
o instead of receiving the distribution check, you elect to have
the distribution rolled over directly to an IRA or another
eligible plan;
o the payout is one in a series of substantially equal periodic
payouts, made at least annually, over your life or life
expectancy (or the joint lives or life expectancies of you and
your designated beneficiary) or over a specified period of 10
years or more; or
o the payment is a minimum distribution required under the Code.
Payments made to a surviving spouse instead of being directly
rolled over to an IRA may also be subject to mandatory 20% income
tax withholding.
State withholding also may be imposed on taxable distributions.
Transfer of ownership of a nonqualified annuity: If you make such
a transfer without receiving adequate consideration, the transfer
is considered a gift, and also may be considered a surrender for
federal income tax purposes. If the gift is a currently taxable
event, the amount of deferred earnings at the time of the transfer
will be taxed to the original owner, who also may be subject to a
10% IRS penalty as discussed earlier. In this case, the new
owner's investment in the annuity will be the value of the annuity
at the time of the transfer.
Collateral assignment of a nonqualified annuity: If you
collaterally assign or pledge your contract, earnings on purchase
payments you made after Aug. 13, 1982 will be taxed to you like a
surrender.
Important: Our discussion of federal tax laws is based upon our
understanding of these laws as they are currently interpreted.
Federal tax laws or current interpretations of them may change.
For this reason and because tax consequences are complex and highly
individual and cannot always be anticipated, you should consult a
tax advisor if you have any questions about taxation of your
contract.
Tax qualifications: 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.
<PAGE>
PAGE 31
Voting rights
As a contract owner with investments in the variable subaccount(s)
you may vote on important mutual fund policies until annuity
payouts begin. Once they begin, the person receiving them has
voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes is determined by
applying the percentage interest in each variable subaccount to the
total number of votes allowed to the subaccount.
After annuity payouts begin, the number of votes is equal to:
o the reserve held in each subaccount for the contract,
divided by
o the net asset value of one share of the applicable underlying
mutual fund.
As we make annuity payouts, the reserve for the annuity decreases;
therefore, the number of votes also will decrease.
We calculate votes separately for each subaccount not more than 60
days before a shareholders' meeting. Notice of these meetings,
proxy materials and a statement of the number of votes to which the
voter is entitled, will be sent.
We will vote shares for which we have not received instructions in
the same proportion as the votes for which we have received
instructions. We also will vote the shares for which we have
voting rights in the same proportion as the votes for which we have
received instructions.
Substitution of investments
If shares of any fund should not be available for purchase by the
appropriate variable subaccount or if, in the judgment of IDS
Life's Management, further investment in such shares is no longer
appropriate in view of the purposes of the subaccount, investment
in the subaccount may be discontinued or another
registered open-end management investment company may be
substituted for fund shares held in the subaccounts if IDS Life
believes it would be in the best interest of persons having voting
rights under the contract. The variable account may be operated as
a management company under the 1940 Act or it may be deregistered
under this Act if the registration is no longer required. In the
event of any such substitution or change, IDS Life, without the
consent or approval of the owners, may amend the contract and take
whatever action is necessary and appropriate. However, no such
substitution or change will be made without the necessary approval
of the SEC and state insurance departments. IDS Life will notify
owners of any substitution or change.
<PAGE>
PAGE 32
Distribution of the contracts
IDS Life, a registered broker/dealer, is the sole distributor of
the contract. IDS Life pays total commissions of up to 7.0% of the
total purchase payments received on the contracts. A portion of
this total commission is paid to district managers and field vice
presidents of the selling representative.
About IDS Life
The Flexible Portfolio Annuity is issued by IDS Life, a wholly
owned subsidiary of American Express Financial Corporation, which
itself is a wholly owned subsidiary of the American Express
Company, a financial services company headquartered in New York
City.
IDS Life is a stock life insurance company organized in 1957 under
the laws of the State of Minnesota and located at IDS Tower 10,
Minneapolis, MN 55440-0010. IDS Life conducts a conventional life
insurance business in the District of Columbia and all states
except New York.
American Express Financial Advisors Inc. offers mutual funds,
investment certificates and a broad range of financial management
services. IDS Life offers insurance and annuities.
American Express Financial Advisors Inc. serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,800 financial advisors.
Other subsidiaries provide investment management and related
services for pension, profit-sharing, employee savings and
endowment funds of businesses and institutions.
Regular and special reports
Services
To help you track and evaluate the performance of your annuity, we
provide:
Quarterly statements showing the value of your investment.
Annual reports containing required information on the annuity and
its underlying investments.
A personalized annuity progress report detailing the cumulative
return since the contract was purchased and the average annual rate
of return on your investments. This report, which is unique in the
industry, is available upon request from your financial advisor.
<PAGE>
PAGE 33
Table of contents of the Statement of Additional Information
IDS Life Preferred Retirement Account.........
Performance information.......................
Calculating annuity payouts...................
Rating agencies...............................
Principal underwriter.........................
Independent auditors..........................
Mortality and expense risk fee................
Prospectus....................................
Financial statements -
IDS Life Insurance Company
___________________________________________________________________
Please check the appropriate box to receive a copy of the Statement
of Additional Information for:
_____ IDS Life Flexible Portfolio Annuity
_____ IDS Life Retirement Annuity Mutual Funds
_____ AIM Variable Insurance Funds, Inc.
_____ Putnam Capital Manager Trust
_____ Templeton Variable Products Series Fund
_____ Warburg Pincus Trust
Please return this request to:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Your name _______________________________________________________
Address _________________________________________________________
City ______________________ State ______________ Zip ___________
<PAGE>
PAGE 34
STATEMENT OF ADDITIONAL INFORMATION
for
IDS LIFE FLEXIBLE PORTFOLIO ANNUITY
IDS Life Variable Account 10
Feb. 12, 1996
IDS Life Variable Account 10 is a separate account established and
maintained by IDS Life Insurance Company (IDS Life).
This Statement of Additional Information, dated Feb. 12, 1996, is
not a prospectus. It should be read together with the Account's
prospectus, dated Feb. 12 , 1996, which may be obtained from your
financial advisor, or by writing or calling IDS Life at the address
or telephone number below.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
612-671-3131
<PAGE>
PAGE 35
TABLE OF CONTENTS
IDS Life Preferred Retirement Account.........................p.
Performance Information.......................................p.
Calculating Annuity Payouts...................................p.
Rating Agencies...............................................p.
Principal Underwriter.........................................p.
Mortality and Expense Risk Fee................................p.
Independent Auditors..........................................p.
Prospectus....................................................p.
Financial Statements
IDS Life Insurance Company..........................p.
<PAGE>
PAGE 36
IDS LIFE PREFERRED RETIREMENT ACCOUNT
The Flexible Portfolio Annuity may be used to fund the IDS Life
Preferred Retirement Account (PRA) as a way to build tax-deferred
retirement income. The PRA can be used to supplement, or as an
alternative to, a non-deductible IRA or other retirement plan.
The advantages of the IDS Life Preferred Retirement Account over a
non-deductible IRA are shown below:
IDS Life Preferred Non-deductible IRA
Retirement
Account
_____________________________________________________________
Maximum $50,000 to $1 million $2,000 per year
amount you initially, then $50,000 (only $250 for
can to $100,000 per year non-working spouse)
contribute depending on your
age. (spouse can have
own plan)
______________________________________________________________
Highest age The later of age 85 70 1/2 years old
you can or the 10th contract
contribute anniversary
______________________________________________________________
Types of Any type: wages, Generally limited
income you investment income, to income from
can gifts, inheritance, employment
contribute etc.
______________________________________________________________
Records None required, but You must keep all
you must IDS Life furnishes you records yourself
keep regular reports
for your files
______________________________________________________________
Reports you None You must report all
must file contributions and
with the withdrawals each
IRS year
______________________________________________________________
Age at which The later of age 85 70 1/2 years old
you must or the 10th contract
begin anniversary
withdrawals
______________________________________________________________
PERFORMANCE INFORMATION
The following performance figures are calculated on the basis of
historical performance of the funds. The performance figures
relating to these funds assume that the contract was in existence
prior to Feb. 12, 1996, which it was not. When these funds became
available as investment options under the contract, actual values
will be used for the calculations.<PAGE>
PAGE 37
Calculation of yield for Subaccount HM (Investing in IDS Life
Moneyshare Fund)
Subaccount HM, which invests in IDS Life Moneyshare Fund, Inc.,
calculates an annualized simple yield and a compound yield based on
a seven-day period.
The simple yield is calculated by determining the net change in the
value of a hypothetical subaccount having the balance of one
accumulation unit at the beginning of the seven-day period. (The
net change does not include capital change, but does include a pro
rata share of the annual contract charges, including the annual
contract administrative charge and the mortality and expense risk
fee.) The net change in the subaccount value is divided by the
value of the subaccount at the beginning of the period to obtain
the return for the period. That return is then multiplied by 365/7
to obtain an annualized figure. The value of the hypothetical
subaccount includes the amount of any declared dividends, the value
of any shares purchased with any dividend paid during the period
and any dividends declared for such shares. The variable
subaccount's yield does not include any realized or unrealized
gains or losses, nor does it include the effect of any applicable
surrender charge.
The subaccount calculates its compound yield according to the
following formula:
365/7
Compound Yield = [(return for seven-day period +1) ] - 1
Based on the historical performance of the Fund on Dec. 31, 1995,
the subaccount's annualized simple yield would have been 4.04% and
its compound yield would have been 4.13% had the subaccount been in
existence.
The rate of return, or yield, on the subaccount's accumulation unit
may fluctuate daily and does not provide a basis for determining
future yields. Investors must consider, when comparing an
investment in subaccount HM with fixed annuities, that fixed
annuities often provide an agreed-to or guaranteed fixed yield for
a stated period of time, whereas the variable subaccount's yield
fluctuates. In comparing the yield of subaccount HM to a money
market fund, you should consider the different services that the
annuity provides.
Calculation of yield for Subaccount HS (Investing in IDS Life
Special Income Fund)
Subaccount HS invests in IDS Life Special Income Fund, Inc.
Quotations of yield will be based on all investment income earned
during a particular 30-day period, less expenses accrued during the
period (net investment income) and will be computed by dividing net
investment income per accumulation unit by the value of an
accumulation unit on the last day of the period, according to the
following formula:<PAGE>
PAGE 38
YIELD = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and investment income earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of accumulation units
outstanding during the period that were entitled to
receive dividends.
d = the maximum offering price per accumulation unit on
the last day of the period.
Yield on the subaccount is earned from the increase in the net
asset value of shares of the fund in which the subaccount invests
and from dividends declared and paid by the fund, which are
automatically invested in shares of the fund.
Based on the historical performance of the Fund, on Dec. 31, 1995,
the subaccount's annualized yield would have been 8.45% had this
subaccount been in existence.
Calculation of average annual total return
Quotations of average annual total return for a subaccount will be
expressed in terms of the average annual compounded rate of return
of a hypothetical investment in the annuity contract over a period
of one, five and 10 years (or, if less, up to the life of the
account), calculated according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the one, five,
or ten year (or other) period at the end of the
one, five, or ten year (or other) period (or
fractional portion thereof).
The following performance figures are calculated on the basis of
historical performance of the funds. These figures show what the
performance of the subaccounts of the variable account would have
been if these subaccounts had existed during the illustrated
periods.
<PAGE>
PAGE 39
Average Annual Total Return For Period Ended: Dec. 31, 1995
Average Annual Total Return with Surrender
<TABLE>
<CAPTION>
Since
Subaccount investing in: 1 Year 5 Year 10 Year Inception
<S> <C> <C> <C> <C>
IDS LIFE
Aggressive Growth Fund (1/92)* 22.91% --% --% 8.85%
Capital Resource Fund (10/81) 19.07 13.21 12.26 --
International Equity Fund (1/92) 3.01 -- -- 7.11
Managed Fund (4/86) 15.46 10.99 -- 9.99
Moneyshare Fund (10/81) -2.97 1.86 4.41 --
Special Income Fund (10/81) 13.62 9.69 8.78 --
AIM
AIM V.I. Growth and Income(5/94) 25.45 -- -- 10.79
PCM
New Opportunities Fund (5/94) -- -- -- 11.16
Warburg
Small Company Growth Portfolio (6/95) -- -- -- 47.15
Average Annual Total Return without Surrender
Since
Subaccount investing in: 1 Year 5 Year 10 Year Inception
IDS LIFE
Aggressive Growth Fund (1/92)* 29.91% --% --% 10.01%
Capital Resource Fund (10/81) 26.07 13.81 12.26 --
International Equity Fund (1/92) 10.01 -- -- 8.32
Managed Fund (4/86) 22.46 11.64 -- 9.99
Moneyshare Fund (10/81) 4.03 2.78 4.41 --
Special Income Fund (10/81) 20.62 10.37 8.78 --
AIM
AIM V.I. Growth and Income (5/94) 32.45 -- -- 17.79
PCM
New Opportunities Fund (5/94)** -- -- -- 4.16
Warburg
Small Company Growth Portfolio (6/95)*** -- -- -- 54.15
* inception dates of the funds are shown in parentheses.
** Annualized return at Dec. 31, 1994.
***Annualized return at Dec. 31, 1995 with expense limitation.
</TABLE>
Aggregate Total Return
Aggregate total return represents the cumulative change in the
value of an investment over a specified period of time (reflecting
change in a subaccount's accumulation unit value) and is computed
by the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the one, five,
or ten year (or other) period at the end of the
one, five, or ten year (or other) period (or
fractional portion thereof).
<PAGE>
PAGE 40
The Securities and Exchange Commission requires that an assumption
be made that the contract owner surrenders the entire contract at
the end of the one, five and ten year periods (or, if less, up to
the life of the account) for which performance is required to be
calculated. In addition, performance figures may be shown without
the deduction of a surrender charge. Total return figures reflect
the deduction of the contract administrative charge and mortality
and expense risk fee.
Performance of the subaccounts may be quoted or compared to
rankings, yields, or returns as published or prepared by
independent rating or statistical services or publishers or
publications such as The Bank Rate Monitor National Index,
Barron's, Business Week, Donoghue's Money Market Fund Report,
Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal
Investor, Stanger Report, Sylvia Porter's Personal Finance, USA
Today, U.S. News and World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
CALCULATING ANNUITY PAYOUTS
The Variable Account
The following calculations are done separately for each of the
subaccounts of the variable account. The separate monthly payouts,
added together, make up your total variable annuity payout.
Initial Payout: To compute your first monthly payment, we:
o determine the dollar value of your annuity as of the valuation
date seven days before the retirement date and then deduct any
applicable premium tax.
o apply the result to the annuity table contained in the contract
or another table at least as favorable. The annuity table shows
the amount of the first monthly payment for each $1,000 of value
which depends on factors built into the table, as described below.
Annuity Units: The value of your subaccount is then converted to
annuity units. To compute the number credited to you, we divide
the first monthly payment by the annuity unit value (see below) on
the valuation date on (or next day preceding) the seventh calendar
day before the retirement date. The number of units in your
subaccount is fixed. The value of the units fluctuates with the
performance of the underlying mutual fund.
Subsequent Payouts: To compute later payouts, we multiply:
o the annuity unit value on the valuation date on or immediately
preceding the seventh calendar day before the payout is due; by
o the fixed number of annuity units credited to you.
Annuity Table: The table shows the amount of the first monthly
payment for each $1,000 of contract value according to the age and,<PAGE>
PAGE 41
when applicable, the sex of the annuitant. (Where required by law,
we will use a unisex table of settlement rates.) The table assumes
that the contract value is invested at the beginning of the annuity
payout period and earns a 5% rate of return, which is reinvested
and helps to support future payouts.
Substitution of 3.5% Table: If you ask us at least 30 days before
the retirement date, we will substitute an annuity table based on
an assumed 3.5% investment rate for the 5% table in the contract.
The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or
decrease. Using the 5% table results in a higher initial payment,
but later payouts will increase more slowly when annuity unit
values are rising and decrease more rapidly when they are
declining.
Annuity Unit Values: This value was originally set at $1 for each
variable subaccount. To calculate later values we multiply the
last annuity value by the product of:
o the net investment factor; and
o the neutralizing factor. The purpose of the neutralizing factor
is to offset the effect of the assumed investment rate built into
the annuity table. With an assumed investment rate of 5%, the
neutralizing factor is 0.999866 for a one day valuation period.
Net Investment Factor:
o Determined each business day by adding the underlying mutual
fund's current net asset value per share plus per share amount of
any current dividend or capital gain distribution; then
o dividing that sum by the previous net asset value per share; and
o subtracting the percentage factor representing the mortality and
expense risk fee from the result.
Because the net asset value of the underlying mutual fund may
fluctuate, the net investment factor may be greater or less than
one, and the accumulation unit value may increase or decrease. You
bear this investment risk in a variable subaccount.
The Fixed Account
Your fixed annuity payout amounts are guaranteed. Once calculated,
your payout will remain the same and never change. To calculate
your annuity payouts we:
o take the value of your fixed account at the retirement date or
the date you have selected to begin receiving your annuity payouts;
then
o using an annuity table we apply the value according to the
annuity payout plan you select; and
o the annuity payout table we use will be the one in effect at the
time you choose to begin your annuity payouts. The table will be
equal to or greater than the table in your contract.
<PAGE>
PAGE 42
RATING AGENCIES
The following chart reflects the ratings given to IDS Life by
independent rating agencies. These agencies evaluate the financial
soundness and claims-paying ability of insurance companies based on
a number of different factors. This information does not relate to
the management or performance of the variable subaccounts of the
annuity. This information relates only to the fixed account and
reflects IDS Life's ability to make annuity payouts and to pay
death benefits and other distributions from the annuity.
Rating agency Rating
A.M. Best A+
(Superior)
Duff & Phelps AAA
Moody's Aa2
PRINCIPAL UNDERWRITER
The principal underwriter for the variable account is IDS Life,
which offers the variable annuities on a continuous basis.
INDEPENDENT AUDITORS
The consolidated financial statements of IDS Life Insurance Company
at Dec. 31, 1994 and 1993, and for each of the three years in the
period ended Dec. 31, 1994, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP,
independent auditors, as stated in their report appearing herein.
MORTALITY AND EXPENSE RISK FEE
IDS Life has represented to the SEC that:
IDS Life has reviewed publicly available information regarding
products of other companies. Based upon this review, IDS Life has
concluded that the mortality and expense risk fee is within the
range of charges determined by industry practice. IDS Life will
maintain at its administrative office, and make available on
request of the SEC or its staff, a memorandum setting forth in
detail the variable products analyzed and the methodology, and
results of, its comparative review.
IDS Life has concluded that there is a reasonable likelihood that
the proposed distribution financing arrangements made with respect
to the contracts will benefit the variable account and investors in
the contracts. The basis for such conclusion is set forth in a
memorandum which will be made available to the SEC or its staff on
request.
<PAGE>
PAGE 43
PROSPECTUS
The prospectus dated Feb. 12, 1996,is hereby incorporated in this
Statement of Additional Information by reference.
<PAGE>
PAGE 44
IDS Life Financial Information
The financial statements shown below are those of the insurance
company and not those of the Funds or the Accounts. They are
included in the prospectus for the purpose of informing investors
as to the financial condition of the insurance company and its
ability to carry out its obligations under the variable annuity
contracts.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET Sept. 30, 1995
ASSETS
(Thousands)
(Unaudited)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1995, $11,393,021) $11,036,382
Available for sale, at fair value (Amortized cost:
1995, $9,723,978) 9,907,299
Mortgage loans on real estate
(Fair value: 1995, $2,847,560) 2,694,957
Policy loans 414,139
Other investments 116,849
Total investments 24,169,626
Cash and cash equivalents 5,190
Receivables:
Reinsurance 105,409
Amounts due from brokers 10,605
Other accounts receivable 26,092
Premiums due 4,779
Total receivables 146,885
Accrued investment income 329,436
Deferred policy acquisition costs 1,961,532
Deferred income taxes
-
Other assets 61,662
Assets held in segregated asset
accounts, primarily common stocks at market 14,120,026
Total assets $40,794,357
==========
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE 45
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (continued) Sept. 30, 1995
LIABILITIES AND STOCKHOLDER'S EQUITY
(Thousands)
(Unaudited)
Liabilities:
Fixed annuities--future policy benefits $20,472,909
Universal life-type insurance--future policy benefits 3,025,137
Traditional life insurance--future policy benefits 208,667
Disability income, health and long-term care
insurance--future policy benefits 306,748
Policy claims and other policyholders' funds 77,143
Deferred income taxes 53,331
Amounts due to brokers 166,933
Other liabilities 242,749
Liabilities related to segregated asset accounts 14,120,026
Total liabilities 38,673,643
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding 3,000
Additional paid-in capital 237,384
Net unrealized gain (loss) on investments 113,751
Retained earnings 1,766,579
Total stockholder's equity 2,120,714
Total liabilities and stockholder's equity $40,794,357
==========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE 46
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME Nine months ended
Sept. 30, 1995
(Thousands)
(Unaudited)
Revenues:
Premiums:
Traditional life insurance $ 37,668
Disability income and long-term care insurance 81,655
Total premiums 119,323
Policyholder and contractholder charges 188,939
Management and other fees 153,064
Net investment income 1,414,616
Net realized loss on investments (2,605)
Total revenues 1,873,337
Benefits and expenses:
Death and other benefits -- Traditional life
insurance 22,124
Death and other benefits -- Universal life-type
insurance and investment contracts 51,555
Death and other benefits -- Disability income,
health and long-term care insurance 13,091
Increase (decrease) in liabilities for future
policy benefits:
Traditional life insurance (1,714)
Disability income, health and
long-term care insurance 38,228
Interest credited on universal life-type
insurance and investment contracts 975,033
Amortization of deferred policy acquisition costs 211,239
Other insurance and operating expenses 156,771
Total benefits and expenses 1,466,327
Income before income taxes 407,010
Income taxes 141,560
Net income $ 265,450
=========
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE 47
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS Nine months ended
Sept. 30, 1995
(Thousands)
(Unaudited)
Cash flows from operating activities:
Net income $ 265,450
Adjustments to reconcile net income to
net cash provided by operating activities:
Issuance--Policy loans, excluding universal
life-type insurance: (35,332)
Repayment--Policy loans, excluding universal
life--type insurance 26,993
Change in reinsurance receivable (25,305)
Change in other accounts receivable 23,653
Change in accrued investment income (11,926)
Change in deferred policy acquisition costs, net (124,744)
Change in liabilities for future policy
benefits for traditional life, disability income,
health and long-term care insurance 64,584
Change in policy claims and other policyholders' funds 27,075
Change in deferred income taxes (32,318)
Change in other liabilities (49,153)
Amortization of premium (accretion
of discount), net (19,620)
Net loss on investments 2,605
Premiums related to universal life--type insurance 339,747
Surrenders and death benefits related to
universal life--type insurance (228,266)
Interest credited to account balances related
to universal life--type insurance 121,324
Policyholder and contractholder charges, non-cash (103,768)
Other, net 3,300
Net cash provided by operating activities $ 244,299
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE 48
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (continued) Nine months ended
Sept. 30, 1995
(Thousands)
(Unaudited)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (443,661)
Maturities, sinking fund payments and calls 485,070
Sales 175,616
Fixed maturities available for sale:
Purchases (1,831,133)
Maturities, sinking fund payments and calls 553,582
Sales 50,031
Other investments, excluding policy loans:
Purchases (505,182)
Sales 124,229
Change in amounts due from brokers (2,672)
Change in amounts due to brokers (59,805)
Net cash used in investing activities (1,453,925)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 2,338,090
Surrenders and death benefits (2,080,869)
Interest credited to account balances 853,709
Universal life-type insurance policy loans:
Issuance (63,768)
Repayment 39,880
Cash dividend to parent (140,000)
Net cash provided by financing activities 947,042
Net increase (decrease) in cash and
cash equivalents (262,584)
Cash and cash equivalents at
beginning of period 267,774
Cash and cash equivalents at
end of period $ 5,190
==========
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE 49
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sept. 30, 1995 ($ Thousands) (Unaudited)
1. General
In the opinion of the management of IDS Life Insurance Company (the
Company), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly its balance sheet as of
Sept. 30, 1995, statements of income for the nine months ended
Sept. 30, 1995 and statements of cash flows for the nine months
ended Sept. 30, 1995.
The Company is a wholly owned subsidiary of American Express
Financial Corporation which is a wholly owned subsidiary of
American Express Company. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, IDS Life Insurance Company of New York, American
Enterprise Life Insurance Company, American Centurion Life
Assurance Company and American Partners Life Insurance Company.
All material intercompany accounts and transactions have been
eliminated in consolidation.
2. Nature of business
The Company is engaged in the life insurance and annuity business.
The Company sells various forms of fixed and variable individual
life insurance, group life insurance,individual and group
disability income insurance, long-term care insurance, and single
and installment premium fixed and variable annuities.
3. 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 market value.
Cash paid for interest on borrowings totaled $4,568 and $1,382 for
the nine months ended Sept. 30, 1995 and 1994, respectively. Cash
paid for income taxes totaled $157,199 and $168,352 for the nine
months ended Sept. 30, 1995 and 1994, respectively.
4. Commitments and contingencies
Commitments for purchases of investments in the ordinary course of
business at Sept. 30, 1995 aggregated $423,938.
The maximum amount of 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 excesses are reinsured with other
life insurance companies on a yearly renewable term basis.
The Company is a defendant in various lawsuits, none of which, in
the opinion of the Company counsel, will result in a material
liability.
<PAGE>
PAGE 50
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
ASSETS 1994 1993
(Thousands)
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1994, $10,694,800) $11,269,861 $ -
Available for sale, at fair value (Amortized cost:
1994, $8,459,128) 8,017,555 -
Investment securities, at amortized cost (Fair value:
1993, $20,425,979) - 19,392,424
Mortgage loans on real estate
(Fair value: 1994, $2,342,520; 1993, $2,125,686) 2,400,514 2,055,450
Policy loans 381,912 350,501
Other investments 51,795 56,307
Total investments 22,121,637 21,854,682
Cash and cash equivalents 267,774 146,281
Receivables:
Reinsurance 80,304 55,298
Amounts due from brokers 7,933 5,719
Other accounts receivable 49,745 21,459
Premiums due 1,594 1,329
Total receivables 139,576 83,805
Accrued investment income 317,510 307,177
Deferred policy acquisition costs 1,865,324 1,652,384
Deferred income taxes 124,061 -
Other assets 30,426 21,730
Assets held in segregated asset
accounts, primarily common stocks at market 10,881,235 8,991,694
Total assets $35,747,543 $33,057,753
========== ==========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
PAGE 51
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
(Thousands)
<S> <C> <C>
Liabilities:
Fixed annuities--future policy benefits $19,361,979 $18,492,135
Universal life-type insurance--future policy benefits 2,896,100 2,753,455
Traditional life insurance--future policy benefits 206,754 210,205
Disability income, health and long-term care
insurance--future policy benefits 244,077 185,272
Policy claims and other policyholders' funds 50,068 44,516
Deferred income taxes - 43,620
Amounts due to brokers 226,737 351,486
Other liabilities 291,902 292,024
Liabilities related to segregated asset accounts 10,881,235 8,991,694
Total liabilities 34,158,852 31,364,407
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 222,000 222,000
Net unrealized gain (loss) on investments (275,708) 114
Retained earnings 1,639,399 1,468,232
Total stockholder's equity 1,588,691 1,693,346
Total liabilities and stockholder's equity $35,747,543 $33,057,753
========== ==========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
PAGE 52
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended Dec. 31,
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Traditional life insurance $ 48,184 $ 48,137 $ 49,719
Disability income and long-term care insurance 96,456 79,108 64,660
Total premiums 144,640 127,245 114,379
Policyholder and contractholder charges 219,936 184,205 156,368
Management and other fees 164,169 120,139 84,591
Net investment income 1,781,873 1,783,219 1,616,821
Net loss on investments (4,282) (6,737) (3,710)
Total revenues 2,306,336 2,208,071 1,968,449
Benefits and expenses:
Death and other benefits: Traditional life
insurance 28,263 32,136 34,139
Death and other benefits: Universal life-type
insurance and investment contracts 52,027 49,692 42,174
Death and other benefits: Disability income,
health and long-term care insurance 13,393 13,148 10,701
Increase (decrease) in liabilities for future
policy benefits: (3,229) (4,513) (5,788)
Traditional life insurance
Disability income, health and long-term care insurance 37,912 32,528 27,172
Interest credited on universal life-type
insurance and investment contracts 1,174,985 1,218,647 1,188,379
Amortization of deferred policy acquisition costs 280,372 211,733 140,159
Other insurance and operating expenses 210,101 241,974 215,692
Total benefits and expenses 1,793,824 1,795,345 1,652,628
Income before income taxes 512,512 412,726 315,821
Income taxes 176,343 142,647 104,651
Net income $ 336,169 $ 270,079 $ 211,170
========= ========= =========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
PAGE 53
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 336,169 $ 270,079 $ 211,170
Adjustments to reconcile net income to
net cash provided by operating activities:
Issuance--Policy loans, excluding universal
life-type insurance (37,110) (35,886) (32,881)
Repayment--Policy loans, excluding universal
life--type insurance 33,384 29,557 26,750
Change in reinsurance receivable (25,006) (55,298) -
Change in other accounts receivable (28,286) (1,364) (4,772)
Change in accrued investment income (10,333) (22,057) (15,853)
Change in deferred policy acquisition costs, net (192,768) (211,509) (229,252)
Change in liabilities for future policy
benefits for traditional life, disability income,
health and long-term care insurance 55,354 79,695 21,384
Change in policy claims and other policyholders' funds 5,552 (5,383) (1,347)
Change in deferred income taxes (19,176) (44,237) (30,385)
Change in other liabilities (122) 56,515 88,997
Amortization of premium (accretion
of discount), net 30,921 (27,438) (4,289)
Net loss on investments 4,282 6,737 3,710
Premiums related to universal life--type insurance 409,035 397,883 312,621
Surrenders and death benefits related to
universal life--type insurance (290,427) (255,133) (166,162)
Interest credited to account balances related
to universal life--type insurance 150,955 156,885 161,873
Policyholder and contractholder charges, non-cash (126,918) (115,140) (100,975)
Other, net (8,974) (1,907) (10,647)
Net cash provided by operating activities $ 286,532 $ 221,999 $ 229,942
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
PAGE 54
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1994 1993 1992
(Thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (879,740) $ - $ -
Maturities, sinking fund payments and calls 1,651,762 - -
Sales 58,001 - -
Fixed maturities available for sale:
Purchases (2,763,278) - -
Maturities, sinking fund payments and calls 1,234,401 - -
Sales 374,564 - -
Fixed maturities:
Purchases - (6,548,852) (6,590,279)
Maturities, sinking fund payments and calls - 3,934,055 2,696,239
Sales - 487,983 1,011,093
Other investments, excluding policy loans:
Purchases (634,807) (553,694) (411,069)
Sales 243,862 123,352 67,097
Change in amounts due from brokers (2,214) 14,483 289,335
Change in amounts due to brokers (124,749) 92,832 42,182
Net cash used in investing activities (842,198) (2,449,841) (2,895,402)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 3,157,778 2,843,668 2,821,069
Surrenders and death benefits (3,311,965) (1,765,869) (1,168,633)
Interest credited to account balances 1,024,031 1,071,917 1,026,506
Universal life-type insurance policy loans:
Issuance (78,239) (70,304) (72,007)
Repayment 50,554 46,148 40,351
Capital contribution from parent - 200,000 -
Cash dividend to parent (165,000) (25,000) (20,000)
Net cash provided by financing activities 677,159 2,300,560 2,627,286
Net increase (decrease) in cash and
cash equivalents 121,493 72,718 (38,174)
Cash and cash equivalents at
beginning of year 146,281 73,563 111,737
Cash and cash equivalents at
end of year $ 267,774 $ 146,281 $ 73,563
=========== =========== ==========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
PAGE 55
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ Thousands)
Dec. 31, 1994, 1993 and 1992
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company (the Company) is engaged in the
insurance and annuity business. The Company sells various forms of
fixed and variable individual life insurance, group life insurance,
individual and group disability income insurance, long-term care
insurance, and single and installment premium fixed and variable
annuities.
Basis of presentation
The Company is a wholly owned subsidiary of American Express
Financial Corporation (formerly IDS Financial Corporation), which
is a wholly owned subsidiary of American Express Company. The
accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, IDS Life
Insurance Company of New York, American Enterprise Life Insurance
Company and American Partners Life Insurance Company. All material
intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles which vary in certain respects from reporting practices
prescribed or permitted by state insurance regulatory authorities.
Investments
As of Jan. 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115,
fixed maturities that the Company has both the positive intent and
the ability to hold to maturity are classified as held to maturity
and carried at amortized cost. All other fixed maturities and all
marketable equity securities are classified as available for sale
and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are carried as a
separate component of stockholder's equity. The effect of adopting
SFAS No. 115 was to increase stockholder's equity by approximately
$181 million, net of tax, as of Jan. 1, 1994, but the adoption had
no impact on the Company's net income.
Management determines the appropriate classification of fixed
maturities at the time of purchase and reevaluates the
classification at each balance sheet date.
<PAGE>
PAGE 56
1. Summary of significant accounting policies (continued)
Mortgage loans on real estate are carried principally at the unpaid
principal balances of the related loans. Policy loans are carried
at the aggregate of the unpaid loan balances which do not exceed
the cash surrender values of the related policies. Other
investments include interest rate caps and equity securities. When
evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to
income. Equity securities are carried at market value and the
related net unrealized appreciation or depreciation is reported as
a credit or charge to stockholder's equity.
Realized investment gain or loss is determined on an identified
cost basis.
Prepayments are anticipated on certain investments in
mortgage-backed securities in determining the constant effective
yield used to recognize interest income. Prepayment estimates are
based on information received from brokers who deal in
mortgage-backed securities.
Statement of cash flows
The Company considers investments with a maturity at the date of
their acquisition of three months or less to be cash equivalents.
These securities are carried principally at amortized cost which
approximates fair value.
Supplementary information to the consolidated statement of cash
flows for the years ended Dec. 31 is summarized as follows:
1994 1993 1992
Cash paid during the year for:
Income taxes $226,365 $188,204 $140,445
Interest on borrowings 1,553 2,661 1,265
Recognition of profits on annuity contracts and insurance policies
The Company issues single premium deferred annuity contracts that
provide for a service fee (surrender charge) at annually decreasing
rates upon withdrawal of the annuity accumulation value by the
contract owner. No sales fee is deducted from the contract
considerations received on these contracts ("no load" annuities).
All of the Company's single premium deferred annuity contracts
provide for crediting the contract owners' accumulations at
specified rates of interest. Such rates are revised by the Company
from time to time based on changes in the market investment yield
rates for fixed-income securities.
<PAGE>
PAGE 57
1. Summary of significant accounting policies (continued)
Profits on single premium deferred annuities and installment
annuities are recognized by the Company over the lives of the
contracts and represent the excess of investment income earned from
investment of contract considerations over interest credited to
contract owners and other expenses.
The retrospective deposit method is used in accounting for
universal life-type insurance. This method recognizes profits over
the lives of the policies in proportion to the estimated gross
profits expected to be realized.
Premiums on traditional life, disability income, health and
long-term care insurance policies are recognized as revenue when
collected or due, and related benefits and expenses are associated
with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association
is accomplished by means of the provision for future policy
benefits and the deferral and subsequent amortization of policy
acquisition costs.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales
compensation, policy issue costs, underwriting and certain sales
expenses, have been deferred on insurance and annuity contracts.
The deferred acquisition costs for single premium deferred
annuities and installment annuities are amortized based upon
surrender charge revenue and a portion of the excess of investment
income earned from investment of the contract considerations over
the interest credited to contract owners. The costs for universal
life-type insurance are amortized over the lives of the policies as
a percentage of the estimated gross profits expected to be realized
on the policies. For traditional life, disability income, health
and long-term care insurance policies, the costs are amortized over
an appropriate period in proportion to premium revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance, single premium
deferred annuities and installment annuities are accumulation
values.
Liabilities for fixed annuities in a benefit status are based on
the Progressive Annuity Table with interest at 5 percent, the 1971
Individual Annuity Table with interest at 7 percent or 8.25
percent, or the 1983a Table with various interest rates ranging
from 5.5 percent to 9.5 percent, depending on year of issue.
Liabilities for future benefits on traditional life insurance have
been computed principally by the net level premium method, based on
anticipated rates of mortality (approximating the 1965-1970 Select
and Ultimate Basic Table for policies issued after 1980 and the
1955-1960 Select and Ultimate Basic Table for policies issued prior
<PAGE>
PAGE 58
1. Summary of significant accounting policies (continued)
to 1981) and the 1975-1980 Select and Ultimate Basic Table for term
insurance policies issued after 1984, policy persistency derived
from Company experience data (first year rates ranging from
approximately 70 percent to 90 percent and increasing rates
thereafter), and estimated future investment yields of 4 percent
for policies issued before 1974 and 5.25 percent for policies
issued from 1974 to 1980. Cash value plans issued in 1980 and
later assume future investment rates that grade from 9.5 percent to
5 percent over 20 years. Term insurance issued from 1981 to 1984
assumes an 8 percent level investment rate, term insurance issued
from 1985-1993 assumes investment rates that grade from 10 percent
to 6 percent over 20 years and term insurance issued after 1993
assumes investment rates that grade from 8.7 percent to 6.57
percent over 7 years.
Liabilities for future disability income policy benefits have been
computed principally by the net level premium method, based on the
1964 Commissioners Disability Table with the 1958 Commissioners
Standard Ordinary Mortality Table at 3 percent interest for 1980
and prior, 8 percent interest for persons disabled from 1981 to
1991, 7.7 percent interest for persons disabled in 1992 and 6
percent interest for persons disabled after 1992.
Liabilities for future benefits on long-term care insurance have
been computed principally by the net level premium method, using
morbidity rates based on the 1985 National Nursing Home Survey and
mortality rates based on the 1983a Table. The interest rate basis
is 9.5 percent grading to 7 percent over ten years for policies
issued from 1989 to 1992, 7.75 percent grading to 7 percent over
four years for policies issued after 1992, 8 percent for claims
incurred in 1989 to 1991, 7.7 percent for claims incurred in 1992
and 6.7 percent for claims incurred after 1992.
Reinsurance
The maximum amount of life insurance risk retained by the Company
on any one life is $750 of life and waiver of premium benefits plus
$50 of accidental death benefits. The maximum amount of disability
income risk retained by the Company on any one life is $6 of
monthly benefit for benefit periods longer than three years. The
excesses are reinsured with other life insurance companies on a
yearly renewable term basis. Graded premium whole life policies
and long term care are primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated
federal income tax return of American Express Company. The Company
provides for income taxes on a separate return basis, except that,
under an agreement between American Express Financial Corporation
and American Express Company, tax benefit is recognized for losses
to the extent they can be used on the consolidated tax return. It
<PAGE>
PAGE 59
1. Summary of significant accounting policies (continued)
is the policy of American Express Financial Corporation and its
subsidiaries that American Express Financial Corporation will
reimburse a subsidiary for any tax benefit.
Included in other receivables at Dec. 31, 1994 is $22,034
receivable from American Express Financial Corporation for federal
income taxes. Included in other liabilities at Dec.31, 1993 is
$14,709 payable to American Express Financial Corporation for
federal income taxes.
Segregated asset account business
The segregated asset account assets and liabilities represent funds
held for the exclusive benefit of the variable annuity and variable
life insurance contract owners. The Company receives investment
management and mortality and expense assurance fees from the
variable annuity and variable life insurance mutual funds and
segregated asset accounts. The Company also deducts a monthly cost
of insurance charge and receives a minimum death benefit guarantee
fee and issue and administrative fee from the variable life
insurance segregated asset accounts.
The Company makes contractual mortality assurances to the variable
annuity contract owners that the net assets of the segregated asset
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 segregated asset accounts for such actuarial adjustments for
variable annuities that are in the benefit payment period. The
Company guarantees, for the variable life insurance policyholders,
the contractual insurance rate and that the death benefit will
never be less than the death benefit at the date of issuance.
Reclassification
Certain 1993 and 1992 amounts have been reclassified to conform to
the 1994 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, preview of market
indices, price levels of current offerings of comparable issues,
price estimates and market data from independent brokers and
financial files.
<PAGE>
PAGE 60
2. Investments (continued)
Net gain (loss) on investments for the years ended Dec.31 is
summarized as follows:
1994 1993 1992
Fixed maturities $(1,575) $ 20,583 $ 22,075
Mortgage loans (3,013) (25,056) (13,444)
Other investments 306 (2,264) (12,341)
----- ----- ------
$(4,282) $ (6,737) $ (3,710)
===== ===== ======
Changes in net unrealized appreciation (depreciation) of
investments for the years ended Dec. 31 are summarized as follows:
1994 1993 1992
Fixed maturities:
Held to maturity $(1,329,740) $ -- $ --
Available for sale (720,449) -- --
Investment securities --- 323,060 (128,683)
Equity securities (2,917) (156) 300
The amortized cost, gross unrealized gains and losses and fair
values of investments in fixed maturities and equity securities at
Dec. 31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
agency obligations $ 21,500 $ 43 $ 4,372 $ 17,171
State and municipal
obligations 9,687 132 -- 9,819
Corporate bonds
and obligations 8,806,707 100,468 459,568 8,447,607
Mortgage-backed
securities 2,431,967 10,630 222,394 2,220,203
---------- ------- ------- ----------
$11,269,861 $111,273 $686,334 $10,694,800
========== ======= ======= ==========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government
agency obligations $ 128,093 $ 756 $ 1,517 $ 127,332
State and municipal
obligations 11,008 702 -- 11,710
Corporate bonds
and obligations 1,142,321 24,166 7,478 1,159,009
Mortgage-backed
securities 7,177,706 9,514 467,716 6,719,504
--------- ------ ------- ---------
Total fixed maturities 8,459,128 35,138 476,711 8,017,555
Equity securities 4,663 -- 2,757 1,906
--------- ------ ------- ---------
$8,463,791 $35,138 $479,468 $8,019,461
========= ====== ======= =========
/TABLE
<PAGE>
PAGE 61
2. Investments (continued)
The change in net unrealized gain (loss) on available for sale
securities included as a separate component of stockholder's equity
was $(275,822) in 1994.
The amortized cost, gross unrealized gains and losses and fair
values of investments in fixed maturities carried at amortized cost
at Dec. 31, 1993 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
agency obligations $ 63,532 $ 3,546 $ 1,377 $ 65,701
State and municipal
obligations 11,072 2,380 -- 13,452
Corporate bonds
and obligations 9,339,297 768,747 22,929 10,085,115
Mortgage-backed
securities 9,978,523 341,067 57,879 10,261,711
---------- --------- ------- ----------
$19,392,424 $1,115,740 $ 82,185 $20,425,979
========== ========= ======= ==========
</TABLE>
At Dec. 31, 1993, net unrealized appreciation on equity securities
included $160 of gross unrealized appreciation, $nil of gross
unrealized depreciation and deferred tax credits of $46. The fair
value of equity securities was $1,900 at Dec. 31, 1993.
The amortized cost and fair value of investments in fixed
maturities at Dec. 31, 1994 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 $ 108,056 $ 109,228
Due from one to five years 1,412,335 1,423,394
Due from five to ten years 5,467,826 5,245,742
Due in more than ten years 1,849,677 1,696,233
Mortgage-backed securities 2,431,967 2,220,203
---------- ----------
$11,269,861 $10,694,800
========== ==========
Amortized Fair
Available for sale Cost Value
Due from one to five years $ 757,160 $ 756,842
Due from five to ten years 433,717 449,057
Due in more than ten years 90,545 92,152
Mortgage-backed securities 7,177,706 6,719,504
--------- ---------
$8,459,128 $8,017,555
========= =========
<PAGE>
PAGE 62
2. Investments (continued)
During the year ended Dec. 31, 1994, fixed maturities classified as
held to maturity were sold with proceeds of $58,001 and gross
realized gains and losses on such sales were $226 and $3,515,
respectively. The sale of these fixed maturities was due to credit
deterioration.
In addition, fixed maturities available for sale were sold during
1994 with proceeds of $374,564 and gross realized gains and losses
on such sales were $1,861 and $7,602, respectively.
Proceeds from sales of investments in fixed maturities during 1993
were $487,983. During 1993, gross gains of $48,499 and gross
losses of $43,039, respectively, were realized on those sales.
At Dec. 31, 1994, bonds carried at $6,536 were on deposit with
various states as required by law.
Net investment income for the years ended Dec. 31 is summarized as
follows:
1994 1993 1992
Interest on fixed maturities $1,556,756 $1,589,802 $1,449,234
Interest on mortgage loans 196,521 175,063 148,693
Other investment income 38,366 29,345 24,281
Interest on cash equivalents 6,872 2,137 5,363
--------- --------- ---------
1,798,515 1,796,347 1,627,571
Less investment expenses 16,642 13,128 10,750
--------- --------- ---------
$1,781,873 $1,783,219 $1,616,821
========= ========= =========
At Dec. 31, 1994, investments in fixed maturities comprised 87
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 cost approximately $1.7 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
Dec. 31 is as follows:
<PAGE>
PAGE 63
2. Investments (continued)
Rating 1994 1993
Aaa/AAA $ 9,708,047 $ 9,959,884
Aa/AA 242,914 258,659
Aa/A 119,952 160,638
A/A 2,567,947 2,021,177
A/BBB 725,755 654,949
Baa/BBB 3,849,188 3,936,366
Baa/BB 796,063 717,606
Below investment
grade 1,719,123 1,683,145
---------- ----------
$19,728,989 $19,392,424
========== ==========
At Dec. 31, 1994, 97 percent of the securities rated Aaa/AAA are
GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer are greater than 1 percent of the Company's total
investments in fixed maturities.
At Dec. 31, 1994, approximately 10.9 percent of the Company's
invested assets were mortgage loans on real estate. Summaries of
mortgage loans by region of the United States and by type of real
estate at Dec. 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Dec. 31, 1994 Dec. 31, 1993
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
<S> <C> <C> <C> <C>
East North Central $ 581,142 $ 62,291 $ 552,150 $ 20,933
West North Central 257,996 7,590 361,704 16,746
South Atlantic 597,896 63,010 452,679 52,440
Middle Atlantic 408,940 34,478 260,239 41,090
New England 209,867 23,087 155,214 17,620
Pacific 138,900 -- 120,378 15,492
West South Central 50,854 -- 43,948 525
East South Central 67,503 -- 73,748 --
Mountain 122,668 18,750 70,410 14,594
--------- ------- --------- -------
2,435,766 209,206 2,090,470 179,440
Less allowance for losses 35,252 -- 35,020 --
--------- ------- --------- -------
$2,400,514 $209,206 $2,055,450 $179,440
========= ======= ========= =======
Dec. 31, 1994 Dec. 31, 1993
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
Apartments $ 904,012 $ 56,964 $ 744,788 $ 79,153
Department/retail stores 802,522 88,325 624,651 65,402
Office buildings 321,761 21,691 234,042 15,583
Industrial buildings 232,962 18,827 217,648 9,279
Nursing/retirement homes 89,304 4,649 83,768 917
Hotels/motels 32,666 -- 33,138 --
Medical buildings 36,490 15,651 30,429 5,954
Residential 20 -- 78 --
Other 16,029 3,099 121,928 3,152
--------- ------- --------- -------
2,435,766 209,206 2,090,470 179,440
Less allowance for losses 35,252 -- 35,020 --
--------- ------- --------- -------
$2,400,514 $209,206 $2,055,450 $179,440
========= ======= ========= =======
/TABLE
<PAGE>
PAGE 64
2. Investments (continued)
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real
estate at the time of origination of the loan. The Company holds
the mortgage document, which gives the right to take possession of
the property if the borrower fails to perform according to the
terms of the agreement. The fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage
interest rates currently offered for mortgages of similar
maturities. Commitments to purchase mortgages are made in the
ordinary course of business. The fair value of the mortgage
commitments is $nil.
3. Income taxes
The Company qualifies as a life insurance company for federal
income tax purposes. As such, the Company is subject to the
Internal Revenue Code provisions applicable to life insurance
companies.
Income tax expense consists of the following:
1994 1993 1992
Federal income taxes:
Current $186,508 $180,558 $130,998
Deferred (19,175) (44,237) (30,385)
------- ------- -------
167,333 136,321 100,613
State income
taxes-current 9,010 6,326 4,038
------- ------- -------
Income tax expense $176,343 $142,647 $104,651
======= ======= =======
Increases (decreases) to the federal tax provision applicable to
pretax income based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1994 1993 1992
Provision Rate Provision Rate Provision Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $179,379 35.0% $144,454 35.0% $107,379 34.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (9,939) (2.0) (11,002) (2.7) (8,209) (2.6)
Other, net (2,107) (0.4) 2,869 0.7 1,443 0.4
------- --- ------- --- ------ ---
Federal income taxes $167,333 32.6% $136,321 33.0% $100,613 31.8%
====== === ====== === ====== ===
</TABLE>
A portion of life insurance company income earned prior to 1984 was
not subject to current taxation but was accumulated, for tax
purposes, in a "policyholders' surplus account." At Dec. 31, 1994,
the Company had a policyholders' surplus account balance of
<PAGE>
PAGE 65
3. Income taxes (continued)
$19,032. 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
$6,661 have not been established because no distributions of such
amounts are contemplated.
Significant components of the Company's deferred tax assets and
liabilities as of Dec. 31 are as follows:
1994 1993
Deferred tax assets:
Policy reserves $533,433 $453,436
Investments 116,736 --
Life insurance guarantee
fund assessment reserve 32,235 35,000
------- -------
Total deferred tax assets 682,404 488,436
Deferred tax liabilities:
Deferred policy acquisition costs 553,722 509,868
Investments -- 10,151
Other 4,621 12,037
------- -------
Total deferred tax
liabilities 558,343 532,056
------- -------
Net deferred tax assets
(liabilities) $124,061 $(43,620)
======= =======
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
$1,020,981 as of Dec. 31, 1994 and $922,246 as of Dec. 31, 1993
(see Note 3 with respect to the income tax effect of certain
distributions). In addition, any dividend distributions in 1995 in
excess of approximately $288,601 would require approval of the
Department of Commerce of the State of Minnesota.
<PAGE>
PAGE 66
4. Stockholder's equity (continued)
Statutory net income for 1994, 1993 and 1992 and capital and
surplus as of Dec. 31, 1994, 1993 and 1992 are summarized as
follows:
1994 1993 1992
Statutory net income $ 294,699 $ 275,015 $180,296
Statutory capital and surplus 1,261,958 1,157,022 714,942
Dividends paid to American Express Financial Corporation were
$165,000 in 1994, $25,000 in 1993 and $20,000 in 1992.
5. Related party transactions
The Company has loaned funds to American Express Financial
Corporation under three loan agreements. The balance of the first
loan was $40,000 and $75,000 at Dec. 31, 1994 and 1993,
respectively. This loan can be increased to a maximum of $75,000
and pays interest at a rate equal to the preceding month's
effective new money rate for the Company's permanent investments.
It is collateralized by equities valued at $110,034 at Dec. 31,
1994. The second loan was used to fund the construction of the IDS
Operations Center. This loan was paid off during 1994 and had an
outstanding balance of $84,588 at Dec. 31, 1993. The loan was
secured by a first lien on the IDS Operations Center property and
had an interest rate of 9.89 percent. The Company also had a loan
to an affiliate which was used to fund construction of the IDS
Learning Center. This loan was sold to the parent during 1994 and
the balance outstanding was $22,573 at Dec. 31, 1993. The loan was
secured by a first lien on the IDS Learning Center property and had
an interest rate of 9.82 percent. Interest income on the above
loans totaled $2,894, $11,116 and $10,711 in 1994, 1993 and 1992,
respectively.
The Company purchased a five year secured note from an affiliated
company which had an outstanding balance of $23,333 and $27,222 at
Dec. 31, 1994 and 1993, respectively. The note bears a fixed rate
of 8.42 percent. Interest income on the above note totaled $2,278,
$2,605 and $2,278 in 1994, 1993 and 1992, respectively.
The Company has a reinsurance agreement whereby it assumed 100
percent of a block of single premium life insurance business from
an affiliated company. The accompanying consolidated balance sheet
at Dec. 31, 1994 and 1993 includes $765,366 and $759,714,
respectively, of future policy benefits related to this agreement.
The accompanying consolidated statement of income includes revenue
from policyholder charges of $8, $21 and $109, and expenses of
$6,912, $4,931 and $5,897 related to this agreement for 1994, 1993
and 1992, respectively.
<PAGE>
PAGE 67
5. Related party transactions (continued)
The Company has a reinsurance agreement to cede 50 percent of its
long-term care insurance business to an affiliated company. The
accompanying consolidated balance sheet at Dec. 31, 1994 and 1993
includes $65,123 and $44,086, respectively, of reinsurance
receivables related to this agreement. Premiums ceded amounted to
$20,360, $16,230 and $12,499 and reinsurance recovered from
reinsurers amounted to $62, $404 and $250 for the years ended Dec.
31, 1994, 1993 and 1992, respectively.
The Company participates in the retirement plan of American Express
Financial Corporation which covers all permanent employees age 21
and over who have met certain employment requirements. The
benefits are based on years of service and the employee's monthly
average of basic annual salary rates in effect on January 1 or such
other date at determined by American Express Financial Corporation
of the highest five consecutive annual salaries of the last 10
years. American Express Financial Corporation's policy is to fund
retirement plan costs accrued subject to ERISA and federal income
tax considerations. The Company's share of the total net periodic
pension cost was $nil in 1994, 1993 and 1992.
The Company also participates in defined contribution pension plans
of American Express Financial Corporation 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 1994, 1993 and 1992 were $957, $2,008 and
$1,826, respectively.
The Company participates in defined benefit health care plans of
American Express Financial Corporation that provide health care and
life insurance benefits to retired employees and retired financial
advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees
are considered to have been employees of American Express Financial
Corporation. American Express Financial Corporation expenses these
benefits and allocates the expenses to its subsidiaries.
Accordingly, costs of such benefits to the Company are included in
employee compensation and benefits and cannot be identified on a
separate company basis. At Dec. 31, 1994, the total accumulated
post retirement benefit obligation, determined in accordance with
SFAS 106 and based on an assumed interest rate of 8.75 percent and
a health care cost trend rate of 7 percent, has been recorded as a
liability by American Express Financial Corporation.
Charges by American Express Financial Corporation for use of joint
facilities, marketing services and other services aggregated
$335,183, $243,346 and $204,675 for 1994, 1993 and 1992,
respectively. Certain of these costs are included in deferred
policy acquisition costs. In addition, the Company rents its home
office space from American Express Financial Corporation on an
annual renewable basis. Such rentals aggregated $965, $4,513 and
$4,074 for 1994, 1993 and 1992, respectively.
<PAGE>
PAGE 68
6. Commitments and contingencies
At Dec. 31, 1994 and 1993, traditional life insurance and universal
life-type insurance in force aggregated $52,666,567 and
$46,125,515, respectively, of which $3,246,608 and $3,038,426 were
reinsured at the respective year ends. The Company also reinsures
a portion of the risks assumed under disability income policies.
Under the agreements, premiums ceded to reinsurers amounted to
$29,489, $28,276 and $24,222 and reinsurance recovered from
reinsurers amounted to $5,505, $3,345 and $6,766 for the years
ended Dec. 31, 1994, 1993 and 1992.
Reinsurance contracts do not relieve the Company from its primary
obligation to policyholders.
The Company is a defendant in various lawsuits, none of which, in
the opinion of the Company counsel, will result in a material
liability.
The Company settled all remaining IRS audit issues for the tax
years 1984 through 1986 in September of 1994. There was no
material impact as a result of this audit. Also, the IRS is
currently auditing the Company's 1987 through 1989 tax years.
Management does not believe there will be a material impact as a
result of this audit.
7. Lines of credit
The Company has available lines of credit with three banks
aggregating $100,000 at 40 to 80 basis points over the banks' cost
of funds or equal to the prime rate, depending on which line of
credit agreement is used. Borrowings outstanding under these
agreements were $nil and $1,519 at
Dec. 31, 1994 and 1993, respectively.
8. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including
hedging specific transactions. The Company manages risks
associated with these instruments as described below. The Company
does not hold derivative instruments for trading purposes.
Market risk is the possibility that the value of the derivative
financial instruments will change due to fluctuations in a factor
from which the instrument derives its value, primarily an interest
rate. The Company is not impacted by market risk related to
derivatives held for non-trading purposes beyond that inherent in
cash market transactions. Derivatives held for purposes other than
trading are largely used to manage risk and, therefore, the cash
flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
<PAGE>
PAGE 69
8. Derivative financial instruments (continued)
Credit risk is the possibility that the counterparty will not
fulfill the terms of the contract. The Company monitors credit
exposure related to derivative financial instruments through
established approval procedures, including setting concentration
limits by counterparty and industry, and requiring collateral,
where appropriate. A vast majority of the Company's counterparties
are rated A or better by Moody's and Standard & Poor's.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional amounts
are not recorded on the balance sheet. Notional amounts far exceed
the related credit exposure.
Credit exposure related to interest rate caps is measured by the
replacement cost of the contracts. The replacement cost
represents the fair value of the instruments. Financial futures
contracts are settled in cash daily.
<TABLE>
<CAPTION>
Notional Carrying Total Credit
Assets Amount Value Fair Value Exposure
<S> <C> <C> <C> <C>
Financial futures contracts $ 159,800 $ 2,072 $ 2,072 $ -
Interest rate caps 4,400,000 29,054 42,365 42,365
--------- ------ ------ ------
$4,559,800 $31,126 $44,437 $42,365
========= ====== ====== ======
</TABLE>
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The financial
futures contracts expire in 1995. The interest rate caps expire on
various dates from 1995 to 1999.
Financial futures contracts and interest rate caps are used
principally to manage the Company's exposure to rising interest
rates. These instruments are used primarily to protect the margin
between interest rate earned on investments and the interest rate
credited to related annuity contract holders.
Changes in the fair value of financial futures contracts are
accounted for as adjustments to the carrying amount of the hedged
investments and amortized over the remaining lives of such
investments. The cost of interest rate caps is amortized to
interest expense over the life of the contracts and payments
received as a result of these agreements are recorded as a
reduction of interest expense when realized. The amortized cost of
interest rate cap contracts is included in other investments.
9. Fair values of financial instruments
The Company is required to disclose fair value information for most
on- and off-balance sheet financial instruments for which it is
practical to estimate that value. Certain financial instruments
such as life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are
<PAGE>
PAGE 70
9. Fair values of financial instruments (continued)
excluded from required disclosure. Off-balance sheet intangible
assets, such as the value of the field force, are also excluded.
Management believes the value of excluded assets is significant.
The fair value of the Company, therefore, cannot be estimated by
aggregating the amounts presented.
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
Financial Assets Value Value Value Value
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $11,269,861 $10,694,800 $ -- $ --
Available for sale 8,017,555 8,017,555 -- --
Investment securities -- -- 19,392,424 20,425,979
Mortgage loans on
real estate (Note 2) 2,400,514 2,342,520 2,055,450 2,125,686
Other:
Equity securities (Note 2) 1,906 1,906 1,900 1,900
Derivative financial
instruments (Note 8) 31,126 44,437 26,923 14,201
Cash and cash equivalents
(Note 1) 267,774 267,774 146,281 146,281
Assets held in segregated
asset accounts (Note 1) 10,881,235 10,881,235 8,991,694 8,991,694
Financial Liabilities
Future policy benefits
for fixed annuities 18,325,870 17,651,897 17,519,876 16,881,747
Liabilities related to
segregated asset accounts 10,398,861 9,943,672 8,645,418 8,305,209
</TABLE>
At Dec. 31, 1994 and 1993, the carrying amount and fair value of
future policy benefits for fixed annuities exclude life
insurance-related contracts carried at $971,897 and $913,127,
respectively, and policy loans of $64,212 and $59,132,
respectively. The fair value of these benefits is based on the
status of the annuities at Dec. 31, 1994 and 1993. 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 the rate appropriate
for contracts issued in 1994 and 1993.
At Dec. 31, 1994 and 1993 the fair value of liabilities related to
segregated asset accounts is estimated as the carrying amount less
variable insurance contracts carried at $482,374 and $346,276,
respectively, and surrender charges, if applicable.
10. Segment information
The Company's operations consist of two business segments; first,
individual and group life insurance, disability income, health and
long-term care insurance, and second, annuity products designed for
individuals, pension plans, small businesses and employer-sponsored
groups. The consolidated statement of income for the years ended
Dec. 31, 1994, 1993 and 1992 and total assets at Dec. 31, 1994,
1993 and 1992 by segment are summarized as follows:
<PAGE>
PAGE 71
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net investment income:
Life, disability income,
health and long-term
care insurance $ 247,047 $ 250,224 $ 246,676
Annuities 1,534,826 1,532,995 1,370,145
--------- --------- ---------
$1,781,873 $1,783,219 $1,616,821
========= ========= =========
Premiums, charges and fees:
Life, disability income,
health and long-term
care insurance $335,375 $281,284 $250,386
Annuities 193,370 143,876 104,952
------- ------- -------
$528,745 $425,160 $355,338
======= ======= =======
Income before income taxes:
Life, disability income,
health and long-term
care insurance $122,677 $104,127 $ 96,215
Annuities 394,117 315,336 223,316
Net loss
on investments (4,282) (6,737) (3,710)
------- ------- -------
$512,512 $412,726 $315,821
======= ======= =======
Total assets:
Life, disability income,
health and long-term
care insurance $ 5,269,188 $ 4,810,145 $ 4,093,778
Annuities 30,478,355 28,247,608 23,201,995
---------- ---------- ----------
$35,747,543 $33,057,753 $27,295,773
========== ========== ==========
</TABLE>
Allocations of net investment income and certain general expenses
are based on various assumptions and estimates.
Assets are not individually identifiable by segment and have been
allocated principally based on the amount of future policy benefits
by segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
<PAGE>
PAGE 72
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying consolidated balance sheets of IDS
Life Insurance Company (a wholly owned subsidiary of American
Express Financial Corporation) as of December 31, 1994 and 1993 and
the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1994.
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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of IDS Life Insurance Company at December 31,
1994 and 1993, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for certain
investments in debt and equity securities in 1994.
Ernst & Young LLP
Minneapolis, Minnesota
February 3, 1995
<PAGE>
PAGE 73
STATEMENT OF DIFFERENCES
Difference Description
1) Headings. 1) The headings in the
prospectus are placed
in a strip at the top
of the page.
2) Footnotes for charts and 2) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
