SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4 (File No. 33-62407) [ ]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 (File No. 811-07355) [ ]
---------
(Check appropriate box or boxes)
IDS LIFE VARIABLE ACCOUNT 10
- --------------------------------------------------------------------------------
(Exact Name of Registrant)
IDS Life Insurance Company
- --------------------------------------------------------------------------------
(Name of Depositor)
IDS Tower 10, Minneapolis, MN 55440-0010
- --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 671-3678
- --------------------------------------------------------------------------------
Mary Ellyn Minenko, IDS Tower 10, Minneapolis, MN 55440-0010
- -------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1999
IDS LIFE FLEXIBLE PORTFOLIO ANNUITY
Individual flexible premium deferred combination fixed/variable annuity.
IDS LIFE VARIABLE ACCOUNT 10
Issued by: IDS Life Insurance Company (IDS Life)
IDS Tower 10
Minneapolis, MN 55440-0010
Telephone: 800-437-0602
http://www.americanexpress.com/advisors
This prospectus contains information that you should know before investing. You
also will receive the following prospectuses:
- -AIM Variable Insurance Funds, Inc.;
- -American Century Variable Portfolios, Inc.;
- -IDS Life Retirement Annuity Mutual Funds;
- -Putnam Variable Trust;
- -Templeton Variable Products Series Fund: Class 1; and
- -Warburg Pincus Trust -- Small Company Growth Portfolio.
Please read the prospectuses carefully and keep them for future reference. This
contract is available for qualified and nonqualified plans.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL
INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is 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 page 57 of this prospectus. The table of contents of the SAI
is on page 56 of this prospectus.
<PAGE>
TABLE OF CONTENTS
KEY TERMS 3
THE CONTRACT IN BRIEF 5
EXPENSE SUMMARY 8
CONDENSED FINANCIAL INFORMATION (UNAUDITED) 10
FINANCIAL STATEMENTS 15
PERFORMANCE INFORMATION 15
THE VARIABLE ACCOUNT 17
THE FUNDS 19
THE FIXED ACCOUNT 22
BUYING YOUR CONTRACT 23
CHARGES 27
VALUING YOUR INVESTMENT 30
MAKING THE MOST OF YOUR CONTRACT 32
SURRENDERS 36
TSA -- SPECIAL SURRENDER PROVISIONS 37
CHANGING OWNERSHIP 39
BENEFITS IN CASE OF DEATH 40
THE ANNUITY PAYOUT PERIOD 42
TAXES 46
VOTING RIGHTS 51
SUBSTITUTION OF INVESTMENTS 52
ABOUT THE SERVICE PROVIDERS 53
YEAR 2000 55
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION 56
2
<PAGE>
- ----------------------------------
KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR
CONTRACT.
ACCUMULATION UNIT -- A measure of the value of each 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.
BENEFICIARY -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
CLOSE OF BUSINESS -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
CONTRACT VALUE -- The total value of your contract before we deduct any
applicable charges.
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
you allocate to this account earn interest at rates that we declare
periodically.
FUNDS -- Mutual funds and/or portfolios that are investment options under your
contract, each with a different investment objective. You may allocate your
purchase payments into subaccounts investing in shares of any or all of these
funds.
OWNER (YOU, YOUR) -- The person who controls the contract (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 contract's benefits.
QUALIFIED ANNUITY -- A contract that you purchase for one of the following
retirement plans that is subject to applicable federal law and any rules of the
plan itself:
- -Individual Retirement Annuities (IRAs)
- -Roth IRAs
- -Simple IRAs
- -Simplified Employee Pension (SEP) plans
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<PAGE>
KEY TERMS
- -Section 401(k) plans
- -Custodial and trusteed pension and profit sharing plans
- -Tax-Sheltered Annuities (TSAs)
- -Section 457 plans
All other contracts are considered NONQUALIFIED ANNUITIES.
RETIREMENT DATE -- The date when annuity payouts are scheduled to begin.
SURRENDER VALUE -- The amount you are entitled to receive if you make a full
surrender from your contract. It is the contract value minus any applicable
charges.
VALUATION DATE -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
VARIABLE ACCOUNT -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
4
<PAGE>
- ----------------------------------
THE CONTRACT IN BRIEF
PURPOSE: The purpose of the contract is to allow you to
accumulate money for retirement. You do this by making
one or more investments (purchase payments) that may
earn returns that increase the value of the contract.
The contract provides lifetime or other forms of
payouts beginning at a specified date (the retirement
date). As in the case of other annuities, it may not be
advantageous for you to purchase this contract as a
replacement for, or in addition to an existing annuity.
FREE LOOK PERIOD: You may return your contract to your financial
advisor or to our 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 you return the contract; the refund amount may be
more or less than the payment you made. (Exception: If
the law requires, we will refund all of your purchase
payments.)
ACCOUNTS: Currently, you may allocate your purchase payments
among any or all of:
- the subaccounts, each of which invests in a fund with
a particular investment objective. The value of each
subaccount varies with the performance of the
particular fund in which it invests. We cannot
guarantee that the value at the retirement date will
equal or exceed the total purchase payments you
allocate to the subaccounts. (p. 17)
- the fixed account, which earns interest at a rate
that we adjust periodically. (p. 22)
BUYING YOUR CONTRACT: Your financial advisor will help you complete and
submit an application. Applications are subject to
acceptance at our office. You may buy a nonqualified
annuity or a qualified annuity. You must make an
initial lump-sum purchase payment. You have the option
of making additional purchase payments in the future.
- 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.
- Minimum additional purchase payment -- $50.
- Minimum installment purchase payment -- $50 monthly;
$23.08 biweekly (scheduled payment plan billing).
5
<PAGE>
THE CONTRACT IN BRIEF
- Maximum first-year purchase payments -- $50,000 to
$1,000,000 depending on your age.
- Maximum purchase payment for each subsequent year --
$50,000 to $100,000 depending upon your age. (p. 23)
TRANSFERS: Subject to certain restrictions you currently may
redistribute your money among the subaccounts and the
fixed account without charge at any time until annuity
payouts begin, and once per contract year among the
subaccounts after annuity payouts begin. You may
establish automated transfers among the fixed account
and subaccounts. Fixed account transfers are subject to
special restrictions. (p. 33)
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 (including a
10% IRS penalty if you surrender prior to your reaching
age 59 1/2) and may have other tax consequences; also,
certain restrictions apply. (p. 36)
CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity
by written instruction, but this may have federal
income tax consequences. Restrictions apply to changing
ownership of a qualified annuity. (p. 39)
BENEFITS IN CASE
OF DEATH: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least
equal to the contract value. (p. 40)
ANNUITY PAYOUTS: You can apply your contract value 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 you like. If you purchased
a qualified annuity, the payout schedule must meet the
requirements of the qualified plan. We can make payouts
on a fixed or variable basis, or both. Total monthly
payouts may include amounts from each subaccount and
the fixed account. During the annuity payout period,
you cannot be invested in more than five subaccounts at
any one time unless we agree otherwise. (p. 42)
TAXES: Generally, your contract 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 be
taxed on the income if you are the owner. Roth
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<PAGE>
IRAs, however, may grow and be distributed tax-free, if you meet certain
distribution requirements. (p. 46)
CHARGES:
- $30 annual contract administrative charge;
- 1.25% mortality and expense risk fee;
- surrender charge;
- any premium taxes that may be imposed on us by state
or local governments (currently, we deduct any
applicable premium tax when you make a full surrender
or when annuity payouts begin); and
- the operating expenses of the funds.
7
<PAGE>
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EXPENSE SUMMARY
The purpose of this table is to help you understand the various costs and
expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
you bear directly or indirectly for the subaccounts and funds below. Some
expenses may vary as we explain under "Charges."
ANNUAL CONTRACT OWNER EXPENSES:
<TABLE>
<CAPTION>
SURRENDER CHARGE (contingent deferred sales
charge)
<S> <C> <C> <C>
Surrender charge
as a percentage
of purchase Contract
payments surrendered year
--------------------- ---------
7% 1-3
6 4
5 5
4 6
3 7
2 8
After 8
0 years
CONTRACT ADMINISTRATIVE CHARGE $30
ANNUAL SUBACCOUNT EXPENSES (as a percentage of average
daily net assets of the subaccounts):
MORTALITY AND EXPENSE RISK FEE 1.25%
</TABLE>
ANNUAL OPERATING EXPENSES OF THE FUNDS (as a percentage of average
daily net assets)
<TABLE>
<CAPTION>
AIM V.I. IDS LIFE IDS LIFE IDS LIFE IDS LIFE IDS LIFE
GROWTH AND AMERICAN AGGRESSIVE CAPITAL GLOBAL GROWTH INCOME
INCOME CENTURY VP GROWTH RESOURCE YIELD DIMENSIONS ADVANTAGE
FUND VALUE FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .61% 1.00% .59% .59% .83% .61% .62%
Other expenses .04 -- .09 .07 .13 .06 .09
Total .65%(1) 1.00%(1) .68%(2) .66%(2) .96%(2) .67%(2) .71%(2)
</TABLE>
<TABLE>
<CAPTION>
PUTNAM VT NEW TEMPLETON
IDS LIFE IDS IDS LIFE OPPORTUNITIES DEVELOPING WARBURG PINCUS
INTERNATIONAL LIFE IDS LIFE SPECIAL FUND - CLASS MARKETS TRUST-SMALL
EQUITY MANAGED MONEYSHARE INCOME IA FUND: COMPANY GROWTH
FUND FUND FUND FUND SHARES CLASS 1 PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees .83% .59% .50% .60% .56% 1.25% .90%
Other expenses .15 .04 .06 .07 .05 .41 .24
Total .98%(2) .63%(2) .56%(2) .67%(2) .61%(1) 1.66%(1) 1.14%(1)
</TABLE>
(1) Figures in "Management fees," "Other expenses" and "Total" are based on
actual expenses for the fiscal year ended Dec. 31, 1998.
(2) Annualized operating expenses of funds at Dec. 31, 1998.
8
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE:* AIM V.I. IDS LIFE IDS LIFE IDS LIFE IDS LIFE IDS LIFE
GROWTH AND AMERICAN AGGRESSIVE CAPITAL GLOBAL GROWTH INCOME
INCOME CENTURY VP GROWTH RESOURCE YIELD DIMENSIONS ADVANTAGE
FUND VALUE FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and full surrender at the
end of each time period:
1 Year $ 90.15 $ 93.74 $ 90.46 $ 90.25 $ 93.33 $ 90.36 $ 90.77
3 Years 132.28 143.10 133.21 132.59 141.87 132.90 134.14
5 Years 156.95 175.09 158.52 157.48 173.04 158.00 160.08
10 Years 230.85 267.50 234.04 231.92 263.38 232.98 237.23
You would pay the following expenses on the same investment assuming no surrender or selection of an annuity payout
plan at the end of each time period:
1 Year $ 20.15 $ 23.74 $ 20.46 $ 20.25 $ 23.33 $ 20.36 $ 20.77
3 Years 62.28 73.10 63.21 62.59 71.87 62.90 64.14
5 Years 106.95 126.09 108.52 107.48 123.04 108.00 110.08
10 Years 230.85 267.50 234.04 231.92 263.38 232.98 237.23
</TABLE>
<TABLE>
<CAPTION>
PUTNAM VT NEW
IDS LIFE IDS LIFE OPPORTUNITIES TEMPLETON WARBURG PINCUS
INTERNATIONAL IDS LIFE IDS LIFE SPECIAL FUND - CLASS DEVELOPING TRUST-SMALL
EQUITY MANAGED MONEYSHARE INCOME IA MARKETS FUND: COMPANY GROWTH
FUND FUND FUND FUND SHARES CLASS 1 PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and full surrender at the end of each time
period:
1 Year $ 93.53 $ 89.95 $ 89.23 $ 90.36 $ 89.74 $100.50 $ 95.17
3 Years 142.49 131.66 129.48 132.90 131.03 163.31 147.41
5 Years 174.07 155.91 152.25 158.00 154.86 208.58 182.28
10 Years 265.44 228.72 221.22 232.98 226.58 333.24 281.81
You would pay the following expenses on the same investment assuming no surrender or selection of an annuity payout plan at the end
of each time period:
1 Year $ 23.53 $ 19.95 $ 19.23 $ 20.36 $ 19.74 $ 30.50 $ 25.17
3 Years 72.49 61.66 59.48 62.90 61.03 93.31 77.41
5 Years 124.07 105.91 102.25 108.00 104.86 158.58 132.28
10 Years 265.44 228.72 221.22 232.98 226.58 333.24 281.81
</TABLE>
* In this example, the $30 contract administrative charge is approximated as
a 0.066% charge based on our average contract size. Premium taxes imposed
by some state and local governments are not reflected in this table. We
entered into certain arrangements under which we are compensated by the
funds' advisors and/or distributors for the administrative services we
provide to the funds.
YOU SHOULD NOT CONSIDER THIS EXAMPLE AS A REPRESENTATION OF PAST OR FUTURE
EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LES THAN THOSE SHOWN.
9
<PAGE>
- ----------------------------------
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following tables give per-unit information about the financial history of
each subaccount.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1998 1997 1996
<S> <C> <C> <C>
SUBACCOUNT HW(1) (INVESTING IN SHARES OF AIM V.I.
GROWTH AND INCOME FUND)
Accumulation unit $1.39 $1.12 $1.00
value at beginning
of period
Accumulation unit value $1.75 $1.39 $1.12
at end of period
Number of accumulation 345,291 214,549 72,803
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HP(2) (INVESTING IN SHARES OF AMERICAN
CENTURY VP VALUE)
Accumulation unit $1.39 $1.11 $1.00
value at beginning
of period
Accumulation unit value $1.44 $1.39 $1.11
at end of period
Number of accumulation 132,532 75,957 19,657
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HA(1) (INVESTING IN SHARES OF IDS LIFE
AGGRESSIVE GROWTH FUND)
Accumulation unit $1.22 $1.09 $1.00
value at beginning
of period
Accumulation unit value $1.23 $1.22 $1.09
at end of period
Number of accumulation 149,271 112,556 56,318
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1998 1997 1996
<S> <C> <C> <C>
SUBACCOUNT HC(1) (INVESTING IN SHARES OF IDS LIFE
CAPITAL RESOURCE FUND)
Accumulation unit $1.27 $1.03 $1.00
value at beginning
of period
Accumulation unit value $1.55 $1.27 $1.03
at end of period
Number of accumulation 172,451 122,749 72,833
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HY(2) (INVESTING IN SHARES OF IDS LIFE
GLOBAL YIELD FUND)
Accumulation unit $1.10 $1.07 $1.00
value at beginning
of period
Accumulation unit value $1.17 $1.10 $1.07
at end of period
Number of accumulation 84,640 58,925 21,035
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HG(2) (INVESTING IN SHARES OF IDS LIFE
GROWTH DIMENSIONS FUND)
Accumulation unit $1.36 $1.11 $1.00
value at beginning
of period
Accumulation unit value $1.73 $1.36 $1.11
at end of period
Number of accumulation 476,735 295,452 91,977
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
</TABLE>
11
<PAGE>
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1998 1997 1996
<S> <C> <C> <C>
SUBACCOUNT HV(2) (INVESTING IN SHARES OF IDS LIFE
INCOME ADVANTAGE FUND)
Accumulation unit $1.17 $1.05 $1.00
value at beginning
of period
Accumulation unit value $1.11 $1.17 $1.05
at end of period
Number of accumulation 257,990 160,046 55,065
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HI(1) (INVESTING IN SHARES OF IDS LIFE
INTERNATIONAL EQUITY FUND)
Accumulation unit $1.08 $1.06 $1.00
value at beginning
of period
Accumulation unit value $1.23 $1.08 $1.06
at end of period
Number of accumulation 168,173 115,579 52,955
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HD(1) (INVESTING IN SHARES OF IDS LIFE
MANAGED FUND)
Accumulation unit $1.32 $1.12 $1.00
value at beginning
of period
Accumulation unit value $1.51 $1.32 $1.12
at end of period
Number of accumulation 241,551 150,987 50,902
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1998 1997 1996
<S> <C> <C> <C>
SUBACCOUNT HM(1) (INVESTING IN SHARES OF IDS LIFE
MONEYSHARE FUND)
Accumulation unit $1.07 $1.03 $1.00
value at beginning
of period
Accumulation unit value $1.11 $1.07 $1.03
at end of period
Number of accumulation 208,622 150,354 111,372
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
Simple yield(3) 3.45% 3.90% 3.60%
Compound yield(3) 3.51% 3.98% 3.66%
SUBACCOUNT HS(1) (INVESTING IN SHARES OF IDS LIFE
SPECIAL INCOME FUND)
Accumulation unit $1.13 $1.05 $1.00
value at beginning
of period
Accumulation unit value $1.13 $1.13 $1.05
at end of period
Number of accumulation 241,800 146,645 86,467
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HN(1) (INVESTING IN SHARES OF PUTNAM
VT NEW OPPORTUNITIES FUND)
Accumulation unit $1.24 $1.02 $1.00
value at beginning
of period
Accumulation unit value $1.53 $1.24 $1.02
at end of period
Number of accumulation 370,336 266,068 119,724
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
</TABLE>
13
<PAGE>
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1998 1997 1996
<S> <C> <C> <C>
SUBACCOUNT HK(1) (INVESTING IN CLASS 1 SHARES
OF
TEMPLETON DEVELOPING MARKETS FUND: CLASS 1)
Accumulation unit $0.65 $0.93 $1.00
value at beginning
of period
Accumulation unit value $0.51 $0.65 $0.93
at end of period
Number of accumulation 306,456 209,358 74,610
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
SUBACCOUNT HT(1) (INVESTING IN SHARES OF
WARBURG PINCUS TRUST-SMALL COMPANY GROWTH
PORTFOLIO)
Accumulation unit $1.24 $1.09 $1.00
value at beginning
of period
Accumulation unit value $1.19 $1.24 $1.09
at end of period
Number of accumulation 279,475 183,719 62,743
units outstanding at end
of period (000 omitted)
Ratio of operating 1.25% 1.25% 1.25%
expense to average
net assets
</TABLE>
(1) Commencement of operations was March 5, 1996.
(2) Commencement of operations was May 1, 1996.
(3) Net of annual contract administrative charge and mortality and expense risk
fee.
14
<PAGE>
- ----------------------------------
FINANCIAL STATEMENTS
You can find our audited financial statements and the audited financial
statements of the subaccounts in the SAI.
PERFORMANCE INFORMATION
- -----------------------------------------------------
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in funds. We also show performance from the commencement date of the funds as if
the contract existed at that time. Although we base performance figures on
historical earnings, past performance does not guarantee future results.
We include non-recurring charges (such as surrender charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect 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).
We also may make optional total return quotations that do not reflect a
surrender charge deduction (assuming no surrender). Total return quotations may
be shown by means of schedules, charts or graphs.
AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and 10 years (or up to the life of the
subaccount if it is less than ten years old).
CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return will be higher than average annual total
return because it is not averaged.
ANNUALIZED SIMPLE YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
15
<PAGE>
PERFORMANCE INFORMATION
ANNUALIZED COMPOUND YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
ANNUALIZED YIELD (FOR SUBACCOUNTS INVESTING IN INCOME FUNDS) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage. You should consider performance
information in light of the investment objectives, policies, characteristics and
quality of the fund in which the subaccount invests and the market conditions
during the specified time period. Advertised yields and total return figures
include charges that reduce advertised performance. Therefore, you should not
compare subaccount performance 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 total return and yield.)
If you would like additional information about actual performance, please
contact your financial advisor.
16
<PAGE>
- ----------------------------------
THE VARIABLE ACCOUNT
You may allocate payments to any or all the subaccounts of the variable account
that invest in shares of the following funds:
<TABLE>
<CAPTION>
SUBACCOUNT INVESTING IN:
<S> <C>
HW AIM V.I. Growth and Income Fund
HP American Century VP Value
HA IDS Life Aggressive Growth Fund
HC IDS Life Capital Resource Fund
HY IDS Life Global Yield Fund
HG IDS Life Growth Dimensions Fund
HV IDS Life Income Advantage Fund
HI IDS Life International Equity Fund
HD IDS Life Managed Fund
HM IDS Life Moneyshare Fund
HS IDS Life Special Income Fund
Putnam VT New Opportunities Fund -- Class IA
HN Shares
HK Templeton Developing Markets Fund: Class 1
Warburg Pincus Trust-Small Company Growth
HT Portfolio
</TABLE>
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business.
The U.S. Treasury and the Internal Revenue Service (IRS) indicated that they may
provide additional guidance on investment control. This concerns how many
variable subaccounts an insurance company may offer and how many exchanges among
subaccounts it may allow before the contract owner would be currently taxed on
income earned within subaccount assets. At this time, we do not know what the
additional guidance will be or when action will be taken. We reserve the right
to modify the contract, as necessary, so that the owner will not be subject to
current taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for
17
<PAGE>
THE VARIABLE ACCOUNT
federal income tax purposes. We reserve the right to modify the contract as
necessary to comply with any new tax laws.
The variable account was established under Minnesota law on Aug. 23, 1995 and
the subaccounts are registered together as a single unit investment trust under
the Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of IDS Life.
18
<PAGE>
- ----------------------------------
THE FUNDS
AIM V.I. GROWTH AND INCOME FUND
Objective: growth of capital with a secondary objective of current income.
Invests at least 65% of its net assets in income-producing securities, including
dividend-paying common stocks and convertible securities.
AMERICAN CENTURY VP 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.
IDS LIFE AGGRESSIVE GROWTH FUND
Objective: capital appreciation. Invests primarily in common stocks of small-and
medium-size companies.
IDS LIFE CAPITAL RESOURCE FUND
Objective: capital appreciation. Invests primarily in U.S. common stocks.
IDS LIFE GLOBAL YIELD FUND
Objective: high total return through income and growth of capital. Invests
primarily in debt securities of U.S. and foreign issuers.
IDS LIFE GROWTH DIMENSIONS FUND
Objective: long-term growth of capital. Invests primarily in common stocks of
U.S. and foreign companies showing potential for significant growth.
IDS LIFE INCOME ADVANTAGE FUND
Objective: high current income, with capital growth as a secondary objective.
Invests primarily in long-term, high-yielding, high-risk debt securities below
investment grade issued by U.S. and foreign corporations.
IDS LIFE INTERNATIONAL EQUITY FUND
Objective: capital appreciation. Invests primarily in common stock of foreign
issuers.
IDS LIFE MANAGED FUND
Objective: maximum total investment return through a combination of capital
growth and current income. Invests primarily in stocks, convertible securities,
bonds and money market instruments.
IDS LIFE MONEYSHARE FUND
Objective: maximum current income consistent with liquidity and conservation of
capital. Invests in money market securities.
IDS LIFE SPECIAL INCOME FUND
Objective: high level of current income while conserving the value of the
investment for the longest time period. Invests primarily in investment-grade
bonds.
19
<PAGE>
THE FUNDS
PUTNAM VT NEW OPPORTUNITIES FUND -- CLASS IA SHARES
Objective: long-term capital appreciation by investing principally in common
stocks of companies in sectors of the economy that Putnam Investment Management,
Inc. believes possess above average long-term growth potential.
TEMPLETON DEVELOPING MARKETS FUND: CLASS 1
Objective: long-term capital appreciation. Invests primarily in equity
securities of issuers in countries having developing markets.
WARBURG PINCUS TRUST-SMALL COMPANY GROWTH PORTFOLIO
Objective: capital growth. Invests primarily in equity securities of small-sized
domestic companies.
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that the investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results.
All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and qualified plans. It is possible that in the
future, it may be disadvantageous for variable annuity accounts and variable
life insurance accounts and/or qualified plans to invest in the available funds
simultaneously.
20
<PAGE>
Although the insurance company 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 annuity
owners, policy owners and qualified plans and to determine what action, if any,
should be taken in response to a conflict. If a board were to conclude that it
should establish separate funds for the variable annuity, variable life
insurance and qualified plan accounts, you would not bear any expenses
associated with establishing separate funds. Please refer to the fund
prospectuses for risk disclosure regarding simultaneous investments by variable
annuity, variable life insurance and qualified plan accounts.
The IRS issued final regulations relating to the diversification requirements
under Section 817(h) of the Internal Revenue Code of 1986, as amended (the
Code). Each fund intends to comply with these requirements.
The investment advisors or managers for the funds are as follows:
- -AIM Variable Insurance Funds, Inc. -- A I M Advisors, Inc.
- -American Century Variable Portfolios, Inc. -- American Century Investment
Management, Inc.
- -IDS Life Retirement Annuity Mutual Funds -- IDS Life. AEFC is the investment
advisor for the IDS Life Retirement Annuity Mutual Funds. American Express
Asset Management International, Inc., a wholly-owned subsidiary of AEFC, is the
sub-investment advisor for IDS Life International Equity Fund.
- -Putnam Variable Trust -- Putnam Investment Management, Inc.
- -Templeton Developing Markets Fund -- Templeton Asset Management Ltd.
- -Warburg Pincus Trust -- Warburg Pincus Asset Management, Inc.
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for facts you
should know before investing. These prospectuses are available by contacting us
at the address or telephone number on the first page of this prospectus.
21
<PAGE>
- ----------------------------------
THE FIXED ACCOUNT
You also may allocate purchase payments to the fixed account. We back the
principal and interest guarantees relating to the fixed account. The value of
the fixed account increases as we credit interest to the account. Purchase
payments and transfers to the fixed account become part of our general account.
We credit interest daily and compound it annually. We will change the interest
rates from time to time at our discretion.
Interests in the fixed account are not required to be registered with the SEC.
The SEC staff does not review the disclosures in this prospectus on 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. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the fixed account.)
22
<PAGE>
- ----------------------------------
BUYING YOUR CONTRACT
Your financial advisor will help you prepare and submit your application and
send it along with your initial purchase payment to our office. As the owner,
you have all rights and may receive all benefits under the contract. You can own
a nonqualified annuity in joint tenancy with rights of survivorship only in
spousal situations. You cannot own a qualified annuity in joint tenancy. You can
buy a contract or become an annuitant if you are 90 or younger.
When you apply, you may select:
- -the fixed account and/or subaccounts in which you want to invest;
- -how you want to make purchase payments; and
- -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 the fixed account and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date 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 also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
23
<PAGE>
BUYING YOUR CONTRACT
FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the retirement date must be:
- -no earlier than the 60th day after the contract's effective date; and
- -no later than the annuitant's 85th birthday or the 10th contract anniversary,
if purchased after age 75. (In Pennsylvania, the maximum annuity start date
ranges from age 85 to 96 based on the annuitant's age when we issue the
contract. See contract for details.)
FOR QUALIFIED ANNUITIES EXCEPT ROTH IRAS, to avoid IRS penalty taxes, the
retirement date generally must be:
- -on or after the date the annuitant reaches age 59 1/2; and
- -for IRAs, SIMPLE IRAs and SEPs, by April 1 of the year following the calendar
year when the annuitant reaches age 70 1/2; or
- -for all other qualified annuities by April 1 of the year following the calendar
year when the annuitant reaches age 70 1/2, or, if later retires (except that
5% business owners may not select a retirement date that is later than April 1
of the year following the calendar year when they reach age 70 1/2).
If you take the minimum IRA or TSA distributions as required by the Code from
another tax-qualified investment, or in the form of partial surrenders from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the 10th contract anniversary, if later. (In Pennsylvania, the annuity payout
ranges from age 85 to 96 based on the annuitant's age when the contract is
issued. See contract for details.)
Certain restrictions on retirement dates apply to participants in the Texas
Optional Retirement Program. (See "TSA -- Special Surrender Provisions.")
24
<PAGE>
BENEFICIARY
If death benefits become payable before the retirement date (while the contract
is in force and before annuity payouts begin), we will pay your named
beneficiary 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.)
PURCHASE PAYMENT AMOUNTS
MINIMUM PURCHASE PAYMENT
IF SINGLE PURCHASE PAYMENT:
<TABLE>
<S> <C>
Nonqualified: $2,000
Qualified: $1,000
</TABLE>
- -Minimum additional purchase payment: $50
IF INSTALLMENT PURCHASE PAYMENTS:
- -Minimum installment purchase payments: $50 monthly; $23.08 biweekly
(scheduled payment plan billing)
Installments must total at least $600 in the first year.*
* If you do not make any 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 PURCHASE PAYMENTS:
This maximum is based on your age or age of the annuitant (whoever is older) on
the effective date of the contract.
<TABLE>
<S> <C>
Up to age 75 $1 million
76 to 85 $ 500,000
86 to 90 $ 50,000
</TABLE>
- -MAXIMUM PURCHASE PAYMENT FOR EACH SUBSEQUENT YEAR:**
<TABLE>
<S> <C>
Up to age 85 $100,000
Ages 86-90 $ 50,000
</TABLE>
** 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.
25
<PAGE>
BUYING YOUR CONTRACT
HOW TO MAKE PURCHASE PAYMENTS
<TABLE>
<S> <C>
- --------------------------------------------------------------
Send your check along with your name and
1 contract number to:
BY LETTER
REGULAR MAIL:
IDS Life Insurance Company
Box 74
Minneapolis, MN 55440-0074
EXPRESS MAIL:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
- --------------------------------------------------------------
Your financial advisor can help you set up:
2 - an automatic payroll deduction, salary
BY SCHEDULED reduction or other group billing arrangement; or
PAYMENT PLAN - a bank authorization.
</TABLE>
26
<PAGE>
- ----------------------------------
CHARGES
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed account in the
same proportion your interest in each account bears to your total contract
value. We will waive this charge when your contract value, or total purchase
payments less any payments surrendered, is $25,000 or more on the current
contract anniversary. If you surrender your contract, we will deduct the charge
at the time of surrender regardless of the contract value or purchase payments
made. We cannot increase the annual contract administrative charge and it does
not apply after annuity payouts begin or when we pay death benefits.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee and it totals 1.25% of their average daily net assets on an
annual basis. This fee covers the mortality and expense risk that we assume.
Approximately two-thirds of this amount is for our assumption of mortality risk,
and one-third is for our assumption of expense risk. This fee does not apply to
the fixed account.
Mortality risk arises because of our guarantee to 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 our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge and this charge may not cover our expenses. We would have to make up any
deficit from our general assets.
27
<PAGE>
CHARGES
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
- -first, to the extent possible, the subaccounts pay this fee from any dividends
distributed from the funds in which they invest;
- -then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the 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. We calculate the surrender charge by drawing from your
total contract value in the following order:
- -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: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed account.
- -If necessary, we surrender amounts representing purchase payments not
previously surrendered. The surrender charge rate on these purchase payments is
as follows:
<TABLE>
<CAPTION>
Surrender charge
as
a percentage of
purchase
payments Contract
surrendered year
- ------------------ ------------
<S> <C>
7% 1-3
6 4
5 5
4 6
3 7
2 8
After 8
0 years
</TABLE>
For a partial surrender that is subject to a surrender charge, the amount we
actually surrender from your contract will be the amount you request plus any
applicable surrender charge. We apply the surrender charge to this total amount.
We pay you the amount you requested. If you make a full surrender of your
contract, we also will deduct the $30 contract administrative charge.
28
<PAGE>
WAIVER OF SURRENDER CHARGES
There are no surrender charges for:
- -contract earnings;
- -required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
- -contracts settled using an annuity payout plan;
- -death benefits; and
- -surrenders you make if your contract includes a "Waiver of Surrender Charges
for Nursing Home Confinement" Annuity Endorsement. To the extent permitted by
state law, we will include this endorsement when you are under age 76 on the
date that we issue the contract. We will waive surrender charges that normally
are 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
(except in New Jersey) are confined to a nursing home and have been for the
prior 90 days. (See your endorsement for additional conditions and restrictions
on this waiver.)
OTHER INFORMATION ON CHARGES: AEFC makes certain custodial services available to
some custodial and trusteed pension and profit sharing plans and 401(k) plans
funded by our annuities. Fees for these services start at $30 per calendar year
per participant. AEFC will charge a termination fee for owners under age 59 1/2
(fee waived in case of death or disability).
POSSIBLE GROUP REDUCTIONS: In some cases (for example, an employer making the
annuity available to employees) we may incur lower sales and administrative
expenses 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.
PREMIUM TAXES
Certain state and local governments impose premium taxes (up to 3.5%). These
taxes depend upon the state of residence or the state in which the contract was
sold. In some cases, we deduct premium taxes from your purchase payments before
we allocate them. In other cases, we deduct them when you surrender your
contract or when annuity payouts begin.
29
<PAGE>
- ----------------------------------
VALUING YOUR INVESTMENT
We value your fixed account and subaccounts as follows:
FIXED ACCOUNT: We value the amounts you allocated to the fixed account directly
in dollars. The fixed account value equals:
- -the sum of your purchase payments and transfer amounts allocated to the fixed
account;
- -plus interest credited;
- -minus the sum of amounts surrendered (including any applicable surrender
charges) and amounts transferred out; and
- -minus any prorated contract administrative charge.
SUBACCOUNTS: We convert amounts you allocated to the subaccounts into
accumulation units. Each time you make a purchase payment or transfer amounts
into one of the subaccounts, we credit a certain number of accumulation units to
your contract for that subaccount. Conversely, each time you take a partial
surrender, transfer amounts out of a subaccount, or we assess a contract
administrative charge, we subtract a certain number of accumulation units 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 fund in which the subaccount invests.
The dollar value of each accumulation unit can rise or fall daily depending on
the variable account expenses, performance of the fund and on certain fund
expenses. Here is how we calculate accumulation unit values:
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 subaccount equals the last value
times the subaccount's current net investment factor.
30
<PAGE>
NET INVESTMENT FACTOR
We determine the net investment factor by:
- -adding the fund's current net asset value per share, plus the per share amount
of any accrued income or capital gain dividends to obtain a current adjusted
net asset value per share; then
- -dividing that sum by the previous adjusted net asset value per share; and
- -subtracting the percentage factor representing the mortality and expense risk
fee from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
FACTORS THAT AFFECT 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:
- -additional purchase payments you allocate to the subaccounts;
- -transfers into or out of the subaccounts;
- -partial surrenders;
- -surrender charges; and/or
- -prorated portions of the contract administrative charge.
Accumulation unit values will fluctuate due to:
- -changes in funds' net asset value;
- -dividends distributed to the subaccounts;
- -capital gains or losses of funds;
- -fund operating expenses; and/or
- -mortality and expense risk fees.
31
<PAGE>
- ----------------------------------
MAKING THE MOST OF YOUR CONTRACT
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the fixed account to one or
more subaccounts. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HOW DOLLAR-COST AVERAGING WORKS
<CAPTION>
AMOUNT ACCUMULATION NUMBER OF
MONTH INVESTED UNIT VALUE UNITS PURCHASED
<S> <C> <C> <C>
Jan $100 $20 5.00
Feb 100 18 5.56
Mar 100 17 5.88
Apr 100 15 6.67
May 100 16 6.25
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
Sept 100 21 4.76
Oct 100 20 5.00
</TABLE>
By investing an equal number of dollars each month...
you automatically buy more units when the per unit market price is low...
and fewer units when the per unit market price is high.
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success with this
strategy will depend upon your willingness to continue to invest regularly
through periods of low price levels. Dollar-cost averaging can be an effective
way to help meet your long-term goals. For specific features contact your
financial advisor.
32
<PAGE>
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed account, to another
subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed account.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners. (For information on transfers after annuity
payouts begin, see "Transfer/Policies.")
TRANSFER POLICIES
- -Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed account at any time. However,
if you made a transfer from the fixed account to the subaccounts, you may not
make a transfer from any subaccount back to the fixed account until the next
contract anniversary.
- -You may transfer contract values from the fixed account to the subaccounts 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 certain
transfer periods subject to certain minimums).
- -If we receive your request within 30 days before the contract anniversary date,
the transfer from the fixed account to the subaccounts will be effective on the
anniversary.
- -If we receive your request on or within 30 days after the contract anniversary
date, the transfer from the fixed account to the subaccounts will be effective
on the valuation date we receive it.
- -We will not accept requests for transfers from the fixed account at any other
time.
- -Once annuity payouts begin, you may not make transfers to or from the fixed
account, but you may make transfers once per contract year among the
subaccounts. During the annuity payout period, you cannot invest in more than
five subaccounts at any one time unless we agree otherwise.
33
<PAGE>
MAKING THE MOST OF YOUR CONTRACT
HOW TO REQUEST A TRANSFER OR SURRENDER
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
Send your name, contract number, Social
1 Security Number or Taxpayer Identification
BY LETTER 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
Transfers or
surrenders: $250 or entire account
balance
MAXIMUM AMOUNT
Transfers or
surrenders: Contract value
- -------------------------------------------------------------
Your financial advisor can help you set up
automated transfers among your subaccounts or
2 fixed account or partial surrenders from the
BY AUTOMATED accounts.
TRANSFERS AND You can start or stop this service by written
AUTOMATED request or other method acceptable to us. You
PARTIAL must allow 30 days for us to change any
SURRENDERS instructions that are currently in place.
</TABLE>
- -Automated transfers from the fixed account to any one of the subaccounts may
not exceed an amount that, if continued, would deplete the fixed account within
12 months.
- -Automated surrenders may be restricted by applicable law under some contracts.
- -You may not make additional purchase payments if automated partial surrenders
are in effect.
- -Automated partial surrenders may result in IRS taxes and penalties on all or
part of the amount surrendered.
<TABLE>
<S> <C> <C>
MINIMUM AMOUNT
Transfers or
surrenders: $50
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
Call between 7 a.m. and 6 p.m. Central time:
3 800-437-0602
BY PHONE
TTY service for the hearing impaired:
1-800-285-8846 (toll free)
MINIMUM AMOUNT
Transfers or
surrenders: $250 or entire account
balance
MAXIMUM AMOUNT
Transfers: Contract value
Surrenders: $50,000
</TABLE>
We answer telephone 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.
We will honor any telephone transfer or surrender requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone surrender within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not 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 to us.
35
<PAGE>
- ----------------------------------
SURRENDERS
You may surrender all or part of your contract at any time before annuity
payouts begin by sending us a written request or calling us. We will process
your surrender request on the valuation date we receive it. For total
surrenders, we will compute the value of your contract at the next accumulation
unit value calculated after we receive your request. We may ask you to return
the contract. You may have to pay surrender charges (see "Charges") and IRS
taxes and penalties (see "Taxes"). You cannot make surrenders after annuity
payouts begin.
SURRENDER POLICIES
If you have a balance in more than one account and you request a partial
surrender, we will withdraw money from all your subaccounts and/or the fixed
account in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise. The minimum contract value
after partial surrender is $600.
RECEIVING PAYMENT
By regular or express mail:
- -payable to you;
- -mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
By wire:
- -request that payment be wired to your bank;
- -bank account must be in the same ownership as your contract; and
- -pre-authorization required.
For instructions, contact your financial advisor.
Normally, we will send the payment 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.
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TSA -- SPECIAL SURRENDER PROVISIONS
PARTICIPANTS IN TAX-SHELTERED ANNUITIES: The Code imposes certain restrictions
on your right to receive early distributions from a TSA:
- -Distributions attributable to salary reduction contributions (plus earnings)
made after Dec. 31, 1988, or to transfers or rollovers from other contracts,
may be made from the TSA only if:
- -- you are at least age 59 1/2;
- -- you are disabled as defined in the Code;
- -- you separated from the service of the employer who purchased the contract; or
- -- the distribution is because of your death.
- -If you encounter a financial hardship (as defined by 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.
- -Even though a distribution may be permitted under the above rules, it may be
subject to IRS taxes and penalties (see "Taxes").
- -The employer must comply with certain nondiscrimination requirements for
certain types of contributions under a TSA contract to be excluded from taxable
income. You should consult your employer to determine whether the
nondiscrimination rules apply to you.
- -The above restrictions on distributions do not affect the availability of the
amount credited to the contract as of Dec. 31, 1988. The restrictions also do
not apply to transfers or exchanges of contract value within the contract, or
to another registered variable annuity contract or investment vehicle available
through the employer.
- -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.
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TSA -- SPECIAL SURRENDER PROVISIONS
PARTICIPANTS IN THE TEXAS OPTIONAL RETIREMENT PROGRAM: You cannot receive
distributions before retirement unless you become totally disabled or end your
employment at a Texas college or university. This restriction affects your right
to:
- -surrender all or part of your contract at any time; and
- -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.
PARTICIPATION IN THE PORTLAND PUBLIC SCHOOLS TSA PROGRAM: We guarantee that your
fixed account surrender value will not be less than the purchase payments (less
amounts previously surrendered) provided:
- -you allocated all purchase payments only to the fixed account; and
- -you did not transfer money from the fixed account to any subaccount.
If you allocated payments to a subaccount or transferred money from the fixed
account to a subaccount, the guarantee does not apply.
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CHANGING OWNERSHIP
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability 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 except as required or
permitted by the Code. 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.
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BENEFITS IN CASE OF DEATH
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. If a contract has more than one person as the owner,
we will pay benefits upon the first to die of any owner or the annuitant.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary as follows:
For contracts issued in all states except Texas:
If death occurs before the annuitant's 75th birthday, the beneficiary receives
the greatest of:
- -the contract value;
- -the contract value as of the most recent sixth contract anniversary, minus any
surrenders since that anniversary; or
- -purchase payments, minus any surrenders.
If death occurs on or after the annuitant's 75th birthday, the beneficiary
receives the greater of:
- -the contract value; or
- -the contract value as of the most recent sixth contract anniversary, minus any
surrenders since that anniversary.
For contracts issued in Texas:
If death occurs before the annuitant's 75th birthday, the beneficiary receives
the greater of:
- -purchase payments minus any surrenders; or
- -the contract value.
If death occurs on or after the annuitant's 75th birthday, the beneficiary
receives the contract value.
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IF YOUR SPOUSE IS SOLE BENEFICIARY under a nonqualified annuity and you die
before the retirement date, your spouse may keep the contract 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.
Under a qualified annuity, if the annuitant dies before the Code requires
distributions to begin, and the spouse is the only beneficiary, the spouse may
keep the contract as owner until the date on which the annuitant would have
reached 70 1/2 or any other date permitted by the Code. To do this, the spouse
must give us written instructions within 60 days after we receive proof of
death.
PAYMENTS: Under a nonqualified annuity we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
- -the beneficiary asks us in writing within 60 days after we receive proof of
death; and
- -payouts begin no later than one year after your death, or other date as
permitted by the Code; and
- -the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, 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").
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THE ANNUITY PAYOUT PERIOD
As owner of the contract, you have the right to decide how and to who annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements.
The amount available for payouts under the plan you select is the contract value
on your retirement date (less any applicable premium tax). We do not deduct any
surrender charges under the payout plans listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
fixed account to provide fixed dollar payouts and/or among the subaccounts to
provide variable annuity payouts. During the annuity payout period, you cannot
invest in more than five subaccounts at any one time unless we agree otherwise.
Amounts of fixed and variable payouts depend on:
- -the annuity payout plan you select;
- -the annuitant's age and, in most cases, sex;
- -the annuity table in the contract; and
- -the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the 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 "Making the Most of Your Contract -- Transfer policies."
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ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, 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 rise and decrease more rapidly
when they decline.
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 used to purchase the
payout plan:
- -PLAN A -- LIFE ANNUITY - NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the annuitant
dies after we have made only one monthly payout, we will not make any more
payouts.
- -PLAN B -- LIFE ANNUITY WITH FIVE, 10 OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, 10 or 15 years that you elect.
This election will determine the length of the payout period to the beneficiary
if the annuitant should die before the elected period expires. We calculate the
guaranteed payout period from the retirement date. If the annuitant outlives
the elected guaranteed payout period, we will continue to make payouts until
the annuitant's death.
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THE ANNUITY PAYOUT PERIOD
- -PLAN C -- LIFE ANNUITY - INSTALLMENT REFUND: We make monthly payouts until the
annuitant's death, with our guarantee that payouts will continue for some
period of time. We will make payouts 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.
- -PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY - NO REFUND: We make monthly
payouts while both the annuitant and a joint annuitant are living. If either
annuitant dies, we will continue to make monthly payouts at the full amount
until the death of the surviving annuitant. Payouts end with the death of the
second annuitant.
- -PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: We make monthly payouts for a
specific payout period of 10 to 30 years that you elect. We will make payouts
only for the number of years specified whether the annuitant is living or not.
Depending on the selected time period, 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
may be required to select a payout plan that provides for payouts:
- -over the life of the annuitant;
- -over the joint lives of the annuitant and a designated beneficiary;
- -for a period not exceeding the life expectancy of the annuitant; or
- -for a period not exceeding the joint life expectancies of the annuitant and a
designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
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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.
Contract values that you allocated to the fixed account will provide fixed
dollar payouts and contract values that you allocated among the subaccounts will
provide variable annuity payouts.
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 you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
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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. We will send you a tax information
reporting form for any year in which we made a taxable distribution according to
our records. Roth IRAs may grow and be distributed tax-free if you meet certain
distribution requirements.
QUALIFIED ANNUITIES: We designed this contract for use with qualified retirement
plans. Special rules apply to these retirement plans. Your rights to benefits
may be subject to the terms and conditions of these retirement plans regardless
of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life and after your death. You should refer
to your retirement plan or adoption agreement or consult a tax advisor for more
information about your distribution rules.
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 you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuities issued by the same
company (and possibly its affiliates) to the same owner during a calendar year
be taxed as a single, unified contract when you take distributions from any one
of those contracts.
ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
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 deductible or
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.
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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 you make before reaching
age 59 1/2 unless certain exceptions apply. For qualified annuities, other
penalties may apply if you surrender your contract before your plan specifies
that you can receive payouts.
DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract (except Roth
IRAs) is not tax-exempt. Any amount your beneficiary receives that represents
previously deferred earnings within the contract is taxable as ordinary income
to the beneficiary in the years he or she receives the payments. The death
benefit under a Roth IRA generally is not taxable as ordinary income to the
beneficiary if certain distribution requirements are met.
ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities 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 remain 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. If you receive amounts from your SIMPLE IRA before reaching age 59 1/2,
generally the IRS penalty provisions apply. However, if you receive these
amounts before age 59 1/2, and within the first two years of your participation
in the SIMPLE IRA plan, the IRS penalty will be assessed at a rate of 25%
instead of 10%. However, this penalty will not apply to any amount received by
you or your beneficiary:
- -because of your death;
- -because you become disabled (as defined in the Code);
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TAXES
- -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
- -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 contract before your plan specifies that payouts can be made.
WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may 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), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
If you take a distribution from a contract offered under a Section 457 plan
(deferred compensation plan of state and local governments and tax-exempt
organizations), we compute withholding using payroll methods, depending upon the
type of payment.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment 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, Roth IRA, SEP,
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SIMPLE IRA or Section 457 plan), mandatory 20% federal income tax withholding
(and possibly state income tax withholding) generally will be imposed at the
time we make payout. This mandatory withholding is in place of the elective
withholding discussed above. This mandatory withholding will not be imposed if:
- -instead of receiving the distribution check, you elect to have the distribution
rolled over directly to an IRA or another eligible plan;
- -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
- -the payout is a minimum distribution required under the Code.
Payments we make to a surviving spouse instead of being directly rolled over to
an IRA also may 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 transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a surrender for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract 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
current interpretations of these laws. 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.
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TAXES
TAX QUALIFICATION: We intend that the contract 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, in spite of 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 amendment.
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VOTING RIGHTS
As a contract owner with investments in the subaccounts, you may vote on
important 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 you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
- -the reserve held in each subaccount for your contract; divided by
- -the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
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SUBSTITUTION OF INVESTMENTS
We may substitute the funds in which the subaccounts invest if:
- -laws or regulations change,
- -existing funds become unavailable, or
- -in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus.
We may also:
- -change the funds in which the subaccounts invest, and
- -add additional subaccounts investing in other funds.
In the event of substitution of any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
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ABOUT THE SERVICE PROVIDERS
ISSUER AND PRINCIPAL UNDERWRITER
IDS Life issues and is the principal underwriter for the contracts. IDS Life is
a stock life insurance company organized in 1957 under the laws of the State of
Minnesota and is located at IDS Tower 10, Minneapolis, MN 55440-0010. IDS Life
conducts a conventional life insurance business.
IDS Life is a wholly-owned subsidiary of AEFC, which itself is a wholly-owned
subsidiary of American Express Company, a financial services company
headquartered in New York City. The AEFC family of companies offers not only
insurance and annuities, but also mutual funds, investment certificates and a
broad range of financial management services. American Express Financial
Advisors Inc. (AEFA) serves individuals and businesses through its nationwide
network of more than 180 offices and 9200 advisors.
IDS Life pays total commissions of up to 7% of the total purchase payments it
receives on the contracts. We pay a portion of this total commission to district
managers and field vice presidents of the selling representatives.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life and AEFC do business involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents and
other matters. IDS Life and AEFC, like other life and health insurers, from time
to time are involved in such litigation. On December 13, 1996, an action
entitled Lesa Benacquisto and Daniel Benacquisto vs. IDS Life Insurance Company
and American Express Financial Corporation was commenced in Minnesota state
court. The action was brought by individuals who replaced an existing IDS Life
insurance policy with a new IDS Life policy. The plaintiffs purport
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ABOUT THE SERVICE PROVIDERS
to represent a class consisting of all persons who replaced existing IDS Life
policies with new policies from and after January 1, 1985. The complaint puts at
issue various alleged sales practices and misrepresentations, alleged breaches
of fiduciary duties and alleged violations of consumer fraud statutes. IDS Life
and AEFC filed an answer to the complaint on February 18, 1997, denying the
allegations. A second action, entitled Arnold Mork, Isabella Mork, Ronald
Melchart and Susan Melchart vs. IDS Life Insurance Company and American Express
Financial Corporation was commenced in the same court on March 21,1997. In
addition to claims that are included in the Benacquisto lawsuit, the second
action includes an allegation of improper replacement of an existing IDS Life
annuity contract. A subsequent class action, Richard Thoresen and Elizabeth
Thoresen vs. AEFC, American Partners Life Insurance Company, American Enterprise
Life Insurance Company, American Centurion Life Assurance Company, IDS Life
Insurance Company and IDS Life Insurance Company of New York, was filed in the
same court on October 13, 1998 alleging that the sale of annuities in
tax-deferred contributory retirement investment plans (E.G. IRAs) was done
through deceptive marketing practices, which IDS Life denies. Plaintiffs in each
of the above actions seeks damages in an unspecified amount and also seek to
establish a claims resolution facility for the determination of individual
issues.
IDS Life and AEFC believe they have meritorious defenses to the claims raised in
the lawsuits. The outcome of any litigation cannot be predicted with certainty.
In the opinion of management, however, the ultimate resolution of the above
lawsuits and others filed against IDS Life should not have a material adverse
effect on IDS Life's consolidated financial position.
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YEAR 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of IDS Life and the
variable account. IDS Life and the variable account have no computer systems of
their own but are dependent upon the systems of AEFC and certain other third
parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's
target date for substantially completing corrective measures on business
critical systems was Dec. 31, 1998. Substantial testing of these systems was
targeted for completion early in 1999. AEFC currently is on track with this
schedule and also is on track to finish the work on non-critical systems by June
30, 1999. The Year 2000 readiness of unaffiliated investment managers and other
third parties whose system failures could have an impact on IDS Life's and the
variable account's operations continues to be evaluated. The potential
materiality of any such impact is not known at this time.
AEFC's Year 2000 project includes establishing Year 2000 contingency plans for
all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. These plans are being amended to include specific Year 2000
considerations and will continue to be refined throughout 1999 as additional
information related to potential Year 2000 exposure is gathered.
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TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
IDS Life Preferred Retirement Account........ p.3
Performance Information...................... p.4
Calculating Annuity Payouts.................. p.8
Rating Agencies.............................. p.10
Principal Underwriter........................ p.10
Independent Auditors......................... p.10
Financial Statements
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Please check the 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.
-- American Century Variable Portfolios, Inc.
-- Putnam Variable Trust
-- Templeton Variable Products Series Fund: Class 1
-- Warburg Pincus Trust-Small Company Growth Portfolio
MAIL YOUR REQUEST TO:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
WE WILL MAIL YOUR REQUEST TO:
Your name _____________________________________________
Address _______________________________________________
City _____________________ State _________ Zip ________
57
STATEMENT OF ADDITIONAL INFORMATION
for
IDS LIFE FLEXIBLE PORTFOLIO ANNUITY
IDS Life Variable Account 10
April 30, 1999
IDS Life Variable Account 10 is a separate account established and maintained by
IDS Life Insurance Company (IDS Life).
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus dated the same date as this SAI, which may be
obtained from your financial advisor, or by writing or calling us at the address
and telephone number below. The prospectus is incorporated in this SAI by
reference.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
800-437-0602
<PAGE>
TABLE OF CONTENTS
IDS Life Preferred Retirement Account.......................................p.3
Performance Information.....................................................p.4
Calculating Annuity Payouts.................................................p.8
Rating Agencies............................................................p.10
Principal Underwriter......................................................p.10
Independent Auditors.......................................................p.10
Financial Statements
<PAGE>
IDS LIFE PREFERRED RETIREMENT ACCOUNT
You may use the Flexible Portfolio Annuity to fund the IDS Life Preferred
Retirement Account (PRA) as a way to build tax-deferred retirement income. You
may use the PRA 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:
<TABLE>
<CAPTION>
<S> <C> <C>
IDS Life Preferred
Retirement Account Non-deductible IRA
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Maximum amount $50,000 to $1 million initially, $2,000 per year ($4,000 per year
you can contribute then $50,000 to $100,000 per year for married individuals filing
depending on your age. (spouse jointly)
can have own plan)
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Highest age you The later of age 85 or the 10th 701/2years old
can contribute contract anniversary
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Types of income Any type: wages, investment Generally limited to income from
you can contribute income, gifts, inheritance, etc. employment
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Records you must keep None required, but IDS Life You must keep all records yourself
furnishes you regular reports for
your files
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Reports you must None You must report all contributions
file with the IRS and withdrawals each year
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Age at which you The later of age 85 or the 10th 701/2years old
must begin withdrawals contract anniversary
- ------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The subaccounts may quote various performance figures to illustrate past
performance. We base total return and current yield quotations (if applicable)
on standardized methods of computing performance as required by the Securities
and Exchange Commission (SEC). An explanation of the methods used to compute
performance follows below.
Average Annual Total Return
We will express quotations of average annual total return for the subaccounts in
terms of the average annual compounded rate of return of a hypothetical
investment in the contract over a period of one, five and 10 years (or, if less,
up to the life of the subaccounts), 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 period, at the end of the
period (or fractional portion thereof)
We calculated the following performance figures on the basis of historical
performance of each fund. We show actual performance from the date the
subaccounts began investing in the funds. We also show performance from the
commencement date of the funds as if the contract existed at that time. Past
performance does not guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return With Surrender For Periods Ending Dec. 31, 1998
Performance since
commencement of the Performance since
subaccount commencement of the Fund**
Since Since
Subaccount ----------------------------------- 1 Year commencement --------- --------- -------- commencement
Investing in: 1 Year 5 Years 10 Years
-----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AIM V. I.
HW Growth and Income Fund (3/96; 19.02% 20.18% 19.02% -- 20.33%
5/94)* % -- %
-----------------------------------
AMERICAN CENTURY
HP VP Value (5/96; 5/96) -3.57 12.27 -3.57 -- -- 12.26
IDS LIFE
HA Aggressive Growth Fund (3/96; -5.74 5.43 -5.74 8.48 -- 9.17
1/92)
HC Capital Resource Fund (3/96; 15.47 14.84 15.47 14.47 14.33 --
10/81)
HY Global Yield Fund (5/96; 4/96) -0.38 3.59 -0.38 -- -- 3.59
HG Growth Dimensions Fund (5/96; 19.94 20.76 19.94 -- -- 20.76
4/96)
HV Income Advantage Fund (5/96; -12.68 1.32 -12.68 -- -- 1.32
4/96)
HI International Equity Fund (3/96; 7.29 5.32 7.29 5.87 -- 7.73
1/92)
HD Managed Fund (3/96; 4/86) 7.26 13.70 7.26 11.81 13.10 --
HM Moneyshare Fund (3/96; 10/81) -3.26 1.33 -3.26 2.66 3.95 --
HS Special Income Fund (3/96; 10/81) -6.84 2.11 -6.84 4.55 7.51 --
PUTNAM VT
HN New Opportunities Fund Class IA 15.76 14.19 15.76 -- -- 21.05
Shares (3/96; 5/94)
TEMPLETON
HK Developing Markets Fund: Class -28.96 -25.33 -28.96 -- -- -25.33
1*** (3/96; 5/96)
WARBURG PINCUS TRUST
HT Small Company Growth (3/96; 6/95) -11.13 4.05 -11.13 -- -- 11.60
</TABLE>
* (Commencement dates of the subaccounts; Commencement dates of the Funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.25% mortality and expense risk fee and
applicable surrender charges.
*** Past expense reductions by the portfolio's manager increased returns.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return Without Surrender For Periods Ending Dec. 31, 1998
Performance since
commencement of the Performance since
subaccount commencement of the Fund**
Since Since
Subaccount ----------------------------------- 1 Year commencement -------- -------- -------- commencement
Investing in: 1 Year 5 Years 10 Years
-----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AIM V. I.
HW Growth and Income Fund (3/96; 26.02% 21.93% 26.02% -- -- 20.87%
5/94)* % %
-----------------------------------
AMERICAN CENTURY
HP VP Value (5/96; 5/96) 3.43 14.40 3.43 -- -- 14.39
IDS LIFE
HA Aggressive Growth Fund (3/96; 1.26 7.64 1.26 9.19 -- 9.43
1/92)
HC Capital Resource Fund (3/96; 22.47 16.73 22.47 15.05 14.33 --
10/81)
HY Global Yield Fund (5/96; 4/96) 6.62 6.01 6.62 -- -- 6.01
HG Growth Dimensions Fund (5/96; 26.94 22.65 26.94 -- -- 22.65
4/96)
HV Income Advantage Fund (5/96; -5.68 3.84 -5.68 -- -- 3.84
4/96)
HI International Equity Fund (3/96; 14.29 7.53 14.29 6.65 -- 8.00
1/92)
HD Managed Fund (3/96; 4/86) 14.26 15.62 14.26 12.45 13.10 --
HM Moneyshare Fund (3/96; 10/81) 3.74 3.70 3.74 3.55 3.95 --
HS Special Income Fund (3/96; 10/81) 0.16 4.44 0.16 5.38 7.51 --
PUTNAM VT
HN New Opportunities Fund Class IA 22.76 16.10 22.76 -- -- 21.58
Shares (3/96; 5/94)
TEMPLETON
HK Developing Markets Fund: Class -21.96 -21.31 -21.96 -- -- -21.31
1*** (3/96; 5/96)
WARBURG PINCUS TRUST
HT Small Company Growth (3/96; 6/95) -4.13 6.31 -4.13 -- -- 12.84
</TABLE>
* (Commencement dates of the subaccounts; Commencement dates of the Funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge and a 1.25% mortality and expense risk fee.
*** Past expense reductions by the portfolio's manager increased returns.
<PAGE>
Cumulative Total Return
Cumulative total return represents the cumulative change in the value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute cumulative total return by using 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 period, at the
end of the period (or fractional portion thereof).
The SEC requires that we assume that you surrender the entire contract at the
end of the one, five and ten year periods (or, if less, up to the life of the
subaccount). In addition, we may show performance figures without the deduction
of a surrender charge. All total return figures reflect the deduction of all
applicable charges including the contract administrative charge and mortality
and expense risk fee.
Annualized Calculation of Yield for Subaccounts Investing in Money Market Funds
Simple Yield:
For the subaccounts investing in money market funds, we base quotations of
simple yield on:
(a) the change in the value of a hypothetical subaccount (exclusive of
capital changes and income other than investment income) at the
beginning of a particular seven-day period;
(b) less a pro rata share of the subaccount expenses accrued over the
period;
(c) dividing this difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and (d)
multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends,
o the value of any shares purchased with dividends paid during the period, and
o any dividends declared for such shares.
It does not include:
o the effect of any applicable surrender charge, or o any realized or
unrealized gains or losses.
Annualized Compound Yield:
We calculate compound yield using the base period return described above, which
we then compound according to the following formula:
Compound Yield = [(Base Period Return + 1)365/7] -1
Annualized Yields Based on the Seven-Day Period Ending Dec. 31, 1998
Subaccount Investing In: Simple Yield Compound Yield
HM IDS Life Moneyshare Fund 3.45% 3.51%
<PAGE>
You must consider (when comparing an investment in subaccounts investing in
money market funds with fixed annuities) that fixed annuities often provide an
agreed-to or guaranteed yield for a stated period of time, whereas the
subaccount's yield fluctuates. In comparing the yield of the subaccount to a
money market fund, you should consider the different services that the contract
provides.
Annualized Yield for Subaccounts Investing in Income Funds
For the subaccounts investing in income funds, we base quotations of yield on
all investment income earned during a particular 30-day period, less expenses
accrued during the period (net investment income) and compute it by dividing net
investment income per accumulation unit by the value of an accumulation unit on
the last day of the period, according to the following formula:
YIELD = 2[( a-b + 1)6 - 1]
cd
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
The subaccount earns yield from the increase in the net asset value of shares of
the fund in which it invests and from dividends declared and paid by the fund,
which are automatically invested in shares of the fund.
Annualized Yield Based on the 30-Day Period Ended Dec. 31, 1998
Subaccount Investing in: Yield
HY IDS Life Global Yield Fund 5.36%
HV IDS Life Income Advantage Fund 9.50
HS IDS Life Special Income Fund 7.21
The yield on the subaccount's accumulation unit may fluctuate daily and does not
provide a basis for determining future yields.
Independent rating or statistical services or publishers or publications such as
those listed below may quote subaccount performance, compare it to rankings,
yields or returns, or use it in variable annuity accumulation or settlement
illustrations they publish or prepare.
The Bank Rate Monitor National Index, Barron's, Business Week, CDA
Technologies, 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, Morningstar,
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
We do the following calculations separately for each of the subaccounts of the
variable account. The separate monthly payouts, added together, make up your
total variable annuity payout.
<PAGE>
Initial Payout: To compute your first monthly payment, we:
o determine the dollar value of your contract as of the valuation date that
falls on (or closest to the valuation date that falls before) the seventh
calendar day before the retirement date and then deduct any applicable
premium tax; then
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: We then convert the value of your subaccount to annuity units. To
compute the number of units credited to you, we divide the first monthly payment
by the annuity unit value (see below) on the valuation date that falls on (or
closest to the valuation date that falls before) 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 fund.
Subsequent Payouts: To compute later payouts, we multiply:
o the annuity unit value on the valuation date that falls on (or closest to
the valuation date that falls before) the seventh calendar day before the
payout is due; by
o the fixed number of annuity units credited to you.
Annuity Unit Values: We originally set this value at $1 for each 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
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: We determine the net investment factor by:
o adding the fund's current net asset value per share plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted 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 fund may fluctuate, the net investment factor
my be greater or less than one, and the annuity unit value may increase or
decrease. You bear this investment risk in a variable subaccount.
The Fixed Account
We guarantee your fixed annuity payout amounts. 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
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.
The annuity payout table we use will be the one in effect at the time you choose
to begin your annuity payouts. The values in the table will be equal to or
greater than the table in your contract.
<PAGE>
RATING AGENCIES
The following chart reflects the ratings given to us 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 subaccounts
of the contract. This information relates only to the fixed account and reflects
our ability to make annuity payouts and to pay death benefits and other
distributions from the contract.
Rating Agency Rating
A.M. Best A+
(Superior)
- -----------------------
Duff & Phelps AAA
- -----------------------
Moody's Aa2
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is IDS Life which offers the contract
on a continuous basis.
Surrender charges we received for the last three years aggregated total
$17,936,810, $14,502,145, and $11,956,753, respectively.
Commissions we paid for the last three years aggregated total $17,634,855,
$17,883,488, and $17,247,007, respectively.
INDEPENDENT AUDITORS
The financial statements appearing in this SAI have been audited by Ernst &
Young LLP (1400 Pillsbury Center, 200 South Sixth Street, Minneapolis, MN
55402), independent auditors, as stated in their report appearing herein.
FINANCIAL STATEMENTS
<PAGE>
IDS Life Variable Account 10
Annual Financial Information
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of the segregated asset subaccounts of IDS Life Variable Account 10
(comprised of subaccounts HW, HP, HA, HC, HY, HG, HV, HI, HD, HM, HS, HN, HK and
HT) as of December 31, 1998, and the related statements of operations for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of the management of IDS Life Insurance Company. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998 with the affiliated and
unaffiliated mutual fund managers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of IDS Life Variable Account 10 at December 31,
1998, and the individual and combined results of their operations and changes in
their net assets for the periods described above, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
March 12, 1999
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Net Assets Dec. 31, 1998
Segregated Asset Subaccount
Assets HW HP HA HC
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C> <C>
at cost $ 460,908,332 $ 180,655,224 $ 192,287,578 $ 227,738,227
------------- ------------- ------------- -------------
at market value $ 607,432,063 $ 190,580,318 $ 184,778,667 $ 268,649,579
------------- ------------- ------------- -------------
Dividends receivable - - - -
Accounts receivable from IDS Life for
contract purchase payments 294,579 69,050 144,343 190,893
Receivable from mutual funds and portfolios
for share redemptions - - 80,662 145,365
------- ------- ------ -------
Total assets 607,726,642 190,649,368 185,003,672 268,985,837
=========== =========== =========== ===========
Liabilities
Payable to IDS Life for:
Mortality and expense risk fee 632,445 199,979 194,653 283,308
Contract terminations - - 29,789 52,950
Payable to mutual funds and portfolios
for investments purchased 294,579 69,050 - -
------- ------ ------ ------
Total liabilities 927,024 269,029 224,442 336,258
------- ------- ------- -------
Net assets applicable to contracts in
accumulation period 605,978,136 190,211,470 184,254,328 267,645,887
Net assets applicable to contracts in
payment period 821,482 168,869 524,902 1,003,692
------- ------- ------- ---------
Total net assets $ 606,799,618 $ 190,380,339 $ 184,779,230 $ 268,649,579
============= ============= ============= =============
Accumulation units outstanding 345,291,409 132,532,152 149,270,858 172,450,549
=========== =========== =========== ===========
Net asset value per accumulation unit $ 1.75 $ 1.44 $ 1.23 $ 1.55
====== ====== ====== ======
Assets HY HG HV
Investments in shares of mutual funds and portfolios:
at cost $ 96,767,745 $ 619,571,947 5 $ 325,035,023
------------ ------------- - -------------
at market value $ 99,296,623 $ 826,108,491 3 $ 286,468,083
Dividends receivable 448,992 - 2,265,445
Accounts receivable from IDS Life for
contract purchase payments 40,424 658,264 192,601
Receivable from mutual funds and portfolios
for share redemptions 62 220,827 8,952
-- ------- -----
Total assets 99,786,101 826,987,582 288,935,081
---------- ----------- -----------
Liabilities
Payable to IDS Life for:
Mortality and expense risk fee 104,241 863,665 300,648
Contract terminations 62 15,427 8,952
Payable to mutual funds and portfolios
for investments purchased 385,175 - 2,157,398
------- ----- ---------
Total liabilities 489,478 879,092 2,466,998
======= ======= =========
Net assets applicable to contracts in
accumulation period 99,149,755 823,789,136 285,978,378
Net assets applicable to contracts in
payment period 146,868 2,319,354 489,705
------- --------- -------
Total net assets $ 99,296,623 $826,108,490 $ 286,468,083
============ ============ =============
Accumulation units outstanding 84,640,404 476,734,956 257,989,888
========== =========== ===========
Net asset value per accumulation unit $ 1.17 $ 1.73 $ 1.11
====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Net Assets (continued) Dec. 31, 1998
Segregated Asset Subaccount
Assets HI HD HM HS
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C> <C>
at cost $190,561,123 $358,564,041 $231,863,426 $ 288,516,710
------------ ------------ ------------ -------------
at market value $207,452,641 $366,823,186 $231,865,497 $ 275,017,625
Dividends receivable - 897,578 1,652,242
Accounts receivable from IDS Life for
contract purchase payments 159,093 571,860 702,094 740,898
Receivable from mutual funds and portfolios
for share redemptions 59,107 83,760 267,078 15,771
------ ------ ------- ------
Total assets 207,670,841 367,478,806 233,732,247 277,426,536
=========== =========== =========== ===========
Liabilities
Payable to IDS Life for:
Mortality and expense risk fee 217,617 383,857 235,626 286,641
Contract terminations 673 83,760 267,078 15,771
Payable to mutual funds and portfolios
for investments purchased - 188,003 1,364,046 2,106,499
------ ------- --------- ---------
Total liabilities 218,290 655,620 1,866,750 2,408,911
------- ------- --------- ---------
Net assets applicable to contracts in
accumulation period 206,959,596 364,962,090 231,766,964 274,102,014
Net assets applicable to contracts in
payment period 492,955 1,861,096 98,533 915,611
------- --------- ------ -------
Total net assets $207,452,551 $366,823,186 $231,865,497 $ 275,017,625
============ ============ ============ =============
Accumulation units outstanding 168,173,195 241,551,076 208,621,603 241,799,737
=========== =========== =========== ===========
Net asset value per accumulation unit $ 1.23 $ 1.51 $ 1.11 $ 1.13
====== ====== ====== ======
Combined
Variable
Assets HN HK HT Account
Investments in shares of mutual funds and portfolios
at cost $ 425,609,792 $248,890,323 $ 311,672,136 $ 4,158,641,627
------------- ------------ ------------- ---------------
at market value $ 567,241,723 $156,354,240 $ 333,637,992 $ 4,601,706,728
Dividends receivable - - - 5,264,257
Accounts receivable from IDS Life for
contract purchase payments 287,590 - 38,005 4,089,694
Receivable from mutual funds and portfolios
for share redemptions - 29,965 - 911,549
-------- ------ ------- -------
Total assets 567,529,313 156,384,205 333,675,997 4,611,972,228
=========== =========== =========== =============
Liabilities
Payable to IDS Life for:
Mortality and expense risk fee 592,557 164,525 349,174 4,808,936
Contract terminations - 29,965 - 504,427
Payable to mutual funds and portfolios
for investments purchased 287,590 - 38,005 6,890,345
------- ----- ------ ---------
Total liabilities 880,147 194,490 387,179 12,203,708
------- ------- ------- ----------
Net assets applicable to contracts in
accumulation period 565,965,647 156,140,571 333,019,775 4,589,923,747
Net assets applicable to contracts in
payment period 683,519 49,144 269,043 9,844,773
------- ------ ------- ---------
Total net assets $ 566,649,166 $156,189,715 $ 333,288,818 $ 4,599,768,520
============= ============ ============= ===============
Accumulation units outstanding 370,336,259 306,456,028 279,474,900
=========== =========== ===========
Net asset value per accumulation unit $ 1.53 $ 0.51 $ 1.19
====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Operations Year ended Dec. 31, 1998
Segregated Asset Subaccount
Investment income HW HP HA HC
<S> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 8,132,881 $ 9,808,062 $ 11,544,107 $ 19,073,337
Mortality and expense risk fee 5,401,730 1,890,189 1,906,973 2,527,958
--------- --------- --------- ---------
Investment income (loss) - net 2,731,151 7,917,873 9,637,134 16,545,379
--------- --------- --------- ----------
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 5,195,568 2,603,431 962,094 914,193
Cost of investments sold 4,380,651 2,385,660 1,065,657 809,188
--------- --------- --------- -------
Net realized gain (loss) on investments 814,917 217,771 (103,563) 105,005
Net change in unrealized appreciation or
depreciation of investments 106,946,649 (4,083,206) (6,799,334) 27,931,296
----------- ---------- ---------- ----------
Net gain (loss) on investments 107,761,566 (3,865,435) (6,902,897) 28,036,301
----------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations $ 110,492,717 $ 4,052,438 $ 2,734,237 $ 44,581,680
============= =========== =========== ============
Investment income HY HG HV
Dividend income from mutual funds and portfolios $ 4,497,601 $ 3,708,762 $ 27,538,363
Mortality and expense risk fee 1,029,721 7,273,813 3,148,357
--------- --------- ---------
Investment income (loss) - net 3,467,880 (3,565,051) 24,390,006
--------- ---------- ----------
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 291,570 454,921 3,342,836
Cost of investments sold 288,505 392,343 3,642,843
------- ------- ---------
Net realized gain (loss) on investments 3,065 62,578 (300,007)
Net change in unrealized appreciation or
depreciation of investments 1,938,695 155,166,807 (42,593,554)
--------- ----------- -----------
Net gain (loss) on investments 1,941,760 155,229,385 (42,893,561)
--------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 5,409,640 $151,664,334 $ (18,503,555)
=========== ============ =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Operations (continued) Year ended Dec. 31, 1998
Segregated Asset Subaccount
Investment income HI HD HM HS
<S> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 2,360,221 $37,676,839 $ 8,706,271 $ 16,338,627
Mortality and expense risk fee 2,105,835 3,481,153 2,181,111 2,705,962
--------- --------- --------- ---------
Investment income (loss) - net 254,386 34,195,686 6,525,160 13,632,665
------- ---------- --------- ----------
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 280,807 129,976 58,429,430 2,547,827
Cost of investments sold 266,699 142,096 58,428,826 2,613,677
------- ------- ---------- ---------
Net realized gain (loss) on investments 14,108 (12,120) 604 (65,850)
Net change in unrealized appreciation or
depreciation of investments 19,222,386 4,466,252 (767) (13,504,722)
---------- --------- ---- -----------
Net gain (loss) on investments 19,236,494 4,454,132 (163) (13,570,572)
---------- --------- ---- -----------
Net increase (decrease) in net assets
resulting from operations $ 19,490,880 $38,649,818 $ 6,524,997 $ 62,093
============ =========== =========== ========
Combined
Variable
Investment income HN HK HT Account
Dividend income from mutual funds and portfolios $ 5,451,349 $ 3,453,191 $ - $ 158,289,611
Mortality and expense risk fee 5,362,412 1,768,851 3,421,402 44,205,467
--------- --------- --------- ----------
Investment income (loss) - net 88,937 1,684,340 (3,421,402) 114,084,144
------ --------- ---------- -----------
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 4,886,459 2,306,205 3,629,531 85,974,848
Cost of investments sold 4,136,937 3,764,651 3,486,580 85,804,313
--------- --------- --------- ----------
Net realized gain (loss) on investments 749,522 (1,458,446) 142,951 170,535
Net change in unrealized appreciation or
depreciation of investments 94,987,493 (35,408,923) (5,321,324) 302,947,748
---------- ----------- ---------- -----------
Net gain (loss) on investments 95,737,015 (36,867,369) (5,178,373) 303,118,283
---------- ----------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations $95,825,952 $ (35,183,029) $ (8,599,775) $ 417,202,427
=========== ============= ============ =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Changes in Net Assets Year ended Dec. 31, 1998
Segregated Asset Subaccount
Operations HW HP HA HC
<S> <C> <C> <C> <C>
Investment income (loss) - net $ 2,731,151 $ 7,917,873 $ 9,637,134 $ 16,545,379
Net realized gain (loss) on investments 814,917 217,771 (103,563) 105,005
Net change in unrealized appreciation or
depreciation of investments 106,946,649 (4,083,206) (6,799,334) 27,931,296
----------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations 110,492,717 4,052,438 2,734,237 44,581,680
=========== ========= ========= ==========
Contract transactions
Contract purchase payments 123,939,690 48,121,810 32,685,796 52,543,771
Net transfers* 86,082,640 36,909,327 17,345,941 23,346,374
Transfers for policy loans 111,010 46,841 59,973 63,727
Annuity payments (50,401) (12,715) (43,889) (60,822)
Contract charges (323,168) (91,620) (144,973) (154,893)
Contract terminations:
Surrender benefits (10,197,704) (3,476,722) (4,627,597) (6,320,204)
Death benefits (2,197,204) (597,859) (575,870) (1,020,075)
---------- -------- -------- ----------
Increase (decrease) from contract transactions 197,364,863 80,899,062 44,699,381 68,397,878
----------- ---------- ---------- ----------
Net assets at beginning of year 298,942,038 105,428,839 137,345,612 155,670,021
----------- ----------- ----------- -----------
Net assets at end of year $ 606,799,618 $ 190,380,339 $ 184,779,230 $ 268,649,579
============= ============= ============= =============
Accumulation unit activity
Units outstanding at beginning of year 214,549,068 75,956,936 112,555,811 122,749,028
Contracts purchase payments 82,462,406 33,765,099 27,116,042 38,609,955
Net transfers* 57,138,298 25,818,119 14,261,212 17,156,637
Transfers for policy loans 73,078 33,226 50,054 46,457
Contract charges (217,283) (65,452) (121,200) (113,517)
Contract terminations:
Surrender benefits (7,234,586) (2,556,412) (4,044,285) (5,187,855)
Death benefits (1,479,572) (419,364) (546,776) (810,156)
---------- -------- -------- --------
Units outstanding at end of year 345,291,409 132,532,152 149,270,858 172,450,549
=========== =========== =========== ===========
Operations HY HG HV
Investment income (loss) - net $ 3,467,880 $ (3,565,051) $ 24,390,006
Net realized gain (loss) on investments 3,065 62,578 (300,007)
Net change in unrealized appreciation or
depreciation of investments 1,938,695 155,166,807 (42,593,554)
--------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 5,409,640 151,664,334 (18,503,555)
========= =========== ===========
Contract transactions
Contract purchase payments 18,186,606 169,845,847 115,181,329
Net transfers* 12,886,080 119,858,148 7,401,837
Transfers for policy loans 6,439 213,884 28,056
Annuity payments (9,655) (172,358) (41,702)
Contract charges (24,187) (518,824) (62,632)
Contract terminations:
Surrender benefits (1,519,807) (14,776,429) (4,391,814)
Death benefits (392,379) (2,703,977) (1,280,264)
-------- ---------- ----------
Increase (decrease) from contract transactions 29,133,097 271,746,291 116,834,810
---------- ----------- -----------
Net assets at beginning of year 64,753,886 402,697,865 188,136,828
---------- ----------- -----------
Net assets at end of year $ 99,296,623 $826,108,490 $ 286,468,083
============ ============ =============
Accumulation unit activity
Units outstanding at beginning of year 58,925,382 295,452,068 160,046,402
Contracts purchase payments 16,215,273 114,091,290 97,757,844
Net transfers* 11,398,713 80,342,552 6,032,839
Transfers for policy loans 5,672 145,243 24,519
Contract charges (25,155) (351,399) (58,078)
Contract terminations:
Surrender benefits (1,493,299) (10,988,528) (4,650,808)
Death benefits (386,182) (1,956,270) (1,162,830)
-------- ---------- ----------
Units outstanding at end of year 84,640,404 476,734,956 257,989,888
========== =========== ===========
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account. See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Changes in Net Assets (continued) Year ended Dec. 31, 1998
Segregated Asset Subaccount
Operations HI HD HM HS
<S> <C> <C> <C> <C>
Investment income (loss) - net $ 254,386 $34,195,686 $ 6,525,160 $ 13,632,665
Net realized gain (loss) on investments 14,108 (12,120) 604 (65,850)
Net change in unrealized appreciation or
depreciation of investments 19,222,386 4,466,252 (767) (13,504,722)
---------- --------- ---- -----------
Net increase (decrease) in net assets
resulting from operations 19,490,880 38,649,818 6,524,997 62,093
========== ========== ========= ======
Contract transactions
Contract purchase payments 38,038,960 93,036,473 277,332,112 141,739,981
Net transfers* 30,900,810 44,503,008 (205,977,743) (26,031,275)
Transfers for policy loans 38,817 109,930 91,349 38,172
Annuity payments (33,870) (105,691) (4,467) (63,131)
Contract charges (109,517) (213,355) (33,892) (60,305)
Contract terminations:
Surrender benefits (4,523,690) (7,300,886) (5,501,546) (4,643,873)
Death benefits (881,719) (1,887,925) (1,537,083) (1,932,804)
-------- ---------- ---------- ----------
Increase (decrease) from contract transactions 63,429,791 128,141,554 64,368,730 109,046,765
---------- ----------- ---------- -----------
Net assets at beginning of year 124,531,880 200,031,814 160,971,770 165,908,767
----------- ----------- ----------- -----------
Net assets at end of year $207,452,551 $366,823,186 $231,865,497 $ 275,017,625
============ ============ ============ =============
Accumulation unit activity
Units outstanding at beginning of year 115,579,437 150,987,102 150,354,200 146,644,987
Contracts purchase payments 31,974,652 66,615,848 255,031,035 124,949,121
Net transfers* 25,565,411 31,741,872 (189,050,290) (22,832,745)
Transfers for policy loans 26,196 77,761 83,239 33,736
Contract charges (91,345) (153,184) (32,221) (53,124)
Contract terminations:
Surrender benefits (4,116,218) (6,260,093) (6,296,905) (5,175,280)
Death benefits (764,938) (1,458,230) (1,467,455) (1,766,958)
-------- ---------- ---------- ----------
Units outstanding at end of year 168,173,195 241,551,076 208,621,603 241,799,737
=========== =========== =========== ===========
Combined
Variable
Operations HN HK HT Account
Investment income (loss) - net $ 88,937 $ 1,684,340 $ (3,421,402) $ 114,084,144
Net realized gain (loss) on investments 749,522 (1,458,446) 142,951 170,535
Net change in unrealized appreciation or
depreciation of investments 94,987,493 (35,408,923) (5,321,324) 302,947,748
---------- ----------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations 95,825,952 (35,183,029) (8,599,775) 417,202,427
========== =========== ========== ===========
Contract transactions
Contract purchase payments 99,929,708 38,412,362 67,745,794 1,316,740,239
Net transfers* 53,542,070 20,760,500 53,940,657 275,468,374
Transfers for policy loans 141,133 70,275 73,813 1,093,419
Annuity payments (58,111) (7,681) (17,208) (681,701)
Contract charges (403,814) (131,754) (197,688) (2,470,622)
Contract terminations:
Surrender benefits (12,134,114) (3,711,885) (6,908,359) (90,034,630)
Death benefits (1,672,012) (680,856) (1,118,776) (18,478,803)
---------- -------- ---------- -----------
Increase (decrease) from contract transactions 139,344,860 54,710,961 113,518,233 1,481,636,276
----------- ---------- ----------- -------------
Net assets at beginning of year 331,478,354 136,661,783 228,370,360 2,700,929,817
----------- ----------- ----------- -------------
Net assets at end of year $ 566,649,166 $156,189,715 $ 333,288,818 $ 4,599,768,520
============= ============ ============= ===============
Accumulation unit activity
Units outstanding at beginning of year 266,067,508 209,358,338 183,718,637
Contracts purchase payments 75,105,119 70,662,110 57,725,249
Net transfers* 39,992,969 35,129,857 45,315,922
Transfers for policy loans 107,021 132,918 65,378
Contract charges (305,871) (253,713) (171,993)
Contract terminations:
Surrender benefits (9,356,349) (7,269,237) (6,193,579)
Death benefits (1,274,138) (1,304,245) (984,714)
---------- ---------- --------
Units outstanding at end of year 370,336,259 306,456,028 279,474,900
----------- ----------- -----------
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account. See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Changes in Net Assets Year ended Dec. 31, 1997
Segregated Asset Subaccount
Operations HW HP HA HC
<S> <C> <C> <C> <C>
Investment income (loss) - net $ (1,922,361) $ (246,833) $ 10,214,259 $ 2,506,848
Net realized gain (loss) on investments 281,213 75,711 7,638 9,376
Net change in unrealized appreciation or
depreciation of investments 34,663,516 12,434,801 2,091,485 20,416,760
---------- ---------- --------- ----------
Net increase (decrease) in net assets
resulting from operations 33,022,368 12,263,679 12,313,382 22,932,984
========== ========== ========== ==========
Contract transactions
Contract purchase payments 104,217,902 38,673,232 35,621,085 36,931,780
Net transfers* 83,017,986 33,214,737 30,159,841 23,406,717
Transfers for policy loans 49,444 9,072 36,999 26,922
Annuity payments (25,231) (7,415) (17,548) (16,018)
Contract charges (126,211) (30,725) (99,490) (112,558)
Contract terminations:
Surrender benefits (2,338,296) (468,765) (1,762,063) (2,207,550)
Death benefits (666,084) (128,390) (629,417) (663,208)
-------- -------- -------- --------
Increase (decrease) from contract transactions 184,129,510 71,261,746 63,309,407 57,366,085
----------- ---------- ---------- ----------
Net assets at beginning of year 81,790,160 21,903,414 61,722,823 75,370,952
---------- ---------- ---------- ----------
Net assets at end of year $298,942,038 $ 105,428,839 $137,345,612 $155,670,021
============ ============= ============ ============
Accumulation unit activity
Units outstanding at beginning of year 72,802,697 19,657,041 56,317,608 72,833,032
Contract purchase payments 80,165,471 30,615,557 31,643,209 31,938,729
Net transfers* 63,975,812 26,239,471 26,922,056 20,532,788
Transfers for policy loans 37,475 7,391 31,877 22,712
Contract charges (96,137) (23,330) (88,979) (99,740)
Contract terminations:
Surrender benefits (1,788,770) (415,779) (1,691,371) (1,872,725)
Death benefits (547,480) (123,415) (578,589) (605,768)
-------- -------- -------- --------
Units outstanding at end of year 214,549,068 75,956,936 112,555,811 122,749,028
=========== ========== =========== ===========
Operations HY HG HV
Investment income (loss) - net $1,690,953 $ (945,885) $ 9,604,508
Net realized gain (loss) on investments 817 49,963 43,397
Net change in unrealized appreciation or
depreciation of investments 9,717 46,438,001 3,291,337
----- ---------- ---------
Net increase (decrease) in net assets
resulting from operations 1,701,487 45,542,079 12,939,242
========= ========== ==========
Contract transactions
Contract purchase payments 23,206,919 141,846,009 105,160,412
Net transfers* 17,980,115 118,536,433 14,653,385
Transfers for policy loans 2,140 41,791 10,414
Annuity payments (5,556) (62,857) (14,613)
Contract charges (10,828) (192,518) (23,250)
Contract terminations:
Surrender benefits (443,740) (3,726,731) (1,450,110)
Death benefits (203,481) (1,341,632) (937,278)
-------- ---------- --------
Increase (decrease) from contract transactions 40,525,569 255,100,495 117,398,960
---------- ----------- -----------
Net assets at beginning of year 22,526,830 102,055,291 57,798,626
---------- ----------- ----------
Net assets at end of year $64,753,886 $ 402,697,865 $188,136,828
=========== ============= ============
Accumulation unit activity
Units outstanding at beginning of year 21,035,193 91,977,207 55,065,097
Contract purchase payments 21,716,856 113,356,561 94,089,132
Net transfers* 16,840,943 94,614,500 13,150,929
Transfers for policy loans 1,982 32,323 9,225
Contract charges (10,045) (148,365) (20,444)
Contract terminations:
Surrender benefits (441,808) (3,262,778) (1,362,132)
Death benefits (217,739) (1,117,380) (885,405)
-------- ---------- --------
Units outstanding at end of year 58,925,382 295,452,068 160,046,402
========== =========== ===========
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account. See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Statements of Changes in Net Assets (continued) Year ended Dec. 31, 1997
Segregated Asset Subaccount
Operations HI HD HM HS
<S> <C> <C> <C> <C>
Investment income (loss) - net $ 2,722,928 $ 15,982,775 $ 5,720,875 $10,858,521
Net realized gain (loss) on investments 5,989 7,744 (2,694) 72,881
Net change in unrealized appreciation or
depreciation of investments (3,027,897) 2,794,924 2,432 (1,612,428)
---------- --------- ----- ----------
Net increase (decrease) in net assets
resulting from operations (298,980) 18,785,443 5,720,613 9,318,974
======== ========== ========= =========
Contract transactions
Contract purchase payments 38,880,699 82,774,910 266,965,682 98,768,294
Net transfers* 31,636,834 44,435,585 (223,861,762) (30,665,504)
Transfers for policy loans 10,579 33,010 41,060 21,113
Annuity payments (14,311) (27,899) (253) (4,791)
Contract charges (70,587) (86,857) (18,947) (35,668)
Contract terminations:
Surrender benefits (1,366,489) (2,077,407) (2,045,021) (1,535,542)
Death benefits (469,896) (904,888) (568,930) (988,185)
-------- -------- -------- --------
Increase (decrease) from contract transactions 68,606,829 124,146,454 40,511,829 65,559,717
---------- ----------- ---------- ----------
Net assets at beginning of year 56,224,031 57,099,917 114,739,328 91,030,076
---------- ---------- ----------- ----------
Net assets at end of year $124,531,880 $200,031,814 $160,971,770 $165,908,767
============ ============ ============ ============
Accumulation unit activity
Units outstanding at beginning of year 52,954,574 50,902,429 111,372,433 86,466,532
Contract purchase payments 35,623,923 66,947,805 254,524,237 90,741,395
Net transfers* 28,832,710 35,916,564 (212,984,080) (28,244,963)
Transfers for policy loans 9,693 26,304 39,395 19,371
Contract charges (64,451) (70,688) (18,325) (33,008)
Contract terminations:
Surrender benefits (1,324,463) (1,719,830) (2,037,904) (1,322,029)
Death benefits (452,549) (1,015,482) (541,556) (982,311)
-------- ---------- -------- --------
Units outstanding at end of year 115,579,437 150,987,102 150,354,200 146,644,987
=========== =========== =========== ===========
Combined
Variable
Operations HN HK HT Account
Investment income (loss) - net $(2,808,952) $ (908,829) $ (1,773,501) $ 50,695,306
Net realized gain (loss) on investments 192,478 (66,317) 114,036 792,232
Net change in unrealized appreciation or
depreciation of investments 49,093,786 (56,349,117) 25,515,684 135,763,001
---------- ----------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations 46,477,312 (57,324,263) 23,856,219 187,250,539
========== =========== ========== ===========
Contract transactions
Contract purchase payments 93,322,119 70,158,881 70,302,582 1,206,830,506
Net transfers* 73,894,714 56,165,618 68,184,509 340,759,208
Transfers for policy loans 51,521 21,166 20,449 375,680
Annuity payments (30,488) (8,943) (11,662) (247,585)
Contract charges (243,638) (96,612) (102,333) (1,250,222)
Contract terminations: -
Surrender benefits (3,663,428) (1,618,569) (1,733,708) (26,437,419)
Death benefits (812,802) (356,668) (448,274) (9,119,133)
-------- -------- -------- ----------
Increase (decrease) from contract transactions 162,517,998 124,264,873 136,211,563 1,510,911,035
----------- ----------- ----------- -------------
Net assets at beginning of year 122,483,044 69,721,173 68,302,578 1,002,768,243
----------- ---------- ---------- -------------
Net assets at end of year $331,478,354 $136,661,783 $228,370,360 $2,700,929,817
============ ============ ============ ==============
Accumulation unit activity
Units outstanding at beginning of year 119,724,152 74,609,737 62,742,823
Contract purchase payments 83,991,897 76,017,307 62,598,014
Net transfers* 66,634,360 61,007,888 60,399,312
Transfers for policy loans 45,419 25,293 18,059
Contract charges (214,254) (107,087) (89,015)
Contract terminations:
Surrender benefits (3,338,632) (1,773,288) (1,536,543)
Death benefits (775,434) (421,512) (414,013)
-------- -------- --------
Units outstanding at end of year 266,067,508 209,358,338 183,718,637
=========== =========== ===========
*Includes transfer activity from (to) other subaccounts and transfers (from) to
IDS Life for conversion from (to) fixed account. See accompanying notes to
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Account 10
Notes to Financial Statements
1. Organization
IDS Life Variable Account 10 (the Account) was established under Minnesota law
on Aug. 23, 1995 as a segregated asset account of IDS Life Insurance Company
(IDS Life). The Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Operations of the
Account commenced on March 5, 1996.
The Account is comprised of various subaccounts. Each subaccount invests
exclusively in shares of the following funds or portfolios (collectively, the
Funds), which are registered under the 1940 Act as diversified (non-diversified
for Global Yield and Warburg Pincus Trust/Small Company Growth Portfolio),
open-end management investment companies and have the following investment
managers.
<S> <C> <C>
Subaccount Invests exclusively in shares of Investment Manager
HW AIM V.I. Growth and Income Fund AIM Advisors Inc.
HP American Century VP Value Fund American Century Investment Management, Inc.
HA IDS Life Aggressive Growth Fund IDS Life Insurance Company 1
HC IDS Life Capital Resource Fund IDS Life Insurance Company 1
HY IDS Life Global Yield Fund IDS Life Insurance Company 1
HG IDS Life Growth Dimensions Fund IDS Life Insurance Company 1
HV IDS Life Income Advantage Fund IDS Life Insurance Company 1
HI IDS Life International Equity Fund IDS Life Insurance Company 2
HD IDS Life Managed Fund IDS Life Insurance Company 1
HM IDS Life Moneyshare Fund IDS Life Insurance Company 1
HS IDS Life Special Income Fund IDS Life Insurance Company 1
HN Putnam VT New Opportunities Fund Putnam Investment Management, Inc.
HK Templeton Developing Markets Fund: Class 1 Templeton Asset Management Ltd.
HT Warburg Pincus Trust/Small Company Growth Portfolio Warburg Pincus Counselors, Inc.
1 American Express Financial Corporation (AEFC) is the investment advisor.
2 AEFC is the investment advisor. American Express Asset Management
International Inc. is the sub-investment advisor.
The assets of each subaccount of the Account are not chargeable with liabilities
arising out of the business conducted by any other segregated asset account or
by IDS Life.
IDS Life serves as issuer of the contract.
</TABLE>
<PAGE>
2. Summary of Significant Accounting Policies
Investments in the Funds
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Federal Income Taxes
IDS Life is taxed as a life insurance company. The Account is treated as part of
IDS Life for federal income tax purposes. Under existing federal income tax law,
no income taxes are payable with respect to any investment income of the
Account.
3. Mortality and Expense Risk Fee
IDS Life makes contractual assurances to the Account that possible future
adverse changes in administrative expenses and mortality experience of the
contract owners and annuitants will not affect the Account. The mortality and
expense risk fee paid to IDS Life is computed daily and is equal, on an annual
basis, to 1.25% of the average daily net assets of the subaccounts.
4. Contract Administrative Charges
An annual charge of $30 is deducted from the contract value of each Flexible
Portfolio Annuity contract. The annual charges are deducted on each contract
anniversary for administrative services provided to the Account by IDS Life. The
deduction is allocated to the subaccounts on a pro-rata basis. If the contract
value or total purchase payments (less any payments surrendered) equals or
exceeds $25,000 on the contract anniversary, the charge is waived. The charge
cannot be increased and does not apply after annuity payouts begin.
5. Surrender Charge
There are surrender charges for all purchase payments surrendered in the first
eight contract years. Charges by IDS Life for surrenders are not identified on
an individual segregated asset account basis. Charges for all segregated asset
accounts amounted to $17,936,810 in 1998 and $14,502,145 in 1997. Such charges
are not treated as a separate expense of the subaccounts or account. They are
ultimately deducted from contract surrender benefits paid by IDS Life.
<PAGE>
<TABLE>
<CAPTION>
6. Investment in Shares
The subaccounts' investment in shares of the Funds as of Dec. 31, 1998 were as follows:
Subaccount Investment Shares NAV
<S> <C> <C> <C>
HW AIM V.I. Growth and Income Fund 25,576,087 $23.75
HP American Century VP Value 28,317,974 6.73
HA IDS Life Aggressive Growth Fund 12,050,644 15.33
HC IDS Life Capital Resource Fund 8,227,177 32.65
HY IDS Life Global Yield Fund 9,346,971 10.62
HG IDS Life Growth Dimensions Fund 47,165,682 17.52
HV IDS Life Income Advantage Fund 32,148,544 8.91
HI IDS Life International Equity Fund 13,317,722 15.58
HD IDS Life Managed Fund 19,806,769 18.52
HM IDS Life Moneyshare Fund 231,885,187 1.00
HS IDS Life Special Income Fund 24,761,414 11.11
HN Putnam VT New Opportunities Fund 21,766,758 26.06
HK Templeton Developing Markets Fund: Class 1 30,478,409 5.13
HT Warburg Pincus Trust/Small Company Growth Portfolio 20,839,350 16.01
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
7. Investment Transactions
The subaccounts' purchases of the Funds' shares, including reinvestment of
dividend distributions, were as follows:
Year ended Dec. 31,
Subaccount Investment 1998 1997
<S> <C> <C> <C>
HW AIM V.I. Growth and Income Fund $ 205,598,725 $ 184,510,639
HP American Century VP Value 91,506,163 71,752,784
HA IDS Life Aggressive Growth Fund 55,145,762 73,719,919
HC IDS Life Capital Resource Fund 85,684,366 60,566,501
HY IDS Life Global Yield Fund 32,892,547 42,325,350
HG IDS Life Growth Dimensions Fund 268,194,423 254,947,774
HV IDS Life Income Advantage Fund 144,567,652 128,093,723
HI IDS Life International Equity Fund 63,826,337 72,015,482
HD IDS Life Managed Fund 162,247,869 140,405,506
HM IDS Life Moneyshare Fund 129,323,320 118,005,771
HS IDS Life Special Income Fund 125,227,257 80,832,122
HN Putnam VT New Opportunities Fund 144,547,340 162,573,266
HK Templeton Developing Markets Fund: Class 1 58,716,259 124,894,806
HT Warburg Pincus Trust/Small Company Growth Portfolio 113,825,345 136,357,949
Combined Variable Account $1,681,303,365 $1,651,001,592
</TABLE>
8. Year 2000 Issue (unaudited)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of IDS Life and the
Account. IDS Life and the Account have no computer systems of their own but are
dependent upon the systems of AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's
target date for substantially completing corrective measures on business
critical systems was Dec. 31, 1998. Substantial testing of these systems was
targeted for completion early in 1999. AEFC is currently on track with this
schedule and is also on track to finish the work on non-critical systems by June
30, 1999. The Year 2000 readiness of unaffiliated investment managers and other
third parties whose system failures could have an impact on IDS Life's and the
Account's operations continues to be evaluated. The potential materiality of any
such impact is not known at this time.
AEFC's Year 2000 project includes establishing Year 2000 contingency plans for
all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. These plans are being amended to include specific Year 2000
considerations and will continue to be refined throughout 1999 as additional
information related to potential Year 2000 exposure is gathered.
<PAGE>
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
IDS LIFE FINANCIAL INFORMATION
- -----------------------------------------------------------------
The financial statements shown below are those of the insurance company and not
those of any other entity. They are included for the purpose of informing the
investor as to the financial condition of the insurance company and its ability
to carry out its obligations under its variable contracts.
IDS LIFE INSURANCE COMPANY
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS DEC. 31, 1998 DEC. 31, 1997
ASSETS ($ thousands, except share amounts)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value: 1998,
$8,420,035; 1997, $9,743,410).................................... $ 7,964,114 $ 9,315,450
Available for sale, at fair value (amortized cost: 1998,
$13,344,949; 1997, $12,515,030).................................. 13,613,139 12,876,694
Mortgage loans on real estate.................................... 3,505,458 3,618,647
Policy loans..................................................... 525,431 498,874
Other investments................................................ 366,604 318,591
- -------------------------------------------------------------------------------------------------
Total investments................................................ 25,974,746 26,628,256
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents........................................ 22,453 19,686
Amounts recoverable from reinsurers.............................. 262,260 205,716
Amounts due from brokers......................................... 327 8,400
Other accounts receivable........................................ 47,963 37,895
Accrued investment income........................................ 366,574 357,390
Deferred policy acquisition costs................................ 2,496,352 2,479,577
Other assets..................................................... 30,487 22,700
Separate account assets.......................................... 27,349,401 23,214,504
- -------------------------------------------------------------------------------------------------
Total assets..................................................... $ 56,550,563 $ 52,974,124
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities.................................................. $ 21,172,303 $ 22,009,747
Universal life-type insurance.................................... 3,343,671 3,280,489
Traditional life insurance....................................... 225,306 213,676
Disability income and long-term care insurance................... 660,320 533,124
Policy claims and other policyholders' funds..................... 70,309 68,345
Deferred income taxes, net....................................... 16,930 61,582
Amounts due to brokers........................................... 195,406 381,458
Other liabilities................................................ 410,285 345,383
Separate account liabilities..................................... 27,349,401 23,214,504
- -------------------------------------------------------------------------------------------------
Total liabilities................................................ 53,443,931 50,108,308
- -------------------------------------------------------------------------------------------------
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....................................... 288,327 290,847
Accumulated other comprehensive income, net of tax:
Net unrealized securities gains.................................. 169,584 226,359
Retained earnings................................................ 2,645,721 2,345,610
- -------------------------------------------------------------------------------------------------
Total stockholder's equity....................................... 3,106,632 2,865,816
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity....................... $ 56,550,563 $ 52,974,124
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-1
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
1998 1997 1996
CONSOLIDATED STATEMENTS OF INCOME ($ thousands)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Revenues:
Premiums:
Traditional life insurance....................................... $ 53,132 $ 52,473 $ 51,403
Disability income and long-term care insurance................... 176,298 154,021 131,518
- ------------------------------------------------------------------------------------------------------------
Total premiums................................................... 229,430 206,494 182,921
- ------------------------------------------------------------------------------------------------------------
Policyholder and contractholder charges.......................... 383,965 341,726 302,999
Management and other fees........................................ 401,057 340,892 271,342
Net investment income............................................ 1,986,485 1,988,389 1,965,362
Net realized gain (loss) on investments.......................... 6,902 860 (159)
- ------------------------------------------------------------------------------------------------------------
Total revenues................................................... 3,007,839 2,878,361 2,722,465
- ------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Death and other benefits:
Traditional life insurance....................................... 29,835 28,951 26,919
Universal life-type insurance and investment contracts........... 108,349 92,814 85,017
Disability income and long-term care insurance................... 27,414 22,333 19,185
Increase in liabilities for future policy benefits:
Traditional life insurance....................................... 6,052 3,946 1,859
Disability income and long-term care insurance................... 73,305 63,631 57,230
Interest credited on universal life-type insurance and investment
contracts........................................................ 1,317,124 1,386,448 1,370,468
Amortization of deferred policy acquisition costs................ 382,642 322,731 278,605
Other insurance and operating expenses........................... 287,326 276,596 261,468
- ------------------------------------------------------------------------------------------------------------
Total benefits and expenses...................................... 2,232,047 2,197,450 2,100,751
- ------------------------------------------------------------------------------------------------------------
Income before income taxes....................................... 775,792 680,911 621,714
Income taxes..................................................... 235,681 206,664 207,138
- ------------------------------------------------------------------------------------------------------------
Net income....................................................... $ 540,111 $ 474,247 $ 414,576
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-2
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY OTHER
TOTAL ADDITIONAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL PAID-IN INCOME, RETAINED
THREE YEARS ENDED DEC. 31, 1998 ($ thousands) EQUITY STOCK CAPITAL NET OF TAX EARNINGS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995................................ $2,331,708 $3,000 $278,814 $ 230,129 $1,819,765
Comprehensive income:
Net income................................................ 414,576 -- -- -- 414,576
Unrealized holding losses arising during the year, net of
deferred policy acquisition costs of $10,325 and taxes of
$82,982................................................... (154,111) -- -- (154,111) --
Reclassification adjustment for losses included in net
income, net of tax of $(5,429)............................ 10,084 -- -- 10,084 --
----------- ----------
Other comprehensive loss.................................. (144,027) -- -- (144,027) --
-----------
Comprehensive income...................................... 270,549 -- -- -- --
Capital contribution from parent.......................... 4,801 -- 4,801 -- --
Other changes............................................. 2,022 -- -- -- 2,022
Cash dividends to parent.................................. (165,000) -- -- -- (165,000)
---------------------------------------------------------------
Balance, December 31, 1996................................ 2,444,080 3,000 283,615 86,102 2,071,363
Comprehensive income:
Net income................................................ 474,247 -- -- -- 474,247
Unrealized holding gains arising during the year, net of
effect on deferred policy acquisition costs of $(7,714)
and taxes of $(75,215).................................... 139,686 -- -- 139,686 --
Reclassification adjustment for losses included in net
income, net of tax of $(308).............................. 571 -- -- 571 --
----------- ----------
Other comprehensive income................................ 140,257 -- -- 140,257 --
-----------
Comprehensive income...................................... 614,504 -- -- -- --
Capital contribution from parent.......................... 7,232 -- 7,232 -- --
Cash dividends to parent.................................. (200,000) -- -- -- (200,000)
---------------------------------------------------------------
Balance, December 31, 1997................................ 2,865,816 3,000 290,847 226,359 2,345,610
Comprehensive income:
Net income................................................ 540,111 -- -- -- 540,111
Unrealized holding losses arising during the year, net of
effect on deferred policy acquisition costs of $6,333 and
taxes of $32,826.......................................... (60,964) -- -- (60,964) --
Reclassification adjustment for losses included in net
income, net of tax of $(2,254)............................ 4,189 -- -- 4,189 --
----------- ----------
Other comprehensive loss.................................. (56,775) -- -- (56,775) --
-----------
Comprehensive income...................................... 483,336 -- -- -- --
Other changes............................................. (2,520) -- (2,520) -- --
Cash dividends to parent.................................. (240,000) -- -- -- (240,000)
---------------------------------------------------------------
Balance, December 31, 1998................................ $3,106,632 $3,000 $288,327 $ 169,584 $2,645,721
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
1998 1997 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 540,111 $ 474,247 $ 414,576
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Policy loan issuance, excluding universal life-type insurance.... (53,883) (54,665) (49,314)
Policy loan repayment, excluding universal life-type insurance... 57,902 46,015 41,179
Change in amounts recoverable from reinsurers.................... (56,544) (47,994) (43,335)
Change in other accounts receivable.............................. (10,068) 6,194 (4,981)
Change in accrued investment income.............................. (9,184) (14,077) 4,695
Change in deferred policy acquisition costs, net................. (10,443) (156,486) (294,755)
Change in liabilities for future policy benefits for traditional
life, disability income and long-term care insurance............. 138,826 112,915 97,479
Change in policy claims and other policyholders' funds........... 1,964 (15,289) 27,311
Change in deferred income tax provision (benefit)................ (19,122) 19,982 (65,609)
Change in other liabilities...................................... 64,902 13,305 46,724
Amortization of premium (accretion of discount), net............. 9,170 (5,649) (23,032)
Net realized (gain) loss on investments.......................... (6,902) (860) 159
Policyholder and contractholder charges, non-cash................ (172,396) (160,885) (154,286)
Other, net....................................................... 10,786 7,161 (10,816)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities.............. $ 485,119 $ 223,914 $ (14,005)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities held to maturity:
Purchases........................................................ $ (1,020) $ (1,996) $ (43,751)
Maturities, sinking fund payments and calls...................... 1,162,731 686,503 759,248
Sales............................................................ 236,963 236,761 279,506
Fixed maturities available for sale:
Purchases........................................................ (4,100,238) (3,160,133) (2,299,198)
Maturities, sinking fund payments and calls...................... 2,967,311 1,206,213 1,270,240
Sales............................................................ 278,955 457,585 238,905
Other investments, excluding policy loans:
Purchases........................................................ (555,647) (524,521) (904,536)
Sales............................................................ 579,038 335,765 236,912
Change in amounts due from brokers............................... 8,073 2,647 (11,047)
Change in amounts due to brokers................................. (186,052) 119,471 140,369
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities.............. 390,114 (641,705) (333,352)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activity related to universal life-type insurance and
investment contracts:
Considerations received.......................................... 1,873,624 2,785,758 3,567,586
Surrenders and death benefits.................................... (3,792,612) (3,736,242) (4,250,294)
Interest credited to account balances............................ 1,317,124 1,386,448 1,370,468
Universal life-type insurance policy loans:
Issuance......................................................... (97,602) (84,835) (86,501)
Repayment........................................................ 67,000 54,513 58,753
Capital transaction with parent.................................. -- 7,232 4,801
Dividends paid................................................... (240,000) (200,000) (165,000)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities........................ (872,466) 212,874 499,813
- ------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents............. 2,767 (204,917) 152,456
Cash and cash equivalents at beginning of year................... 19,686 224,603 72,147
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year......................... $ 22,453 $ 19,686 $ 224,603
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS)
- -----------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a wholly
owned subsidiary of American Express Financial Corporation (AEFC), which is a
wholly owned subsidiary of American Express Company. The Company serves
residents of all states except New York. IDS Life Insurance Company of New York
is a wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company, American Partners Life Insurance
Company and American Express Corporation.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single premium
and flexible premium deferred annuities on both a fixed and variable dollar
basis. Immediate annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single premium life and
term products (including waiver of premium and accidental death benefits). The
Company also markets disability income and long-term care insurance.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which vary in certain
respects from reporting practices prescribed or permitted by state insurance
regulatory authorities (see Note 4).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized gains and
losses on securities classified as available for sale are reported as a separate
component of other comprehensive income, net of deferred policy acquisition
costs and deferred taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of a loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for mortgage
loan losses. The reserve for mortgage loan losses is maintained at a level that
management believes is adequate to absorb estimated losses in the portfolio. The
level of the reserve account is determined based on several factors, including
historical
F-5
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
experience, expected future principal and interest payments, estimated
collateral values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the reserve for
mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
The cost of interest rate caps and floors is amortized to investment income over
the life of the contracts and payments received as a result of these agreements
are recorded as investment income when realized. The amortized cost of interest
rate caps and floors is included in other investments. Amounts paid or received
under interest rate swap agreements are recognized as an adjustment to
investment income.
The Company purchases and writes index options to hedge the fee income earned on
the management of equity securities in separate accounts and the underlying
mutual funds. These index options are carried at market value and are included
in other investments or other liabilities, as appropriate. Gains or losses on
index options that qualify as hedges are deferred and recognized in management
and other fees in the same period as the hedged fee income. Gains or losses on
index options that do not qualify as hedges are marked to market through the
income statement.
The Company also uses index options to manage the risks related to a certain
annuity product that pays interest based upon the relative change in a major
stock market index between the beginning and end of the product's term.
Purchased options used in conjunction with this product are reported in other
investments and written options are included in other liabilities. The
amortization of the cost of purchased options, the proceeds of written options
and the changes in intrinsic value of the contracts are included in net
investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost, which approximates fair value.
Supplementary information to the consolidated statements of cash flows for the
years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------
CASH PAID DURING THE YEAR FOR:
Income taxes....................... $215,003 $174,472 $317,283
Interest on borrowings............. 14,529 8,213 4,119
- -----------------------------------------------------------------
</TABLE>
RECOGNITION OF PROFITS ON ANNUITY CONTRACTS AND INSURANCE POLICIES
Profits on fixed deferred annuities are recognized by the Company over the lives
of the contracts, using primarily the interest method. Profits represent the
excess of investment income earned from investment of contract considerations
over interest credited to contract owners and other expenses.
F-6
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The retrospective deposit method is used in accounting for universal life-type
insurance. Under this method, profits are recognized over the lives of the
policies in proportion to the estimated gross profits expected to be realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and expenses
are associated with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees from underlying proprietary mutual funds and mortality and
expense risk fees received from the variable annuity and variable life insurance
separate accounts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities and installment annuities are amortized using
primarily the interest method. The costs for universal life-type insurance and
certain installment annuities are amortized as a percentage of the estimated
gross profits expected to be realized on the policies. For traditional life,
disability income and long-term care insurance policies, the costs are amortized
over an appropriate period in proportion to premium revenue.
LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal life-type insurance and deferred annuities are
accumulation values.
Liabilities for fixed annuities in a benefit status are based on established
industry mortality tables and interest rates ranging from 5% to 9.5%, depending
on year of issue.
Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.
Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 5 to 10
years.
Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 6% to 8%.
REINSURANCE
The maximum amount of life insurance risk retained by the Company on any one
life is $750 of life benefit plus $50 of accidental death benefits. The maximum
amount of life insurance risk retained on any joint-life
F-7
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
combination is $1,500. The excesses are reinsured with other life insurance
companies, primarily on a yearly renewable term basis. Long-term care policies
are primarily reinsured on a coinsurance basis. Beginning in 1998, the Company
retains all disability income and waiver of premium risk.
FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1998 and 1997 are $26,291 payable
to and $12,061, receivable from, respectively, AEFC for federal income taxes.
SEPARATE ACCOUNT BUSINESS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance contract
owners. The Company receives investment management fees from the proprietary
mutual funds used as investment options for variable annuities and variable life
insurance. The Company receives mortality and expense risk fees from the
separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
ACCOUNTING CHANGES
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
aggregate change in stockholder's equity excluding changes in ownership
interests. For the Company, it is net income and the unrealized gains or losses
on available-for-sale securities, net of the effect on deferred policy
acquisition costs, taxes and reclassification adjustment.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use." The SOP, which is effective
January 1, 1999, requires the capitalization of certain costs incurred after the
date of adoption to develop or obtain software for internal use. Software
utilized by the Company is owned by AEFC and will be capitalized by AEFC. As a
result, the new rule will not have a material impact on the Company's results of
operations or financial condition.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments," providing guidance for the
timing of recognition of liabilities related to guaranty fund assessments. The
Company will adopt the SOP on January 1, 1999. The Company has historically
carried a balance
F-8
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in other liabilities on the balance sheet for potential guaranty fund assessment
exposure. Adoption of the SOP will not have a material impact on the Company's
results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2000. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
Earlier application of all of the provisions of this Statement is encouraged,
but it is permitted only as of the beginning of any fiscal quarter that begins
after issuance of the Statement. This Statement cannot be applied retroactively.
The ultimate financial impact of the new rule will be measured based on the
derivatives in place at adoption and cannot be estimated at this time.
RECLASSIFICATION
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
- --------------------------------------------------------------------------------
2. INVESTMENTS
Fair values of investments in fixed maturities represent quoted market prices
and estimated values when quoted prices are not available. Estimated values are
determined by established procedures involving, among other things, review of
market indices, price levels of current offerings of comparable issues, price
estimates and market data from independent brokers and financial files.
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1998 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........... $ 39,888 $ 4,460 $ -- $ 44,348
State and municipal obligations.............. 9,683 491 -- 10,173
Corporate bonds and obligations.............. 6,305,476 447,752 27,087 6,726,141
Mortgage-backed securities................... 1,609,067 30,458 152 1,639,373
- ----------------------------------------------------------------------------------------------------
$7,964,114 $483,161 $ 27,239 $ 8,420,035
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
U.S. Government agency obligations........... $ 52,043 $ 3,324 $ -- $ 55,367
State and municipal obligations.............. 11,060 1,231 -- 12,291
Corporate bonds and obligations.............. 7,332,344 271,174 155,181 7,448,337
Mortgage-backed securities................... 5,949,502 151,511 3,869 6,097,144
- ----------------------------------------------------------------------------------------------------
Total fixed maturities....................... 13,344,949 427,240 159,050 13,613,139
Equity securities............................ 3,000 158 -- 3,158
- ----------------------------------------------------------------------------------------------------
$13,347,949 $427,398 $159,050 $ 13,616,297
- ----------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
2. INVESTMENTS (CONTINUED)
The amortized cost, gross unrealized gains and losses and fair values of
investmentsin fixed maturities and equity securities at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
HELD TO MATURITY COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
U.S. Government agency obligations........... $ 41,932 $ 2,949 $ -- $ 44,881
State and municipal obligations.............. 9,684 568 -- 10,252
Corporate bonds and obligations.............. 7,280,646 415,700 9,322 7,687,024
Mortgage-backed securities................... 1,983,188 25,976 7,911 2,001,253
- -----------------------------------------------------------------------------------------------------
$9,315,450 $445,193 $17,233 $ 9,743,410
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
U.S. Government agency obligations........... $ 65,291 $ 4,154 $ -- $ 69,445
State and municipal obligations.............. 11,045 1,348 -- 12,393
Corporate bonds and obligations.............. 5,308,129 232,761 30,198 5,510,692
Mortgage-backed securities................... 7,130,565 160,478 6,879 7,284,164
- -----------------------------------------------------------------------------------------------------
Total fixed maturities....................... 12,515,030 398,741 37,077 12,876,694
Equity securities............................ 3,000 361 -- 3,361
- -----------------------------------------------------------------------------------------------------
$12,518,030 $399,102 $37,077 $ 12,880,055
- -----------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of investments in fixed maturities at December
31, 1998 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.
<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
<S> <C> <C>
- ------------------------------------------------------------------
Due in one year or less................. $ 354,296 $ 359,020
Due from one to five years.............. 2,111,369 2,249,847
Due from five to ten years.............. 3,012,227 3,189,789
Due in more than ten years.............. 877,155 982,006
Mortgage-backed securities.............. 1,609,067 1,639,373
- ------------------------------------------------------------------
$7,964,114 $ 8,420,035
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
<S> <C> <C>
- ------------------------------------------------------------------
Due in one year or less................. $ 102,463 $ 104,475
Due from one to five years.............. 682,336 725,859
Due from five to ten years.............. 3,904,326 4,044,378
Due in more than ten years.............. 2,718,659 2,654,382
Mortgage-backed securities.............. 5,937,165 6,084,045
- ------------------------------------------------------------------
$13,344,949 $13,613,139
- ------------------------------------------------------------------
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, fixed maturities
classified as held to maturity were sold with amortized cost of $230,036,
$229,848 and $277,527, respectively. Net gains and losses on these sales were
not significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' credit worthiness.
Fixed maturities available for sale were sold during 1998 with proceeds of
$278,955 and gross realized gains and losses of $15,658 and $22,102,
respectively. Fixed maturities
F-10
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
2. INVESTMENTS (CONTINUED)
available for sale were sold during 1997 with proceeds of $457,585 and gross
realized gains and losses of $6,639 and $7,518, respectively. Fixed maturities
available for sale were sold during 1996 with proceeds of $238,905 and gross
realized gains and losses of $571 and $16,084, respectively.
At December 31, 1998, bonds carried at $14,302 were on deposit with various
states as required by law.
At December 31, 1998, investments in fixed maturities comprised 83 percent of
the Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $3.6
billion which are rated by AEFC's internal analysts using criteria similar to
Moody's and S&P. A summary of investments in fixed maturities, at amortized
cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1998 1997
<S> <C> <C>
- ------------------------------------------------------------------
Aaa/AAA................................. $ 7,629,628 $ 9,195,619
Aaa/AA.................................. 2,277 --
Aa/AA................................... 308,053 232,451
Aa/A.................................... 301,325 246,792
A/A..................................... 2,525,283 2,787,936
A/BBB................................... 1,148,736 1,200,345
Baa/BBB................................. 6,237,014 5,226,616
Baa/BB.................................. 492,696 475,084
Below investment grade.................. 2,664,051 2,465,637
- ------------------------------------------------------------------
$21,309,063 $21,830,480
- ------------------------------------------------------------------
</TABLE>
At December 31, 1998, 93 percent of the securities rated Aaa/AAA are GNMA, FNMA
and FHLMC mortgage-backed securities. No holdings of any other issuer are
greater than one percent of the Company's total investments in fixed maturities.
At December 31, 1998, approximately 13 percent of the Company's invested assets
were mortgage loans on real estate. Summaries of mortgage loans by region of the
United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------------
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
REGION SHEET TO PURCHASE SHEET TO PURCHASE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
East North Central............ $ 750,705 $ 16,393 $ 748,372 $ 32,462
West North Central............ 491,006 81,648 456,934 14,340
South Atlantic................ 839,233 21,020 922,172 14,619
Middle Atlantic............... 476,448 6,169 545,601 15,507
New England................... 263,761 2,824 316,250 2,136
Pacific....................... 195,851 16,946 184,917 3,204
West South Central............ 136,841 1,412 125,227 --
East South Central............ 46,029 -- 60,274 --
Mountain...................... 345,379 8,473 297,545 28,717
- --------------------------------------------------------------------------------------
3,545,253 154,885 3,657,292 110,985
Less allowance for losses..... 39,795 -- 38,645 --
- --------------------------------------------------------------------------------------
$3,505,458 $154,885 $3,618,647 $110,985
- --------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
PROPERTY TYPE SHEET TO PURCHASE SHEET TO PURCHASE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Department/retail stores...... $ 1,139,349 $ 59,305 $ 1,189,203 $ 27,314
Apartments.................... 960,808 9,272 1,089,127 16,576
Office buildings.............. 783,576 50,450 716,729 34,546
Industrial buildings.......... 298,549 13,263 295,889 21,200
Hotels/motels................. 109,185 14,122 101,052 --
Medical buildings............. 124,369 -- 99,979 9,748
Nursing/retirement homes...... 46,696 -- 72,359 --
Mixed Use..................... 65,151 -- 71,007 --
Other......................... 17,570 8,473 21,947 1,601
- -----------------------------------------------------------------------------------------
3,545,253 154,885 3,657,292 110,985
Less allowance for losses..... 39,795 -- 38,645 --
- -----------------------------------------------------------------------------------------
$ 3,505,458 $ 154,885 $ 3,618,647 $ 110,985
- -----------------------------------------------------------------------------------------
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives it
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. Commitments to purchase mortgages are
made in the ordinary course of business. The fair value of the mortgage
commitments is $nil.
At December 31, 1998 and 1997, the Company's recorded investment in impaired
loans was $24,941 and $45,714, respectively, with allowances of $6,662 and
$9,812, respectively. During 1998 and 1997, the average recorded investment in
impaired loans was $37,873 and $61,870, respectively.
The Company recognized $1,809, $2,981and $4,889 of interest income related to
impaired loans for the years ended December 31, 1998, 1997 and 1996
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
Balance, January 1................. $38,645 $37,495 $37,340
Provision for investment losses.... 7,582 8,801 10,005
Loan payoffs....................... (800) (3,851) (4,700)
Foreclosures and writeoffs......... (5,632) (3,800) (5,150)
- --------------------------------------------------------------
Balance, December 31............... $39,795 $38,645 $37,495
- --------------------------------------------------------------
</TABLE>
At December 31, 1998, the Company had commitments to purchase investments other
than mortgage loans for $223,011. Commitments to purchase investments are
made in the ordinary course of business. The fair value of these commitments is
$nil.
Net investment income for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Interest on fixed maturities....... $1,676,984 $1,692,481 $1,666,929
Interest on mortgage loans......... 301,253 305,742 283,830
Other investment income............ 43,518 25,089 43,283
Interest on cash equivalents....... 5,486 5,914 5,754
- -----------------------------------------------------------------------
2,027,241 2,029,226 1,999,796
Less investment expenses........... 40,756 40,837 34,434
- -----------------------------------------------------------------------
$1,986,485 $1,988,389 $1,965,362
- -----------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
2. INVESTMENTS (CONTINUED)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
Fixed maturities................... $12,084 $16,115 $ 8,736
Mortgage loans..................... (5,933) (6,424) (8,745)
Other investments.................. 751 (8,831) (150)
- --------------------------------------------------------------
$ 6,902 $ 860 $ (159)
- --------------------------------------------------------------
</TABLE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Fixed maturities available for sale..... $(93,474) $ 223,441 $(231,853)
Equity securities....................... (203) 53 (52)
- ------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
3. INCOME TAXES
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the
Internal Revenue Code provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31 consists of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------
Federal income taxes:
Current............................ $244,946 $176,879 $260,357
Deferred........................... (16,602) 19,982 (65,609)
- -----------------------------------------------------------------
228,344 196,861 194,748
State income taxes-current......... 7,337 9,803 12,390
- -----------------------------------------------------------------
Income tax expense................. $235,681 $206,664 $207,138
- -----------------------------------------------------------------
</TABLE>
Increases (decreases) to the federal tax provision applicable to pretax income
based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
PROVISION RATE PROVISION RATE PROVISION RATE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Federal income taxes based
on the statutory rate....................................... $271,527 35.0% $238,319 35.0% $217,600 35.0%
(Decreases) increases are attributable to:
Tax-excluded interest and dividend income................... (12,289) (1.6) (10,294) (1.5) (9,636) (1.5)
State taxes, net of federal benefit......................... 4,769 .6 6,372 .9 8,053 1.3
Affordable housing credits.................................. (19,688) (2.5) (20,705) (3.0) (5,090) (.8)
Other, net.................................................. (8,638) (1.1) (7,028) (1.0) (3,789) (.7)
- --------------------------------------------------------------------------------------------------------------------------
Federal income taxes........................................ $235,681 30.4% $206,664 30.4% $207,138 33.3%
- --------------------------------------------------------------------------------------------------------------------------
</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 December 31, 1998, the Company had a policyholders' surplus
account balance of $20,114. The policyholders' surplus account is only
F-13
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
3. INCOME TAXES (CONTINUED)
taxable if dividends to the stockholder exceed the stockholder's surplus account
or if the Company is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------
Deferred tax assets:
Policy reserves........................................ $756,769 $748,204
Life insurance guaranty fund assessment reserve........ 15,289 20,101
Other.................................................. 4,253 9,589
- ---------------------------------------------------------------------------
Total deferred tax assets.............................. 776,311 777,894
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs...................... 698,471 700,032
Unrealized gain on investments......................... 91,315 121,885
Investments, other..................................... 3,455 17,559
- ---------------------------------------------------------------------------
Total deferred tax liabilities......................... 793,241 839,476
- ---------------------------------------------------------------------------
Net deferred tax liabilities........................... $ 16,930 $ 61,582
- ---------------------------------------------------------------------------
</TABLE>
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 $1,598,203 as of December 31, 1998 and $1,468,677
as of December 31, 1997 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in 1999 in
excess of approximately $353,933 would require approval of the Department of
Commerce of the State of Minnesota.
Statutory net income for the years ended December 31 and capital and surplus as
of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Statutory net income............... $ 429,903 $ 379,615 $ 365,585
Statutory capital and surplus...... 1,883,405 1,765,290 1,565,082
- -----------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- -----------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
The Company loans funds to AEFC under a collateral loan agreement. The balance
of the loan was $nil at December 31, 1998 and 1997. This loan can be increased
to a maximum of $75,000 and pays interest at a rate equal to the preceding
month's effective new money rate for the Company's permanent investments.
Interest income on related party loans totaled $nil, $103 and $780 in 1998, 1997
and 1996, respectively.
The Company participates in the American Express Company Retirement Plan which
covers all permanent employees age 21 and over who have met certain employment
requirements. Employer contributions to the plan are based on participants' age,
years of service and total compensation for the year. Funding of retirement
costs for this plan complies with the applicable minimum funding requirements
specified by ERISA. The Company's share of the total net periodic pension cost
was $211, $201 and $174 in 1998, 1997 and 1996, respectively.
The Company also participates in defined contribution pension plans of American
Express Company which cover all employees who have met certain employment
requirements. Company contributions to the plans are a percent of either each
employee's eligible compensation or basic contributions. Costs of these plans
charged to operations in 1998, 1997 and 1996 were $1,503, $1,245 and $990,
respectively.
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees are considered
to have been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. The Company's share of postretirement benefits in
1998, 1997 and 1996 was $1,352, $1,330 and $1,449, respectively.
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $411,337, $414,155 and $397,362 for 1998,
1997 and 1996, respectively. Certain of these costs are included in deferred
policy acquisition costs.
- --------------------------------------------------------------------------------
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, 1997 and 1996, traditional life insurance and universal
life-type insurance in force aggregated $81,074,928, $74,730,720 and
$67,274,354, respectively, of which $4,912,313, $4,351,904 and $3,875,921 were
reinsured at the respective year ends. The Company also reinsures a portion of
the risks assumed under disability income and long-term care policies. Under all
reinsurance agreements, premiums ceded to reinsurers amounted to $66,378,
$60,495 and $48,250 and reinsurance recovered from reinsurers amounted to
$20,982, $19,042, and $15,612 for the years ended December 31, 1998, 1997 and
1996, respectively. Reinsurance contracts do not relieve the Company from its
primary obligation to policyholders.
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company, its parent and its subsidiaries conduct
business involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents, and other matters. The Company has been named as a
defendant in three of these types of actions.
The plaintiffs purport to represent a class consisting of all persons who
purchased policies or contracts from the Company and its subsidiaries. The
complaints put at issue various alleged sales practices and misrepresentations,
alleged breaches of fiduciary duties and alleged violations of consumer fraud
statutes. The Company and its subsidiaries believe they have meritorious
defenses to the claims raised in these lawsuits.
The outcome of any litigation cannot be predicted with certainty. In the opinion
of
F-15
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- -----------------------------------------------------------------
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
management, however, the ultimate resolution of these lawsuits, taken in the
aggregate, should not have a material adverse effect on the Company's
consolidated financial position.
The IRS routinely examines the Company's federal income tax returns, and is
currently auditing the Company's returns for the 1990 through 1992 tax years.
Management does not believe there will be a material adverse effect on the
Company's consolidated financial position as a result of this audit.
- --------------------------------------------------------------------------------
7. LINES OF CREDIT
The Company has available lines of credit with its parent aggregating $100,000.
The interest rate for any borrowings is established by reference to various
indices plus 20 to 45 basis points, depending on the term. Borrowings
outstanding under this agreement were $nil at December 31, 1998 and 1997.
- --------------------------------------------------------------------------------
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into transactions involving derivative financial instruments
to manage its exposure to interest rate risk and equity market risk, including
hedging specific transactions. The Company does not hold derivative instruments
for trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate or equity market index.
The Company is not impacted by market risk related to derivatives held for
non-trading purposes beyond that inherent in cash market transactions.
Derivatives held for purposes other than trading are largely used to manage risk
and, therefore, the cash flow and income effects of the derivatives are inverse
to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty, and requiring collateral, where
appropriate. A vast majority of the Company's counterparties are rated A or
better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors and index options is
measured by the replacement cost of the contracts. The replacement cost
represents the fair value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance sheet.
Notional amounts far exceed the related credit risk.
F-16
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- -----------------------------------------------------------------
8. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 NOTIONAL CARRYING FAIR TOTAL CREDIT
ASSETS: AMOUNT AMOUNT VALUE EXPOSURE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Assets:
Interest rate caps............ $3,400,000 $15,985 $ 4,256 $ 4,256
Interest rate floors.......... 1,000,000 1,082 13,971 13,971
Options purchased............. 110,912 24,094 29,453 29,453
Liabilities:
Options purchased/written..... 265,454 (10,526 ) (11,062) --
Off balance sheet:
Interest rate swaps........... 1,667,000 -- (73,477) --
- ----------------------------------------------------------------------------
$30,635 $(36,859) $47,680
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 NOTIONAL CARRYING FAIR TOTAL CREDIT
ASSETS: AMOUNT AMOUNT VALUE EXPOSURE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Assets:
Interest rate caps............ $4,600,000 $24,963 $ 15,665 $15,665
Interest rate floors.......... 1,000,000 1,561 4,551 4,551
Options purchased/written..... 279,737 9,808 10,449 10,449
Liabilities:
Options written............... 7,373 (89) 114 --
Off balance sheet:
Interest rate swaps........... 1,267,000 -- (45,799) --
- ---------------------------------------------------------------------------------
$36,243 $ (15,020) $30,655
- ---------------------------------------------------------------------------------
</TABLE>
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps, floors and swaps expire
on various dates from 1999 to 2003. The put and call options expire on various
dates from 1999 to 2005.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the margin
between interest rates earned on investments and the interest rates credited to
related annuity contract holders.
The Company is also using interest rate swaps to manage interest rate risk
related to the level of fee income earned on the management of fixed income
securities in separate accounts and the underlying mutual funds. The amount of
fee income received is based upon the daily market value of the separate account
and mutual fund assets. As a result, changing interest rate conditions could
impact the Company's fee income significantly. The Company entered into interest
rate swaps to hedge anticipated fee income for 1999 related to separate accounts
and mutual funds which invest in fixed income securities. Interest will be
accrued and reported in accrued investment income and other liabilities, as
appropriate, and management and other fees.
The Company offers a certain annuity product that pays interest based upon the
relative change in a major stock market index between the beginning and end of
the product's term. As a means of hedging its obligation under the provisions of
this product, the Company purchases and writes options on the major stock market
index.
Index options are used to manage the equity market risk related to the fee
income that the Company receives from its separate accounts and the underlying
mutual funds. The amount of the fee income received is based upon the daily
market value of the separate account and mutual fund assets. As a result, the
Company's fee income could be impacted significantly by changing economic
conditions in the equity market. The Company entered into index option
F-17
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- -----------------------------------------------------------------
8. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
collars (combination of puts and calls) to hedge anticipated fee income for 1998
and 1999 related to separate accounts and mutual funds which invest in equity
securities. Testing has demonstrated the impact of these instruments on the
income statement closely correlates with the amount of fee income the Company
realizes. In the event that testing demonstrates that this correlation no longer
exists, or in the event the Company disposes of the index options collars, the
instruments will be marked-to-market through the income statement. At December
31, 1998 deferred losses on purchased put and written call index options were
$2,933 and $7,435, respectively. At December 31, 1997 deferred losses on
purchased put index options were $2,428 and deferred gains on written call index
options were $5,275.
- --------------------------------------------------------------------------------
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company discloses fair value information for most on- and off-balance sheet
financial instruments for which it is practicable to estimate that value. Fair
values of life insurance obligations and all non-financial instruments, such as
deferred acquisition costs are excluded.
Off-balance sheet intangible assets, such as the value of the field force, are
also excluded. Management believes the value of excluded assets and liabilities
is significant. The fair value of the Company, therefore, cannot be estimated by
aggregating the amounts presented.
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
FINANCIAL ASSETS
Investments:
Fixed maturities (Note 2):
Held to maturity.............. $ 7,964,114 $ 8,420,035 $ 9,315,450 $ 9,743,410
Available for sale............ 13,613,139 13,613,139 12,876,694 12,876,694
Mortgage loans on real estate
(Note 2)...................... 3,505,458 3,745,617 3,618,647 3,808,570
Other:
Equity securities (Note 2).... 3,158 3,158 3,361 3,361
Derivative financial
instruments (Note 8).......... 41,161 47,680 36,332 30,665
Other......................... 28,872 28,872 82,347 85,383
Cash and cash equivalents
(Note 1)...................... 22,453 22,453 19,686 19,686
Separate account assets
(Note 1)...................... 27,349,401 27,349,401 23,214,504 23,214,504
FINANCIAL LIABILITIES
Future policy benefits for
fixed annuities............... $19,855,203 $19,144,838 $20,731,052 $19,882,302
Derivative financial
instruments (Note 8).......... 10,526 84,539 89 45,685
Separate account
liabilities................... 25,005,732 24,179,115 21,488,282 20,707,620
- ----------------------------------------------------------------------------------
</TABLE>
At December 31, 1998 and 1997, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,226,985 and $1,185,155, respectively, and policy loans of $90,115
and $93,540, respectively. The fair value of these benefits is based on the
status of the annuities at December 31, 1998 and 1997. The fair value of
deferred annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. The fair value for annuities in non-life
contingent payout status is estimated as the present value of projected benefit
payments at rates appropriate for contracts issued in 1998 and 1997.
At December 31, 1998 and 1997, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less any applicable surrender
charges and less variable insurance contracts carried at $2,343,669 and
$1,726,222, respectively.
F-18
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- -----------------------------------------------------------------
10. YEAR 2000 ISSUE (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
systems used by the Company are maintained by AEFC and are utilized by multiple
subsidiaries and affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with systems of
third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, has been conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps are being
taken to resolve any potential problems including modification to existing
software and the purchase of new software. These measures are scheduled to be
completed and tested on a timely basis. AEFC's target date for substantially
completing corrective measures on business critical systems was December 31,
1998. Substantial testing of these systems was targeted for completion early in
1999. AEFC is currently on track with this schedule and is also on track to
finish the work on non-critical systems by June 30, 1999.
AEFC continues to evaluate the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's operations.
The potential materiality of any such impact is not known at this time.
AEFC's Year 2000 project includes establishing Year 2000 contingency plans for
all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. These plans are being amended to include specific Year 2000
considerations and will continue to be refined throughout 1999 as additional
information related to potential 2000 exposure is gathered.
F-19
<PAGE>
IDS LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION)
- -----------------------------------------------------------------
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, 1998 and 1997, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDS Life Insurance
Company at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
February 4, 1999
F-20
<PAGE>
PART C.
Item 24. Financial Statements and Exhibits
(a) Financial statements included in Part B of this Registration Statement:
IDS Life Insurance Company:
Consolidated Balance Sheets as of Dec. 31, 1998 and 1997.
Consolidated Statements of Income for years ended Dec. 31, 1998, 1997
and 1996.
Consolidated Statements of Stockholder's Equity for years ended
Dec. 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for years ended Dec. 31, 1998,
1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors dated February 4, 1999.
IDS Life Variable Account 10 including:
Statements of Net Assets for year ended Dec. 31, 1998.
Statements of Operations for year ended Dec. 31, 1998.
Statements of Changes in Net Assets for year ended Dec. 31, 1998 and
1997, and for the period from March 5, 1996 (commencement of
operations) to Dec. 31, 1996, except for subaccounts HG, HY, HV,
and HP which are for the period May 1, 1996 (commencement of
operations) to Dec. 31, 1996.
Notes to Financial Statements.
Report of Independent Auditors for dated March 12, 1999.
(b) Exhibits:
1. Resolution of the Board of Directors of IDS Life establishing the IDS
Life Variable Account 10 dated August 23, 1995, filed electronically as
Exhibit 1 to Registrant's Initial Registration Statement No. 33-62407
is incorporated herein by reference.
2. Not applicable.
3. Not applicable.
4.1 Copy of Deferred Annuity Contract for non-qualified contract (form
31030), filed electronically as Exhibit 4.1 to Post-Effective Amendment
No.2 to the Registration Statement No. 33-62407 is incorporated herein
by reference.
4.2 Copy of Deferred Annuity Contract for tax qualified (form 31031),
filed electronically as Exhibit 4.2 to Registrant's Initial
Registration Statement No. 33-62407 is incorporated herein by
reference.
4.3 Copy of Deferred Annuity Contract for IRA (form 31032-IRA), filed
electronically as Exhibit 4.3 to Post-Effective Amendment No.2 to
Registration Statement No. 33-62407 is incorporated herein by
reference.
5.1 Copy of Application for IDS Life Variable Annuity (form 34055), filed
electronically as Exhibit 5.1 to Post-Effective Amendment No.2 to
Registration Statement No. 33-62407 is incorporated herein by
reference.
5.2 Copy of Application for IDS Life Variable Annuity (form 34054), is
filed electronically as Exhibit 5.2 to Post-Effective Amendment No. 3
to Registration Statement No. 33-62407 is incorporated herein by
reference.
6.1 Copy of Certificate of Incorporation of IDS Life dated July 24, 1957,
filed electronically as Exhibit 6.1 to Registrant's Initial
Registration Statement No.33-62407 is incorporated herein by reference.
6.2 Copy of Amended By-Laws of IDS Life filed electronically as Exhibit 6.2
to Registrant's Initial Registration Statement No. 33-62407 is
incorporated herein by reference.
<PAGE>
7. Not applicable.
8.1 Participation Agreement between IDS Life Insurance Company and Putnam
Capital Manager Trust and Putnam Mutual Funds Corp., dated March 1,
1996, filed electronically as Exhibit 8.1 to Post-Effective Amendment
No. 2 to Registration Statement No. 33-62407 is incorporated herein by
reference.
8.2 Copy of Participation Agreement between IDS Life Insurance Company and
Templeton Variable Products Series Fund and Franklin Templeton
Distributors, Inc., dated March 1, 1996, filed electronically as
Exhibit 8.2 to Post-Effective Amendment No. 2 to Registration Statement
No. 33-62407 is incorporated herein by reference.
8.3 Copy of Participation Agreement between IDS Life Insurance Company and
Warburg Pincus Trust and Warburg Pincus Counsellors, Inc. and
Counsellors Securities Inc., dated March 1, 1996, filed electronically
as Exhibit 8.3 to Post-Effective Amendment No. 2 to Registration
Statement No. 33-62407 is incorporated herein by reference.
8.4 Participation Agreement between IDS Life Insurance Company and AIM
Variable Insurance Funds, Inc. and AIM Distributors, Inc., dated
March 4, 1996, filed electronically as Exhibit 8.4 to
Post-Effective Amendment No. 2 to Registration Statement No. 33-62407
is incorporated herein by reference.
8.5 Copy of Participation Agreement between IDS Life Insurance Company and
TCI Portfolios, Inc., dated April 24, 1996, filed electronically as
Exhibit 8.5 to Post-Effective Amendment No.2 to Registration Statement
No. 33-62407 and is incorporated herein by reference.
9. Opinion of counsel and consent to its use as the legality of the
securities being registered, dated April 23, 1999, filed electronically
herewith.
10. Consent of Independent Auditors, filed electronically herewith.
11. None.
12. Not applicable.
13. Copy of schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 21, filed
electronically as Exhibit 13 to Registrant's Initial Registration
Statement No. 33-62407, is incorporated herein by reference.
14(a) Power of Attorney to sign this Registration Statement dated March 12,
1997, filed electronically as Exhibit 15 to Post-Effective Amendment
No.2 to Registration Statement No. 33-62407 is incorporated herein by
reference.
14(b) Power of Attorney to sign this Registration Statement dated April 9,
1998, filed electronically as Exhibit 15(b) to Post-Effective Amendment
No. 3 to Registration Statement No. 33-62407 is incorporated by
reference.
<PAGE>
<TABLE>
<CAPTION>
Item 25. Directors and Officers of the Depositor (IDS Life Insurance Company)
<S> <C> <C>
Name Principal Business Address Positions and Offices with Depositor
Timothy V. Bechtold IDS Tower 10 Executive Vice President, Risk
Minneapolis, MN 55440 Management Products
David J. Berry IDS Tower 10 Vice President
Minneapolis, MN 55440
Mark W. Carter IDS Tower 10 Executive Vice President, Marketing
Minneapolis, MN 55440
Robert M. Elconin IDS Tower 10 Vice President
Minneapolis, MN 55440
Lorraine R. Hart IDS Tower 10 Vice President, Investments
Minneapolis, MN 55440
Jeffrey S. Horton IDS Tower 10 Vice President, Treasurer and
Minneapolis, MN 55440 Assistant Secretary
David R. Hubers IDS Tower 10 Director
Minneapolis, MN 55440
James M. Jensen IDS Tower 10 Vice President, Insurance Product
Minneapolis, MN 55440 Development
Richard W. Kling IDS Tower 10 Director and President
Minneapolis, MN 55440
Paul F. Kolkman IDS Tower 10 Director and Executive Vice President
Minneapolis, MN 55440
Paula R. Meyer IDS Tower 10 Director and Executive Vice
Minneapolis, MN 55440 President, Assured Assets
James A. Mitchell IDS Tower 10 Director, Chairman of the Board and
Minneapolis, MN 55440 Chief Executive Officer
Pamela J. Moret IDS Tower 10 Executive Vice President, Variable
Minneapolis, MN 55440 Assets
Barry J. Murphy IDS Tower 10 Director and Executive Vice
Minneapolis, MN 55440 President, Client Service
James R. Palmer IDS Tower 10 Vice President, Taxes
Minneapolis, MN 55440
Stuart A. Sedlacek IDS Tower 10 Director and Executive Vice President
Minneapolis, MN 55440
F. Dale Simmons IDS Tower 10 Vice President, Real Estate Loan
Minneapolis, MN 55440 Management
William A. Stoltzmann IDS Tower 10 Vice President, General Counsel and
Minneapolis, MN 55440 Secretary
<PAGE>
Philip C. Wentzel IDS Tower 10 Vice President and Controller
Minneapolis, MN 55440
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
IDS Life Insurance Company is a wholly-owned subsidiary of
American Express Financial Corporation. American Express
Financial Corporation is a wholly-owned subsidiary of American
Express Company (American Express).
The following list includes the names of major subsidiaries of
American Express.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary
Incorporation
<S> <C>
I. Travel Related Services
American Express Travel Related Services Company, Inc. New York
II. International Banking Services
American Express Bank Ltd.
Connecticut
III. Companies engaged in Financial Services
Advisory Capital Partners LLC Delaware
Advisory Capital Strategies Group Inc. Minnesota
American Centurion Life Assurance Company New York
American Enterprise Investment Services Inc. Minnesota
American Enterprise Life Insurance Company Indiana
American Express Asset Management Group Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management International (Japan) Ltd. Japan
American Express Asset Management Ltd. England
American Express Client Service Corporation Minnesota
American Express Corporation Delaware
American Express Financial Advisors Inc. Delaware
American Express Financial Advisors Japan Inc. Delaware
American Express Financial Corporation Delaware
American Express Insurance Agency of Arizona Inc. Arizona
American Express Insurance Agency of Idaho Inc. Idaho
American Express Insurance Agency of Nevada Inc. Nevada
American Express Insurance Agency of Oregon Inc. Oregon
American Express Minnesota Foundation Minnesota
American Express Property Casualty Insurance Agency of Kentucky Inc. Kentucky
American Express Property Casualty Insurance Agency of Maryland Inc. Maryland
American Express Property Casualty Insurance Agency of Mississippi Inc.
Mississippi
American Express Property Casualty Insurance Agency of Pennsylvania Inc.
Pennsylvania
American Express Trust Company Minnesota
American Partners Life Insurance Company Arizona
IDS Cable Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Capital Holdings Inc. Minnesota
IDS Certificate Company Delaware
IDS Futures Brokerage Group Minnesota
IDS Futures Corporation Minnesota
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc.
Massachusetts
IDS Insurance Agency of Mississippi Ltd.
Mississippi
<PAGE>
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North
Carolina
IDS Insurance Agency of Ohio Inc. Ohio
IDS Insurance Agency of Texas Inc. Texas
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
IDS Life Insurance Company Minnesota
IDS Life Insurance Company of New York New York
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Plan Services of California, Inc. Minnesota
IDS Property Casualty Insurance Company Wisconsin
IDS Real Estate Services, Inc. Delaware
IDS Realty Corporation Minnesota
IDS Sales Support Inc. Minnesota
Investors Syndicate Development Corp. Nevada
Public Employee Payment Company Minnesota
</TABLE>
Item 27. Number of Contractowners
On March 31, 1999, there were 96,890 contract holders of
qualified contracts. There were 85,601 owners of non-qualified
contracts.
Item 28. Indemnification
The By-Laws of the depositor provide that it shall indemnify
any person who was or is a party or is threatened to be made a
party, by reason of the fact that he is or was a director,
officer, employee or agent of this Corporation, or is or was
serving at the direction of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to any
threatened, pending or completed action, suit or proceeding,
wherever brought, to the fullest extent permitted by the laws
of the State of Minnesota, as now existing or hereafter
amended, provided that this Article shall not indemnify or
protect any such director, officer, employee or agent against
any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the
performance of his duties or by reason of his reckless
disregard of his obligations and duties.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to director, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
Item 29. Principal Underwriters
(a) IDS Life is the principal underwriter for IDS Life Accounts F, IZ, JZ,
G, H, N, KZ, LZ and MZ, IDS Life Variable Annuity Fund A, IDS Life
Variable Annuity Fund B, IDS Life Account RE, IDS Life Account MGA, IDS
Life Account SBS, IDS Life Variable Account 10, IDS Life Variable Life
Separate Account and IDS Life Variable Account for Smith Barney.
(b) This table is the same as our response to Item 25 of this Registration
Statement.
<TABLE>
<CAPTION>
(c)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
<S> <C> <C> <C> <C>
IDS Life Insurance $17,634,855 $17,936,810 None None
Company
</TABLE>
Item 30. Location of Accounts and Records
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than 16 months old for so long as payments under the variable
annuity contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information,
or (2) a post card or similar written communication affixed to or
included in the prospectus that the applicant can remove to send for a
Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
(d) Registrant represents that it is relying upon the no-action assurance
given to the American Council of Life Insurance (pub. avail. Nov. 28,
1988). Further, Registrant represents that it has complied with the
provisions of paragraphs (1)-(4) of that no-action letter.
(e) The sponsoring insurance company represents that the fees and charges
deducted under the contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, IDS Life Insurance Company, on behalf of the Registrant, certifies that it
meets requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf in the City of
Minneapolis, and State of Minnesota, on the 28th day of April, 1999.
IDS LIFE VARIABLE ANNUITY ACCOUNT 10
(Registrant)
By IDS Life Insurance Company
(Sponsor)
By /s/ Richard W. Kling*
Richard W. Kling
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 28th day of
April, 1999.
Signature Title
/s/ Jeffrey S. Horton** Vice President, Treasurer and
Jeffrey S. Horton Assistant Secretary
/s/ David R. Hubers* Director
David R. Hubers
/s/ Richard W. Kling* Director and President
Richard W. Kling
/s/ Paul F. Kolkman* Director and Executive Vice
Paul F. Kolkman President
/s/ James A. Mitchell* Director, Chairman of the
James A. Mitchell Board and Chief Executive Officer
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President
/s/ Philip C. Wentzel** Vice President and Controller
Philip C. Wentzel
<PAGE>
*Signed pursuant to Power of Attorney dated March 12, 1997, filed electronically
as Exhibit 15 to Post-Effective Amendment No. 2 to Registration Statement No.
33-62407 is incorporated herein by reference.
**Signed pursuant to Power of Attorney dated April 9, 1998, filed electronically
as Exhibit 15(b) to Post-Effective Amendment No. 3 to the Registration Statement
No. 33-62407 is incorporated herein by reference.
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 4
This Registration Statement is comprised of the following papers and documents:
The Cover Page.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other Information.
The signatures.
Exhibits.
Exhibit Index
9. Opinion of counsel and consent to its use as the legality of the securities
being registered.
10. Consent of Independent Auditors
April 23, 1999
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Re: IDS Life Variable Account 10
Post-Effective Amendment No. 4
File No. 33-62407/811-07355
Ladies and Gentlemen:
I am familiar with the establishment of the IDS Life of Variable Account 10
("Account"), which is a separate account of IDS Life Insurance Company
("Company") established by the Company's Board of Directors according to
applicable insurance law. I also am familiar with the above-referenced
Registration Statement filed by the Company on behalf of the Account with the
Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do
business in each jurisdiction where it transacts business. The Company
has all corporate powers required to carry on its business and to issue
the contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in
accordance with the prospectus contained in the Registration Statement
and in compliance with applicable law, will be legally issued and
represent binding obligations of the Company in accordance with their
terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Counsel
MEM/CLGE/arw
Consent of Independent Auditors
We consent to the use of our report dated February 4, 1999 on the financial
statements IDS Life Insurance Company and our report dated March 12, 1999 on the
financial statements of IDS Life Variable Account 10 in Post-Effective Amendment
No. 4 to the Registration Statement (Form N-4, No. 33-62407) and related
Prospectus for the registration of the Flexible Portfolio Annuity Contracts to
be offered by IDS Life Insurance Company.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 27, 1999
