<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 (File No. 333-79311) [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 (File No. 811-07355) [X]
---------
(Check appropriate box or boxes)
IDS LIFE VARIABLE ACCOUNT 10
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(Exact Name of Registrant)
IDS Life Insurance Company
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(Name of Depositor)
IDS Tower 10, Minneapolis, MN 55440-0010
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 671-3678
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Mary Ellyn Minenko, IDS Tower 10, Minneapolis, MN 55440-0010
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective August 10, 1999 or as
soon as possible.
<PAGE>
Prospectus
[_____], 1999
American Express Retirement Advisor Variable AnnuitySM
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 prospectuses for:
<PAGE>
o American Express Variable Portfolio Funds
o AIM Variable Insurance Funds, Inc.
o American Century Variable Portfolios, Inc.
o Fidelity Variable Insurance Products Funds - Service Class
o Franklin Templeton Variable Insurance Products Trust - Class 2
o Goldman Sachs Variable Insurance Trust (VIT)
o Lazard Retirement Series, Inc.
o Putnam Variable Trust
o Royce Capital Fund
o Third Avenue Variable Series Trust
o Wanger Advisors Trust
o Warburg Pincus Trust
<PAGE>
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 (SEC) has not approved or disapproved
these securities or passed upon the adequacy or 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 SEC and is available without charge by contacting IDS Life at the telephone
number above or by completing and sending the order form on the last page of
this prospectus. The table of contents of the SAI is on the last page of this
prospectus.
<PAGE>
Table of Contents
Key Terms
The Contract in Brief
Expense Summary
Condensed Financial Information (Unaudited)
Financial Statements
Performance Information
The Variable Account and the Funds
The Fixed Account
Buying Your Contract
Charges
Valuing Your Investment
Making the Most of Your Contract
Surrenders
TSA -- Special Surrender Provisions
Changing Ownership
Benefits in Case of Death
The Annuity Payout Period
Taxes
Voting Rights
Substitution of Investments
About the Service Providers
Year 2000
Table of Contents of the Statement of Additional Information
<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:
o Individual Retirement Annuities (IRAs)
o Simplified Employee Pension (SEP) plans
o Section 401(k) plans
o Custodial and trusteed pension and profit sharing plans
o Tax-Sheltered Annuities (TSAs)
All other contracts are considered nonqualified annuities.
Settlement 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.
<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
settlement date).
Free look period: You may return your contract to our office
within 10 days after it is delivered to
you and receive a full refund of the
contract value, less any purchase payment
credits up to the maximum surrender charge.
(See "Valuing Your Investment - Purchase
payment credits.") We will not deduct any
other charges. 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:
o 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
settlement date will equal or exceed the
total purchase payments you allocate to
the subaccounts. (p. __)
o the fixed account, which earns interes
at a rate that we adjust periodically.
(p. __)
Buying your contract: We 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. After your initial purchase
payment, you have the option of making
additional purchase payments in the future.
o Minimum initial purchase payment --
$2,000 ($1,000 for qualified annuities)
unless you pay in installments by means
of a bank authorization or under a group
billing arrangement such as a payroll
deduction.
o Minimum additional purchase payment --
$50.
o Minimum installment purchase payment --
$50 monthly; $23.08 biweekly (scheduled
payment plan billing).
o Maximum first-year purchase payments --
$100,000 to $1,000,000 depending on your
age.
o Maximum purchase payment for each
subsequent year -- $50,000 to $100,000
depending upon your age. (p. __)
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.
__)
Surrenders: You may surrender all or part of your contract value at any
time before the settlement 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. __)
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. --)
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. --)
Annuity Payouts: You can apply your contract value to an annuity payout plan
that begins on the settlement 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. __)
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. (p. __)
Charges:
o $30 annual contract administrative charge;
o for nonqualified annuities a 0.95% mortality and expense risk fee;
o for qualified annuities a 0.75% mortality and expense risk fee;
o surrender charge;
o 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
o the operating expenses of the funds.
<PAGE>
Expense Summary
The purpose of the following information 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." Please see the funds'
prospectuses for more information on the operating expenses for each fund.
Contract owner expenses:
Surrender charge: contingent deferred sales charge as a percentage of
purchase payment surrendered. The owner selects either a seven-year or
ten-year surrender charge schedule at the time of application.
<TABLE>
<CAPTION>
Seven-year schedule Ten-year schedule
Years from purchase payment Years from purchase
<S> <C> <C> <C> <C>
receipt Surrender charge percentage payment receipt Surrender charge percentage
1 7% 1 8%
2 7 2 8
3 7 3 8
4 6 4 7
5 5 4 7
6 4 6 6
7 2 7 5
Thereafter 0 8 4
9 3
10 2
Thereafter 0
Annual contract administrative charge $30*
* We will waive this charge when your contract value, or total purchase
payments less any payments surrendered, is $50,000 or more on the current
contract anniversary.
</TABLE>
Annual subaccount expenses (as a percentage of average subaccount value):
Mortality and expense risk fee 0.95% for nonqualified annuities
0.75% for qualified annuities
<PAGE>
<TABLE>
<CAPTION>
Annual operating expenses of the funds (as a percentage of average daily net
assets)
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXPSM Variable Portfolio - Blue Chip Advantage Fund .56% -- .39 .95%1
AXPSM Variable Portfolio - Bond Fund .60% -- .07 .67%2
AXPSM Variable Portfolio - Capital Resource Fund .59% -- .07 .66%2
AXPSM Variable Portfolio - Cash Management Fund .50% -- .06 .56%2
AXPSM Variable Portfolio - Diversified Equity Income .56% -- .39 .95%1
Fund
AXPSM Variable Portfolio - Extra Income Fund .62% -- .09 .71%2
AXPSM Variable Portfolio - Federal Income Fund .61% -- .265 .875%1
AXPSM Variable Portfolio - Global Bond Fund .83% -- .13 .96%2
AXPSM Variable Portfolio - Growth Fund .63% -- .32 .95%1
AXPSM Variable Portfolio - International Fund .83% -- .15 .98%2
AXPSM Variable Portfolio - Managed Fund .59% -- .04 .63%2
AXPSM Variable Portfolio - New Dimensions Fund .61% -- .06 .67%2
AXPSM Variable Portfolio - Small Cap Advantage Fund .79% -- .435 1.225%1
AXPSM Variable Portfolio - Strategy Aggressive Fund .59% -- .09 .68%2
AIM V.I. Capital Appreciation Fund .62% -- .05 .67%3
AIM V.I. Capital Development Fund (after fee waivers --% -- 1.21 1.21%3,4
and expense reimbursements)
American Century VP International Fund 1.48% -- -- 1.48%2
American Century VP Value Fund 1.00% -- -- 1.00%2
Fidelity VIP III Growth & Income Portfolio (Service .49% .10 .11 .70%5
Class) (after expense reimbursements)
Fidelity VIP III Mid Cap Portfolio (Service Class) .59% .10 .41 1.10%2
Fidelity VIP Overseas Portfolio (Service Class) .74% .10 .13 .97%5
(after expense reimbursements)
FT VIP Real Estate Securities Fund - Class 2 0.52% .25 .02 .79%6, 7
FT VIP Templeton International Smaller Companies 1.00% .25 .10 1.35%6, 7
Fund - Class 2
FT VIP Value Securities Fund - Class 2 .75% .25 .08 1.08%6, 8
Goldman Sachs VIT CORESM Small Cap Equity Fund .75% -- .15 .90%9
(after expense reimbursement)
Goldman Sachs VIT CORESM U.S. Equity Fund (after .70% -- .10 .80%9
expense reimbursement)
Goldman Sachs VIT Mid Cap Value Fund (after expense .80% -- .15 .95%10
reimbursement)
Lazard Retirement International Equity Portfolio .75% .25 .25 1.25%11
(after fee waivers and expense reimbursements)
Putnam VT International New Opportunities Fund - 1.18% .15 .68 2.01%12
Class IB Shares (after expense limitation)
Putnam VT Vista Fund - Class IB Shares .65% .15 .12 .92%1
Royce Micro-Cap Portfolio (after fee waivers and 1.25% -- .10 1.35%13
expense reimbursements)
Third Avenue Value Portfolio .90% -- .40 1.30%14
Wanger International Small Cap 1.27% -- .28 1.55%3
Wanger U.S. Small Cap .96% -- .06 1.02%3
Warburg Pincus Trust - Emerging Growth Portfolio .84% -- .41 1.25%15
(after fee waivers and expense reimbursements)
1Based on estimated expenses.
2Annualized operating expenses of funds at Dec. 31, 1998.
3Figures in "Management Fees," "Other Expenses" and "Total" are based on actual
expenses for the fiscal year ended Dec. 31, 1998.
4Had there been no fee waivers or expense reimbursement, expenses would have
been: 0.75%, 0.00%, 5.05% and 5.80%, respectively.
5FMR agreed to reimburse a portion of the class' expenses during the period.
Without this reimbursement, the Management Fees, 12b-1 Fee, Other Expenses and
Total as a percentage of average net assets for the following funds would have
been: Fidelity VIP Growth & Income Portfolio (0.49%, 0.10%, 0.12% and 0.71%) and
Fidelity VIP Overseas Portfolio (0.74%, 0.10%, 0.17% and 1.01%).
6The figure shown under Management Fees, combines both the Management and
Portfolio Administration Fees. The Portfolio Administration Fee is a direct
expense for the Templeton International Smaller Companies Fund and the Value
Securities Fund; the Real Estate Securities Fund pays for similar services
indirectly through the Management Fee.
7Because no Class 2 shares were issued as of Dec. 31, 1998, figures (other than
rule 12b-1 fees) are based on the Portfolio's Class 1 actual expenses for the
fiscal year ended Dec. 31, 1998 plus Class 2's annual Rule 12b-1 fee of 0.25%.
(While the maximum amount payable under each Portfolio's Class 2 Rule 12b-1 plan
is 0.35% per year of the Portfolio's average daily net assets, the Board of
Trustees of Franklin Templeton Variable Insurance Products Trust has set the
current rate at 0.25% per year).
8The Value Securities Fund commenced operations May 1, 1998, therefore,
Management Fees and Rule 12b-1 Fees are annualized and Other Expenses are
estimated for 1999. (While the maximum amount payable under the Portfolio's
Class 2 Rule 12b-1 plan is 0.35% per year of the Portfolio's average daily net
assets, the Board of Trustees of Franklin Templeton Variable Insurance Products
Trust has set the current rate at 0.25% per year.)
9The Goldman Sachs VIT CORE Small Cap Equity and CORE U.S. Equity Funds'
expenses are based on actual expenses for fiscal year ended Dec. 31, 1998. The
Investment Adviser to the Goldman Sachs VIT CORE Small Cap Equity and CORE U.S.
Equity Funds has voluntarily agreed to reduce or limit certain "Other Expenses"
of such funds (excluding management fees, taxes, interest and brokerage fees,
litigation, indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.15% and 0.10% per annum of such funds' average daily net
assets, respectively. The expenses shown include this reimbursement. If not
included, the "Other Expenses" and "Total" for the Goldman Sachs VIT CORE Small
Cap Equity and CORE U.S. Equity Funds would be 3.17% and 3.92% and 2.13% and
2.83%, respectively. The reductions or limits may be discontinued or modified by
the investment adviser in their discretion at any time.
10The Goldman Sachs VIT Mid Cap Value Fund's expenses are estimated due to the
fund being in existence for less than ten months. The Investment Adviser to the
Goldman Sachs VIT Mid Cap Value Fund has voluntarily agreed to reduce or limit
certain "Other Expenses" of such funds (excluding management fees, taxes,
interest and brokerage fees, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.15% per annum of such fund's
average daily net assets, respectively. The expenses shown include this
reimbursement. If not included, the "Other Expenses" and "Total" for the Goldman
Sachs VIT Mid Cap Value Fund would be 0.57% and 1.37%, respectively. The
reductions or limits may be discontinued or modified by the investment adviser
in their discretion at any time.
11The Portfolio's Investment Manager agrees to waive its fees and/or reimburse
the Portfolio through Dec. 31, 1999 to the extent total Portfolio annual
expenses exceed 1.25% of the Portfolio's average daily net assets. Absent fee
waivers and/or reimbursements, the Management Fees, 12b-1 Fees, Other Expenses
and Total as a percentage of average net assets for fiscal year ended Dec. 31,
1998 would have been: (0.75%, 0.25%, 47.67% and 48.67%).
12The Management Fees and Total expenses shown in the table reflect an expense
limitation. In the absence of an expense limitation, Management Fees and Total
expenses would have been 1.20% and 2.03%, respectively.
13Expense ratios are shown after fee waivers and expense reimbursements by the
investment advisor. The expense ratios before the waivers and reimbursements
would have been 1.25%, 1.34% and 2.59%.
14The Fund's expenses are estimated because the fund had not commenced
operations as of Aug. 10, 1999.
15Expense ratios are shown after fee waivers and expense reimbursements by the
investment adviser. The expense ratios before the waivers and reimbursements
would have been: (0.90%, 0.00%, 0.51% and 1.41%).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Examples:*
You would pay the following expenses on a $1,000 investment in a nonqualified
annuity with a seven-year surrender charge schedule and a 0.95% mortality and
expense risk fee assuming a 5% annual return and....
no surrender or selection
a full surrender at the end of an annuity payout plan at the end of
of each time period each time period
<S> <C> <C> <C> <C>
1 year 3 years 1 year 3 years
AXPSM Variable Portfolio - Blue Chip $90.33 $132.80 $20.33 $62.80
Advantage Fund
AXPSM Variable Portfolio - Bond Fund 87.46 124.09 17.46 54.09
AXPSM Variable Portfolio - Capital 87.35 123.78 17.35 53.78
Resource Fund
AXPSM Variable Portfolio - Cash 86.33 120.65 16.33 50.65
Management Fund
AXPSM Variable Portfolio - Diversified 90.33 132.80 20.33 62.80
Equity Income Fund
AXPSM Variable Portfolio - Extra Income 87.87 125.34 17.87 55.34
Fund
AXPSM Variable Portfolio - Federal 89.56 130.48 19.56 60.48
Income Fund
AXPSM Variable Portfolio - Global Bond 90.43 133.11 20.43 63.11
Fund
AXPSM Variable Portfolio - Growth Fund 90.33 132.80 20.33 62.80
AXPSM Variable Portfolio - International 90.63 133.74 20.63 63.74
Fund
AXPM Variable Portfolio - Managed Fund 87.05 122.84 17.05 52.84
AXPM Variable Portfolio - New Dimensions 87.46 124.09 17.46 54.09
Fund
AXPSM Variable Portfolio - Small Cap 93.14 141.31 23.14 71.31
Advantage Fund
AXPSM Variable Portfolio - Strategy 87.56 124.40 17.56 54.40
Aggressive Fund
AIM V.I. Capital Appreciation Fund 87.46 124.09 17.46 54.09
AIM V.I. Capital Development Fund 92.99 140.85 22.99 70.85
American Century VP International Fund 95.76 149.16 25.76 79.16
American Century VP Value Fund 90.84 134.36 20.84 64.36
Fidelity VIP III Growth & Income 87.76 125.03 17.76 55.03
Portfolio (Service Class)
Fidelity VIP III Mid Cap Portfolio 91.86 137.45 21.86 67.45
(Service Class)
Fidelity VIP Overseas Portfolio (Service 90.53 133.43 20.53 63.43
Class)
FT VIP Real Estate Securities Fund - 88.69 127.83 18.69 57.83
Class 2
FT VIP Templeton International Smaller 94.43 145.17 24.43 75.17
Companies Fund - Class 2
FT VIP Value Securities Fund - Class 2 91.66 136.83 21.66 66.83
Goldman Sachs VIT CORESM Small Cap 89.81 131.25 19.81 61.25
Equity Fund
Goldman Sachs VIT CORESM U.S. Equity Fund 88.79 128.14 18.79 58.14
Goldman Sachs VIT Mid Cap Value Fund 90.33 132.80 20.33 62.80
Lazard Retirement International Equity 93.40 142.09 23.40 72.09
Portfolio
Putnam VT International New 101.19 165.34 31.19 95.34
Opportunities Fund - Class IB Shares
Putnam VT Vista Fund - Class IB Shares 90.02 131.87 20.02 61.87
Royce Micro-Cap Portfolio 94.43 145.17 24.43 75.17
Third Avenue Value Portfolio 93.91 143.63 23.91 73.63
Wanger International Small Cap 96.48 151.31 26.48 81.31
Wanger U.S. Small Cap 91.04 134.98 21.04 64.98
Warburg Pincus Trust - Emerging Growth 93.40 142.09 23.40 72.09
Portfolio
</TABLE>
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<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment in a nonqualified
annuity with a ten-year surrender charge schedule and a 0.95% mortality and
expense risk fee assuming a 5% annual return and....
no surrender or selection
a full surrender at the end of an annuity payout plan at the end of
of each time period each time period
<S> <C> <C> <C> <C>
1 year 3 years 1 year 3 years
AXPSM Variable Portfolio - Blue Chip $100.33 $142.80 $20.33 $62.80
Advantage Fund
AXPSM Variable Portfolio - Bond Fund 97.46 134.09 17.46 54.09
AXPSM Variable Portfolio - Capital 97.35 133.78 17.35 53.78
Resource Fund
AXPSM Variable Portfolio - Cash 96.33 130.65 16.33 50.65
Management Fund
AXPSM Variable Portfolio - Diversified 100.33 142.80 20.33 62.80
Equity Income Fund
AXPSM Variable Portfolio - Extra Income 97.87 135.34 17.87 55.34
Fund
AXPSM Variable Portfolio - Federal 99.56 140.48 19.56 60.48
Income Fund
AXPSM Variable Portfolio - Global Bond 100.43 143.11 20.43 63.11
Fund
AXPSM Variable Portfolio - Growth Fund 100.33 142.80 20.33 62.80
AXPSM Variable Portfolio - International 100.63 143.74 20.63 63.74
Fund
AXPSM Variable Portfolio - Managed Fund 97.05 132.84 17.05 52.84
AXPSM Variable Portfolio - New 97.46 134.09 17.46 54.09
Dimensions Fund
AXPSM Variable Portfolio - Small Cap 103.14 151.31 23.14 71.31
Advantage Fund
AXPSM Variable Portfolio - Strategy 97.56 134.40 17.56 54.40
Aggressive Fund
AIM V.I. Capital Appreciation Fund 97.46 134.09 17.46 54.09
AIM V.I. Capital Development Fund 102.99 150.85 22.99 70.85
American Century VP International Fund 105.76 159.16 25.76 79.16
American Century VP Value Fund 100.84 144.36 20.84 64.36
Fidelity VIP III Growth & Income 97.76 135.03 17.76 55.03
Portfolio (Service Class)
Fidelity VIP III Mid Cap Portfolio 101.86 147.45 21.86 67.45
(Service Class)
Fidelity VIP Overseas Portfolio (Service 100.53 143.43 20.53 63.43
Class)
FT VIP Real Estate Securities Fund - 98.69 137.83 18.69 57.83
Class 2
FT VIP Templeton International Smaller 104.43 155.17 24.43 75.17
Companies Fund - Class 2
FT VIP Value Securities Fund - Class 2 101.66 146.83 21.66 66.83
Goldman Sachs VIT CORESM Small Cap 99.81 141.25 19.81 61.25
Equity Fund
Goldman Sachs VIT CORESM U.S. Equity Fund 98.79 138.14 18.79 58.14
Goldman Sachs VIT Mid Cap Value Fund 100.33 142.80 20.33 62.80
Lazard Retirement International Equity 103.40 152.09 23.40 72.09
Portfolio
Putnam VT International New 111.19 175.34 31.19 95.34
Opportunities Fund - Class IB Shares
Putnam VT Vista Fund - Class IB Shares 100.02 141.87 20.02 61.87
Royce Micro-Cap Portfolio 104.43 155.17 24.43 75.17
Third Avenue Value Portfolio 103.91 153.63 23.91 73.63
Wanger International Small Cap 106.48 161.31 26.48 81.31
Wanger U.S. Small Cap 101.04 144.98 21.04 64.98
Warburg Pincus Trust - Emerging Growth 103.40 152.09 23.40 72.09
Portfolio
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment in a qualified
annuity with a seven-year surrender charge schedule and a 0.75% mortality and
expense risk fee assuming a 5% annual return and....
no surrender or selection
a full surrender at the end of an annuity payout plan at the end of
of each time period each time period
<S> <C> <C> <C> <C>
1 year 3 years 1 year 3 years
AXPSM Variable Portfolio - Blue Chip $88.28 $126.58 $18.28 $56.58
Advantage Fund
AXPSM Variable Portfolio - Bond Fund 85.41 117.83 15.41 47.83
AXPSM Variable Portfolio - Capital 85.30 117.52 15.30 47.52
Resource Fund
AXPSM Variable Portfolio - Cash 84.28 114.38 14.28 44.38
Management Fund
AXPSM Variable Portfolio - Diversified 88.28 126.58 18.28 56.58
Equity Income Fund
AXPSM Variable Portfolio - Extra Income 85.82 119.09 15.82 49.09
Fund
AXPSM Variable Portfolio - Federal 87.51 124.25 17.51 54.25
Income Fund
AXPSM Variable Portfolio - Global Bond 88.38 126.90 18.38 56.90
Fund
AXPSM Variable Portfolio - Growth Fund 88.28 126.58 18.28 56.58
AXPSM Variable Portfolio - International 88.58 127.52 18.58 57.52
Fund
AXPSM Variable Portfolio - Managed Fund 85.00 116.58 15.00 46.58
AXPSM Variable Portfolio - New 85.41 117.83 15.41 47.83
Dimensions Fund
AXPSM Variable Portfolio - Small Cap 91.09 135.13 21.09 65.13
Advantage Fund
AXPSM Variable Portfolio - Strategy 85.51 118.15 15.51 48.15
Aggressive Fund
AIM V.I. Capital Appreciation Fund 85.41 117.83 15.41 47.83
AIM V.I. Capital Development Fund 90.94 134.67 20.94 64.67
American Century VP International Fund 93.71 143.01 23.71 73.01
American Century VP Value Fund 88.79 128.14 18.79 58.14
Fidelity VIP III Growth & Income 85.71 118.77 15.71 48.77
Portfolio (Service Class)
Fidelity VIP III Mid Cap Portfolio 89.81 131.25 19.81 61.25
(Service Class)
Fidelity VIP Overseas Portfolio (Service 88.48 127.21 18.48 57.21
Class)
FT VIP Real Estate Securities Fund - 86.64 121.59 16.64 51.59
Class 2
FT VIP Templeton International Smaller 92.38 139.00 22.38 69.00
Companies Fund - Class 2
FT VIP Value Securities Fund - Class 2 89.61 130.63 19.61 60.63
Goldman Sachs VIT CORESM Small Cap 87.76 125.03 17.76 55.03
Equity Fund
Goldman Sachs VIT CORESM U.S. Equity Fund 86.74 121.90 16.74 51.90
Goldman Sachs VIT Mid Cap Value Fund 88.28 126.58 18.28 56.58
Lazard Retirement International Equity 91.35 135.90 21.35 65.90
Portfolio
Putnam VT International New 99.14 159.26 29.14 89.26
Opportunities Fund - Class IB Shares
Putnam VT Vista Fund - Class IB Shares 87.97 125.65 17.97 55.65
Royce Micro-Cap Portfolio 92.38 139.00 22.38 69.00
Third Avenue Value Portfolio 91.86 137.45 21.86 67.45
Wanger International Small Cap 94.43 145.17 24.43 75.17
Wanger U.S. Small Cap 88.99 128.76 18.99 58.76
Warburg Pincus Trust - Emerging Growth 91.35 135.90 21.35 65.90
Portfolio
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment in a qualified
annuity with a ten-year surrender charge schedule and a 0.75% mortality and
expense risk fee assuming a 5% annual return and....
no surrender or selection
a full surrender at the end of an annuity payout plan at the end of
of each time period each time period
<S> <C> <C> <C> <C>
1 year 3 years 1 year 3 years
AXPSM Variable Portfolio - Blue Chip $98.28 $136.58 $18.28 $56.58
Advantage Fund
AXPSM Variable Portfolio - Bond Fund 95.41 127.83 15.41 47.83
AXPSM Variable Portfolio - Capital 95.30 127.52 15.30 47.52
Resource Fund
AXPSM Variable Portfolio - Cash 94.28 124.38 14.28 44.38
Management Fund
AXPSM Variable Portfolio - Diversified 98.28 136.58 18.28 56.58
Equity Income Fund
AXPSM Variable Portfolio - Extra Income 95.82 129.09 15.82 49.09
Fund
AXPSM Variable Portfolio - Federal 97.51 134.25 17.51 54.25
Income Fund
AXPSM Variable Portfolio - Global Bond 98.38 136.90 18.38 56.90
Fund
AXPSM Variable Portfolio - Growth Fund 98.28 136.58 18.28 56.58
AXPSM Variable Portfolio - International 98.58 137.52 18.58 57.52
Fund
AXPSM Variable Portfolio - Managed Fund 95.00 126.58 15.00 46.58
AXPSM Variable Portfolio - New 95.41 127.83 15.41 47.83
Dimensions Fund
AXPSM Variable Portfolio - Small Cap 101.09 145.13 21.09 65.13
Advantage Fund
AXPSM Variable Portfolio - Strategy 95.51 128.15 15.51 48.15
Aggressive Fund
AIM V.I. Capital Appreciation Fund 95.41 127.83 15.41 47.83
AIM V.I. Capital Development Fund 100.94 144.67 20.94 64.67
American Century VP International Fund 103.71 153.01 23.71 73.01
American Century VP Value Fund 98.79 138.14 18.79 58.14
Fidelity VIP III Growth & Income 95.71 128.77 15.71 48.77
Portfolio (Service Class)
Fidelity VIP III Mid Cap Portfolio 99.81 141.25 19.81 61.25
(Service Class)
Fidelity VIP Overseas Portfolio (Service 98.48 137.21 18.48 57.21
Class)
FT VIP Real Estate Securities Fund - 96.64 131.59 16.64 51.59
Class 2
FT VIP Templeton International Smaller 102.38 149.00 22.38 69.00
Companies Fund - Class 2
FT VIP Value Securities Fund - Class 2 99.61 140.63 19.61 60.63
Goldman Sachs VIT CORESM Small Cap 97.76 135.03 17.76 55.03
Equity Fund
Goldman Sachs VIT CORESM U.S. Equity Fund 96.74 131.90 16.74 51.90
Goldman Sachs VIT Mid Cap Value Fund 98.28 136.58 18.28 56.58
Lazard Retirement International Equity 101.35 145.90 21.35 65.90
Portfolio
Putnam VT International New 109.14 169.26 29.14 89.26
Opportunities Fund - Class IB Shares
Putnam VT Vista Fund - Class IB Shares 97.97 135.65 17.97 55.65
Royce Micro-Cap Portfolio 102.38 149.00 22.38 69.00
Third Avenue Value Portfolio 101.86 147.45 21.86 67.45
Wanger International Small Cap 104.43 155.17 24.43 75.17
Wanger U.S. Small Cap 98.99 138.76 18.99 58.76
Warburg Pincus Trust - Emerging Growth 101.35 145.90 21.35 65.90
Portfolio
* In these examples, the $30 contract administrative charge is approximated as
a .083% charge based on our estimated 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.
</TABLE>
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
We have not provided any condensed financial information for the subaccounts
because they are new and do not have any history.
Financial Statements
You can find our audited financial statements in the SAI. The SAI does not
include the audited financial statements of the subaccounts because they are new
and do not have any performance.
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. Currently, we do not provide any performance information for the
subaccounts because they are new and have not had any activity to date. However,
we show performance from the commencement date of the funds as if the contract
existed at that time, which it did not. 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:
o the contract administrative charge,
o mortality and expense risk fee, and
o 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 ten 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 generally will be higher than average annual
total return.
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.
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 us.
<PAGE>
The Variable Account and the Funds
You may allocate payments to any or all the subaccounts of the variable account
that invest in shares of the following funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Advisor or
Subaccount Investing in Investment Objectives and Policies: Manager
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
BC1 AXPSM Variable Portfolio - Objective: long-term total return exceeding that of IDS Life, investment
BC2 Blue Chip Advantage Fund the U.S. stock market. Invests primarily in common manager; American Express
stocks of companies included in the unmanaged S&P Financial Corporation
500 Index. (AEFC) investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
BD1 AXPSM Variable Portfolio - Objective: high level of current income while IDS Life, investment
BD2 Bond Fund conserving the value of the investment for the manager; AEFC investment
longest time period. Invests primarily in advisor.
investment-grade bonds.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
CR1 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
CR2 Capital Resource Fund in U.S. common stocks. manager; AEFC investment
advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
CM1 AXPSM Variable Portfolio - Objective: maximum current income consistent with IDS Life, investment
CM2 Cash Management Fund liquidity and conservation of capital. Invests in manager; AEFC investment
money market securities. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DE1 AXPSM Variable Portfolio - Objective: a high level of current income and, as a IDS Life, investment
DE2 Diversified Equity Income secondary goal, steady growth of capital. Invests manager; AEFC investment
Fund primarily in dividend-paying common and preferred advisor.
stocks.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
EI1 AXPSM Variable Portfolio - Objective: high current income, with capital growth IDS Life, investment
EI2 Extra Income Fund as a secondary objective. Invests primarily in manager; AEFC investment
long-term, high-yielding, high-risk debt securities advisor.
below investment grade issued by U.S. and foreign
corporations.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FI1 AXPSM Variable Portfolio - Objective: a high level of current income and IDS Life, investment
FI2 Federal Income Fund safety of principal consistent with an investment manager; AEFC investment
in U.S. government and government agency advisor.
securities. Invests primarily in debt obligations
issued or guaranteed as to principal and interest
by the U.S. government, its agencies or
instrumentalities.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
GB1 AXPSM Variable Portfolio - Objective: high total return through income and IDS Life, investment
GB2 Global Bond Fund growth of capital. Invests primarily in debt manager; AEFC investment
securities of U.S. and foreign issuers. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
GR1 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
GR2 Growth Fund primarily in common stocks and securities manager; AEFC investment
convertible into common stocks that appear to offer advisor.
growth opportunities.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
IE1 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
IE2 International Fund in common stock of foreign issuers. manager; AEFC investment
advisor. American Express
Asset Management
International, Inc., a
wholly-owned subsidiary of
AEFC, is the
sub-investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
MF1 AXPSM Variable Portfolio - Objective: maximum total investment return through IDS Life, investment
MF2 Managed Fund a combination of capital growth and current income. manager; AEFC investment
Invests primarily in stocks, convertible advisor.
securities, bonds and money market instruments.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
ND1 AXPSM Variable Portfolio - Objective: long-term growth of capital. Invests IDS Life, investment
ND2 New Dimensions Fund primarily in common stocks of U.S. and foreign manager; AEFC investment
companies showing potential for significant growth. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SC1 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
SC2 Small Cap Advantage Fund primarily in equity stocks of small companies that manager; AEFC investment
are often included in the S&P SmallCap 600 Index or advisor.
the Russell 2000 Index.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SA1 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
SA2 Strategy Aggressive Fund in common stocks of small-and medium-size companies. manager; AEFC investment
advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1CA AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
2CA Appreciation Fund common stocks, with emphasis on medium- or
small-sized growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1CD AIM V.I. Capital Objective: long term growth of capital. Invests A I M Advisors, Inc.
2CD Development Fund primarily in securities (including common stocks,
convertible securities and bonds) of small- and
medium-sized companies.
- ------------------------------------------------------------------------------------------------------------------------------
1IF American Century VP Objective: long term capital growth. Invests American Century Investment
2IF International Fund primarily in stocks of growing foreign companies. Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1VA American Century VP Value Objective: long-term capital growth, with income as American Century Investment
2VA Fund a secondary objective. Invests primarily in Management, Inc.
securities that management believes to be
undervalued at the time of purchase.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1GI Fidelity VIP III Growth & Objective: high total return through a combination Fidelity Management &
2GI Income Portfolio (Service of current income and capital appreciation. Invests Research Company (FMR),
Class) primarily in common stocks with a focus on those investment manager; FMR
that pay current dividends and show potential for U.K. and FMR Far East,
capital appreciation. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1MP Fidelity VIP III Mid Cap Objective: long-term growth of capital. Invests FMR, investment manager;
2MP Portfolio (Service Class) primarily in medium market capitalization common FMR U.K. and FMR Far East,
stocks. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1OS Fidelity VIP Overseas Objective: long-term growth of capital. Invests FMR, investment manager;
2OS Portfolio (Service Class) primarily in common stocks of foreign securities. FMR U.K., FMR Far East,
Fidelity International
Investment Advisors (FIIA)
and FIIA U.K., sub-investment
advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1RE Franklin Templeton VIP Objective: capital appreciation with a secondary Franklin Advisers, Inc.
2RE Trust Real Estate goal to earn current income. Invests primarily in
Securities Fund - Class 2 securities of companies operating in the real
estate industry, primarily equity real estate
investment trusts (REITS).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1IS Franklin Templeton VIP Objective: long-term capital appreciation. Invests Templeton Investment
2IS Trust Templeton primarily in equity securities of smaller companies Counsel, Inc.
International Smaller located outside the U.S., including in
emerging Companies Fund
- Class 2 markets.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1SI Franklin Templeton VIP Objective: long-term total return. Invests Franklin Advisory Services,
2SI Trust Value Securities primarily in equity securities of companies the LLC
Fund - Class 2 manager believes are significantly undervalued.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1SE Goldman Sachs VIT Objective: long-term growth of capital. Invests Goldman Sachs Asset
2SE CORESM Small Cap primarily in a broadly diversified portfolio of Management
Equity Fund equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of
investment.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1UE Goldman Sachs VIT Objective: long-term growth of capital and dividend Goldman Sachs Asset
2UE CORESMU.S. Equity Fund income. Invests primarily in a broadly diversified Management
portfolio of large-cap and blue chip equity
securities representing all major sectors of the
U.S. economy.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1MC Goldman Sachs VIT Mid Objective: long-term capital appreciation. Invests Goldman Sachs Asset
2MC Cap Value Fund primarily in mid-capitalization U.S. stocks that Management
are believed to be undervalued or undiscovered by
the marketplace.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1IP Lazard Retirement Objective: long-term capital appreciation. Invests Lazard Asset Management
2IP International Equity primarily in equity securities, principally common
Portfolio stocks of relatively large non-U.S. companies
(those whose total market value is more than $1
billion) that the Investment Manager believes are
undervalued based on their earnings, cash flow or
asset values.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1IN Putnam VT International Objective: long-term capital appreciation by Putnam Investment
2IN New Opportunities Fund - investing in companies that have above-average Management, Inc.
Class IB Shares growth prospects due to
the fundamental growth of their
market sector. Invests primarily in
growth stocks outside the U.S.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1VS Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily Putnam Investment
2VS Class IB Shares in a diversified portfolio of common stocks that Management, Inc.
Putnam Management believes have the
potential for above-average capital
appreciation.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1MI Royce Micro-Cap Portfolio Objective: long-term growth of capital. Invests Royce & Associates, Inc.
2MI primarily in a broadly diversified portfolio of
equity securities issued by micro-cap companies
(companies with stock market capitalizations below
$300 million).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1SV Third Avenue Value Objective: long-term capital appreciation. Invests The Investment Adviser EQSF
2SV Portfolio primarily in common stocks of well-finance Advisers, Inc.
companies at a substantial discount to what the
Advisor believes is their true value.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1IT Wanger International Objective: long-term growth of capital. Invests Wanger Asset Management,
2IT Small Cap primarily in stocks of small- and medium-size L.P.
non-U.S. companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1SP Wanger U.S. Small Cap Objective: long-term growth of capital. Invests Wanger Asset Management,
2SP primarily in stocks of small- and medium-size U.S. L.P.
companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1EG Warburg Pincus Trust - Objective: maximum capital appreciation. Invests Warburg Pincus Asset
2EG Emerging Growth Portfolio primarily in equity securities of small- to medium Management, Inc.
sized U.S. emerging-growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
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.
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.
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 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.
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 variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
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 federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
<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.)
<PAGE>
Buying Your Contract
You can fill out an 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:
o the length of the surrender charge period (seven or ten years);
o the fixed account and/or subaccounts in which you want to invest;
o how you want to make purchase payments; and o a beneficiary.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed account in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to 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 settlement date
Annuity payouts are scheduled to begin on the settlement date. When we process
your application, we will establish the settlement 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.
For nonqualified annuities, the settlement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the 10th contract
anniversary, if purchased after age 75. (In Pennsylvania, the maximum
settlement 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, to avoid IRS penalty taxes, the settlement date
generally must be:
o on or after the date the annuitant reaches age 59 1/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
annuitant reaches age 70 1/2; or
o 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 settlement 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.)
Beneficiary
If death benefits become payable before the settlement 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 payments
Minimum allowable purchase payments
If paying by installments*
under a scheduled If paying by any other method:
payment plan: $1,000 initial payment for qualified plans
$23.08 biweekly, or $2,000 initial payment for nonqualified plans
$50 per month $50 for any additional payments
* 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 allowable purchase payments** based on the age of you or the
annuitant, whoever is older, on the effective date of the contract:
For the first year: For each subsequent year:
$100,000 for ages 86 to 90 $50,000 for ages 86-90
$1,000,000 up to age 85 $100,000 up to age 85
**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.
We reserve the right to not accept purchase payments allocated to the fixed
account for twelve months following either:
1. a partial surrender from the fixed account; or
2. a lump sum transfer from the fixed account to a subaccount.
How to make purchase payments
1 Send your check along with your name and 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
2 We can help you set up:
By Scheduled
payment plan
o an automatic payroll deduction, salary reduction or other group billing
arrangement; or
o a bank authorization.
<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 $50,000 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. For nonqualified annuities the fee totals 0.95% of the average
daily net assets on an annual basis. For qualified annuities the fee totals
0.75% of the 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.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o 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
If you surrender all or part of your contract, you may be subject to a surrender
charge. A surrender charge applies if all or part of the surrender amount is
from purchase payments we received within seven (7) or ten (10) years before
surrender. You select the surrender charge period at the time of your
application for the contract. The surrender charge percentages that apply to you
are shown in your contract.
For purposes of calculating any surrender charge, we treat amounts surrendered
from your contract value in the following order:
1. First, we surrender any contract earnings (contract value less purchase
payments received and not previously surrendered). We do not assess a
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.
2. Next, in each contract year, we surrender amounts totaling up to 10% of
your prior contract anniversary contract value, but only to the extent not
included and surrendered in Number 1 above. (Your initial purchase payment
is considered the prior contract anniversary contract value during the
first contract year.) We do not assess a surrender charge on this amount.
3. Next we surrender purchase payments received prior to the surrender charge
period you selected and shown in your contract. We do not assess a
surrender charge on these purchase payments.
4. Finally, if necessary, we surrender purchase payments received that are
still within the surrender charge period you selected and shown in your
contract. We surrender these payments on a first-in, first-out basis. We do
assess a surrender charge on these payments.
We determine your surrender charge by multiplying each of your payments
surrendered by the applicable surrender charge percentage, and then adding the
total surrender charges.
The surrender charge percentage depends on the number of years since you made
the payments that are surrendered, depending on the schedule you selected:
<TABLE>
<CAPTION>
Seven-year schedule Ten-year schedule
<S> <C> <C> <C> <C> <C> <C>
Years from purchase payment Years from purchase
receipt Surrender charge percentage payment receipt Surrender charge percentage
1 7% 1 8%
2 7 2 8
3 7 3 8
4 6 4 7
5 5 4 7
6 4 6 6
7 2 7 5
Thereafter 0 8 4
9 3
10 2
Thereafter 0
</TABLE>
Surrender charge calculation example
Following is an example of the calculation we would make to determine the
surrender charge on a contract that contains a seven-year surrender charge
schedule with this history:
o The contract date is July 1, 1999 with a contract year of July 1 through
June 30 and with an anniversary date of July 1 each year; and
o We received these payments:
-$10,000 July 1, 1999;
-$ 8,000 Dec.31, 2004
-$ 6,000 Feb. 20, 2007; and
o The owner surrenders the contract for its total surrender value of $26,500
on Aug. 5, 2009 and had not made any other surrenders during that contract
year; and
o The prior anniversary July 1, 2008 contract value was $28,000.
<TABLE>
<CAPTION>
<S> <C>
Surrender charge Explanation
$0 $2,500 is contract earnings surrendered without charge; and
$0 $300 is 10% of the prior anniversary contract value that is in excess of
contract earnings surrendered without charge (from above).
10% of $28,000= $2,800 minus $2,500 = $300
$0 $10,000 July 1, 1999 payment was received eight or more years before surrender
and is surrendered without surrender charge; and
$400 $8,000 Dec. 31, 2004 payment is in its fifth year from receipt, surrendered
with a 5% surrender charge; and
$420 $6,000 Feb.20, 2007 payment is in its third year from receipt, surrendered with
----
a 7% surrender charge.
$820
</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.
Waiver of surrender charges
We do not assess surrender charges for:
o surrenders of any contract earnings;
o amounts totaling up to 10% of your prior contract anniversary contract
value to the extent it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o amounts we refund to you during the free look period*;
o death benefits*; and
o surrenders you make under your contract's "Waiver of Surrender Charges for
Nursing Home Confinement" provision*. To the extent permitted by state law,
this provision applies when you are under age 76 on the date that we issue
the contract. We will waive surrender charges that we normally assess upon
full or partial surrender if you provide proof satisfactory to us that, as
of the date you request the surrender, you or the annuitant are confined to
a nursing home and have been for the prior 90 days and the confinement
began after the contract date. (See your contract for additional conditions
and restrictions on this waiver.)
* However, we will reverse certain purchase payment credits up to the maximum
surrender charge. (See "Valuing Your Investment - Purchase payment credits.")
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 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 your 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.
<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:
o the sum of your purchase payments and transfer amounts allocated to the fixed
account;
o plus any purchase payment credits allocated to the fixed account;
o plus interest credited; o minus the sum of amounts surrendered (including
any applicable surrender charges) and amounts transferred out; and
o 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 or we apply any purchase payment credits to a
subaccount, 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.
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 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:
o additional purchase payments you allocate to the subaccounts;
o any purchase payment credits allocated to the subaccounts;
o transfers into or out of the subaccounts;
o partial surrenders;
o surrender charges; and/or
o prorated portions of the contract administrative charge.
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fees.
Purchase payment credits
We add a credit to your contract in the amount of:
o 1% of each purchase payment received
-if you elect the ten-year surrender charge schedule for your
contract; or
-if you elect the seven-year surrender charge schedule and your initial
purchase payment to the contract is at least $100,000.
o 2% of each purchase payment received if you elect the ten-year surrender
charge schedule for your contract and your initial purchase payment to the
contract is at least $100,000.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We allocate each credit to your contract value when the applicable purchase
payment is applied to your contract value. We allocate such credits to your
contract value according to allocation instructions in effect for your purchase
payments.
We will reverse credits from the contract value for any purchase payment that is
not honored.
To the extent a death benefit or surrender payment includes contract value
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
surrender charge waiver due to Nursing Home Confinement, we will assess a
charge, similar to a surrender charge, equal to the amount of the purchase
payment credits. The amount we pay to you under these circumstances will always
equal or excel your surrender value. The amount returned to you under the free
look provision also will not include any credits applied to your contract.
<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>
How dollar-cost averaging works
How dollar-cost averaging works
<S> <C> <C> <C> <C>
By investing an Amount Accumulation unit Number of units
equal number of Month invested value purchased
dollars each month... Jan $100 $20 5.00
Feb 100 18 5.56
you automatically buy Mar 100 17 5.88
more units when the Apr 100 15 6.67
per unit market price May 100 16 6.25
is low... Jun 100 18 5.56
Jul 100 17 5.88
and fewer units when Aug 100 19 5.26
the per unit market Sept 100 21 4.76
price is high. Oct 100 20 5.00
</TABLE>
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 us.
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" below.)
Transfer policies
o 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.
o 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).
o 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.
o 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.
o We will not accept requests for transfers from the fixed account at any
other time.
o 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.
<PAGE>
How to request a transfer or surrender
1 Send your name, contract number, Social Security Number or Taxpayer
By letter Identification Number and signed request for a transfer or surrender
to:
Regular mail:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
Minimum amount
Transfers or
surrenders: $250 or entire account balance
Maximum amount
Transfers or
surrenders: Contract value
2 We can help you set up automated transfers among your
By automated subaccounts or fixed account or partial surrenders
transfers and from the accounts.
automated partial You can start or stop this service by written request
surrenders or other method acceptable to us. You must allow 30
days for us to change any instructions that are
currently in place.
o 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.
o Automated surrenders may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
surrenders are in effect.
o Automated partial surrenders may result in IRS taxes and penalties on
all or part of the amount surrendered.
Minimum amount
Transfers or
surrenders: $50
3 Call between 7 a.m. and 6 p.m. Central time:
By phone
800-437-0602
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
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 and surrenders are automatically available. You may request
that telephone transfers and surrenders not be authorized from your account by
writing to us.
<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 - Surrender
charge") 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:
o payable to you;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
By wire:
o request that payment be wired to your bank;
o bank account must be in the same ownership as your contract; and
o pre-authorization required.
For instructions, contact us.
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.
<PAGE>
TSA -- Special Surrender Provisions
Participants in Tax-Sheltered Annuities: The Code imposes certain restrictions
on your right to receive early distributions from a TSA:
o 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.
o 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.
o Even though a distribution may be permitted under the above rules, it may
be subject to IRS taxes and penalties (see "Taxes").
o 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.
o 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.
o If the contract has a loan provision, the right to receive a loan as
described in detail in your contract.
<PAGE>
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.
<PAGE>
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:
If both you and the annuitant are age 80 or younger on the date of death, the
beneficiary receives the greatest of:
o the contract value;
o purchase payments, minus any "adjusted partial surrenders"; or
o the contract value as of the most recent sixth contract anniversary, plus
any purchase payments paid and minus any "adjusted partial surrenders"
since that anniversary.
If either you or the annuitant are age 81 or older on the date of death, the
beneficiary receives the greater of:
o the contract value; or
o purchase payments minus any "adjusted partial surrenders."
Adjusted partial surrenders: We calculate an "adjusted partial surrender" for
each partial surrender as the product of (a) times (b) where
(a) is the ratio of the amount of the partial surrender
(including any applicable surrender charge) to the contract
value on the date of (but prior to) the partial surrender; and
(b) is the death benefit on the date of (but prior to) the
partial surrender.
Example of death benefit calculation when the owner and annuitant are age 80 or
younger:
o The contract is purchased with a payment of $20,000 on Jan. 1, 2000.
o On Jan 1, 2006 (the 6th contract anniversary) the contract value has
grown to $30,000.
o March 1, 2006 the contract value has fallen to $28,000 at which point
the owner takes a $1,500 partial surrender, leaving a contract value
of $26,500.
The death benefit on March 1, 2006 is calculated as follows:
The contract value on the most recent 6th contract anniversary: $30,000.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial surrenders" taken since that anniversary
calculated as: $1,500 x $30,000 =
$28,000 - 1,607.14
------------
for a death benefit of: $ 28,392.86
If your spouse is sole beneficiary under a nonqualified annuity and you die
before the settlement 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 age 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. A death benefit paid in a
single sum will be reduced by the amount of any purchase payment credits applied
to the contract within 12 months of the date of death. (See "Valuing Your
Investment-Purchase payment credits.") 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:
o the beneficiary asks us in writing within 60 days after we receive proof
of death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o 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.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the settlement 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 settlement 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 settlement 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:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o 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."
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 settlement 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:
o 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.
o 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 settlement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o 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.
o 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.
o 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. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. The
present value is determined separately for each subaccount from which you
are currently scheduled to receive payments. The present value for each
subaccount is equal to the discounted value of the remaining annuity
payments which are assumed to remain level. The discount rate used
in the calculation will vary between 5.05% and 7.15% depending on the
applicable assumed investment rate (AIR) and the fund management fees.
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:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant
and a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's settlement 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.
<PAGE>
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.
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: 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.
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 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.
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. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you
surrender your 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.
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 or SEP), 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:
o instead of receiving the distribution check, you elect to have the
distribution rolled over directly to an IRA or another eligible plan;
o the payout is one in a series of substantially equal periodic payouts, made
at least annually, over your life or life expectancy (or the joint lives or
life expectancies of you and your designated beneficiary) or over a
specified period of 10 years or more; or
o the 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.
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 amendments.
<PAGE>
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:
o the reserve held in each subaccount for your contract; divided by
o 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.
<PAGE>
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o 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 for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or 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.
<PAGE>
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 will pay commissions for sales of the contracts of up to 7% of the
total purchase payments to AEFA. This revenue is used to cover distribution
costs that include compensation to advisors and field leadership for the selling
advisors. These commissions consist of a combination of time of sale and
on-going service / trail commissions (which, when totaled, could exceed 7% of
purchase payments). From time to time, IDS Life will pay or permit other
promotional incentives, in cash or credit or other compensation.
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 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 seek 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.
<PAGE>
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. All of the major systems used by IDS Life and by the Variable
Account are maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. IDS Life's and the Variable Account's businesses are heavily
dependent upon AEFC's computer systems and have significant interactions with
systems of 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 have been taken to resolve potential problems including
modification to existing software and the purchase of new software. AEFC's
target date for substantially completing its program of corrective measures on
internal business critical systems was Dec. 31, 1998. As of June 30, 1999, AEFC
completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. 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 failure of external parties to resolve their own
Year 2000 issues in a timely manner could result in a material financial risk to
AEFC, IDS Life or the Variable Account.
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>
Table of Contents of the Statement of Additional Information
Performance Information p.
Calculating Annuity Payouts p.
Rating Agencies p.
Principal Underwriter p.
Independent Auditors p.
Financial Statements
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
- -- American Express Retirement Advisor Variable AnnuitySM
- -- American Express Variable Portfolio Funds
- -- AIM Variable Insurance Funds, Inc.
- -- American Century Variable Portfolios, Inc.
- -- Fidelity Variable Insurance Products Funds - Service Class
- -- Franklin Templeton Variable Insurance Products Trust - Class 2
- -- Goldman Sachs Variable Insurance Trust (VIT)
- -- Lazard Retirement Series, Inc.
- -- Putnam Variable Trust
- -- Royce Capital Fund
- -- Third Avenue Variable Series Trust
- -- Wanger Advisors Trust
- -- Warburg Pincus Trust
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 ________
<PAGE>
Prospectus
[_____], 1999
American Express Retirement Advisor Variable AnnuitySM - Band 3
Individual flexible premium deferred combination fixed/variable annuity for:
o current or retired employees of American Express Financial Corporation or its
subsidiaries and their spouses (employees),
o current or retired American Express financial advisors and their
spouses (advisors), and
o individuals investing an initial payment of $1 million (other individuals).
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 prospectuses for:
<PAGE>
o American Express Variable Portfolio Funds
o AIM Variable Insurance Funds, Inc.
o American Century Variable Portfolios, Inc.
o Fidelity Variable Insurance Products Funds - Service Class
o Franklin Templeton Variable Insurance Products Trust - Class 2
o Goldman Sachs Variable Insurance Trust (VIT)
o Lazard Retirement Series, Inc.
o Putnam Variable Trust
o Royce Capital Fund
o Third Avenue Variable Series Trust
o Wanger Advisors Trust
o Warburg Pincus Trust
<PAGE>
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 (SEC) has not approved or disapproved
these securities or passed upon the adequacy or 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 SEC and is available without charge by contacting IDS Life at the telephone
number above or by completing and sending the order form on the last page of
this prospectus. The table of contents of the SAI is on the last page of this
prospectus.
<PAGE>
Table of Contents
Key Terms
The Contract in Brief
Expense Summary
Condensed Financial Information (Unaudited)
Financial Statements
Performance Information
The Variable Account and the Funds
The Fixed Account
Buying Your Contract
Charges
Valuing Your Investment
Making the Most of Your Contract
Surrenders
TSA -- Special Surrender Provisions
Changing Ownership
Benefits in Case of Death
The Annuity Payout Period
Taxes
Voting Rights
Substitution of Investments
About the Service Providers
Year 2000
Table of Contents of the Statement of Additional Information
<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:
o Individual Retirement Annuities (IRAs)
o Simplified Employee Pension (SEP) plans
o Section 401(k) plans
o Custodial and trusteed pension and profit sharing plans
o Tax-Sheltered Annuities (TSAs)
All other contracts are considered nonqualified annuities.
Settlement 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.
<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 settlement date).
Free look period: You may return your contract 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:
o 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 settlement date will equal or exceed the
total purchase payments you allocate to the subaccounts.
(p. __)
o the fixed account, which earns interest at a rate that
we adjust periodically. (p. __)
Buying your contract: We 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. After your initial purchase payment, you have
the option of making additional purchase payments in the
future.
o Minimum initial purchase payment for employees/advisors
-- $2,000 ($1,000 for qualified annuities) unless you
pay in installments by means of a bank authorization or
under a group billing arrangement such as a payroll
deduction.
o Minimum initial purchase payment for other individuals
-- $1,000,000.
o Minimum additional purchase payment -- $50.
o Minimum installment purchase payment -- $50 monthly;
$23.08 biweekly (scheduled payment plan billing).
o Maximum first-year purchase payments for
employees/advisors -- $100,000 to $2,000,000 depending
on your age.
o Maximum first-year purchase payments for other
individuals -- $1,000,000 to $2,000,000 depending on
your age.
o Maximum purchase payment for each subsequent year for
employees/advisors -- $50,000 to $100,000 depending upon
your age.
o Maximum purchase payment for each subsequent year for
other individuals -- $100,000. (p. __)
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. __)
Surrenders: You may surrender all or part of your contract value at
any time before the settlement date. You also may
establish automated partial surrenders. Surrenders may
be subject to 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. --)
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. __)
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. __)
Annuity Payouts: You can apply your contract value to an annuity payout
plan that begins on the settlement 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. --)
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. (p. __)
Charges:
o $30 annual contract administrative charge;
o a 0.55% mortality and expense risk fee;
o 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
o the operating expenses of the funds.
<PAGE>
Expense Summary
The purpose of the following information 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." Please see the funds'
prospectuses for more information on the operating expenses for each fund.
Contract owner expenses:
Surrender charge 0%
Annual contract administrative charge $30*
* We will waive this charge when your contract value, or total purchase
payments less any payments surrendered, is $50,000 or more on the current
contract anniversary.
Annual subaccount expenses (as a percentage of average subaccount value):
Mortality and expense risk fee 0.55%
<PAGE>
<TABLE>
<CAPTION>
Annual operating expenses of the funds (as a percentage of average daily net assets)
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXPSM Variable Portfolio - Blue Chip Advantage Fund .56% -- .39 .95%1
AXPSM Variable Portfolio - Bond Fund .60% -- .07 .67%2
AXPSM Variable Portfolio - Capital Resource Fund .59% -- .07 .66%2
AXPSM Variable Portfolio - Cash Management Fund .50% -- .06 .56%2
AXPSM Variable Portfolio - Diversified Equity Income .56% -- .39 .95%1
Fund
AXPSM Variable Portfolio - Extra Income Fund .62% -- .09 .71%2
AXPSM Variable Portfolio - Federal Income Fund .61% -- .265 .875%1
AXPSM Variable Portfolio - Global Bond Fund .83% -- .13 .96%2
AXPSM Variable Portfolio - Growth Fund .63% -- .32 .95%1
AXPSM Variable Portfolio - International Fund .83% -- .15 .98%2
AXPSM Variable Portfolio - Managed Fund .59% -- .04 .63%2
AXPSM Variable Portfolio - New Dimensions Fund .61% -- .06 .67%2
AXPSM Variable Portfolio - Small Cap Advantage Fund .79% -- .435 1.225%1
AXPSM Variable Portfolio - Strategy Aggressive Fund .59% -- .09 .68%2
AIM V.I. Capital Appreciation Fund .62% -- .05 .67%3
AIM V.I. Capital Development Fund (after fee waivers --% -- 1.21 1.21%3,4
and expense reimbursements)
American Century VP International Fund 1.48% -- -- 1.48%2
American Century VP Value Fund 1.00% -- -- 1.00%2
Fidelity VIP III Growth & Income Portfolio (Service .49% .10 .11 .70%5
Class) (after expense reimbursements)
Fidelity VIP III Mid Cap Portfolio (Service Class) .59% .10 .41 1.10%2
Fidelity VIP Overseas Portfolio (Service Class) .74% .10 .13 .97%5
(after expense reimbursements)
FT VIP Real Estate Securities Fund - Class 2 0.52% .25 .02 .79%6, 7
FT VIP Templeton International Smaller Companies 1.00% .25 .10 1.35%6, 7
Fund - Class 2
FT VIP Value Securities Fund - Class 2 .75% .25 .08 1.08%6, 8
Goldman Sachs VIT CORESM Small Cap Equity Fund .75% -- .15 .90%9
(after expense reimbursement)
Goldman Sachs VIT CORESM U.S. Equity Fund (after .70% -- .10 .80%9
expense reimbursement)
Goldman Sachs VIT Mid Cap Value Fund (after expense .80% -- .15 .95%10
reimbursement)
Lazard Retirement International Equity Portfolio .75% .25 .25 1.25%11
(after fee waivers and expense reimbursements)
Putnam VT International New Opportunities Fund - 1.18% .15 .68 2.01%12
Class IB Shares (after expense limitation)
Putnam VT Vista Fund - Class IB Shares .65% .15 .12 .92%
Royce Micro-Cap Portfolio (after fee waivers and 1.25% -- .10 1.35%13
expense reimbursements)
Third Avenue Value Portfolio .90% -- .40 1.30%14
Wanger International Small Cap 1.27% -- .28 1.55%3
Wanger U.S. Small Cap .96% -- .06 1.02%3
Warburg Pincus Trust - Emerging Growth Portfolio .84% -- .41 1.25%15
(after fee waivers and expense reimbursements)
</TABLE>
1Based on estimated expenses.
2Annualized operating expenses of funds at Dec. 31, 1998.
3Figures in "Management Fees," "Other Expenses" and "Total" are based on actual
expenses for the fiscal year ended Dec. 31, 1998.
4Had there been no fee waivers or expense reimbursement, expenses would have
been: 0.75%, 0.00%, 5.05% and 5.80%, respectively.
5FMR agreed to reimburse a portion of the class' expenses during the period.
Without this reimbursement, the Management Fees, 12b-1 Fee, Other Expenses and
Total as a percentage of average net assets for the following funds would have
been: Fidelity VIP Growth & Income Portfolio (0.49%, 0.10%, 0.12% and 0.71%) and
Fidelity VIP Overseas Portfolio (0.74%, 0.10%, 0.17% and 1.01%).
6The figure shown under Management Fees, combines both the Management and
Portfolio Administration Fees. The Portfolio Administration Fee is a direct
expense for the Templeton International Smaller Companies Fund and the Value
Securities Fund; the Real Estate Securities Fund pays for similar services
indirectly through the Management Fee.
7Because no Class 2 shares were issued as of Dec. 31, 1998, figures (other than
rule 12b-1 fees) are based on the Portfolio's Class 1 actual expenses for the
fiscal year ended Dec. 31, 1998 plus Class 2's annual Rule 12b-1 fee of 0.25%.
(While the maximum amount payable under each Portfolio's Class 2 Rule 12b-1 plan
is 0.35% per year of the Portfolio's average daily net assets, the Board of
Trustees of Franklin Templeton Variable Insurance Products Trust has set the
current rate at 0.25% per year).
8The Value Securities Fund commenced operations May 1, 1998, therefore,
Management Fees and Rule 12b-1 Fees are annualized and Other Expenses are
estimated for 1999. (While the maximum amount payable under the Portfolio's
Class 2 Rule 12b-1 plan is 0.35% per year of the Portfolio's average daily net
assets, the Board of Trustees of Franklin Templeton Variable Insurance Products
Trust has set the current rate at 0.25% per year.)
9The Goldman Sachs VIT CORE Small Cap Equity and CORE U.S. Equity Funds'
expenses are based on actual expenses for fiscal year ended Dec. 31, 1998. The
Investment Adviser to the Goldman Sachs VIT CORE Small Cap Equity and CORE U.S.
Equity Funds has voluntarily agreed to reduce or limit certain "Other Expenses"
of such funds (excluding management fees, taxes, interest and brokerage fees,
litigation, indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.15% and 0.10% per annum of such funds' average daily net
assets, respectively. The expenses shown include this reimbursement. If not
included, the "Other Expenses" and "Total" for the Goldman Sachs VIT CORE Small
Cap Equity and CORE U.S. Equity Funds would be 3.17% and 3.92% and 2.13% and
2.83%, respectively. The reductions or limits may be discontinued or modified by
the investment adviser in their discretion at any time.
10The Goldman Sachs VIT Mid Cap Value Fund's expenses are estimated due to the
fund being in existence for less than ten months. The Investment Adviser to the
Goldman Sachs VIT Mid Cap Value Fund has voluntarily agreed to reduce or limit
certain "Other Expenses" of such funds (excluding management fees, taxes,
interest and brokerage fees, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.15% per annum of such fund's
average daily net assets, respectively. The expenses shown include this
reimbursement. If not included, the "Other Expenses" and "Total" for the Goldman
Sachs VIT Mid Cap Value Fund would be 0.57% and 1.37%, respectively. The
reductions or limits may be discontinued or modified by the investment adviser
in their discretion at any time.
11The Portfolio's Investment Manager agrees to waive its fees and/or reimburse
the Portfolio through Dec. 31, 1999 to the extent total Portfolio annual
expenses exceed 1.25% of the Portfolio's average daily net assets. Absent fee
waivers and/or reimbursements, the Management Fees, 12b-1 Fees, Other Expenses
and Total as a percentage of average net assets for fiscal year ended Dec. 31,
1998 would have been: (0.75%, 0.25%, 47.67% and 48.67%).
12The Management Fees and Total expenses shown in the table reflect an expense
limitation. In the absence of an expense limitation, Management Fees and Total
expenses would have been 1.20% and 2.03%, respectively.
13Expense ratios are shown after fee waivers and expense reimbursements by the
investment advisor. The expense ratios before the waivers and reimbursements
would have been 1.25%, 1.34% and 2.59%.
14The Fund's expenses are estimated because the fund had not commenced
operations as of Aug. 10, 1999.
15Expense ratios are shown after fee waivers and expense reimbursements by the
investment adviser. The expense ratios before the waivers and reimbursements
would have been: (0.90%, 0.00%, 0.51% and 1.41%).
<PAGE>
Example:*
You would pay the following expenses on a $1,000 investment assuming a 5% annual
return and full surrender, no surrender or selection of an annuity payout plan
at the end of each time period
<TABLE>
<CAPTION>
<S> <C> <C>
1 year 3 years
AXPSM Variable Portfolio - Blue Chip Advantage Fund $16.23 $50.34
AXPSM Variable Portfolio - Bond Fund 13.36 41.55
AXPSM Variable Portfolio - Capital Resource Fund 13.25 41.24
AXPSM Variable Portfolio - Cash Management Fund 12.23 38.09
AXPSM Variable Portfolio - Diversified Equity Income Fund 16.23 50.34
AXPSM Variable Portfolio - Extra Income Fund 13.77 42.81
AXPSM Variable Portfolio - Federal Income Fund 15.46 47.99
AXPSM Variable Portfolio - Global Bond Fund 16.33 50.65
AXPSM Variable Portfolio - Growth Fund 16.23 50.34
AXPSM Variable Portfolio - International Fund 16.53 51.28
AXPM Variable Portfolio - Managed Fund 12.95 40.29
AXPM Variable Portfolio - New Dimensions Fund 13.36 41.55
AXPSM Variable Portfolio - Small Cap Advantage Fund 19.04 58.92
AXPSM Variable Portfolio - Strategy Aggressive Fund 13.46 41.87
AIM V.I. Capital Appreciation Fund 13.36 41.55
AIM V.I. Capital Development Fund 18.89 58.45
American Century VP International Fund 21.66 66.83
American Century VP Value Fund 16.74 51.90
Fidelity VIP III Growth & Income Portfolio (Service Class) 13.66 42.50
Fidelity VIP III Mid Cap Portfolio (Service Class) 17.76 55.03
Fidelity VIP Overseas Portfolio (Service Class) 16.43 50.97
FT VIP Real Estate Securities Fund - Class 2 14.59 45.33
FT VIP Templeton International Smaller Companies Fund - Class 2 20.33 62.80
FT VIP Value Securities Fund - Class 2 17.56 54.40
Goldman Sachs VIT CORESM Small Cap Equity Fund 15.71 48.77
Goldman Sachs VIT CORESM U.S. Equity Fund 14.69 45.64
Goldman Sachs VIT Mid Cap Value Fund 16.23 50.34
Lazard Retirement International Equity Portfolio 19.30 59.70
Putnam VT International New Opportunities Fund - Class IB Shares 27.09 83.15
Putnam VT Vista Fund - Class IB Shares 15.92 49.40
Royce Micro-Cap Portfolio 20.33 62.80
Third Avenue Value Portfolio 19.81 61.25
Wanger International Small Cap 22.38 69.00
Wanger U.S. Small Cap 16.94 52.53
Warburg Pincus Trust - Emerging Growth Portfolio 20.94 64.67
* In this example, the $30 contract administrative charge is approximated as a
.083% charge based on our estimated 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.
</TABLE>
You should not consider this example as a representation of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
We have not provided any condensed financial information for the subaccounts
because they are new and do not have any history.
Financial Statements
You can find our audited financial statements in the SAI. The SAI does not
include the audited financial statements of the subaccounts because they are new
and do not have any performance.
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. Currently, we do not provide any performance information for the
subaccounts because they are new and have not had any activity to date. However,
we show performance from the commencement date of the funds as if the contract
existed at that time, which it did not. Although we base performance figures on
historical earnings, past performance does not guarantee future results.
Total return figures reflect deduction of all applicable charges, including:
o the contract administrative charge, and
o mortality and expense risk fee.
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 ten 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 generally will be higher than average annual
total return.
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.
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 us.
<PAGE>
The Variable Account and the Funds
<TABLE>
<CAPTION>
You may allocate payments to any or all the subaccounts of the variable account
that invest in shares of the following funds:
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Investment Advisor or
Subaccount Investing in Investment Objectives and Policies: Manager
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
BC3 AXPSM Variable Portfolio - Objective: long-term total return exceeding that of IDS Life, investment
Blue Chip Advantage Fund the U.S. stock market. Invests primarily in common manager; American Express
stocks of companies included in the unmanaged S&P Financial Corporation
500 Index. (AEFC) investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
BD3 AXPSM Variable Portfolio - Objective: high level of current income while IDS Life, investment
Bond Fund conserving the value of the investment for the manager; AEFC investment
longest time period. Invests primarily in advisor.
investment-grade bonds.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
CR3 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
Capital Resource Fund in U.S. common stocks. manager; AEFC investment
advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
CM3 AXPSM Variable Portfolio - Objective: maximum current income consistent with IDS Life, investment
Cash Management Fund liquidity and conservation of capital. Invests in manager; AEFC investment
money market securities. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DE3 AXPSM Variable Portfolio - Objective: a high level of current
Diversified Equity Income income and, as a secondary goal, IDS Life, investment
Fund steady growth of capital. Invests manager; AEFC investment
primarily in dividend-paying advisor.
and preferred common stocks.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
EI3 AXPSM Variable Portfolio - Objective: high current income, with capital growth IDS Life, investment
Extra Income Fund as a secondary objective. Invests primarily in manager; AEFC investment
long-term, high-yielding, high-risk debt securities advisor.
below investment grade issued by U.S. and foreign
corporations.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FI3 AXPSM Variable Portfolio - Objective: a high level of current income and IDS Life, investment
Federal Income Fund safety of principal consistent with an investment manager; AEFC investment
in U.S. government and government agency advisor.
securities. Invests primarily in debt obligations
issued or guaranteed as to principal and interest
by the U.S. government, its agencies or
instrumentalities.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
GB3 AXPSM Variable Portfolio - Objective: high total return through income and IDS Life, investment
Global Bond Fund growth of capital. Invests primarily in debt manager; AEFC investment
securities of U.S. and foreign issuers. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
GR3 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
Growth Fund primarily in common stocks and securities manager; AEFC investment
convertible into common stocks that appear to offer advisor.
growth opportunities.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
IE3 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
International Fund in common stock of foreign issuers. manager; AEFC investment
advisor. American Express
Asset Management
International, Inc., a
wholly-owned subsidiary of
AEFC, is the
sub-investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
MF3 AXPSM Variable Portfolio - Objective: maximum total investment return through IDS Life, investment
Managed Fund a combination of capital growth and current income. manager; AEFC investment
Invests primarily in stocks, convertible advisor.
securities, bonds and money market instruments.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
ND3 AXPSM Variable Portfolio - Objective: long-term growth of capital. Invests IDS Life, investment
New Dimensions Fund primarily in common stocks of U.S. and foreign manager; AEFC investment
companies showing potential for significant growth. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SC3 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
Small Cap Advantage Fund primarily in equity stocks of small companies that manager; AEFC investment
are often included in the S&P SmallCap 600 Index or advisor.
the Russell 2000 Index.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SA3 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
Strategy Aggressive Fund in common stocks of small-and medium-size companies. manager; AEFC investment
advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3CA AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
Appreciation Fund common stocks, with emphasis on medium- or
small-sized growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3CD AIM V.I. Capital Objective: long term growth of capital. Invests A I M Advisors, Inc.
Development Fund primarily in securities (including common stocks,
convertible securities and bonds) of small- and
medium-sized companies.
- ------------------------------------------------------------------------------------------------------------------------------
3IF American Century VP Objective: long term capital growth. Invests American Century Investment
International Fund primarily in stocks of growing foreign companies. Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3VA American Century VP Value Objective: long-term capital growth, with income as American Century Investment
Fund a secondary objective. Invests primarily in Management, Inc.
securities that management believes to be
undervalued at the time of purchase.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3GI Fidelity VIP III Growth & Objective: high total return through a
Income Portfolio (Service combination of current income and capital Fidelity Management &
Class) appreciation. Invests primarily in common stocks Research Company (FMR),
with a focus on those that pay current investment manager; FMR
dividends and show potential for U.K. and FMR Far East,
capital appreciation. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3MP Fidelity VIP III Mid Cap Objective: long-term growth of capital. Invests FMR, investment manager;
Portfolio (Service Class) primarily in medium market capitalization common FMR U.K. and FMR Far East,
stocks. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3OS Fidelity VIP Overseas Objective: long-term growth of capital. Invests FMR, investment manager;
Portfolio (Service Class) primarily in common stocks of foreign securities. FMR U.K., FMR Far East,
Fidelity International
Investment Advisors(FIIA)
and FIIA U.K., sub-investment
advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3RE Franklin Templeton VIP Objective: capital appreciation with a secondary Franklin Advisers, Inc.
Trust Real Estate goal to earn current income. Invests primarily in
Securities Fund - Class 2 securities of companies operating in the real
estate industry, primarily equity real estate
investment trusts (REITS).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3IS Franklin Templeton VIP Objective: long-term capital appreciation. Invests Templeton Investment
Trust Templeton primarily in equity securities of smaller Counsel, Inc.
International Smaller companies located outside the U.S., including in
Companies Fund - Class 2 emerging markets.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3SI Franklin Templeton VIP Objective: long-term total return. Invests Franklin Advisory Services,
Trust Value Securities primarily in equity securities of companies the LLC
Fund - Class 2 manager believes are significantly undervalued.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3SE Goldman Sachs VIT CORESM Objective: long-term growth of capital. Invests Goldman Sachs Asset
Small Cap Equity Fund primarily in a broadly diversified portfolio of Management
equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of
investment.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3UE Goldman Sachs VIT CORESM Objective: long-term growth of capital and dividend Goldman Sachs Asset
U.S. Equity Fund income. Invests primarily in a broadly diversified Management
portfolio of large-cap and blue chip equity
securities representing all major sectors of the
U.S. economy.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3MC Goldman Sachs VIT Mid Cap Objective: long-term capital appreciation. Invests Goldman Sachs Asset
Value Fund primarily in mid-capitalization U.S. stocks that Management
are believed to be undervalued or undiscovered by
the marketplace.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3IP Lazard Retirement Objective: long-term capital appreciation. Invests Lazard Asset Management
International Equity primarily in equity securities, principally common
Portfolio stocks of relatively large non-U.S. companies
(those whose total market value is more than $1
billion) that the Investment Manager believes are
undervalued based on their earnings, cash flow or
asset values.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3IN Putnam VT International Objective: long-term capital appreciation by Putnam Investment
New Opportunities Fund - investing in companies that have above-average Management, Inc.
Class IB Shares growth prospects due to the fundamental growth of
their market sector. Invests primarily in growth
stocks outside the U.S.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3VS Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily Putnam Investment
Class IB Shares in a diversified portfolio of common stocks that Management, Inc.
Putnam Management believes have the
potential for above-average capital
appreciation.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3MI Royce Micro-Cap Portfolio Objective: long-term growth of capital. Invests Royce & Associates, Inc.
primarily in a broadly diversified portfolio of
equity securities issued by micro-cap companies
(companies with stock market capitalizations below
$300 million).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3SV Third Avenue Value Objective: long-term capital appreciation. Invests The Investment Adviser EQSF
Portfolio primarily in common stocks of well-finance Advisers, Inc.
companies at a substantial discount to what the
Advisor believes is their true value.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3IT Wanger International Small Objective: long-term growth of capital. Invests Wanger Asset Management,
Cap primarily in stocks of small- and medium-size L.P.
non-U.S. companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3SP Wanger U.S. Small Cap Objective: long-term growth of capital. Invests Wanger Asset Management,
primarily in stocks of small- and medium-size U.S. L.P.
companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
3EG Warburg Pincus Trust - Objective: maximum capital appreciation. Invests Warburg Pincus Asset
Emerging Growth Portfolio primarily in equity securities of small- to medium Management, Inc.
sized U.S. emerging-growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
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.
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.
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 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.
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 variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
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 federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
<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.)
<PAGE>
Buying Your Contract
You can fill out an 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:
o the fixed account and/or subaccounts in which you want to invest;
o how you want to make purchase payments; and
o a beneficiary.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed account in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to 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 settlement date
Annuity payouts are scheduled to begin on the settlement date. When we process
your application, we will establish the settlement 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.
For nonqualified annuities, the settlement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the 10th contract
anniversary, if purchased after age 75. (In Pennsylvania, the maximum
settlement 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, to avoid IRS penalty taxes, the settlement date
generally must be:
o on or after the date the annuitant reaches age 59 1/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2; or
o for all other 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 settlement 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.)
Beneficiary
If death benefits become payable before the settlement 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 payments
Minimum allowable purchase payments
For employees/advisors:
If paying by installments* If paying by any other method:
under a scheduled payment $1,000 initial payment for qualified plans
plan: $2,000 initial payment for nonqualified plans
$23.08 biweekly, or $50 for any additional payments
$50 per month
For other individuals:
$1 million
* 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 allowable purchase payments** based on the age of you or the annuitant,
whoever is older, on the effective date of the contract:
For employees/advisors:
First year: Each subsequent year:
$ 100,000 for ages 86 to 90 $ 50,000 for ages 86-90
$2,000,000 up to age 85 $100,000 up to age 85
For other individuals:
First year: Each subsequent year:
$1,000,000 for ages 86 to 90 $100,000
$2,000,000 up to age 85
**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.
We reserve the right to not accept purchase payments allocated to the fixed
account for twelve months following either:
1. a partial surrender from the fixed account; or
2. a lump sum transfer from the fixed account to a subaccount.
How to make purchase payments
1 Send your check along with your name and 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
2 For employees/advisors only
By Scheduled We can help you set up:
payment plan
o an automatic payroll deduction, salary reduction or other
group billing arrangement; or
o a bank authorization.
<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 $50,000 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. The fee totals 0.55% of the 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.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o 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.
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 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 charge. 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 your 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.
<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:
o the sum of your purchase payments and transfer amounts allocated to the
fixed account;
o plus interest credited;
o minus the sum of amounts surrendered and amounts transferred out; and
o 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.
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 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:
o additional purchase payments you allocate to the subaccounts;
o transfers into or out of the subaccounts;
o partial surrenders; and/or
o prorated portions of the contract administrative charge.
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fees.
<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.
How dollar-cost averaging works
<TABLE>
<CAPTION>
How dollar-cost averaging works
<S> <C> <C> <C> <C>
By investing an Amount Accumulation unit Number of units
equal number of Month invested value purchased
dollars each month... Jan $100 $20 5.00
Feb 100 18 5.56
you automatically buy Mar 100 17 5.88
more units when the Apr 100 15 6.67
per unit market price May 100 16 6.25
is low... Jun 100 18 5.56
Jul 100 17 5.88
and fewer units when Aug 100 19 5.26
the per unit market Sept 100 21 4.76
price is high. Oct 100 20 5.00
</TABLE>
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 us.
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" below.)
Transfer policies
o 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.
o 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).
o 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.
o 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.
o We will not accept requests for transfers from the fixed account at any
other time.
o 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.
<PAGE>
How to request a transfer or surrender
1 Send your name, contract number, Social Security
By letter Number or Taxpayer Identification Number and signed
request for a transfer or surrender to:
Regular mail:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, MN 55402
Minimum amount
Transfers or
surrenders: $250 or entire account balance
Maximum amount
Transfers or
surrenders: Contract value
2 We can help you set up automated transfers among your
By automated transfers subaccounts or fixed account or partial surrenders
and automated partial from the accounts.
surrenders You can start or stop this service by written request
or other method acceptable to us. You must allow 30
days for us to change any instructions that are
currently in place.
o 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.
o Automated surrenders may be restricted by
applicable law under some contracts.
o You may not make additional purchase payments if
automated partial surrenders are in effect.
o Automated partial surrenders may result in IRS
taxes and penalties on all or part of the amount
surrendered.
Minimum amount
Transfers or
surrenders: $50
3 Call between 7 a.m. and 6 p.m. Central time:
By phone
800-437-0602
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
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 and surrenders are automatically available. You may request
that telephone transfers and surrenders not be authorized from your account by
writing to us.
<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 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:
o payable to you;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
By wire:
o request that payment be wired to your bank;
o bank account must be in the same ownership as your contract; and
o pre-authorization required.
For instructions, contact us.
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.
<PAGE>
TSA -- Special Surrender Provisions
Participants in Tax-Sheltered Annuities: The Code imposes certain restrictions
on your right to receive early distributions from a TSA:
o 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.
o 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.
o Even though a distribution may be permitted under the above rules, it may
be subject to IRS taxes and penalties (see "Taxes").
o 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.
o 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.
o If the contract has a loan provision, the right to receive a loan as
described in detail in your contract.
<PAGE>
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.
<PAGE>
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:
If both you and the annuitant are age 80 or younger on the date of death, the
beneficiary receives the greatest of:
o the contract value;
o purchase payments, minus any "adjusted partial surrenders"; or
o the contract value as of the most recent sixth contract anniversary, plus
any purchase payments paid and minus any "adjusted partial surrenders"
since that anniversary.
If either you or the annuitant are age 81 or older on the date of death, the
beneficiary receives the greater of:
o the contract value; or
o purchase payments minus any "adjusted partial surrenders."
Adjusted partial surrenders: We calculate an "adjusted partial surrender" for
each partial surrender as the product of (a) times (b) where
(a) is the ratio of the amount of the partial surrender to the
contract value on the date of (but prior to) the partial
surrender; and
(b) is the death benefit on the date of (but prior to) the
partial surrender.
Example of death benefit calculation when the owner and annuitant are age 80 or
younger:
o The contract is purchased with a payment of $20,000 on Jan. 1, 2000.
o On Jan 1, 2006 (the 6th contract anniversary) the contract value has grown
to $30,000.
o March 1, 2006 the contract value has fallen to $28,000 at which point the
owner takes a $1,500 partial surrender, leaving a contract value of $26,500.
The death benefit on March 1, 2006 is calculated as follows:
The contract value on the most recent 6th contract anniversary: $30,000.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial surrenders" taken since that
anniversary calculated as: $1,500 x $30,000 =
$28,000 - 1,607.14
------------
for a death benefit of: $ 28,392.86
If your spouse is sole beneficiary under a nonqualified annuity and you die
before the settlement 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 age 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:
o the beneficiary asks us in writing within 60 days after we receive proof
of death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o 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.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the settlement 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 settlement date (less any applicable premium tax).
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 settlement 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:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o 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."
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 settlement 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:
o 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.
o 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 settlement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o 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.
o 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.
o 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. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. The
present value is determined separately for each subaccount from which you
are currently scheduled to receive payments. The present value for each
subaccount is equal to the discounted value of the remaining annuity
payments which are assumed to remain level. The discount rate used
in the calculation will vary between 5.05% and 7.15% depending on the
applicable assumed investment rate (AIR) and the fund management fees.
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:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant
and a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's settlement 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.
<PAGE>
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.
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: 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.
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 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.
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. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you
surrender your 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.
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 or SEP), 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:
o instead of receiving the distribution check, you elect to have the
distribution rolled over directly to an IRA or another eligible plan;
o the payout is one in a series of substantially equal periodic payouts, made
at least annually, over your life or life expectancy (or the joint lives or
life expectancies of you and your designated beneficiary) or over a
specified period of 10 years or more; or
o the 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.
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 amendments.
<PAGE>
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:
o the reserve held in each subaccount for your contract; divided by
o 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.
<PAGE>
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o 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 for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or 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.
<PAGE>
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 will pay commissions for sales of the contracts of up to 7% of the
total purchase payments to AEFA. This revenue is used to cover distribution
costs that include compensation to advisors and field leadership for the selling
advisors. These commissions consist of a combination of time of sale and
on-going service / trail commissions (which, when totaled, could exceed 7% of
purchase payments). From time to time, IDS Life will pay or permit other
promotional incentives, in cash or credit or other compensation
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 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 seek 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.
<PAGE>
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. All of the major systems used by IDS Life and by the Variable
Account are maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. IDS Life's and the Variable Account's businesses are heavily
dependent upon AEFC's computer systems and have significant interactions with
systems of 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 have been taken to resolve potential problems including
modification to existing software and the purchase of new software. AEFC's
target date for substantially completing its program of corrective measures on
internal business critical systems was Dec. 31, 1998. As of June 30, 1999, AEFC
completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. 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 failure of external parties to resolve their own
Year 2000 issues in a timely manner could result in a material financial risk to
AEFC, IDS Life or the Variable Account.
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>
Table of Contents of the Statement of Additional Information
Performance Information p.
Calculating Annuity Payouts p.
Rating Agencies p.
Principal Underwriter p.
Independent Auditors p.
Financial Statements
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
- -- American Express Retirement Advisor Variable AnnuitySM - Band 3
- -- American Express Variable Portfolio Funds
- -- AIM Variable Insurance Funds, Inc.
- -- American Century Variable Portfolios, Inc.
- -- Fidelity Variable Insurance Products Funds - Service Class
- -- Franklin Templeton Variable Insurance Products Trust - Class 2
- -- Goldman Sachs Variable Insurance Trust (VIT)
- -- Lazard Retirement Series, Inc.
- -- Putnam Variable Trust
- -- Royce Capital Fund
- -- Third Avenue Variable Series Trust
- -- Wanger Advisors Trust
- -- Warburg Pincus Trust
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 ________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
AMERICAN EXPRESS RETIREMENT ADVISOR VARIABLE ANNUITYSM
IDS Life Variable Account 10
__, 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 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
Performance Information...................................................p.
Calculating Annuity Payouts...............................................p.
Rating Agencies...........................................................p.
Principal Underwriter.....................................................p.
Independent Auditors......................................................p.
Financial Statements
<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 ten 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. Currently we do not show any performance information
for the subaccounts because they are new and have not had any activity to date.
However, we show performance from the commencement date of the funds as if the
contract existed at that time, which it did not. Past performance does not
guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Nonqualified Annuities With a Seven-Year Surrender Charge Schedule For Periods
Ending Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC1 Blue Chip Advantage Fund+ --% --% --% --%
BD1 Bond Fund (10/81)** -5.85 5.06 7.84 10.16
CR1 Capital Resource Fund (10/81) 15.88 14.94 14.66 14.39
CM1 Cash Management Fund (10/81) -2.51 3.18 4.27 5.62
DE1 Diversified Equity Income Fund+ -- -- -- --
EI1 Extra Income Fund (5/96) -11.30 -- -- 1.69
FI1 Federal Income Fund+ -- -- -- --
GB1 Global Bond Fund (5/96) 0.17 -- -- 3.95
GR1 Growth Fund+ -- -- -- --
IE1 International Fund (1/92) 7.66 5.64 -- 8.11
MF1 Managed Fund (4/86) 7.63 12.29 13.42 11.60
ND1 New Dimensions Fund (5/96) 20.36 -- -- 21.17
SC1 Small Cap Advantage Fund + -- -- -- --
SA1 Strategy Aggressive Fund (1/92) -4.83 8.97 -- 9.55
AIM V.I.
1CA Capital Appreciation Fund (5/93) 11.13 15.61 -- 17.23
1CD Capital Development Fund (5/98) -- -- -- -13.91
American Century
1IF VP International Fund (5/94) 3.93 -- -- 8.35
1VA VP Value Fund (5/96) 0.48 -- -- 14.15
FIDELITY VIP
1GI III Growth & Income Portfolio 20.29 -- -- 23.91
(Service Class) (12/96)
1MP III Mid Cap Portfolio (Service -- -- -- -3.49
Class) (12/98)
1OS Overseas Portfolio (Service Class) -1.27 0.34 5.10 5.40
(12/87)
FRANKLIN TEMPLETON VIP TRUST
1RE Real Estate Securities Fund - Class -23.09 7.69 -- 8.90
2 (1/89)***
1IS Templeton International Smaller -19.20 -- -- -4.30
Companies Fund - Class 2 (5/96)***
1SI Value Securities Fund - Class 2 -- -- -- -27.39
(5/98)***
GOLDMAN SACHS Variable Insurance Trust
(VIT)
1SE CORESM Small Cap Equity Fund (2/98) -- -- -- -15.80
1UE CORESM U.S. Equity Fund (2/98) -- -- -- 6.60
1MC Mid Cap Value Fund (4/98) -- -- -- -19.48
LAZARD RETIREMENT SERIES, INC.
1IP International Equity Portfolio (9/98) -- -- -- 4.88
PUTNAM VARIABLE TRUST
1IN Putnam VT International New -- -- -- -7.91
Opportunities Fund - Class IB Shares
(4/98)
1VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
1MI Micro-Cap Portfolio (12/96) -16.14 -- -- -2.02
THIRD AVENUE VARIABLE SERIES TRUST
1SV Value Portfolio + -- -- -- --
WANGER
1IT International Small Cap (5/95) 8.17 -- -- 19.18
1SP U.S. Small Cap (5/95) 0.76 -- -- 24.71
WARBURG PINCUS TRUST
1EG Emerging Growth Portfolio + -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender
charge schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Nonqualified Annuities With a Ten-Year Surrender Charge Schedule For Periods
Ending Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC1 Blue Chip Advantage Fund+ --% --% --% --%
BD1 Bond Fund (10/81)** -6.76 4.73 7.74 10.16
CR1 Capital Resource Fund (10/81) 14.88 14.71 14.60 14.39
CM1 Cash Management Fund (10/81) -3.45 2.83 4.13 5.62
DE1 Diversified Equity Income Fund+ -- -- -- --
EI1 Extra Income Fund (5/96) -12.15 -- -- 1.32
FI1 Federal Income Fund+ -- -- -- --
GB1 Global Bond Fund (5/96) -0.79 -- -- 3.60
GR1 Growth Fund+ -- -- -- --
IE1 International Fund (1/92) 6.66 5.32 -- 7.84
MF1 Managed Fund (4/86) 6.63 12.04 13.35 11.60
ND1 New Dimensions Fund (5/96) 19.36 -- -- 20.90
SC1 Small Cap Advantage Fund+ -- -- -- --
SA1 Strategy Aggressive Fund (1/92) -5.74 8.69 -- 9.30
AIM V.I.
1CA Capital Appreciation Fund (5/93) 10.13 15.39 -- 17.06
1CD Capital Development Fund (5/98) -- -- -- -14-73
American Century
1IF VP International Fund (5/94) 2.93 -- -- 8.03
1VA VP Value Fund (5/96) -0.49 -- -- 13.85
FIDELITY VIP
1GI III Growth & Income Portfolio 19.29 -- -- 23.51
(Service Class) (12/96)
1MP III Mid Cap Portfolio (Service -- -- -- -4.42
Class) (12/98)
1OS Overseas Portfolio (Service Class) -2.22 -0.04 5.10 5.40
(12/87)
FRANKLIN TEMPLETON VIP TRUST
1RE Real Estate Securities Fund - Class -23.81 7.40 -- 8.80
2 (1/89)***
1IS Templeton International Smaller -19.20 -- -- -4.64
Companies Fund - Class 2 (5/96)***
1SI Value Securities Fund - Class 2 -- -- -- -28.06
(5/98)***
GOLDMAN SACHS VARIBALE INSURANCE TRUST
(VIT)
1SE CORESM Small Cap Equity Fund (2/98) -- -- -- -16.60
1UE CORESM U.S. Equity Fund (2/98) -- -- -- 5.60
1MC Mid Cap Value Fund (4/98) -- -- -- -20.24
LAZARD RETIREMENT SERIES, INC.
1IP International Equity Portfolio (9/98) -- -- -- 3.88
PUTNAM VARIABLE TRUST
1IN Putnam VT International New -- -- -- -8.79
Opportunities Fund - Class IB Shares
(4/98)
1VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
1MI Micro-Cap Portfolio (12/96) -16.14 -- -- -2.50
THIRD AVENUE VARIABLE SERIES TRUST
1SV Value Portfolio+ -- -- -- --
WANGER
1IT International Small Cap (5/95) 7.17 -- -- 19.01
1SP U.S. Small Cap (5/95) -0.22 -- -- 24.56
WARBURG PINCUS TRUST
1EG Emerging Growth Portfolio+ -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender charge
schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Nonqualified Annuities Without Surrender For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC1 Blue Chip Advantage Fund+ --% --% --% --%
BD1 Bond Fund (10/81)** 0.48 5.71 7.84 10.16
CR1 Capital Resource Fund (10/81) 22.88 15.40 14.66 14.39
CM1 Cash Management Fund (10/81) 4.08 3.88 4.27 5.62
DE1 Diversified Equity Income Fund+ -- -- -- --
EI1 Extra Income Fund (5/96) -5.38 -- -- 4.18
FI1 Federal Income Fund+ -- -- -- --
GB1 Global Bond Fund (5/96) 6.96 -- -- 6.36
GR1 Growth Fund+ -- -- -- --
IE1 International Fund (1/92) 14.66 6.25 -- 8.29
MF1 Managed Fund (4/86) 14.63 12.79 13.42 11.60
ND1 New Dimensions Fund (5/96) 27.36 -- -- 23.05
SC1 Small Cap Advantage Fund+ -- -- -- --
SA1 Strategy Aggressive Fund (1/92) 1.58 9.53 -- 9.72
AIM V.I.
1CA Capital Appreciation Fund (5/93) 18.13 16.06 -- 17.57
1CD Capital Development Fund (5/98) -- -- -- -8.18
American Century
1IF VP International Fund (5/94) 10.93 -- -- 9.13
1VA VP Value Fund (5/96) 7.29 -- -- 16.23
FIDELITY VIP
1GI III Growth & Income Portfolio 27.29 -- -- 26.71
(Service Class) (12/96)
1MP III Mid Cap Portfolio (Service -- -- -- 3.03
Class) (12/98)
1OS Overseas Portfolio (Service Class) 5.41 1.09 5.10 5.40
(12/87)
FRANKLIN TEMPLETON VIP TRUST
1RE Real Estate Securities Fund - Class -18.06 8.43 -- 8.90
2 (1/89)***
1IS Templeton International Smaller -13.05 -- -- -2.00-
Companies Fund - Class 2 (5/96)***
1SI Value Securities Fund - Class 2 -- -- -- -22.68
(5/98)***
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(VIT)
1SE CORESM Small Cap Equity Fund (2/98) -- -- -- -10.21
1UE CORESM U.S. Equity Fund (2/98) -- -- -- 13.60
1MC Mid Cap Value Fund (4/98) -- -- -- -14.18
LAZARD RETIREMENT SERIES, INC.
1IP International Equity Portfolio (9/98) -- -- -- 11.88
PUTNAM VARIABLE TRUST
1IN Putnam VT International New -- -- -- -1.73
Opportunities Fund - Class IB Shares
(4/98)
1VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
1MI Micro-Cap Portfolio (12/96) -10.59 -- -- 1.24
THIRD AVENUE VARIABLE SERIES TRUST
1SV Value Portfolio+ -- -- -- --
WANGER
1IT International Small Cap (5/95) 15.17 -- -- 20.19
1SP U.S. Small Cap (5/95) 7.59 -- -- 25.61
WARBURG PINCUS TRUST
1EG Emerging Growth Portfolio+ -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender charge
schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Qualified Annuities With a Seven-Year Surrender Charge Schedule For Periods
Ending Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC2 Blue Chip Advantage Fund+ --% --% --% --%
BD2 Bond Fund (10/81)** -5.67 5.11 8.06 10.23
CR2 Capital Resource Fund (10/81) 16.12 15.06 14.89 14.49
CM2 Cash Management Fund (10/81) -2.31 3.22 4.48 5.70
DE2 Diversified Equity Income Fund+ -- -- -- --
EI2 Extra Income Fund (5/96) -11.13 -- -- 1.90
FI2 Federal Income Fund+ -- -- -- --
GB2 Global Bond Fund (5/96) 0.37 -- -- 4.17
GR2 Growth Fund+ -- -- -- --
IE2 International Fund (1/92) 7.89 5.70 -- 8.33
MF2 Managed Fund (4/86) 7.86 12.40 13.64 11.83
ND2 New Dimensions Fund (5/96) 20.62 -- -- 21.43
SC2 Small Cap Advantage Fund+ -- -- -- --
SA2 Strategy Aggressive Fund (1/92) -4.64 9.06 -- 9.77
AIM V.I.
2CA Capital Appreciation Fund (5/93) 11.36 15.74 -- 17.47
2CD Capital Development Fund (5/98) -- -- -- -13.80
American Century
2IF VP International Fund (5/94) 4.15 -- -- 8.57
2VA VP Value Fund (5/96) 0.56 -- -- 14.34
FIDELITY VIP
2GI III Growth & Income Portfolio 20.55 -- -- 24.17
(Service Class) (12/96)
2MP III Mid Cap Portfolio (Service -- -- -- -3.48
Class) (12/98)
2OS Overseas Portfolio (Service Class) -1.07 1.29 5.79 6.05
(12/87)
FRANKLIN TEMPLETON VIP TRUST
2RE Real Estate Securities Fund - Class -22.59 8.49 -- 9.41
2 (1/89)***
2IS Templeton International Smaller -18.28 -- -- -4.11
Companies Fund - Class 2 (5/96)***
2SI Value Securities Fund - Class 2 -- -- -- -27.29
(5/98)***
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(VIT)
2SE CORESM Small Cap Equity Fund (2/98) -- -- -- -15.65
2UE CORESM U.S. Equity Fund (2/98) -- -- -- 6.80
2MC Mid Cap Value Fund (4/98) -- -- -- -19.38
LAZARD RETIREMENT SERIES, INC.
2IP International Equity Portfolio (9/98) -- -- -- 4.96
PUTNAM VARIABLE TRUST
2IN Putnam VT International New -- -- -- -7.79
Opportunities Fund - Class IB Shares
(4/98)
2VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
2MI Micro-Cap Portfolio (12/96) -15.98 -- -- -1.83
THIRD AVENUE VARIABLE SERIES TRUST
2SV Value Portfolio+ -- -- -- --
WANGER
2IT International Small Cap (5/95) 8.40 -- -- 19.42
2SP U.S. Small Cap (5/95) 0.96 -- -- 24.96
WARBURG PINCUS TRUST
2EG Emerging Growth Portfolio+ -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender charge
schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Qualified Annuities With a Ten-Year Surrender Charge Schedule For Periods Ending
Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC2 Blue Chip Advantage Fund+ --% --% --% --%
BD2 Bond Fund (10/81)** -6.57 4.95 7.96 10.23
CR2 Capital Resource Fund (10/81) 16.12 15.06 14.89 14.49
CM2 Cash Management Fund (10/81) -3.26 3.04 4.34 5.70
DE2 Diversified Equity Income Fund+ -- -- -- --
EI2 Extra Income Fund (5/96) -11.98 -- -- 1.54
FI2 Federal Income Fund+ -- -- -- --
GB2 Global Bond Fund (5/96) -0.60 -- -- 3.82
GR2 Growth Fund+ -- -- -- --
IE2 International Fund (1/92) 6.89 5.54 -- 8.06
MF2 Managed Fund (4/86) 6.86 12.27 13.58 11.83
ND2 New Dimensions Fund (5/96) 19.62 -- -- 21.15
SC2 Small Cap Advantage Fund+ -- -- -- --
SA2 Strategy Aggressive Fund (1/92) -5.55 8.91 -- 9.52
AIM V.I.
2CA Capital Appreciation Fund (5/93) 10.36 15.63 -- 17.30
2CD Capital Development Fund (5/98) -- -- -- -14.62
American Century
2IF VP International Fund (5/94) 3.15 -- -- 8.25
2VA VP Value Fund (5/96) -0.41 -- -- 14.04
FIDELITY VIP
2GI III Growth & Income Portfolio 19.55 -- -- 23.77
(Service Class) (12/96)
2MP III Mid Cap Portfolio (Service -- -- -- -4.41
Class) (12/98)
2OS Overseas Portfolio (Service Class) -2.03 0.91 5.79 6.05
(12/87)
FRANKLIN TEMPLETON VIP TRUST
2RE Real Estate Securities Fund - Class -22.59 8.20 -- 9.32
2 (1/89)***
2IS Templeton International Smaller -18.28 -- -- -4.45
Companies Fund - Class 2 (5/96)***
2SI Value Securities Fund - Class 2 -- -- -- -27.96
(5/98)***
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(VIT)
2SE CORESM Small Cap Equity Fund (2/98) -- -- -- -16.45
2UE CORESM U.S. Equity Fund (2/98) -- -- -- 5.80
2MC Mid Cap Value Fund (4/98) -- -- -- -20.14
LAZARD RETIREMENT SERIES, INC.
2IP International Equity Portfolio (9/98) -- -- -- 3.96
PUTNAM VARIABLE TRUST
2IN Putnam VT International New -- -- -- -8.67
Opportunities Fund - Class IB Shares
(4/98)
2VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
2MI Micro-Cap Portfolio (12/96) -16.77 -- -- -2.30
THIRD AVENUE VARIABLE SERIES TRUST
2SV Value Portfolio+ -- -- -- --
WANGER
2IT International Small Cap (5/95) 7.40 -- -- 19.25
2SP U.S. Small Cap (5/95) -0.02 -- -- 24.81
WARBURG PINCUS TRUST
2EG Emerging Growth Portfolio+ -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender charge
schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Qualified Annuities Without Surrender For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC2 Blue Chip Advantage Fund+ --% --% --% --%
BD2 Bond Fund (10/81)** 0.68 5.92 8.06 10.23
CR2 Capital Resource Fund (10/81) 23.12 15.63 14.89 14.49
CM2 Cash Management Fund (10/81) 4.29 4.09 4.48 5.70
DE2 Diversified Equity Income Fund+ -- -- -- --
EI2 Extra Income Fund (5/96) -5.19 -- -- 4.39
FI2 Federal Income Fund+ -- -- -- --
GB2 Global Bond Fund (5/96) 7.18 -- -- 6.58
GR2 Growth Fund+ -- -- -- --
IE2 International Fund (1/92) 14.89 6.49 -- 8.50
MF2 Managed Fund (4/86) 14.86 13.02 13.64 11.83
ND2 New Dimensions Fund (5/96) 27.62 -- -- 23.30
SC2 Small Cap Advantage Fund+ -- -- -- --
SA2 Strategy Aggressive Fund (1/92) 1.79 9.75 -- 9.94
AIM V.I.
2CA Capital Appreciation Fund (5/93) 18.36 16.29 -- 17.80
2CD Capital Development Fund (5/98) -- -- -- -8.06
American Century
2IF VP International Fund (5/94) 11.15 -- -- 9.35
2VA VP Value Fund (5/96) 7.38 -- -- 16.41
FIDELITY VIP
2GI III Growth & Income Portfolio 27.55 -- -- 26.96
(Service Class) (12/96)
2MP III Mid Cap Portfolio (Service -- -- -- 3.03
Class) (12/98)
2OS Overseas Portfolio (Service Class) 5.62 2.23 5.79 6.05
(12/87)
FRANKLIN TEMPLETON VIP TRUST
2RE Real Estate Securities Fund - Class -17.51 9.14 -- 9.41
2 (1/89)***
2IS Templeton International Smaller -12.80 -- -- -1.81
Companies Fund - Class 2 (5/96)***
2SI Value Securities Fund - Class 2 -- -- -- -22.57
(5/98)***
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(VIT)
2SE CORESM Small Cap Equity Fund (2/98) -- -- -- -10.06
2UE CORESM U.S. Equity Fund (2/98) -- -- -- 13.80
2MC Mid Cap Value Fund (4/98) -- -- -- -14.06
LAZARD RETIREMENT SERIES, INC.
2IP International Equity Portfolio (9/98) -- -- -- 11.96
PUTNAM VARIABLE TRUST
2IN Putnam VT International New -- -- -- -1.60
Opportunities Fund - Class IB Shares
(4/98)
2VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
2MI Micro-Cap Portfolio (12/96) -10.40 -- -- 1.44
THIRD AVENUE VARIABLE SERIES TRUST
2SV Value Portfolio+ -- -- -- --
WANGER
2IT International Small Cap (5/95) 15.40 -- -- 20.43
2SP U.S. Small Cap (5/95) 7.81 -- -- 25.86
WARBURG PINCUS TRUST
2EG Emerging Growth Portfolio+ -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender charge
schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<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).
Total return figures reflect the deduction of the surrender charge which assumes
you withdraw the entire contract value at the end of the one, five and ten year
periods (or, if less, up to the life of the subaccount). We also may show
performance figures without the deduction of a surrender charge. In addition,
total return figures reflect the deduction of all other applicable charges
including the contract administrative charge and mortality and expense risk fee.
Annualized Calculation of Yield for Subaccounts Investing in Money Market Funds
Annualized 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
<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.
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.
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 settlement 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.
<PAGE>
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 settlement 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
may 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 settlement 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.
The contract is new and, therefore, we have not received any surrender charges
or paid any commissions.
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
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.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 4, 1999
Minneapolis, Minnesota
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
($ thousands)
ASSETS 1998 1997
<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 $52,974,124
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
December 31,
($ thousands, except share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
<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
Commitments and contingencies
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 $52,974,124
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<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
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1998
($ thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Total Additional
Stockholder's Capital Paid-In Income, Retained
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 $(308) 571 -- -- 571 --
----------------- --------------------
----------------- --------------------
Other comprehensive income 140,257 -- -- 140,257 --
-----------------
Comprehensive income 614,504 -- -- -- --
Capital contribution from parent 7,232 -- 7,232 -- --
Cash dividends to parent (200,000) -- -- -- (200,000)
----------------------------------------------------------------------------
Balance, December 31, 1997 2,865,816 3,000 290,847 226,359 2,345,610
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (continued)
Three years ended December 31, 1998
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Total Additional
Stockholder's Capital Paid-In Income, Retained
Equity Stock Capital Net of Tax Earnings
<S> <C> <C> <C> <C> <C>
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 $2,645,721
============================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
1998 1997 1996
<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 loans, excluding universal
life-type insurance:
Issuance (53,883) (54,665) (49,314)
Repayment 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
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended December 31,
($ thousands)
1998 1997 1996
<S> <C> <C> <C>
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 other 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 (used in) provided by
financing activities (872,466) 212,874 499,813
Net increase (decrease) 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
See accompanying notes
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a wholly
owned subsidiary of American Express Financial Corporation (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 accumulated 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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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 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 incom
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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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.
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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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
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 $12,061, receivable from, respectively, AEFC for federal
income taxes.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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 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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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 $8,420,035
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
<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 158 --
3,000 3,158
$13,347,949 $427,398 $159,050 $13,616,297
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1997
are as follows:
<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 $ 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
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency obligations $ 65,291 $ 4,154 $ -- $ 69,445
State and municipal obligations 11,045 1,348 -- 12,393
Corporate bonds and obligations 5,308,129 232,761 30,198 5,510,692
Mortgage-backed securities 7,130,565 160,478 6,879 7,284,164
Total fixed maturities 12,515,030 398,741 37,077 12,876,694
Equity securities 3,000 361 --
3,361
$12,518,030 $399,102 $37,077 $12,880,055
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
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
Amortized Fair
Available for sale Cost Value
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 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 $14,302 were on deposit with various
states as required by law.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
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 $110,985
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
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, $2,981 and $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 $nil.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
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>
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 $207,138
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
3. Income taxes (continued)
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 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>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
3. Income taxes (continued)
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>
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 $990, respectively.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
5. Related party transactions (continued)
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 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 $nil at December 31, 1998
and 1997.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
8. Derivative financial instruments (continued)
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1998 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>
Notional Carrying Fair Total Credit
December 31, 1997 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) $30,665
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps, floors and
swaps expire on various dates from 1999 to 2003. The put and call options
expire on various dates from 1999 to 2005.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the
margin between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
The Company is also using interest rate swaps to manage interest rate risk
related to the level of fee income earned on the management of fixed income
securities in separate accounts and the underlying mutual funds. The amount
of fee income received is based upon the daily market value of the separate
account and mutual fund assets. As a result, changing interest rate
conditions could impact the Company's fee income significantly. The Company
entered into interest rate swaps to hedge anticipated fee income for 1999
related to separate accounts and mutual funds which invest in fixed income
securities. Interest will be accrued and reported in accrued investment
income and other liabilities, as appropriate, and management and other
fees.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
8. Derivative financial instruments (continued)
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 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
Financial Assets Value Value Value Value
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
9. Fair values of financial instruments (continued)
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Financial Liabilities Value Value Value Value
<S> <C> <C> <C> <C>
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.
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
has been conducted to identify the major systems that could be affected by
the Year 2000 issue. Steps have been taken to resolve potential problems
including modification to existing software and the purchase of new
software. AEFC's target date for substantially completing it's program of
corrective measures on internal business critical systems was Dec. 31,
1998. As of June 30, 1999, AEFC completed its program of corrective
measures on its internal systems and applications, including Year 2000
compliance testing. The Year 2000 readiness of unaffiliated investment
managers and other third parties whose system failures could have an impact
on the Company's operations continues to be evaluated. The failure of
external parties to resolve their own Year 2000 issues in a timely manner
could result in a material financial risk to AEFC or the Company.
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>
STATEMENT OF ADDITIONAL INFORMATION
for
AMERICAN EXPRESS RETIREMENT ADVISOR VARIABLE ANNUITYSM -BAND 3
IDS Life Variable Account 10
__, 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 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
Performance Information.......................................................p.
Calculating Annuity Payouts...................................................p.
Rating Agencies...............................................................p.
Principal Underwriter.........................................................p.
Independent Auditors..........................................................p.
Financial Statements
<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 ten 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. Currently we do not show any performance information
for the subaccounts because they are new and have not had any activity to date.
However, we show performance from the commencement date of the funds as if the
contract existed at that time, which it did not. Past performance does not
guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Subaccount Investing In: 1 Year 5 Years 10 Years Since
- ---------- ------------- ------ ------- -------- Commencement
AXPSM VARIABLE PORTFOLIO
BC3 Blue Chip Advantage Fund+ --% --% --% --%
BD3 Bond Fund (10/81)** 0.88 6.13 8.27 10.45
CR3 Capital Resource Fund (10/81) 23.37 15.86 15.12 14.72
CM3 Cash Management Fund (10/81) 4.49 4.29 4.69 5.91
DE3 Diversified Equity Income Fund+ -- -- -- --
EI3 Extra Income Fund (5/96) -5.00 -- -- 4.60
FI3 Federal Income Fund+ -- -- -- --
GB3 Global Bond Fund (5/96) 7.39 -- -- 6.79
GR3 Growth Fund+ -- -- -- --
IE3 International Fund (1/92) 15.12 6.70 -- 8.72
MF3 Managed Fund (4/86) 15.09 13.24 13.87 12.05
ND3 New Dimensions Fund (5/96) 27.88 -- -- 23.55
SC3 Small Cap Advantage Fund+ -- -- -- --
SA3 Strategy Aggressive Fund (1/92) 1.99 9.97 -- 10.16
AIM V.I.
3CA Capital Appreciation Fund (5/93) 18.60 16.52 -- 18.04
3CD Capital Development Fund (5/98) -- -- -- -7.94
American Century
3IF VP International Fund (5/94) 11.38 -- -- 9.57
3VA VP Value Fund (5/96) 7.46 -- -- 16.59
FIDELITY VIP
3GI III Growth & Income Portfolio 27.80 -- -- 27.22
(Service Class) (12/96)
3MP III Mid Cap Portfolio (Service -- -- -- 3.03
Class) (12/98)
3OS Overseas Portfolio (Service Class) 5.83 3.36 6.48 6.70
(12/87)
FRANKLIN TEMPLETON VIP TRUST
3RE Real Estate Securities Fund - Class -17.35 9.36 -- 9.63
2 (1/89)***
3IS Templeton International Smaller -12.72 -- -- -1.62
Companies Fund - Class 2 (5/96)***
3SI Value Securities Fund - Class 2 -- -- -- -22.46
(5/98)***
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(VIT)
3SE CORESM Small Cap Equity Fund (2/98) -- -- -- -9.90
3UE CORESM U.S. Equity Fund (2/98) -- -- -- 14.00
3MC Mid Cap Value Fund (4/98) -- -- -- -13.94
LAZARD RETIREMENT SERIES, INC.
3IP International Equity Portfolio (9/98) -- -- -- 12.03
PUTNAM VARIABLE TRUST
3IN Putnam VT International New -- -- -- -1.47
Opportunities Fund - Class IB Shares
(4/98)
3VS Putnam VT Vista Fund - Class IB -- -- -- --
Shares (1/99)
ROYCE
3MI Micro-Cap Portfolio (12/96) -9.87 -- -- 1.64
THIRD AVENUE VARIABLE SERIES TRUST
3SV Value Portfolio+ -- -- -- --
WANGER
3IT International Small Cap (5/95) 15.63 -- -- 20.67
3SP U.S. Small Cap (5/95) 8.02 -- -- 26.10
WARBURG PINCUS TRUST
3EG Emerging Growth Portfolio+ -- -- -- --
*Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 0.95% mortality and expense risk fee and
applicable surrender charges associated with the seven-year surrender charge
schedule.
+ Fund had not commenced operations as of Dec. 31, 1998.
**(Commencement date of the Funds)
***Because Class 2 shares were not offered until Jan. 6, 1999, performance shown
represents Class 1 shares. Although invested in the same portfolio of securities
as Class 1, Class 2's standardized performance will differ because of Class 2's
additional 12b-1 fee expense which affects all performance after the inception
of Class 2. Figures assume reinvestment of dividends and capital gains.
</TABLE>
<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).
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
Annualized 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 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
<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.
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 settlement 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 settlement 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
may 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 settlement 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.
<PAGE>
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.
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.
The contract is new and, therefore, we have not received any surrender charges
or paid any commissions.
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
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.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 4, 1999
Minneapolis, Minnesota
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
($ thousands)
ASSETS 1998 1997
<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 $52,974,124
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
December 31,
($ thousands, except share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
<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
Commitments and contingencies
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 $52,974,124
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<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
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1998
($ thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Total Additional
Stockholder's Capital Paid-In Income, Retained
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 $(308) 571 -- -- 571 --
----------------- --------------------
----------------- --------------------
Other comprehensive income 140,257 -- -- 140,257 --
-----------------
Comprehensive income 614,504 -- -- -- --
Capital contribution from parent 7,232 -- 7,232 -- --
Cash dividends to parent (200,000) -- -- -- (200,000)
----------------------------------------------------------------------------
Balance, December 31, 1997 2,865,816 3,000 290,847 226,359 2,345,610
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (continued)
Three years ended December 31, 1998
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Total Additional
Stockholder's Capital Paid-In Income, Retained
Equity Stock Capital Net of Tax Earnings
<S> <C> <C> <C> <C> <C>
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 $2,645,721
============================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
1998 1997 1996
<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 loans, excluding universal
life-type insurance:
Issuance (53,883) (54,665) (49,314)
Repayment 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
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended December 31,
($ thousands)
1998 1997 1996
<S> <C> <C> <C>
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 other 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 (used in) provided by
financing activities (872,466) 212,874 499,813
Net increase (decrease) 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
See accompanying notes
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a wholly
owned subsidiary of American Express Financial Corporation (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 accumulated 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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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 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 incom
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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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.
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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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
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 $12,061, receivable from, respectively, AEFC for federal
income taxes.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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 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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies (continued)
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 $8,420,035
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
<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 158 --
3,000 3,158
$13,347,949 $427,398 $159,050 $13,616,297
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1997
are as follows:
<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 $ 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
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency obligations $ 65,291 $ 4,154 $ -- $ 69,445
State and municipal obligations 11,045 1,348 -- 12,393
Corporate bonds and obligations 5,308,129 232,761 30,198 5,510,692
Mortgage-backed securities 7,130,565 160,478 6,879 7,284,164
Total fixed maturities 12,515,030 398,741 37,077 12,876,694
Equity securities 3,000 361 --
3,361
$12,518,030 $399,102 $37,077 $12,880,055
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
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
Amortized Fair
Available for sale Cost Value
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 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 $14,302 were on deposit with various
states as required by law.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
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 $110,985
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
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, $2,981 and $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 $nil.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
2. Investments (continued)
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>
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 $207,138
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
3. Income taxes (continued)
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 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>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
3. Income taxes (continued)
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>
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 $990, respectively.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
5. Related party transactions (continued)
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 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 $nil at December 31, 1998
and 1997.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
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.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
8. Derivative financial instruments (continued)
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1998 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>
Notional Carrying Fair Total Credit
December 31, 1997 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) $30,665
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps, floors and
swaps expire on various dates from 1999 to 2003. The put and call options
expire on various dates from 1999 to 2005.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the
margin between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
The Company is also using interest rate swaps to manage interest rate risk
related to the level of fee income earned on the management of fixed income
securities in separate accounts and the underlying mutual funds. The amount
of fee income received is based upon the daily market value of the separate
account and mutual fund assets. As a result, changing interest rate
conditions could impact the Company's fee income significantly. The Company
entered into interest rate swaps to hedge anticipated fee income for 1999
related to separate accounts and mutual funds which invest in fixed income
securities. Interest will be accrued and reported in accrued investment
income and other liabilities, as appropriate, and management and other
fees.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
8. Derivative financial instruments (continued)
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 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
Financial Assets Value Value Value Value
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
9. Fair values of financial instruments (continued)
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Financial Liabilities Value Value Value Value
<S> <C> <C> <C> <C>
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.
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
has been conducted to identify the major systems that could be affected by
the Year 2000 issue. Steps have been taken to resolve potential problems
including modification to existing software and the purchase of new
software. AEFC's target date for substantially completing it's program of
corrective measures on internal business critical systems was Dec. 31,
1998. As of June 30, 1999, AEFC completed its program of corrective
measures on its internal systems and applications, including Year 2000
compliance testing. The Year 2000 readiness of unaffiliated investment
managers and other third parties whose system failures could have an impact
on the Company's operations continues to be evaluated. The failure of
external parties to resolve their own Year 2000 issues in a timely manner
could result in a material financial risk to AEFC or the Company.
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>
PART C.
Item 24. Financial Statements and Exhibits
(a) Financial statements included in Part B of this Registration Statement:
The audited financial Statements of 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.
(b) Exhibits:
1.1 Resolution of the Board of Directors of IDS Life Insurance Company
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.
1.2 Resolution of the Board of Directors of IDS Life Insurance Company
establishing 105 additional subaccounts within the separate account,
dated Aug. 23, 1999, is filed electronically herewith.
2. Not applicable.
3. Not applicable.
4.1 Form of Deferred Annuity Contract for non-qualified contracts (form
31043) filed electronically as Exhibit 4.1 to Registrant's Initial
Registration Statement No. 333-79311, filed on or about May 26, 1999,
is incorporated herein by reference.
4.2 Form of Deferred Annuity Contract for tax qualified contracts (form
31044) filed electronically as Exhibit 4.2 to Registrant's Initial
Registration Statement No. 333-79311, filed on or about May 26, 1999,
is incorporated herein by reference.
4.3 Form of Deferred Annuity Contract for IRA contracts (form 31045-IRA)
filed electronically as Exhibit 4.3 to Registrant's Initial
Registration Statement No. 333-79311, filed on or about May 26, 1999,
is incorporated herein by reference.
4.4 Form of Deferred Annuity Contract for non-qualified contracts (form
31046) filed electronically as Exhibit 4.4 to Registrant's Initial
Registration Statement No. 333-79311, filed on or about May 26, 1999,
is incorporated herein by reference.
4.5 Form of Deferred Annuity Contract for tax qualified contracts (form
31047) filed electronically as Exhibit 4.5 to Registrant's Initial
Registration Statement No. 333-79311, filed on or about May 26, 1999,
is incorporated herein by reference.
4.6 Form of Deferred Annuity Contract for IRA contracts (form 31048-IRA)
filed electronically as Exhibit 4.6 to Registrant's Initial
Registration Statement No. 333-79311, filed on or about May 26, 1999,
is incorporated herein by reference.
4.7 Form of TSA Endorsement (form 31049), is filed electronically herewith.
<PAGE>
5. Form of Variable Annuity Application (form 31063), is filed
electronically herewith.
6.1 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 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.
7. Not applicable.
8.1(a) Copy of 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.
8.1(b) Form of Amendment No. 1 to Participation Agreement between IDS Life
Insurance Company and AIM Variable Insurance Funds, Inc. and AIM
Distributors, Inc., dated Oct. 7, 1996, is filed electronically
herewith.
8.2(a) 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, is incorporated herein by reference.
8.2(b) Form of Amendment No. 1 to Participation Agreement between IDS Life
Insurance Company and American Century Investment Management, Inc. and
American Century Variable Portfolios, Inc., dated April 15, 1999, is
filed electronically herewith.
8.3 Form of Participation Agreement between IDS Life Insurance Company and
Goldman Sachs Variable Insurance Trust and Goldman, Sachs & Co.,
undated, is filed electronically herewith.
8.4(a) Copy of 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.
8.4(b) Form of Amendment No. 1 to Participation Agreement between IDS Life
Insurance Company and Putnam Capital Manager Trust and Putnam Mutual
Funds Corp., dated April 30, 1999, is filed electronically herewith.
8.5 Form of Participation Agreement between IDS Life Insurance Company and
Royce Capital Fund and Royce & Associates, Inc., undated, is filed
electronically herewith.
8.6(a) 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.
8.6(b) Form of Amendment No. 1 to Participation Agreement between IDS Life
Insurance Company and Warburg Pincus Trust and Warburg Pincus
Counsellors, Inc. and Counsellors Securities Inc., dated April 30,
1999, is filed electronically herewith.
<PAGE>
9. Opinion of counsel and consent to its use as the legality of the
securities being registered, is filed electronically herewith.
10. Consent of Independent Auditors, is 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, is filed
electronically herewith.
14. Not applicable.
15(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.
15(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 Position and Offices with Depositor
- ------------------------------------- ----------------------------------------- ----------------------------------------
IDS Tower 10
Timothy V. Bechtold Minneapolis, MN 55440 Executive Vice President, Risk
Management Products
IDS Tower 10
David J. Berry Minneapolis, MN 55440 Vice President
IDS Tower 10
Mark W. Carter Minneapolis, MN 55440 Executive Vice President, Marketing
IDS Tower 10
Robert M. Elconin Minneapolis, MN 55440 Vice President
IDS Tower 10
Lorraine R. Hart Minneapolis, MN 55440 Vice President, Investments
IDS Tower 10
Jeffrey S. Horton Minneapolis, MN 55440 Vice President, Treasurer and
Assistant Secretary
IDS Tower 10
David R. Hubers Minneapolis, MN 55440 Director
IDS Tower 10
James M. Jensen Minneapolis, MN 55440 Vice President, Insurance Product
Development
IDS Tower 10
Richard W. Kling Minneapolis, MN 55440 Director and President
IDS Tower 10
Paul F. Kolkman Minneapolis, MN 55440 Director and Executive Vice President
IDS Tower 10
Paula R. Meyer Minneapolis, MN 55440 Director and Executive Vice President,
Assured Assets
IDS Tower 10
Pamela J. Moret Minneapolis, MN 55440 Executive Vice President, Variable
Assets
IDS Tower 10
Barry J. Murphy Minneapolis, MN 55440 Director and Executive Vice President,
Client Service
IDS Tower 10
James R. Palmer Minneapolis, MN 55440 Vice President, Taxes
IDS Tower 10
Stuart A. Sedlacek Minneapolis, MN 55440 Director and Executive Vice President
IDS Tower 10
F. Dale Simmons Minneapolis, MN 55440 Vice President, Real Estate Loan
Management
IDS Tower 10
William A. Stoltzmann Minneapolis, MN 55440 Vice President, General Counsel and
Secretary
IDS Tower 10
Philip C. Wentzel Minneapolis, MN 55440 Vice President and Controller
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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.
<S> <C>
Jurisdiction of
Name of Subsidiary Incorporation
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
<PAGE>
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of Mississippi Ltd. Mississippi
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
Not applicable.
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>
<S> <C> <C> <C> <C> <C>
(c)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
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, has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Minneapolis, and State of Minnesota, on
the 10th day of August, 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 10th day
of August, 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
<PAGE>
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President
/s/ Philip C. Wentzel** Vice President and Controller
Philip C. Wentzel
*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 PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
This Pre-Effective Amendment is comprised of the following papers and documents:
The Cover Page.
Part A.
The prospectues.
Part B.
Statements of Additional Information.
Financial Statements.
Part C.
Other Information.
The signatures.
Exhibits.
<PAGE>
EXHIBIT INDEX
Exhibit 1.2 Resolution of the Board of Directors of IDS Life
Exhibit 4.7 TSA Endorsement (31049)
Exhibit 5 Variable Annuity Application (31063)
Exhibit 8.1(b) Participation Agreement, (AIM)
Exhibit 8.2(b) Participation Agreement, (American Century)
Exhibit 8.3 Participation Agreement, (Goldman)
Exhibit 8.4(b) Participation Agreement, (Putnam)
Exhibit 8.5 Participation Agreement, (Royce)
Exhibit 8.6(b) Participation Agreement, (Warburg)
Exhibit 9 Opinion of counsel
Exhibit 10 Consent of Independent Auditors
Exhibit 13 Schedule for computation
TO THE SECRETARY OF
IDS LIFE INSURANCE COMPANY
By Resolution received by the Secretary on August 23, 1995, the Board of
Directors of IDS Life Insurance Company:
RESOLVED, That IDS Life Variable Account 10, comprised of one or more
subaccounts, was established as a separate account in accordance with
Section 61A.14, Minnesota Statues; and
RESOLVED FURTHER, That the proper officers of the Corporation were
authorized and directed to establish such subaccounts within such
separate account as they determine to be appropriate; and
RESOLVED FURTHER, that the proper officers of the Corporation were
authorized and directed, as they may deem appropriate from time to time
and in accordance with applicable laws and regulations to establish
further any subaccounts.
As President of IDS Life Insurance Company, I hereby establish, in accordance
with the above resolutions and pursuant to authority granted by the Board of
Directors, 105 additional subaccounts within the separate account. Three of each
such subaccounts will invest in the following funds or portfolios:
AXPsm Variable Portfolio - Blue Chip Advantage Fund
AXPsm Variable Portfolio - Bond Fund
AXPsm Variable Portfolio - Capital Resource Fund
AXPsm Variable Portfolio - Cash Management Fund
AXPsm Variable Portfolio - Diversified Equity Income Fund
AXPsm Variable Portfolio - Extra Income Fund
AXPsm Variable Portfolio - Federal Income Fund
AXPsm Variable Portfolio - Global Bond Fund
AXPsm Variable Portfolio - Growth Fund
AXPsm Variable Portfolio - International Fund
AXPsm Variable Portfolio - Managed Fund
AXPsm Variable Portfolio - New Dimensions Fund
AXPsm Variable Portfolio - Small Cap Advantage Fund
AXPsm Variable Portfolio - Strategy Aggressive Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Capital Development Fund
American Century VP International Fund
American Century VP Value Fund
Fidelity Variable Insurance Products Fund III - Growth and Income Portfolio -
Service Class
Fidelity Variable Insurance Products Fund III - Mid Cap Portfolio- Service Class
Fidelity Variable Insurance Products Fund - Overseas Portfolio - Service Class
Franklin Templeton Variable Insurance Products Trust - Real Estate Securities
Fund - Class 2
Franklin Templeton Variable Insurance Products Trust - Templeton International
Smaller Companies Fund - Class 2
Franklin Templeton Variable Insurance Products Trust - Value Securities Fund -
Class 2
Goldman Sachs Variable Insurance Trust CORE Small Cap Equity Fund
Goldman Sachs Variable Insurance Trust CORE U.S. Equity Fund
Goldman Sachs Variable Insurance Trust Mid Cap Value Fund
Lazard Retirement Series - Lazard Retirement International Equity Portfolio
Putnam VT International New Opportunities Fund - Class IB Shares
Putnam VT Vista Fund - Class IB Shares
Royce Capital Fund - Royce Micro-Cap Portfolio
Third Avenue Variable Series Trust - Third Avenue Value Portfolio
Wanger Advisors Trust - Wanger International Small Cap
Wanger Advisors Trust - Wanger U.S. Small Cap
Warburg Pincus Trust - Emerging Growth Portfolio
In accordance with the above resolutions and pursuant to authority granted by
the Board of Directors of IDS Life Insurance Company, the Unit Investment Trust
comprised of IDS Life Variable Account 10 and consisting of 14 subaccounts is
hereby reconstituted as IDS Life Variable Account 10 consisting of 119
subaccounts.
/s/ Richard W. Kling
Richard W. Kling
Received by the Secretary:
/s/ William A. Stoltzmann
William A. Stoltzmann
Date: August 3, 1999
ENDORSEMENT - LOAN PROVISIONS
This endorsement is made a part of this contract to which it is attached. It
changes the terms and provisions of this contract.
Definition of "Debt"
"Debt" means the loan balance outstanding including any interest added to the
initial loan amount.
Request for Loan
While this contract is in force and prior to settlement, you may request a loan
of a part of the contract value provided there is no existing debt. Subject to
the rules and limits of this contract, we will grant a loan on the sole security
of this contract upon receipt of a signed written Loan Note, Agreement and
Pledge (the Loan Note) in a form satisfactory to us. Another loan request may
not be submitted until at least 30 days after any prior debt has been repaid in
full.
We have the right to defer granting of any loan from the fixed contract value,
if applicable, for six months from receipt of your request.
Loan Amount
You may request a loan for the contract's full surrender value, less an amount
representing annual loan interest, provided such amount does not exceed the
maximum loan amount set by law. The minimum loan amount you may request is $600.
The Loan Note specifies loan amount restrictions under Section 72 (p) of the
Internal Revenue Code (the Code) with which you must agree to comply.
Loan Interest
Loan interest accrues daily at an annual rate of 6% in arrears. Loan interest
will be added to your debt on a daily basis. If the interest is not paid when it
is due, it will be added to your debt and charged the same interest rate.
Loan Period and Repayment
Debt must be repaid within 5 years unless the Loan Note specifies that the loan
period shall be 10 years and is agreed to by us. The Loan Note specifies the
amount and frequency of loan repayments that are necessary to meet the
requirements under Section 72 (p) of the Code with which you must agree to
comply. A quarterly review of the contract will be conducted for loan repayment
compliance.
Repayments will reduce the debt and will be applied to the contract according to
existing purchase payment allocations unless you notify us prior to the
application of the loan payment.
Effect of Loan on Contract Value
Loans and loan interest will be processed from and charged against the contract
value. Any existing debt will reduce, by the same amount, the amounts available
for surrender, settlement, or death benefits payable. During the loan period,
the portion of the contract value equal to your debt, will earn interest at an
annual effective rate of 3% in lieu of the current fixed account interest rate.
If loan interest accrual on a defaulted loan causes the debt to exceed the
contract value, the contract value will be used to repay the outstanding loan.
Any amount not previously reported as a deemed distribution will become taxable
at this time. The contract will then be considered terminated.
Partial Surrenders During Loan Period
Partial surrenders from the contract are subject to the following:
For Active Loans
While any active loan is outstanding, no partial surrenders will be permitted,
except under the following conditions:
1. the distribution is allowable, as defined in the Code, and
2. the distribution is limited to Surrender Value not required for maintenance
of the active loan. The Loan Note specifies the amount required to remain
in the contract.
<PAGE>
For Defaulted Loans
While any defaulted loan is outstanding, no partial surrenders will be permitted
until the loan is repaid in full. The occurrence of any triggering event as
defined by the Code will allow a defaulted loan to be repaid from contract
value. You must notify us of any triggering event other than attaining age 59
1/2.
Loan Default
The following events will cause your loan to default, but not until 21 days
after we mail notice to your last known address:
1. failure to repay the loan according to the loan repayment schedule specified
in the Loan Note; or
2. failure to repay the loan by the end of the loan period.
At the time of default, or when permitted by applicable tax law, one of the
following actions will be taken by us:
1. We will fully repay the loan by surrendering the contract value, if
sufficient pre-TAMRA funds exist for the surrender. The loan will be
repaid, resulting in a taxable event; or
2. We will fully default the loan, resulting in a deemed distribution. The
loan will then remain intact and accrue interest until repaid in full, or a
triggering event is met that allows distribution of the defaulted loan.
If the loan interest accrual on a defaulted loan results in no contract value
remaining outside the loan, the loan will be distributed and the contract will
be terminated.
Surrender Charges
Any applicable contract surrender charges and IRS tax withholding will apply to
the following:
1. If your debt is not repaid prior to full surrender or settlement of the
contract and we treat your debt as a surrender; or
2. If we are required to take a distribution from your contract value to
repay your defaulted loan.
Tax Status
Loans taken under the terms of this endorsement together with the Loan Note are
intended to meet the requirements under Section 72 (p) of the Code as it now
exists or may later be amended. With respect to remaining so qualified, we
reserve the right to modify this contract to comply with: future changes of the
Code; and any other requirements imposed by the Internal Revenue Service. We
will provide you notice and copy of any such modifications.
This endorsement is issued as of the contract date of this contract unless a
different date is shown here.
IDS Life Insurance Company
William A. Stoltzmann
Secretary
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
American Express Retirement Advisor Variable Annuity Supplemental Application
This form must accompany an application. Make payment allocations and DCA
selections on this form only.
Roth IRAs and SIMPLE IRAs are not currently available for the American Express
Retirement Advisor product. Please consider this when applying for a Traditional
IRA that might be used as a vehicle for a Roth Conversion.
- -------------------------------- -----------------------------------------
Owner Name, Please Print Account Number (Corporate office use only)
1) Installment Payments per year $_________________
Minimum $600 per year. Direct billing is not available
Start date ___ / ___ / ________
Method of payment:
_____ New Bank Authorization (complete BA form in application)
Frequency: Monthly______ Quarterly______ Other______
_____ Add to existing BA with account number ___________________
_____ New Employer Bill (complete Form 3188)
_____ Add to existing Employer Billing number ___________________
2) Total submitted with application (A plus B) $_________________
Minimum $2,000 NQ / $1,000 Q
A) Total of attached cash and AEFA surrender/redemption forms $_______________
B) Total of attached External "Request for Transfer" forms $__________________
3) Premium band and surrender charge schedule selection (Indicate one each)
Premium bands are determined by the lump sum submitted with the application.
Checks, AEFA surrender/redemption forms and external transfer/rollover/exchange
forms attached to the application will be considered in determining the premium
band size. Additional payments submitted after the application will not affect
the premium band once it has been established.
NOTE: Contracts that have been granted a higher premium band due to
pending transfers/exchanges will be reviewed after 6 months to verify that
sufficient funds have been received to support the band granted.
__ $00.00 to 99,999 _ $100,000 to $999,999 _ $1 million or more
or AEFA employee
<TABLE>
<CAPTION>
<S> <C> <C>
Choose Surrender Charge duration Choose Surrender Charge duration Choose
__ 7 year (0% credit) __ 7 year (1% credit) __ 1 Million + (0% credit)
Or Or Or
__ 10 year (1% credit) __ 10 year (2% credit) __ Employee (0% credit)
</TABLE>
Purchase Payment Credit eligibility is determined based on the premium
band and surrender charge schedule you have selected. If your contract is
eligible to receive Purchase Payment Credits, additional value will be applied
to your contract each time a payment is applied. The credit will equal a
percentage of the payment received. The percentage that will apply to your
payments will not change once your account is established.
<PAGE>
Payment Allocation Instructions
Future Allocation start date ____/____/_______
Initial Future
FIX IDS Life Fixed Account % %
CM AXP VP Cash Management Fund % %
BD AXP VP Bond Fund % %
GB AXP VP Global Bond Fund % %
FI AXP VP Federal Income Fund % %
EI AXP VP Extra Income Fund % %
MF AXP VP Managed Fund % %
CR AXP VP Capital Resource Fund % %
ND AXP VP New Dimensions Fund % %
GR AXP VP Growth Fund % %
BC AXP VP Blue Chip Advantage Fund % %
DE AXP VP Diversified Equity Income Fund % %
GI Fidelity VIP III Growth & Income
Portfolio: Service Class % %
UE Goldman Sachs VIT Core US Equity Fund % %
SA AXP VP Strategy Aggressive Fund % %
CA AIM VI Capital Appreciation Fund % %
VA American Century VP Value Fund % %
MP Fidelity VIP III Mid Cap Portfolio:
Service Class % %
MC Goldman Sachs VIT Mid Cap Value Fund % %
VS Putnam VT Vista Fund - Class IB Shares % %
EG Warburg Pincus Trust - Emerging Growth
Portfolio % %
SC AXP VP Small Cap Advantage Fund % %
CD AIM VI Capital Development Fund % %
SI Franklin Templeton VIP Value Securities
Fund - Class 2 % %
SE Goldman Sachs VIT CORE Small Cap
Equity Fund % %
MI Royce Micro-Cap Portfolio % %
SV Third Avenue Value Portfolio % %
SP Wanger US Small Cap % %
IE AXP VP International Fund % %
IF American Century VP International Fund % %
OS Fidelity VIP Overseas Portfolio:
Service Class % %
IP Lazard Retirement International
Equity Portfolio % %
IN Putnam VT International New
Opportunities Fund - Class IB Shares % %
IS Franklin Templeton VIP
International Smaller Companies
Fund - Class 2 % %
IT Wanger Int'l Small Cap % %
RE Franklin Templeton VIP Real Estate
Securities Fund - Class 2 % %
o Allocations must be made in percentages. The total of percentages must equal
100%.
o Allocations may be specified to one position after the decimal, if desired.
Example: 50.6%.
o If a date is not noted, the future allocation change will be made 7 days after
the account is established.
o Future allocation may not have a start date greater than 30 days in the
future.
<PAGE>
Request for Dollar-Cost Averaging (DCA)
Money may be transferred ($50.00 minimum) from each of the accounts below.
Amounts requested to be transferred from the fixed account are restricted. The
maximum monthly fixed account transfer amount = current fixed value divided by
12. Total "from" and "to" dollar amounts must be equal.
<PAGE>
From: To:
FIX IDS Life Fixed Account $ $
CM AXP VP Cash Management Fund $ $
BD AXP VP Bond Fund $ $
GB AXP VP Global Bond Fund $ $
FI AXP VP Federal Income Fund $ $
EI AXP VP Extra Income Fund $ $
MF AXP VP Managed Fund $ $
CR AXP VP Capital Resource Fund $ $
ND AXP VP New Dimensions Fund $ $
GR AXP VP Growth Fund $ $
BC AXP VP Blue Chip Advantage Fund $ $
DE AXP VP Diversified Equity Income Fund $ $
GI Fidelity VIP III Growth & Income
Portfolio: Service Class $ $
UE Goldman Sachs VIT Core US Equity Fund $ $
SA AXP VP Strategy Aggressive Fund $ $
CA AIM VI Capital Appreciation Fund $ $
VA American Century VP Value Fund $ $
MP Fidelity VIP III Mid Cap Portfolio:
Service Class $ $
MC Goldman Sachs VIT Mid Cap Value Fund $ $
VS Putnam VT Vista Fund - Class IB Shares $ $
EG Warburg Pincus Trust - Emerging Growth
Portfolio $ $
SC AXP VP Small Cap Advantage Fund $ $
CD AIM VI Capital Development Fund $ $
SI Franklin Templeton VIP Value Securities
Fund - Class 2 $ $
SE Goldman Sachs VIT CORE Small Cap
Equity Fund $ $
MI Royce Micro-Cap Portfolio % $
SV Third Avenue Value Portfolio $ $
SP Wanger US Small Cap $ $
IE AXP VP International Fund $ $
IF American Century VP International Fund $ $
OS Fidelity VIP Overseas Portfolio:
Service Class $ $
IP Lazard Retirement International
Equity Portfolio $ $
IN Putnam VT International New
Opportunities Fund - Class IB Shares $ $
IS Franklin Templeton VIP
International Smaller Companies
Fund - Class 2 $ $
IT Wanger Int'l Small Cap $ $
RE Franklin Templeton VIP Real Estate
Securities Fund - Class 2 $ $
<TABLE>
<CAPTION>
<S> <C>
Frequency: When:
How often(check one)? If frequency is not noted,
transfers will be set up to take place monthly. Begin transfers on __/__/___
and end transfers on __/__/___
o Monthly (12/yr)
o Quarterly (4/yr)
o Biweekly (26/yr) *If this request is received after the requested start
o Weekly (52/yr) date, or if no date is indicated, transfers will begin
o Semimonthly (24/yr) the following month. If no end date is specified, DCA
o Bimonthly (6/yr) will continue until you later stop the arrangement.
o Every 4 months (3/yr)
o Bifortnightly (13/yr)
</TABLE>
Contract Fees and Charges
Form 31063
This supplement is provided in connection with my annuity application for the
American Express Retirement Advisor Variable Annuity.
I acknowledge receiving the current prospectus(es) for the American
Express Retirement Advisor Variable Annuity and the underlying subaccounts.
In respect to the Dollar-Cost Averaging arrangement, I acknowledge the
following:
o If an automated transfer, as scheduled, falls on a date that is not a normal
business day, the transfer will be made on the last normal business day
preceding such date.
o Transfers are subject to the provisions of my contract, the current prospectus
and such other rules as IDS Life shall establish.
o No written confirmation of the initial setup of this request shall be made,
but transactions will appear on my consolidated statement.
I agree to notify IDS Life within 90 days if the requested transaction does
not appear.
- -----------------------------------------------------------------------------
Owner's Name, Please Print
- -----------------------------------------------------------------------------
Owner's Signature Date
- -----------------------------------------------------------------------------
American Express Financial Advisor's Signature Date
- ------------------------------------ ----------------------------------------
Advisor Number Area Office Number
Surrender Charge Period Options
7-year schedule 10-year schedule*
Number of completed years from date of each purchase payment
Surrender Charge applied to each purchase payment surrendered
0 7%
1 7%
2 7%
3 6%
4 5%
5 4%
6 2%
7 or more 0%
Number of completed years from date of each purchase payment
Surrender Charge applied to each purchase payment surrendered
0 8%
1 8%
2 8%
3 7%
4 7%
5 6%
6 5%
7 4%
8 3%
9 2%
10 or more 0%
No surrender charge schedule**
*Eligible for 1% purchase payment credit on all purchase payments.
**Applicable for individuals with an initial purchase payment of $1 million or
AEFA employees and financial advisors.
Contract Administrative Charge
$30 annually. Charge will be waived if purchase payments made less purchase
payments surrendered, or the contract value equals or exceeds $50,000.
Mortality and Expense Risk Charge
(annualized)
Assessed against the variable subaccounts
.95% for non-qualified contracts
.75% for tax-qualified contracts
.55% for other**
Fund Management Fees/Expenses
Varies by fund as described in the underlying fund prospectus.
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated October 7, 1996, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, AIM
Distributors, Inc., a Delaware Corporation and IDS Life Insurance Company, a
Minnesota Life Insurance Company, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced with
the following:
<TABLE>
<CAPTION>
<S> <C> <C>
SCHEDULE A
- ------------------------------------- -------------------------------- --------------------------------------
SEPARATE ACCOUNTS UTILIZING
FUNDS AVAILABLE UNDER THE CONTRACTS SOME OR CONTRACTS FUNDED BY THE SEPARATE
ALL OF THE FUNDS ACCOUNTS
- ------------------------------------- -------------------------------- --------------------------------------
- ------------------------------------- -------------------------------- --------------------------------------
AIM V.I. Capital Appreciation Fund IDS Life Variable Account 10 o Flexible Premium Deferred
AIM V.I. Capital Development Fund Variable Annuity Contract Form
AIM V.I. Growth and Income Fund IDS Life Variable Life No. 31030, 31031, 31032-IRA,
Separate Account 31043, 31044, 31045-IRA, 31046,
31047, 31048-IRA and any state
variations thereof.
o Flexible Premium Variable
Life Insurance Policy Form No.
30060 and any state variation
thereof.
o Flexible Premium
Survivorship Variable Life
Insurance Policy Form No. 30090
and state variations thereof.
- ------------------------------------- -------------------------------- --------------------------------------
</TABLE>
All other terms and provisions of the Agreement not amended herein shall remain
the full force and effect.
Effective Date: ____________________________
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: _____________________ By: ______________________________
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
AIM DISTRIBUTORS, INC.
Attest: _____________________ By: ______________________________
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
IDS LIFE INSURANCE COMPANY
Attest: _____________________ By: ______________________________
Name: William A. Stoltzmann Name: Richard W. Kling
Title: Secretary Title: President
AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT ("Amendment 1") is
effective as of April 15, 1999, by and among IDS LIFE INSURANCE COMPANY (the
"Company"), AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("ACIM"), and AMERICAN
CENTURY VARIABLE PORTFOLIOS, INC. ("ACVP" ). Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Agreement (defined
below).
WHEREAS, the Company, TCI Portfolios, Inc.(the "Issuer") and Investors Research
Corporation ("Investors Research") are parties to that certain Fund
Participation Agreement dated April 24, 1996 (the "Agreement") in connection
with the participation by the Funds in Contracts offered by the Company to its
clients; and
WHEREAS, since the date of the Agreement, Investors Research Corporation has
changed its name to American Century Investment Management, Inc.; and
WHEREAS, since the date of the Agreement, TCI Portfolios, Inc. changed its name
to American Century Variable Portfolios, Inc.; and
WHEREAS, the Company now desires to add an Account to those which offer certain
American Century funds, to expand the number of American Century funds made
available as underlying investment media for the Contracts and to offer a Fund
as an underlying investment option under certain variable life insurance
policies which invest in the Fund; and
WHEREAS, the parties to this Amendment 1 now desire to modify the Agreement as
provided herein.
NOW, THEREFORE, in consideration of the mutual promises set forth herein, the
parties hereto agree as follows:
1. Addition of Variable Life Insurance. The first "Whereas" clause of the
Agreement is hereby deleted in its entirety and replaced with the following
language:
WHEREAS, the Company offers to the public certain qualified and nonqualified
variable annuity contracts and variable life insurance policies (collectively,
the "Contracts"), which the Company has registered or will register under the
Securities Act of 1933, as amended (the "1933 Act"); and"
2. Addition of Funds. The second "Whereas" clause of the Agreement is hereby
deleted in its entirety and replaced with the following language:
"WHEREAS, the Company wishes to offer as investment options under the Contracts
American Century VP Value and American Century VP International (each a "Fund"
and collectively, the "Funds"), each a series of mutual fund shares registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
issued by the Issuer; and"
3. Provision of Prospectuses. Section 4(a) is hereby amended by adding the
following sentence before the last sentence of this Section: "If the Company
elects to print a prospectus that combines the prospectuses of the Funds with
the prospectuses of other investment options under the Contracts, ACIM shall
provide the Company with a copy of the Fund's prospectus in camera-ready art
and/or electronic format."
4. Addition of Account. Section 6(a)(ii) is hereby amended by adding, after the
reference to IDS Life Variable Account 10, the following words: "and IDS Life
Variable Life Separate Account." After the date of this Amendment, each
reference to "Account" in the Agreement shall be deemed to include both IDS Life
Variable Account 10 and IDS Life Variable Life Separate Account. IDS Life
Variable Account 10 shall offer VP Value and VP International as investment
options, and IDS Life Variable Life Separate Account shall offer VP Value as an
investment option.
5. Amendment to Termination Provision. Section 12(a) is hereby amended by adding
the words "or such other date as agreed to by the parties" at the end of the
Section.
6. Amendment to Notices Provision. In Section 17, the reference under notices
"to the Company" to Wendell Halvorson, and the telephone and telecopy number are
hereby deleted in their entirety and replaced with a reference to "President."
7. Ratification and Confirmation of Agreement. In the event of a conflict
between the terms of this Amendment and the Agreement, it is the intention of
the parties that the terms of this Amendment shall control and the Agreement
shall be interpreted on that basis. To the extent the provisions of the
Agreement have not been amended by this Amendment, the parties hereby confirm
and ratify the Agreement.
8. Counterparts. This Amendment may be executed in two or more counterparts,
each of which shall be an original and all of which together shall constitute
one instrument.
9. Full Force and Effect. Except as expressly supplemented, amended or consented
to hereby, all of the representations, warranties, terms, covenants and
conditions of the Agreement shall remain unamended and shall continue to be in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment No. 1 as of the date first above written.
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
IDS LIFE INSURANCE COMPANY
By: By:
Name: Name:
Title: Title:
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
ATTEST
By: By:
Name: Name:
Title: Title:
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this day of , 1999 by and between
GOLDMAN SACHS VARIABLE INSURANCE TRUST, an unincorporated business trust formed
under the laws of Delaware (the "Trust"), GOLDMAN, SACHS & CO., a New York
limited partnership (the "Distributor"), and IDS LIFE INSURANCE COMPANY, a
Minnesota life insurance company (the "Company"), on its own behalf and on
behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares, each such Series representing an interest in a
particular investment portfolio of securities and other assets (a "Fund"), and
which Series may be subdivided into various classes ("Classes") with each such
Class supporting a distinct charge and expense arrangement; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies and may also be utilized by qualified retirement plans; and
WHEREAS, the Distributor has the exclusive right to distribute Trust shares to
qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for a certain separate account(s) of the Company and the Distributor
desires to sell shares of certain Series and/or Class(es) to such separate
account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
the Distributor and the Company agree as follows:
ARTICLE I
Additional Definitions
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement as amended by the parties from time
to time. If more than one separate account is described on Schedule 1, the term
shall refer to each separate account so described.
1.2. "Business Day" -- each day that the Trust is open for business as provided
in the Trust's Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and any successor
thereto.
1.4. "Contracts" -- the class or classes of variable annuity contracts and/or
variable life insurance policies issued by the Company and described more
specifically on Schedule 2 to this Agreement as amended by the parties from time
to time.
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished from all
Product Owners.
1.6. "Participating Account" -- a separate account investing all or a portion of
its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company investing in the
Trust on its behalf or on behalf of a Participating Account, including the
Company.
<PAGE>
1.8. "Participating Plan" -- any qualified retirement plan investing in the
Trust.
1.9. "Participating Investor" -- any Participating Account, Participating
Insurance Company or Participating Plan, including the Account and the Company.
1.10. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts, including the Contracts.
1.11. "Product Owners" -- owners of Products, including Contract Owners.
1.12. "Trust Board" -- the board of trustees of the Trust.
1.13. "Registration Statement" -- with respect to the Trust shares or a class of
Contracts, the registration statement filed with the SEC to register such
securities under the 1933 Act, or the most recently filed amendment thereto, in
either case in the form in which it was declared or became effective. The
Contracts' Registration Statement for each class of Contracts is described more
specifically on Schedule 2 to this Agreement. The Trust's Registration Statement
is filed on Form N-1A (File No. 333-35883).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or the
Account, the registration statement filed with the SEC to register such person
as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account's 1940 Act Registration Statement is described
more specifically on Schedule 1 to this Agreement. The Trust's 1940 Act
Registration Statement is filed on Form N-1A (File No. 811-08361).
1.15. "Prospectus" -- with respect to shares of a Series (or Class) of the Trust
or a class of Contracts, each version of the definitive prospectus or supplement
thereto filed with the SEC pursuant to Rule 497 under the 1933 Act. With respect
to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version for the applicable Series, Class or Contracts last so filed prior to
the taking of such action. For purposes of Article IX, the term "Prospectus"
shall include any statement of additional information incorporated therein.
1.16. "Statement of Additional Information" -- with respect to the shares of the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act. With respect to any provision of this Agreement
requiring a party to take action in accordance with a Statement of Additional
Information, such reference thereto shall be deemed to be the last version so
filed prior to the taking of such action.
1.17. "SEC" -- the Securities and Exchange Commission.
1.18. "NASD" -- The National Association of Securities Dealers, Inc.
1.19. "1933 Act" -- the Securities Act of 1933, as amended.
1.20. "1940 Act" -- the Investment Company Act of 1940, as amended.
<PAGE>
ARTICLE II
Sale of Trust Shares
2.1. Availability of Shares
(a) The Trust has granted to the Distributor exclusive
authority to distribute the Trust shares and to select which Series or
Classes of Trust shares shall be made available to Participating
Investors. Pursuant to such authority, and subject to Article X hereof,
the Distributor shall make available to the Company for purchase on
behalf of the Account, shares of the Series and Classes listed on
Schedule 3 to this Agreement, as amended by the parties from time to
time, such purchases to be effected at net asset value and with no
sales charge in accordance with Section 2.3 of this Agreement. Such
Series and Classes shall be made available to the Company in accordance
with the terms and provisions of this Agreement until this Agreement is
terminated pursuant to Article X or the Distributor suspends or
terminates the offering of shares of such Series or Classes in the
circumstances described in Article X.
(b) Notwithstanding clause (a) of this Section 2.1, Series or
Classes of Trust shares in existence now or that may be established in
the future will be made available to the Company, subject to the
Distributor's rights set forth in Article X to suspend or terminate the
offering of shares of any Series or Class or to terminate this
Agreement.
(c) The parties acknowledge and agree that: (i) the Trust may
revoke the Distributor's authority pursuant to the terms and conditions
of its distribution agreement with the Distributor; and (ii) the Trust
reserves the right in its sole discretion, exercised in good faith, to
refuse to accept a request for the purchase of Trust shares.
2.2. Redemptions. The Trust shall redeem, at the Company's request, any full or
fractional Trust shares held by the Company on behalf of the Account, such
redemptions to be effected at net asset value and with no sales charge in
accordance with Section 2.3 of this Agreement. Notwithstanding the foregoing,
(i) the Company shall not redeem Trust shares attributable to Contract Owners
except in the circumstances permitted in Article X of this Agreement, and (ii)
the Trust may delay redemption of Trust shares of any Series or Class to the
extent permitted by the 1940 Act, any rules, regulations or orders thereunder,
or the Prospectus for such Series or Class.
2.3. Purchase and Redemption Procedures
(a) The Trust hereby appoints the Company as an agent of the
Trust for the limited purpose of receiving purchase and redemption
requests on behalf of the Account (but not with respect to any Trust
shares that may be held in the general account of the Company) for
shares of those Series or Classes made available hereunder, based on
allocations of amounts to the Account or subaccounts thereof under the
Contracts, other transactions relating to the Contracts or the Account
and customary processing of the Contracts. Receipt of any such requests
(or effectuation of such transaction or processing) on any Business Day
by the Company as such limited agent of the Trust prior to the Trust's
close of business as defined from time to time in the applicable
Prospectus for such Series or Class (which as of the date of execution
of this Agreement is defined as the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. New York Time)) shall
constitute receipt by the Trust on that same Business Day, provided
that the Trust receives actual and sufficient notice of such request by
9:30 a.m. New York time (8:30 a.m. Central Time) on the next following
Business Day. The Trust reserves discretion to extend the time by which
notice must be received in accordance with the preceding sentence on a
case by case basis if a Fund experiences a delay in calculating its net
asset value which extends past 7:00 p.m. New York time (6:00 Central
time) in accordance with Section 2.4 hereof. Such notice may be
communicated by telephone to the office or person designated for such
notice by the Trust, and shall be confirmed by facsimile.
<PAGE>
(b) The Company shall pay for shares of each Series or Class
on the same day that it provides actual notice to the Trust of a
purchase request for such shares. Payment for Series or Class shares
shall be made in Federal funds transmitted to the Trust by wire. Such
wire transfer will be initiated by the Company's bank by 1:00 p.m.
Central time and received by the Trust by the close of business of the
Federal funds wire system on the day the Trust receives actual notice
of the purchase request for Series or Class shares (unless the Trust
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series or Classes effected
pursuant to redemption requests tendered by the Company on behalf of
the Account). In no event may proceeds from the redemption of shares
requested pursuant to an order received by the Company after the
Trust's close of business on any Business Day be applied to the payment
for shares for which a purchase order was received prior to the Trust's
close of business on such day. If the issuance of shares is canceled
because Federal funds are not timely received when required for
settlement on related purchases of portfolio securities, the Company
shall indemnify the respective Fund and Distributor for 50% of all
costs, expenses and losses relating to failure to meet such settlement
obligations. Upon the Trust's receipt of Federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust. If Federal funds are not
received on time, the Series or Class shares purchased by such payment
shall be executed at the net asset value next computed following
receipt of payment.
(c) Payment for Series or Class shares redeemed by the Account
or the Company shall be made in Federal funds transmitted by wire to
the Company or any other person properly designated in writing by the
Company, such funds normally to be transmitted by 6:00 p.m. New York
Time (5:00 p.m. Central Time) on the next Business Day after the Trust
receives actual notice of the redemption order for Series or Class
shares (unless redemption proceeds are to be applied to the purchase of
Trust shares of other Series or Classes in accordance with Section
2.3(b) of this Agreement), except that the Trust reserves the right to
redeem Series or Class shares in assets other than cash and to delay
payment of redemption proceeds to the extent permitted by the 1940 Act,
any rules or regulations or orders thereunder, or the applicable
Prospectus. In any event, absent extraordinary circumstances specified
in Section 22(e) of the 1940 Act, the Trust shall make such payment
within five (5) calendar days after the date the redemption order is
placed in order to enable the Company to pay redemption proceeds within
the time specified in Section 22(e) of the 1940 Act or such shorter
period of time as may be required by law. The Trust shall not bear any
responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be
responsible for such action.
(d) Any purchase or redemption request for Series or Class
shares held or to be held in the Company's general account shall be
effected at the net asset value per share next determined after the
Trust's actual receipt of such request, provided that, in the case of a
purchase request, payment for Trust shares so requested is received by
the Trust in Federal funds prior to close of business for determination
of such value, as defined from time to time in the Prospectus for such
Series or Class. If such Federal funds are not received on time, the
Series of Class shares purchased by such payment shall be executed at
the net asset value next computed following receipt of payment.
(e) Prior to the first purchase of any Trust shares hereunder,
the Company and the Trust shall provide each other with all information
necessary to effect wire transmissions of Federal funds to the other
party and all other designated persons pursuant to such protocols and
security procedures as the parties may agree upon. Should such
information change thereafter, the Trust and the Company, as
applicable, shall notify the other in writing of such changes,
observing the same protocols and security procedures, at least three
Business Days in advance of when such change is to take effect. The
Company and the Trust shall observe customary procedures to protect the
confidentiality and security of such information, but neither party
shall be liable to the other party for any breach of security.
(f) The procedures set forth herein are subject to any
additional terms set forth in the applicable Prospectus for the Series
or Class or by the requirements of applicable law.
<PAGE>
2.4. Net Asset Value. The Trust shall make the net asset value per share for
each Series or Class available to the Company as soon as reasonably practicable
after the net asset value per share for such Series or Class is calculated on
any Business Day, and shall use its best efforts to make the NAV available no
later than 7:00 p.m. New York Time (6:00 p.m. Central time) on such day. The
Trust will notify the Company as soon as possible if it is determined that the
net asset value per share will be available after 7:00 p.m. New York Time (6:00
p.m. Central Time) on any Business Day, and the Trust and the Company will
mutually agree upon a final deadline for timely receipt of the NAV on such
Business Day. The Trust shall calculate such net asset value in accordance with
the Prospectus for such Series or Class.
2.5. Dividends and Distributions. The Trust shall furnish same-day notice by
wire or telephone (followed by written confirmation) on or prior to the payment
date to the Company of any income dividends or capital gain distributions
payable on any Series or Class shares. The Company, on its behalf and on behalf
of the Account, hereby elects to receive all such dividends and distributions as
are payable on any Series or Class shares in the form of additional shares of
that Series or Class. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such dividends
and capital gain distributions in cash; to be effective, such revocation must be
made in writing and received by the Trust at least ten Business Days prior to a
dividend or distribution date.
2.6. Book Entry. Issuance and transfer of Trust shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7. Pricing Errors. Any material errors in the calculation of net asset value,
dividends or capital gain information shall be reported immediately upon
discovery to the Company. An error shall be deemed "material" based on the
Trust's interpretation of the SEC's position and policy with regard to
materiality, as it may be modified from time to time. If the Company is provided
with materially incorrect net asset value information, the Company shall be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct net asset value per share. Neither the Trust, any Fund, the
Distributor, nor any of their affiliates shall be liable for any information
provided to the Company pursuant to this Agreement which information is based on
incorrect information supplied by or on behalf of the Company to the Trust or
the Distributor.
2.8. Limits on Purchasers. The Distributor and the Trust shall sell Trust shares
only to insurance companies and their separate accounts and to persons or plans
("Qualified Persons") that qualify to purchase shares of the Trust under Section
817(h) of the Code and the regulations thereunder without impairing the ability
of the Account to consider the portfolio investments of the Trust as
constituting investments of the Account for the purpose of satisfying the
diversification requirements of Section 817(h). The Distributor and the Trust
shall not sell Trust shares to any insurance company or separate account unless
an agreement complying with Article VIII of this Agreement is in effect to
govern such sales. The Company hereby represents and warrants that it and the
Account are Qualified Persons.
<PAGE>
ARTICLE III
Representations and Warranties
3.1. Company. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under Indiana insurance
law; (ii) the Account is a validly existing separate account, duly established
and maintained in accordance with applicable law; (iii) each Account's 1940 Act
Registration Statement has been or will be filed with the SEC in accordance with
the provisions of the 1940 Act and the Account has been or will be duly
registered as a unit investment trust thereunder prior to the sale of the
Contracts; (iv) the Contracts' Registration Statements have been or will be
filed with and declared effective by the SEC prior to the sale of any Contracts;
(v) the Contracts will be issued in compliance in all material respects with all
applicable Federal and state laws; (vi) the Contracts will be filed, qualified
and/or approved for sale, as applicable, under the insurance laws and
regulations of the states in which the Contracts will be offered prior to the
sale of Contracts in such states; and (vii) the Account will maintain its
registration under the 1940 Act and will comply in all material respects with
the 1940 Act during the term of this Agreement. The Company will notify the
Trust promptly if for any reason it is unable to perform its obligations under
this Agreement.
3.2. Trust. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Delaware law; (ii) the Trust's 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust's Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act during the term of this
Agreement; (vi) each Fund of the Trust will maintain its qualification as a
"regulated investment company" under Subchapter M of the Code and will comply
with the diversification standards prescribed in Section 817(h) of the Code and
the regulations thereunder to the extent applicable to funds underlying
insurance company separate accounts; and (vii) the investment policies of each
Fund are in material compliance with any investment restrictions set forth on
Schedule 4 to this Agreement. The Trust, however, makes no representation as to
whether any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) otherwise complies with the insurance laws or
regulations of any state. The Trust will notify the Company promptly if for any
reason it is unable to perform its obligations under this Agreement.
3.3. Distributor. The Distributor represents and warrants that: (i) the
Distributor is a limited partnership duly organized and in good standing under
New York law; (ii) the Distributor is registered as a broker-dealer under
federal and applicable state securities laws and is a member of the NASD; and
(iii) the Distributor is registered as an investment adviser under federal
securities laws. The Distributor will notify the Company promptly if for any
reason it is unable to perform its obligations under this Agreement.
3.4. Legal Authority. Each party represents and warrants that the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein have been duly authorized by all necessary corporate, partnership or
trust action, as applicable, by such party, and, when so executed and delivered,
this Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms and will not violate its charter
documents or by-laws, rules or regulations, or any agreement to which it is a
party.
3.5. Bonding Requirement. Each party represents and warrants that all of its
directors, officers, partners and employees, as applicable, dealing with the
money and/or securities of the Trust are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Trust in an amount not less than the amount required by the applicable rules of
the NASD and the federal securities laws. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. All parties shall make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, shall provide
evidence thereof promptly to any other party upon written request therefor, and
shall notify the other parties promptly in the event that such coverage no
longer applies.
<PAGE>
ARTICLE IV
Regulatory Requirements
4.1. Trust Filings. The Trust shall amend the Trust's Registration Statement and
the Trust's 1940 Act Registration Statement from time to time as required in
order to effect the continuous offering of Trust shares in compliance with
applicable law and to maintain the Trust's registration under the 1940 Act for
so long as Trust shares are sold.
4.2. Contracts Filings. The Company shall amend the Contracts' Registration
Statement and the Account's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of the Contracts in
compliance with applicable law or as may otherwise be required by applicable
law, but in any event shall maintain a current effective Contracts' Registration
Statement and the Account's registration under the 1940 Act for so long as the
Contracts are outstanding unless the Company has supplied the Trust with an SEC
no-action letter, opinion of counsel or other evidence satisfactory to the
Trust's counsel to the effect that maintaining such Registration Statement on a
current basis is no longer required. The Company shall be responsible for filing
all such Contract forms, applications, marketing materials and other documents
relating to the Contracts and/or the Account with state insurance commissions,
as required or customary, and shall use its best efforts: (i) to obtain any and
all approvals thereof, under applicable state insurance law, of each state or
other jurisdiction in which Contracts are or may be offered for sale; and (ii)
to keep such approvals in effect for so long as the Contracts are outstanding.
4.3. Voting of Trust Shares. With respect to any matter put to vote by the
holders of Trust shares ("Voting Shares"), the Company will provide
"pass-through" voting privileges to owners of Contracts registered with the SEC
as long as the 1940 Act requires such privileges in such cases. In cases in
which "pass-through" privileges apply, the Company will (i) provide for the
solicitation of voting instructions from Contract Owners of SEC-registered
Contracts; (ii) vote Voting Shares attributable to Contract Owners in accordance
with instructions or proxies timely received from such Contract Owners; and
(iii) vote Voting Shares held by it that are not attributable to reserves for
SEC-registered Contracts or for which it has not received timely voting
instructions in the same proportion as instructions received in a timely fashion
from Owners of SEC-registered Contracts. The Company shall be responsible for
ensuring that it calculates "pass-through" votes for the Account in a manner
consistent with the provisions set forth above and with other Participating
Insurance Companies. Neither the Company nor any of its affiliates will in any
way recommend action in connection with, or oppose or interfere with, the
solicitation of proxies for the Trust shares held for such Contract Owners,
except with respect to matters as to which the Company has the right under Rule
6e-2 or 6e-3(T) under the 1940 Act, to vote Voting Shares without regard to
voting instructions from Contract Owners. The Trust shall comply with all
provisions of the 1940 Act requiring voting by shareholders, as they may be
amended from time to time. Further, the Trust will act in accordance with the
SEC's interpretation of the requirements of Section 16 of the 1940 Act with
respect to periodic elections of directors and with whatever rules the SEC may
promulgate with respect thereto.
4.4. State Insurance Restrictions. The Company: shall notify the Trust of any
applicable state insurance laws of which it becomes aware that restrict the
Trust's investments or otherwise affect the operation of the Trust or the
Distributor, shall notify the Trust of any changes in such laws and acknowledges
and agrees that neither the Trust nor the Distributor shall bear any
responsibility for determination of the applicability of such laws to the
Trust's investments or the Trust's or Distributor's operations. Schedule 4 sets
forth the investment restrictions that the Company and/or other Participating
Insurance Companies have determined are applicable to any Fund and with which
the Trust has agreed to comply as of the date of this Agreement. The Company
shall inform the Trust of any investment restrictions imposed by state insurance
law of which the Company becomes aware that may become applicable to the Trust
or a Fund from time to time as a result of the Account's investment therein,
other than those set forth on Schedule 4 to this Agreement. Upon receipt of any
such information from the Company or any other Participating Insurance Company,
the Trust shall determine whether it is in the best
<PAGE>
interests of shareholders to comply with any such restrictions. If the Trust
determines that it is not in the best interests of shareholders (it being
understood that "shareholders" for this purpose shall mean Product Owners) to
comply with a restriction determined to be applicable by the Company, the Trust
shall so inform the Company, and the Trust and the Company shall discuss
alternative accommodations in the circumstances up to and including giving the
Company the right to discontinue offering the Trust and/or any applicable Fund
as an investment option under the Contracts issued in a state. If the Trust
determines that it is in the best interests of shareholders to comply with such
restrictions, the Trust and the Company shall amend Schedule 4 to this Agreement
to reflect such restrictions, subject to obtaining any required shareholder
approval thereof.
4.5. Drafts of Filings. The Trust and the Company shall provide to each other
copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, prepared by or on behalf of either of them
and that mentions the other party by name. Such drafts shall be provided to the
other party sufficiently in advance of filing such materials with regulatory
authorities in order to allow such other party a reasonable opportunity to
review the materials.
4.6. Copies of Filings. The Trust and the Company shall provide to each other at
least one complete copy of all Registration Statements, Prospectuses, Statements
of Additional Information, periodic and other shareholder or Contract Owner
reports, proxy statements, solicitations of voting instructions, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, that relate to the Trust, the Contracts or the
Account, as the case may be, promptly after the filing by or on behalf of each
such party of such document with the SEC or other regulatory authorities (it
being understood that this provision is not intended to require the Trust to
provide to the Company copies of any such documents prepared, filed or used by
Participating Investors other than the Company and the Account).
7.2. Regulatory Responses. Each party shall promptly provide to all
other parties copies of responses to no-action requests,
notices, orders and other rulings received by such party with
respect to any filing covered by Section 4.6 of this
Agreement.
7.2. Complaints and Proceedings
(a) The Trust and/or the Distributor shall immediately notify
the Company of: (i) the issuance by any court or regulatory body of any
stop order, cease and desist order, or other similar order (but not
including an order of a regulatory body exempting or approving a
proposed transaction or arrangement) with respect to the Trust's
Registration Statement or the Prospectus of any Series or Class; (ii)
any request by the SEC for any amendment to the Trust's Registration
Statement or the Prospectus of any Series or Class; (iii) the
initiation of any proceedings for that purpose or for any other
purposes relating to the registration or offering of the Trust shares;
or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Trust shares or any Class or Series in any state or
jurisdiction, including, without limitation, any circumstance in which
(A) such shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or
(B) such law precludes the use of such shares as an underlying
investment medium for the Contracts. The Trust will make every
reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
<PAGE>
(b) The Company shall immediately notify the Trust and the
Distributor of: (i) the issuance by any court or regulatory body of any
stop order, cease and desist order, or other similar order (but not
including an order of a regulatory body exempting or approving a
proposed transaction or arrangement) with respect to the Contracts'
Registration Statement or the Contracts' Prospectus; (ii) any request
by the SEC for any amendment to the Contracts' Registration Statement
or Prospectus; (iii) the initiation of any proceedings for that purpose
or for any other purposes relating to the registration or offering of
the Contracts; or (iv) any other action or circumstances that may
prevent the lawful offer or sale of the Contracts or any class of
Contracts in any state or jurisdiction, including, without limitation,
any circumstance in which such Contracts are not registered, qualified
and approved, and, in all material respects, issued and sold in
accordance with applicable state and federal laws. The Company will
make every reasonable effort to prevent the issuance of any such stop
order, cease and desist order or similar order and, if any such order
is issued, to obtain the lifting thereof at the earliest possible time.
(c) Each party shall immediately notify the other parties when
it receives notice, or otherwise becomes aware of, the commencement of
any litigation or proceeding against such party or a person affiliated
therewith in connection with the issuance or sale of Trust shares or
the Contracts.
(d) The Company shall provide to the Trust and the Distributor
any complaints it has received from Contract Owners pertaining to the
Trust or a Fund, and the Trust and Distributor shall each provide to
the Company any complaints it has received from Contract Owners
relating to the Contracts.
4.9. Cooperation. Each party hereto shall cooperate with the other parties and
all appropriate government authorities (including without limitation the SEC,
the NASD and state securities and insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry by any such authority relating to this Agreement or the
transactions contemplated hereby. However, such access shall not extend to
attorney-client privileged information. The Trust agrees to provide the Company
with any information not otherwise available to the Company which is required by
state insurance law to enable the Company to obtain the authority needed to
issue the Contract in any applicable state.
ARTICLE V
Sale, Administration and Servicing of the Contracts
5.1. Sale of the Contracts. The Company shall be responsible for the sale and
marketing of the Contracts. The parties will administer and service the
Contracts as set forth in Section 5.2 in accordance with federal and state law
and will allocate expenses as between the Company and the Trust as set forth in
Sections 7.3 and 7.4. The Company shall ensure that all persons offering the
Contracts are duly licensed and registered under applicable insurance and
securities laws. The Company shall ensure that each sale of a Contract satisfies
applicable suitability requirements under insurance and securities laws and
regulations, including without limitation the rules of the NASD. The Company
shall adopt and implement procedures reasonably designed to ensure that
information concerning the Trust and the Distributor that is intended for use
only by brokers or agents selling the Contracts (i.e., information that is not
intended for distribution to Contract Owners or offerees) is so used.
<PAGE>
5.2. Administration and Servicing of the Contracts. The Company shall be
responsible for the issuance, service, and administration of the Contracts and
for the administration of the Separate Accounts supporting such Contracts, such
functions to be performed in all respects commensurate with those standards
prevailing in the variable insurance industry. This administration will include:
(a) preparing, typesetting, printing and distributing current Contracts
prospectuses to be used in the solicitation of new sales;
(b) printing and distributing current Fund prospectuses to be used in the
solicitation of new sales;
(c) preparing, typesetting, printing, and mailing annual Contracts prospectuses
to existing Contract Owners;
(d) printing and mailing annual Fund prospectuses to existing Contract Owners;
(e) preparing, typesetting, printing, and mailing (where required) supplements
to existing Contracts prospectuses;
(f) printing and mailing (where required) supplements to existing Fund
prospectuses;
(g) printing and mailing periodic reports for the Fund prospectuses; and
(h) timely payment of Contract Owner redemption requests and processing of
Contracts transactions.
The Distributor shall prepare and typeset current Fund prospectuses to be used
in solicitation of new Contract sales.
The Trust shall perform the following services:
(a) preparing and typesetting annual Fund prospectuses to be sent to existing
Contract Owners;
(b) preparing and typesetting supplements to existing Fund prospectuses;
(c) preparing, typesetting, printing and mailing proxy materials for the Funds;
and
(d) preparing and typesetting periodic reports for the Funds.
5.3. Customer Complaints. The Company shall promptly address all customer
complaints and resolve such complaints consistent with high ethical standards
and principles of ethical conduct.
<PAGE>
5.4. Trust Prospectuses and Reports.
5
(a) In order to enable the company to fulfill its obligations
under this Agreement and the federal securities laws, the Trust shall
provide the Company with (a) a copy, in camera-ready form, computer
disk or form otherwise suitable for printing or duplication of (i) the
Trust's Prospectus for the Series and Classes listed on Schedule 3 and
any supplement thereto; (ii) any Trust periodic shareholder reports;
and (iii) each Statement of Additional Information and any supplement
thereto. The Trust shall provide the Company with advance written
notice, within reasonable time limits set by the Company, when any such
material (including supplements) shall become available; it being
understood, however, that circumstances surrounding certain supplements
may not allow for advance notice. The Company may not alter any
material so provided by the Trust or the Distributor (including without
limitation presenting or delivering such material in a different
medium, e.g., electronic or Internet) without the prior written consent
of the Distributor which consent shall not be unreasonably withheld.
(b) Alternate Arrangements: The Trust and the Company from
time to time may agree upon alternate arrangements to those set forth
in Sections 5.4 (a).
5.5. Performance Information. The Distributor shall be responsible for
calculating the performance information for the Funds. The Company shall be
responsible for calculating the performance information for the Contracts. The
Distributor shall be liable to the Company for any material mistakes it makes in
calculating the performance information for the Funds which cause losses to the
Company. The Company shall be liable to the Distributor for any material
mistakes it makes in calculating the performance information for the Contracts
which cause losses to the Distributor. Each party shall be liable for any
material mistakes it makes in reproducing the performance information for
Contracts or the Funds, as appropriate. The Trust and the Distributor agree to
provide the Company with performance information for the Funds on a timely basis
to enable the Company to calculate performance information for the Contracts in
accordance with applicable state and federal law.
7.2. Advertising Material. The Company shall be responsible for designing and
paying for all marketing materials that relate to the Contracts; provided,
however, that the Company shall send copies of all marketing materials created
for the Contracts to the Distributor for approval prior to use. The Distributor
shall provide a written approval of such marketing material within 10 calendar
days or a reasonable period of time after receiving such marketing material;
provided, however, that the Company shall not interpret a lack of response by
the Distributor within such time period as approval to use such proposed, but
unapproved, marketing material to solicit sales of the Contracts. The Company
shall be responsible for making any required filings of such marketing material
with the NASD and with State Insurance Departments
5.7. Trademarks, Names, Logos, etc. The parties agree that the use of any
company names, tradenames, trademarks, servicemarks and logos by the parties
shall be governed by the applicable provisions of the Master Agreement dated
February 1, 1999 between the Company, the Distributor, American Centurion Life
Assurance Company, IDS Life Insurance Company, IDS Life Insurance Company of New
York, American Express Financial Advisors Inc., and American Express Service
Corporation (the "Master Agreement").
5.8. Representations by Company. Except with the prior written consent of the
Trust, the Company shall not give any information or make any representations or
statements about the Trust or the Funds nor shall it authorize or allow any
other person to do so except information or representations contained in the
Trust's Registration Statement or the Trust's Prospectuses or in reports or
proxy statements for the Trust, or in sales literature or other promotional
material approved in writing by the Trust or its designee in accordance with
this Article V, or in published reports or statements of the Trust in the public
domain.
<PAGE>
5.9. Representations by Trust. Except with the prior written consent of the
Company, the Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Account or
the Contracts nor shall it authorize or allow any other person to do so other
than the information or representations contained in the Contracts' Registration
Statement or Contracts' Prospectus or in published reports of the Account which
are in the public domain or in sales literature or other promotional material
approved in writing by the Company or its designee in accordance with this
Article V.
5.10. Advertising. For purposes of this Article V, the phrase "sales literature
or other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
ARTICLE VI
Compliance with Code
6.1. Section 817(h). Each Fund of the Trust shall comply with Section 817(h) of
the Code and the regulations issued thereunder to the extent applicable to the
Fund as an investment company underlying the Account and the Trust and the
Distributor shall use their best efforts to ensure that each Fund will continue
to so comply. The Trust and the Distributor shall notify the Company immediately
upon having a reasonable basis for believing that a Fund has ceased to so comply
or that it might not so comply in the future. In the event a Fund of the Trust
fails to comply with such sections of the Code or regulations thereunder, the
Trust and the Distributor will take all reasonable steps to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Treasury Regulation 1.817-5.
6.2. Subchapter M. Each Fund of the Trust shall maintain the qualification of
the Fund as a regulated investment company (under Subchapter M or any successor
or similar provision) and the Trust and the Distributor shall use their best
efforts to ensure that each Fund will continue to so qualify. The Trust and the
Distributor shall notify the Company immediately upon having a reasonable basis
for believing that a Fund has ceased to so qualify or that it might not so
qualify in the future.
6.3. Contracts. The Company ensures that the Contracts qualify for treatment as
necessary as annuity or life insurance contracts, upon their availability, under
the Code. The Company shall use its best efforts to ensure that the Contracts
continue to qualify for such treatment. The Company shall notify the Distributor
immediately upon having a reasonable basis for believing that Contracts have
ceased to qualify for treatment as annuity or life insurance contracts under the
Code or that they might not so qualify in the future.
<PAGE>
ARTICLE VII
Expenses
7.1. Expenses. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by such party to the extent permitted by law.
7.2. Trust Expenses. Expenses incident to the Trust's performance of its duties
and obligations under this Agreement include but are not limited to:
(a) registration and qualification of Trust shares under the federal securities
laws, including preparation of the Trust's Registration Statement;
(b) all costs attributable to the Trust set forth in Section 5.2 hereof;
(c) filing with the SEC of the Trust's Prospectus, Trust's Statement of
Additional Information, Trust's Registration Statement, Trust proxy
materials and shareholder reports;
(d) preparation of all statements and notices required by any federal or state
securities law;
(e) all taxes on the issuance or transfer of Trust shares;
(f) payment of all applicable fees relating to the Trust, including, without
limitation, all fees due under Rule 24f-2 in connection with sales of Trust
shares to qualified retirement plans, custodial, auditing, transfer agent
and advisory fees, fees for insurance coverage and Trustees' fees; and
(g) any expenses permitted to be paid or assumed by the Trust pursuant to a
plan, if any, under Rule 12b-1 under the 1940 Act.
7.2. Company Expenses. Expenses incident to the Company's performance of its
duties and obligations under this Agreement include, but are not limited to, the
costs of:
(a) registration and qualification of the Contracts under the federal
securities laws;
(b) filing with the SEC of the Contracts' Prospectus and Contracts'
Registration Statement;
(c) all costs attributable to the Company set forth in Section 5.2 hereof; and
(d) payment of all applicable fees relating to the Contracts, including,
without limitation, all fees due under Rule 24f-2.
Expenses incident to the Company's performance of its duties and obligations
under this Agreement are as set forth in Appendix A.
<PAGE>
7.4. 12b-1 Payments. The Trust shall pay no fee or other compensation to the
Company under this Agreement, except that if the Trust or any Series or Class
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then payments may be made to the Company in
accordance with such plan. The Trust currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act or in contravention of such rule, although it may make payments pursuant to
Rule 12b-1 in the future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1 and such formulation is required by the 1940 Act
or any rules or order thereunder, the Trust undertakes to have a Board of
Trustees, a majority of whom are not interested persons of the Trust, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
ARTICLE VIII
Potential Conflicts
8.1. Exemptive Order. The parties to this Agreement acknowledge that the Trust
has filed an application with the SEC to request an order (the "Exemptive
Order") granting relief from various provisions of the 1940 Act and the rules
thereunder to the extent necessary to permit Trust shares to be sold to and held
by variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8 hereof). It is anticipated that the
Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VIII. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings on that company as are imposed on
the Company pursuant to this Article VIII.
8.2. Company Monitoring Requirements. The Company will monitor its operations
and those of the Trust for the purpose of identifying any material
irreconcilable conflicts or potential material irreconcilable conflicts between
or among the interests of Participating Plans, Product Owners of variable life
insurance policies and Product Owners of variable annuity contracts, it is being
understood that the Company is assuming the obligation to monitor the operations
of the Trust solely to comply with the explicit terms of the Exemptive Order and
further, that such monitoring is for the sole purpose of identifying any
conflicts that would affect its policyowners and would be limited to monitoring
the operations of the Trust based on information provided to the Company by the
Trust.
8.3. Company Reporting Requirements. The Company shall report any conflicts or
potential conflicts of which it is aware to the Trust Board and will provide the
Trust Board, at least annually, with all information reasonably necessary for
the Trust Board to consider any issues raised by such existing or potential
conflicts or by the conditions and undertakings required by the Exemptive Order.
The Company also shall assist the Trust Board in carrying out its obligations
including, but not limited to: (a) informing the Trust Board whenever it
disregards Contract Owner voting instructions with respect to variable life
insurance policies, and (b) providing such other information and reports as the
Trust Board may reasonably request. The Company will carry out these obligations
with a view only to the interests of Contract Owners.
8.4. Trust Board Monitoring and Determination. The Trust Board shall monitor the
Trust for the existence of any material irreconcilable conflicts between or
among the interests of Participating Plans, Product Owners of variable life
insurance policies and Product Owners of variable annuity contracts and
determine what action, if any, should be taken in response to those conflicts. A
majority vote of Trustees who are not interested persons of the Trust as defined
in the 1940 Act (the "disinterested trustees") shall represent a conclusive
determination as to the existence of a material irreconcilable conflict between
or among the interests of Product Owners and Participating Plans and as to
whether any proposed action adequately remedies any material irreconcilable
conflict. The Trust Board shall give prompt written notice to the Company and
Participating Plan of any such determination.
<PAGE>
8.5. Undertaking to Resolve Conflict. In the event that a material
irreconcilable conflict of interest arises between Product Owners of variable
life insurance policies or Product Owners of variable annuity contracts and
Participating Plans, the Company will, at its own expense, take whatever action
is necessary to remedy such conflict as it adversely affects Contract Owners up
to and including (1) establishing a new registered management investment
company, and (2) withdrawing assets from the Trust attributable to reserves for
the Contracts subject to the conflict and reinvesting such assets in a different
investment medium (including another Fund of the Trust) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected Contract Owners, and, as appropriate, segregating the assets supporting
the Contracts of any group of such owners that votes in favor of such
withdrawal, or offering to such owners the option of making such a change. The
Company will carry out the responsibility to take the foregoing action with a
view only to the interests of Contract Owners.
8.6. Withdrawal. If a material irreconcilable conflict arises because of the
Company's decision to disregard the voting instructions of Contract Owners of
variable life insurance policies and that decision represents a minority
position or would preclude a majority vote at any Fund shareholder meeting,
then, at the request of the Trust Board, the Company will redeem the shares of
the Trust to which the disregarded voting instructions relate. No charge or
penalty, however, will be imposed in connection with such a redemption.
8.7. Expenses Associated with Remedial Action. In no event shall the Trust be
required to bear the expense of establishing a new funding medium for any
Contract. The Company shall not be required by this Article to establish a new
funding medium for any Contract if an offer to do so has been declined by vote
of a majority of the Contract Owners materially adversely affected by the
irreconcilable material conflict.
8.8. Successor Rules. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provisions of the 1940 Act or the rules promulgated thereunder with respect to
mixed and shared funding on terms and conditions materially different from those
contained in the Exemptive Order, then (i) the Trust and/or the Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the extent
such rules are applicable, and (ii) Sections 8.2 through 8.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE IX
Indemnification
9.1. Indemnification by the Company. The Company hereby agrees to, and shall,
indemnify and hold harmless the Trust, the Distributor and each person who
controls or is affiliated with the Trust or the Distributor within the meaning
of such terms under the 1933 Act or 1940 Act (but not any Participating
Insurance Companies or Qualified Persons) and any officer, trustee, partner,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and with the
written consent of the Company any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
<PAGE>
(a) arise out of or are based upon any untrue statement of any material fact
contained in the Contracts Registration Statement, Contracts Prospectus,
sales literature or other promotional material prepared by the Company for
the Contracts or the Contracts themselves (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances in
which they were made; provided that this obligation to indemnify shall not
apply if such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of the Trust or the Distributor for use in the Contracts
Registration Statement, Contracts Prospectus or in the Contracts or sales
literature or promotional material for the Contracts (or any amendment or
supplement to any of the foregoing) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the Trust
Registration Statement, any Prospectus for Series or Classes or sales
literature or other promotional material of the Trust or the Contracts
(prepared by the Trust) (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Trust or Distributor in writing by or on behalf of the
Company; or
(c) arise out of or are based on any wrongful conduct of, or violation of
applicable federal or state law by, the Company or persons under its
control or subject to its authorization, with respect to the purchase of
Trust Shares or the sale, marketing or distribution of the Contracts
including, without limitation, any impermissible use of broker-only
material, unsuitable or improper sales of the Contract or unauthorized
representations about the Contract or the Trust. Persons subject to
Company's authorization with respect to the sale, marketing or distribution
of the Contracts include broker-dealers or agents authorized to sell the
Contracts.
(d) arise as a result of any failure by the Company or persons under its
control (or subject to its authorization) to provide services, furnish
materials or make payments as required under this Agreement; or
(e) arise out of any material breach by the Company or persons under its
control (or subject to its authorization) of this Agreement; or
(f) any breach of any warranties contained in Article III hereof, any failure
to transmit a request for redemption or purchase of Trust shares or payment
therefor on a timely basis in accordance with the procedures set forth in
Article II, or any unauthorized use of the names or trade names of the
Trust or the Distributor.
This indemnification is in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the
willful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification. Any loss, claim, damage or liability that
may arise out of Sections 5.7 and 10.7 and Article XIV hereof are excluded from
indemnification under this Section 9.1.
<PAGE>
9.2. Indemnification by the Trust. The Trust hereby agrees to, and shall,
indemnify and hold harmless the Company and each person who controls or is
affiliated with the Company within the meaning of such terms under the 1933 Act
or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and with the written consent of the Trust any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material fact
contained in the Trust Registration Statement, any Prospectus for Series or
Classes or sales literature or other promotional material of the Trust (or
any amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Trust or the Distributor in writing by or on behalf of the Company for use
in the Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Contracts Registration Statement, Contracts Prospectus or sales literature
or other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which
they were made, if such statement or omission was made in reliance upon
information furnished in writing by the Trust or on its behalf to the
Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or its
Trustees or officers with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to provide services, furnish
materials or make payments as required under the terms of this Agreement
including, but not limited to, any material errors in or untimely
calculation or reporting of the daily net asset value per share or dividend
or capital gain distribution rate (referred to in this Section 9.2(d) as an
"error"); provided, that the foregoing shall not apply where such error is
the result of incorrect information supplied by or on behalf of the Company
to the Trust or the Distributor, and shall be limited to (i) reasonable
administrative costs necessary to correct such error, (ii) amounts which
the Company has overpaid Contact Owners as a result of such error and which
the parties agree it is unreasonable to recoup from such Contract Owners;
and (iii) amounts which the Company has paid out of its own resources to
make Contract Owners whole as a result of such error; or
(e) arise out of any material breach by the Trust of this Agreement (including
any breach of Section 6.1 of this Agreement and any warranties contained in
Article III hereof);
it being understood that in no way shall the Trust be liable to the Company with
respect to any violation of insurance law to which it may be subject but of
which it is unaware. This indemnification is in addition to any liability that
the Trust may otherwise have; provided, however, that no party shall be entitled
to indemnification if such loss, claim, damage or liability is caused by the
willful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification. Any loss, claim, damage or liability that
may arise out of Sections 5.7 and 10.7 and Article XIV hereof are excluded from
indemnification under this Section 9.2.
<PAGE>
9.3. Indemnification by the Distributor. The Distributor hereby agrees to, and
shall, indemnify and hold harmless the Company and each person who controls or
is affiliated with the Company within the meaning of such terms under the 1933
Act or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material fact
contained in the Trust Registration Statement, any Prospectus for Series or
Classes or sales literature or other promotional material of the Trust (or
any amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Trust or Distributor for use in the Trust
Registration Statement, Trust Prospectus or sales literature or promotional
material for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Contracts Registration Statement, Contracts Prospectus or sales literature
or other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which
they were made, if such statement or omission was made in reliance upon
information furnished in writing by the Distributor or on its behalf to the
Company; or
(c) arise out of or are based upon any wrongful conduct of, or violation of
applicable federal and state law by, the Distributor or the Trust or
persons under their respective control with respect to the sale of Trust
shares; or
(d) arise as a result of any failure by the Trust, Distributor or persons under
their respective control to provide services, furnish materials or make
payments as required under the terms of this Agreement including, but not
limited to, any material errors in or untimely calculation or reporting of
the daily net asset value per share or dividend or capital gain
distribution rate (referred to in this Section 9.3(d) as an "error");
provided, that the foregoing shall not apply where such error is the result
of incorrect information supplied by or on behalf of the Company to the
Trust or the Distributor, and shall be limited to (i) reasonable
administrative costs necessary to correct such error, (ii) amounts which
the Company has overpaid Contact Owners as a result of such error, and
which the parties agree it is unreasonable to recoup from such Contract
Owners; and (iii) amounts which the Company has paid out of its own
resources to make Contract Owners whole as a result of such error; or
(e) arise out of any material breach by the Trust, Distributor or persons under
their respective control of this Agreement (including any breach of Section
6.1 of this Agreement and any warranties contained in Article III hereof)
or any unauthorized use of the names or trade names of the Company;
<PAGE>
it being understood that in no way shall the Distributor be liable to the
Company with respect to any violation of insurance law to which it may be
subject but of which it is unaware. This indemnification is in addition to any
liability that the Distributor may otherwise have; provided, however, that no
party shall be entitled to indemnification if such loss, claim, damage or
liability is caused by the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the party seeking indemnification. Any loss,
claim, damage or liability that may arise out of Sections 5.7 and 10.7 and
Article XIV hereof are excluded from indemnification under this Section 9.3.
9.4. Rule of Construction. It is the parties' intention that, in the event of an
occurrence for which the Trust has agreed to indemnify the Company, the Company
shall seek indemnification from the Trust only in circumstances in which the
Trust is entitled to seek indemnification from a third party with respect to the
same event or cause thereof.
9.5. Indemnification Procedures. After receipt by a party, or any partner,
officer, director, employee or agent of any party, entitled to indemnification
under this Article IX ("indemnified party") of notice of the commencement of any
action, if a claim in respect thereof is to be made against any person obligated
to provide indemnification under this Article IX ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable after the summons or other first
written notification giving information of the nature of the claim has been
served upon the indemnified party; provided that the failure to so notify the
indemnifying party will not relieve the indemnifying party from any liability
under this Article IX, except to the extent that the omission results in a
failure of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. The
indemnifying party, upon the request of the indemnified party, shall retain
counsel satisfactory to the indemnified party to represent the indemnified party
in the proceeding, and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (1) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (2) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX. The
indemnification provisions contained in this Article IX shall survive any
termination of this Agreement.
<PAGE>
ARTICLE X
Relationship of the Parties; Termination
10.1. Non-Exclusivity and Non-Interference. The parties hereto acknowledge that
the arrangement contemplated by this Agreement is not exclusive; the Trust
shares may be sold to other insurance companies and investors (subject to
Section 2.8 hereof) and the cash value of the Contracts may be invested in other
investment companies; provided, however, that until this Agreement is terminated
pursuant to this Article X:
(a) the Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action
to operate the Account as a management investment company
under the 1940 Act;
(b) the Company shall not, without the prior written consent of
the Distributor (unless otherwise required by applicable law),
solicit, induce or encourage Contract Owners to change or
modify the Trust to change the Trust's distributor or
investment adviser, to transfer or withdraw Contract Values
allocated to a Fund, or to exchange their Contracts for
contracts not allowing for investment in the Trust;
(c) the Company shall not substitute another investment company
for one or more Funds without providing written notice to the
Distributor at least 60 days in advance of effecting any such
substitution; and
(d) the Company shall not withdraw the Account's investment in the
Trust or a Fund of the Trust except as necessary to facilitate
Contract Owner requests and routine Contract processing.
10.2. Termination of Agreement. This Agreement shall not terminate until (i) the
Trust is dissolved, liquidated, or merged into another entity, or (ii) as to any
Fund that has been made available hereunder, the Account no longer invests in
that Fund and the Company has confirmed in writing to the Distributor, if so
requested by the Distributor, that it no longer intends to invest in such Fund.
After an initial term of three years from February 1, 1999 (the Effective Date
of the Master Agreement), each party shall have the right, in its sole
discretion, to terminate this Agreement upon the expiration of 180 days after
the receipt by the other parties of written notice of termination from the party
terminating this Agreement. However, certain obligations of, or restrictions on,
the parties to this Agreement may terminate as provided in Sections 10.3 through
10.5 and the Company may be required to redeem Trust shares pursuant to Section
10.7 or in the circumstances contemplated by Article VIII. Article IX and
Sections 5.7 and 10.7 shall survive any termination of this Agreement.
<PAGE>
10.3. Termination of Offering of Trust Shares. The obligation of the Trust and
the Distributor to make Trust shares available to the Company for purchase
pursuant to Article II of this Agreement shall terminate at the option of the
Distributor, subject to compliance with applicable law, upon written notice to
the Company as provided below:
(a) upon institution of formal proceedings against the Company, by
the NASD, the SEC, the insurance commission of any state or
any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the
operation of the Account, the administration of the Contracts
or the purchase of Trust shares, which would, in the
Distributor's reasonable judgment exercised in good faith,
materially impair the Company's or Trust's ability to meet and
perform the Company's or Trust's obligations and duties
hereunder, such termination effective upon 15 days prior
written notice;
(b) in the event any of the Contracts are not registered where
required and in all material respects are not issued or sold
in accordance with applicable federal and/or state law, such
termination effective immediately upon receipt of written
notice;
(c) if the Distributor shall determine, in its sole judgment
exercised in good faith, that either (1) the Company shall
have suffered a material adverse change in its business or
financial condition or (2) the Company shall have been the
subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of
either the Trust or the Distributor, such termination
effective upon 30 days prior written notice;
(d) if the Distributor suspends or terminates the offering of
Trust shares of any Series or Class to all Participating
Investors or only designated Participating Investors, if such
action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Distributor
acting in good faith, suspension or termination is necessary
in the best interests of the shareholders of any Series or
Class (it being understood that "shareholders" for this
purpose shall mean Product Owners), such notice effective
immediately upon receipt of written notice;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the
Account to another insurance company pursuant to an assumption
reinsurance agreement) unless the Trust consents thereto, such
termination effective upon 30 days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction
of the Trust within 10 days after written notice of such
breach has been delivered to the Company, such termination
effective upon expiration of such 10-day period; or
(g) upon the determination of the Trust's Board to dissolve,
liquidate or merge the Trust as contemplated by Section
10.2(i), upon termination of the Agreement pursuant to Section
10.2(ii), or upon notice from the Company pursuant to Section
10.4 or 10.5, such termination pursuant hereto to be effective
upon 15 days prior written notice.
Except in the case of an option exercised under clause (b) or (d) of this
Section 10.3 or under Sections 10.2(i) or (ii), the obligations shall terminate
only as to new Contracts and the Distributor shall continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts.
<PAGE>
10.4. Termination of Investment in a Fund. The Company may elect to cease
investing in a Fund, promoting a Fund as an investment option under the
Contracts, or withdraw its investment or the Account's investment in a Fund,
subject to compliance with applicable law, upon written notice to the Trust
within 15 days of the occurrence of any of the following events (unless provided
otherwise below):
(a) if the Trust informs the Company pursuant to Section 4.4 that
it will not cause such Fund to comply with investment
restrictions as requested by the Company and the Trust and the
Company are unable to agree upon any reasonable alternative
accommodations;
(b) if shares in such Fund are not reasonably available to meet
the requirements of the Contracts as determined by the Company
(including any non-availability as a result of notice given by
the Distributor pursuant to Section 10.3(d)), and the
Distributor, after receiving written notice from the Company
of such non-availability, fails to make available, within 10
days after receipt of such notice, a sufficient number of
shares in such Fund or an alternate Fund to meet the
requirements of the Contracts; or
(c) if such Fund fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations
thereunder and the Trust, upon written request, fails to
provide reasonable assurance that it will take action to cure
or correct such failure.
Such termination shall apply only as to the affected Fund and shall not apply to
any other Fund in which the Company or the Account invests.
10.5. Termination of Investment by the Company. The Company may elect to cease
investing in all Series or Classes of the Trust made available hereunder,
promoting the Trust as an investment option under the Contracts, or withdraw its
investment or the Account's investment in the Trust, subject to compliance with
applicable law, upon written notice to the Trust within 15 days of the
occurrence of any of the following events (unless provided otherwise below):
(a) upon institution of formal proceedings against the Trust or
the Distributor (but only with regard to the Trust) by the
NASD, the SEC or any state securities or insurance commission
or any other regulatory body;
(b) if, with respect to the Trust or a Fund, the Trust or the Fund
ceases to qualify as a regulated investment company under
Subchapter M of the Code, as defined therein, or any successor
or similar provision, or if the Company reasonably believes
that the Trust may fail to so qualify, and the Trust, upon
written request, fails to provide reasonable assurance that it
will take action to cure or correct such failure within 30
days;
(c) if the Trust or Distributor is in material breach of a
provision of this Agreement, which breach has not been cured
to the satisfaction of the Company within 10 days after
written notice of such breach has been delivered to the Trust
or the Distributor, as the case may be such termination
effective upon expiration of such 10-day period;
(d) If the Company shall determine, in its sole judgment exercised
in good faith, that either (1) the Distributor shall have
suffered a material adverse change in its business or
financial condition or (2) the Distributor or the Trust shall
have been the subject of material adverse publicity (excluding
with respect to the Trust, market events impacting the Trust's
performance) which is likely to have a material adverse impact
upon the business and operations of the Company, such
termination effective upon 30 days' prior written notice;
<PAGE>
(e) If the Company suspends or terminates the offering of the
Contracts, if such action is required by law or by regulatory
authorities have jurisdiction or if, in the sole discretion of
the Company acting in good faith, suspension or termination is
necessary in the best interest of Contract Owners, such notice
effective immediately upon receipt of written notice; or
(f) Upon the Distributor's or the Trust's assignment of this
Agreement unless the Company consents thereto, such
termination effective upon 30 days' prior written notice.
10.6. Company Required to Redeem. The parties understand and acknowledge that it
is essential for compliance with Section 817(h) of the Code that the Contracts
qualify as annuity contracts or life insurance policies, as applicable, under
the Code. Accordingly, if any of the Contracts cease to qualify as annuity
contracts or life insurance policies, as applicable, under the Code, or if the
Trust reasonably believes that any such Contracts may fail to so qualify, the
Trust shall have the right to require the Company to redeem Trust shares
attributable to such Contracts upon notice to the Company and the Company shall
so redeem such Trust shares in order to ensure that the Trust complies with the
provisions of Section 817(h) of the Code applicable to ownership of Trust
shares. Notice to the Company shall specify the period of time the Company has
to redeem the Trust shares or to make other arrangements satisfactory to the
Trust and its counsel, such period of time to be determined with reference to
the requirements of Section 817(h) of the Code. In addition, the Company may be
required to redeem Trust shares pursuant to action taken or request made by the
Trust Board in accordance with the Exemptive Order described in Article VIII or
any conditions or undertakings set forth or referenced therein, or other SEC
rule, regulation or order that may be adopted after the date hereof. The Company
agrees to redeem shares in the circumstances described herein and to comply with
applicable terms and provisions. Also, in the event that the Distributor
suspends or terminates the offering of a Series or Class pursuant to Section
10.3(d) of this Agreement, the Company, upon request by the Distributor, will
cooperate in taking appropriate action to withdraw the Account's investment in
the respective Fund.
10.7. Confidentiality. Each party's obligation to keep confidential any
information acquired as a result of this Agreement shall be governed by the
applicable provisions of the Master Agreement.
ARTICLE XI
Applicability to New Accounts and New Contracts
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts, any Series or Class, additions of new classes of Contracts to be
issued by the Company and separate accounts therefor investing in the Trust.
Such amendments may be made effective by executing the form of amendment
included on each schedule attached hereto. The provisions of this Agreement
shall be equally applicable to each such class of Contracts, Series, Class or
separate account, as applicable, effective as of the date of amendment of such
Schedule, unless the context otherwise requires. The parties to this Agreement
may amend this Agreement from time to time by written agreement signed by all of
the parties.
<PAGE>
ARTICLE XII
Notice, Request or Consent
Any notice, request or consent to be provided pursuant to this
Agreement is to be made in writing and shall be given:
If to the Trust:
Douglas C. Grip
President
Goldman Sachs Variable Insurance Trust
One New York Plaza
New York, NY 10004
If to the Distributor:
Douglas C. Grip
Vice President
Goldman Sachs & Co.
One New York Plaza
New York, NY 10004
If to the Company:
Richard W. Kling
President
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
With a Copy To:
Law Department (Unit 52)
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 5540
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier or such other
method as agreed to by the parties, and shall be effective upon receipt. Notices
pursuant to the provisions of Article II may be sent by facsimile to the person
designated in writing for such notices.
<PAGE>
ARTICLE XIII
Miscellaneous
13.1. Interpretation. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the state of
Delaware, without giving effect to the principles of conflicts of laws, subject
to the following rules:
(a) This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended,
and the rules, regulations and rulings thereunder, including
such exemptions from those statutes, rules, and regulations as
the SEC may grant, and the terms hereof shall be limited,
interpreted and construed in accordance therewith.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or
effect.
(c) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
(d) The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which
the parties hereto are entitled to under state and federal
laws.
13.2. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. No Assignment. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by the Company, the Distributor or the
Trust without the prior written consent of the other parties.
13.4. Declaration of Trust. A copy of the Declaration of Trust of the Trust is
on file with the Secretary of State of the State of Delaware, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as trustees, and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually, but binding only upon the assets and
property of the Trust. No Series of the Trust shall be liable for the
obligations of any other Series of the Trust.
<PAGE>
ARTICLE XIV
Year 2000 Warranty
The agreement among the parties with regard to Year 2000
representations and warranties shall be as set forth in Section 10.6 of the
Master Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
Date: ___________ By: _______________________________________
Name:
Title:
GOLDMAN, SACHS & CO.
(Distributor)
Date: ___________ By:___________________________________________
Name:
Title:
IDS LIFE INSURANCE COMPANY
(Company)
Date: ___________ By:____________________________________________
Name:
Title:
ATTEST
Date: ___________ By:____________________________________________
Name:
Title:
<PAGE>
Schedule 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ============================
<S> <C> <C> <C>
Date Established by
Name of Account Board of Directors of the SEC 1940 Act Registration Type of Product Supported
Company Number by Account
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
IDS Life Variable Account 10 August 23, 1995 811-07355 Variable Annuity
- ------------------------------- ---------------------------- ---------------------------- ============================
============================== ============================ ===========================
Name of Subaccount Investing in Fund or Fund Date Established by Board
Series of Directors of the
Company
============================== ============================ ===========================
- ------------------------------ ---------------------------- ===========================
1UE Goldman Sachs VIT CORE
2UE U.S. Equity Portfolio
3UE
- ------------------------------ ---------------------------- ===========================
- ------------------------------ ---------------------------- ===========================
1MC Goldman Sachs VIT Mid Cap
2MC Value Portfolio
3MC
- ------------------------------ ---------------------------- ===========================
- ------------------------------ ---------------------------- ===========================
1SE Goldman Sachs VIT CORE
2SE Small Cap Equity Portfolio
3SE
- ------------------------------ ---------------------------- ===========================
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
[Form of Amendment to Schedule 1]
Effective as of , the following separate accounts of the Company are hereby
added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ============================
<S> <C> <C> <C>
Date Established by
Name of Account Board of Directors of the SEC 1940 Act Registration Type of Product Supported
Company Number by Account
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
============================== ============================ ===========================
Name of Subaccount Investing in Fund or Fund Date Established by Board
Series of Directors of the
Company
============================== ============================ ===========================
============================== ---------------------------- ===========================
- ------------------------------ ---------------------------- ===========================
- ------------------------------ ---------------------------- ===========================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
Goldman Sachs Variable Insurance Trust IDS Life Insurance Company
Goldman, Sachs & Co. Attest
<PAGE>
Schedule 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ============================
<S> <C> <C> <C>
SEC 1933 Act Registration
Contract Marketing Name Number Contract Form Number Annuity or Life
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
American Express Retirement 333-79311 31043-NQ Annuity
Advisor Variable Annuitysm 31044-Q
31045-IRA
31046-NQ
31047-Q
31048-IRA and state
variations thereof
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
[Form of Amendment to Schedule 2]
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ============================
<S> <C> <C> <C>
Contract Marketing Name SEC 1933 Act Registration
Number Contract Form Number Annuity or Life
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
- ------------------------------- ---------------------------- ---------------------------- ============================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
- --------------------------------- --------------------------------
Goldman Sachs Variable Insurance Trust IDS Life Insurance Company
- --------------------------------- --------------------------------
Goldman, Sachs & Co. Attest
<PAGE>
Schedule 3
Trust Classes and Series (and Corresponding Subaccount)
Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Classes
and Series are available under the Contracts:
<TABLE>
<CAPTION>
-------------------------------------------------- ============================================================
<S> <C>
Contract Marketing Name Trust Classes and Series (Subaccount)
-------------------------------------------------- ============================================================
-------------------------------------------------- ============================================================
American Express Retirement Advisor Variable Goldman Sachs VIT CORE U.S. Equity Portfolio (1UE, 2UE,
Annuitysm 3UE)
Goldman Sachs VIT Mid Cap Value Portfolio (1MC, 2MC, 3MC)
Goldman Sachs VIT CORE Small Cap Equity Portfolio (1SE,
2SE, 3SE)
-------------------------------------------------- ============================================================
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
[Form of Amendment to Schedule 3]
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Classes and Series:
<TABLE>
<CAPTION>
-------------------------------------------------- =======================================================
<S> <C>
Contract Marketing Name Trust Classes and Series (Subaccount)
-------------------------------------------------- =======================================================
-------------------------------------------------- =======================================================
-------------------------------------------------- =======================================================
-------------------------------------------------- =======================================================
-------------------------------------------------- =======================================================
-------------------------------------------------- =======================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
- --------------------------------- -----------------------------
Goldman Sachs Variable Insurance Trust IDS Life Insurance Company
- --------------------------------- -----------------------------
Goldman, Sachs & Co. Attest
<PAGE>
Schedule 4
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
- -----------------------------------------------------------------------------
[Form of Amendment to Schedule 4]
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
- --------------------------------- ------------------------------
Goldman Sachs Variable Insurance Trust IDS Life Insurance Company
- --------------------------------- ------------------------------
Goldman, Sachs & Co. Attest
AMENDMENT 1 TO
PARTICIPATION AGREEMENT
By and Among
IDS LIFE INSURANCE COMPANY
And
PUTNAM CAPITAL MANAGER TRUST
(now known as Putnam Variable Trust)
And
PUTNAM MUTUAL FUNDS CORP.
THIS AMENDMENT 1 TO PARTICIPATION AGREEMENT ("Amendment 1") is made and entered
into this 30th day of April, 1999 by and among IDS Life Insurance Company (the
"Company"); Putnam Variable Trust (formerly Putnam Capital Manager Trust) (the
"Fund"); and Putnam Mutual Funds Corp. (the "Distributor").
WHEREAS, the Company, the Fund and the Distributor are parties to the
Participation Agreement dated October 7, 1996, (the "Agreement"); and
WHEREAS, the parties now desire to amend the Agreement to add Designated
Portfolios, to allow a new flexible premium variable life insurance policy and
new flexible premium variable annuity to invest in the Designated Portfolios and
to provide that the new life insurance policy and annuity will invest in Class
IB Shares of the Designated Portfolios;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and the Distributor agree as follows:
<PAGE>
1. Amendment to Schedule 2. In accordance with the terms of the Agreement, the
parties hereby amend Schedule 2 to read as follows:
Schedule 2
PARTICIPATION AGREEMENT
By and Among
IDS LIFE INSURANCE COMPANY
And
PUTNAM VARIABLE TRUST
And
PUTNAM MUTUAL FUNDS CORP.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Putnam Variable Trust:
IDS Life Variable Account 10:
IDS Life Flexible Portfolio Annuity offers the following
Designated Portfolio as an investment option:
Putnam VT New Opportunities Fund - Class IA Shares
AXP Retirement Advisor Variable Annuity offers the following
Designated Portfolios as investment options:
Putnam VT International New Opportunities Fund -
Class IB Shares
Putnam VT Vista Fund - Class IB Shares
IDS Life Variable Life Separate Account:
IDS Life Variable Universal Life Insurance Policy (VUL) offers
the following Designated Portfolio as an investment option:
Putnam VT New Opportunities Fund - Class IA Shares
IDS Life Variable Universal Life Insurance Policy (VUL III)
offers the following Designated Portfolios as investment
options:
Putnam VT High Yield Fund - Class IB Shares
Putnam VT New Opportunities Fund - Class IA Shares
2. Service Fees. With respect to any investment in Class IB Shares of the
Designated Portfolios:
a) Provided the Company complies with its obligations under the
Agreement, the Distributor will pay the Company a service fee
(the "Service Fee") on shares of the Designated Portfolios
held in the Account at the rate of 0.15% per annum.
a) The Company understands and agrees that all Service Fee
payments are subject to the limitations contained in each
Designated Portfolio's Distribution Plan, which may be varied
or discontinued at any time, and understands and agrees that
it will cease to receive such Service Fee Payments with
respect to a Designated Portfolio if the Designated Portfolio
ceases to pay fees to the Distributor pursuant to its
Distribution Plan.
<PAGE>
a) The Company's failure to provide the services described in
Section 2(e) below or otherwise to comply with the terms of
the Agreement will render it ineligible to receive Service
Fees.
a) Except as described in Sections 2(b) and 2(c) above, the
Distributor will pay the Company the Service Fees unless it is
not permissible to continue such Service Fee arrangement under
applicable laws, rules or regulations. The Service Fee
arrangement may be terminated: (A) in writing by either party
upon sixty (60) days' advance written notice to the other
party; or (B) if the Agreement is terminated, however, the
Service Fee will continue to be due and payable with respect
to shares of the Designated Portfolios attributable to
Contracts in effect on the effective date of termination of
the Service Fee arrangement.
a) The Company will provide the following services to Contract
owners who allocate purchase payments to subaccounts of the
Account investing in the Designated Portfolios:
i) Maintain regular contact with Contract owners and assist in answering
inquiries concerning the Designated Portfolios;
i) Assist in printing and/or distributing shareholder reports,
prospectuses, service literature and sales literature or other
promotional materials provided by the Distributor;
i) Assist the Distributor and its affiliates in the establishment and
maintenance of Contract owner and shareholder accounts and records;
i) Assist Contract owners in effecting administrative changes, such as
exchanging into or out of the subaccounts of the Account investing in
shares of the Designated Portfolios;
i) Assist in processing purchase and redemption transactions; and
i) Provide any other information or services as the Contract owners
of the Distributor may reasonably request.
The Company will support the Distributor's marketing and
servicing efforts for granting reasonable requests for
visits to the Company's offices by representatives of the
Distributor.
a) The Company's compliance with the service requirement set
forth in this Amendment 1 will be evaluated from time to time
by the Distributor's monitoring of redemption levels of
Designated Portfolio shares held in the Account and by such
other methods as the Distributor deems appropriate.
2. Definitions. Terms not defined in this Amendment 1 will have the
meaning as those terms defined in the Agreement.
2. Counterparts. This Amendment 1 may be executed simultaneously in two or
more counterparts, each of which taken together will constitute one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment 1 to be
executed in its name and on its behalf by its duly authorized representatives as
of the date specified above.
PUTNAM VARIABLE TRUST PUTNAM MUTUAL FUNDS CORP.
By: By:
Name: Name:
Title: Title:
IDS LIFE INSURANCE COMPANY ATTEST:
By: By:
Name: Name:
Title: Title:
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
IDS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this day of, 1999, by and among
ROYCE CAPITAL FUND, an open-end management investment company organized as a
Delaware business trust (the "Fund"), ROYCE & ASSOCIATES, INC. corporation
organized under the laws of New York (the "Adviser"), and IDS LIFE INSURANCE
COMPANY, an Indiana life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company named in Schedule 1 to
this Agreement, as may be amended from time to time, (each account referred to
as the "Account").
WHEREAS, the Fund was established for the purpose of serving as the investment
vehicle for insurance company separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies that have entered into participation agreements with the Fund and the
Adviser (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets; and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (the "SEC") granting Participating Insurance Companies and their
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and certain
qualified pension and retirement plans outside of the separate account context
(the "Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable annuity
contracts and/or variable life insurance polices (the "Contracts") under the
1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the portfolios named in Schedule 2 to
this Agreement, as may be amended from time to time, (the "Portfolios") on
behalf of the Account to fund the Contracts; and
WHEREAS, under the terms and conditions set forth in this Agreement, the Adviser
desires to make shares of the Fund available as investment options under the
Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the parties agree as
follows:
<PAGE>
ARTICLE I. Sale and Redemption of Fund Shares
1.1. The Fund will sell to the Company those shares of the Portfolios that each
Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt and acceptance by the Fund (or its
agent). Shares of a particular Portfolio of the Fund will be ordered in
such quantities and at such times as determined by the Company to be
necessary to meet the requirements of the Contracts. The Board of Trustees
of the Fund (the "Fund Board") may refuse to sell shares of any Portfolio
to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Fund Board, acting
in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2. The Fund will redeem any full or fractional shares of any Portfolio when
requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Fund (or its agent) of the request for
redemption, as established in accordance with the provisions of the then
current prospectus of the Fund.
1.3. For purposes of Sections 1.1 and 1.2, the Fund hereby appoints the Company
as its agent for the limited purpose of receiving and accepting purchase
and redemption orders resulting from investment in and payments under the
Contracts. Receipt by the Company will constitute receipt by the Fund
provided that: (a) such orders are received by the Company in good order
prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus; and (b) The Fund receives notice of such
orders by 10:00 a.m. Central Time on the next following Business Day.
"Business Day" will mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value
pursuant to the rules of the SEC.
1.4. The Company will pay for a purchase order on the same Business Day as the
Fund receives notice of the purchase order in accordance with Section 1.3.
Notwithstanding the above, if the fund receives notice of the purchase
order on a federal bank holiday, the Company will pay for the purchase
order on the next Business Day. The Fund will pay for a redemption order on
the same Business Day as the Fund receives notice of the redemption order
in accordance with Section 1.3 (or on the next Business Day if such
redemption order notice is received on a federal bank holiday) and in the
manner established from time to time by the Fund, except that the Fund
reserves the right to suspend payment consistent with Section 22(e) of the
Investment Company Act of 1940, as amended (the "1940 Act") and any rules
thereunder. In any event, absent extraordinary circumstances specified in
Section 22(e) of the 1940 Act, the Fund will make such payment within five
(5) calendar days after the date the redemption order is placed in order to
enable the Company to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be
required by law. All payments will be made in federal funds transmitted by
wire or other method agreed to by the parties.
1.5. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.6. The Fund will furnish same day notice (by wire or telephone, followed by
written confirmation) to the Company of the declaration of any income,
dividends or capital gain distributions payable on each Portfolio's shares.
The Company hereby elects to receive all such dividends and distributions
as are payable on the Portfolio shares in the form of additional shares of
that Portfolio. The Fund will notify the Company of the number of shares so
issued as payment of such dividends and distributions.
<PAGE>
1.7. The Fund will make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and will use its best
efforts to make such net asset value per share available by 5:30 p.m.
Central Time, but in no event later than 6:00 p.m. Central Time each
Business Day. The Fund will notify the Company as soon as possible if it is
determined that the net asset value per share will be available after 6:00
p.m. Central Time on any Business Day, and the Fund and the Company will
mutually agree upon a final deadline for timely receipt of the net asset
value on such Business Day.
1.8. Any material errors in the calculation of net asset value, dividends or
capital gain information will be reported immediately upon discovery to the
Company. An error will be deemed "material" based on the Fund's
interpretation of the SEC's position and policy with regard to materiality,
as it may be modified from time to time. If the Company is provided with
materially incorrect net asset value information, the Company, on behalf of
the Account, will be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per share.
Neither the Fund, the Adviser nor any of their affiliates will be liable
for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by or on
behalf of the Company to the Fund or the Adviser.
1.9. The Fund agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified
pension and retirement plans to the extent permitted by the Exemptive
Order. No shares of any Portfolio will be sold directly to the general
public. The Company agrees that Fund shares will be used only for the
purposes of funding the Contracts and Accounts listed in Schedule 1, as
amended from time to time.
1.10.The Fund agrees that all Participating Insurance Companies will have the
obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 3.4 and
Article IV of this Agreement.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that:
(a) it is an insurance company duly organized and in good standing under
applicable law;
(b) it has legally and validly established or will legally and validly
establish each Account as a separate account under applicable state law;
(c) it has registered or will register to the extent necessary each Account as
a unit investment trust in accordance with the provisions of the 1940 Act
to serve as a segregated investment account for the Contracts;
(d) it has filed or will file to the extent necessary the Contracts'
registration statements under the Securities Act of 1933 (the "1933 Act")
and these registration statements will be declared effective by the SEC
prior to the sale of any Contracts;
(e) the Contracts will be filed and qualified and/or approved for sale, as
applicable, under the insurance laws and regulations of the states in which
the Contracts will be offered prior to the sale of Contracts in such
states; and
<PAGE>
(f) it will amend the registration statement under the 1933 Act for the
Contracts and the registration statement under the 1940 Act for the Account
from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable law, but in any
event it will maintain a current effective Contracts' and Account's
registration statement for so long as the Contracts are outstanding unless
the Company has supplied the Fund with an SEC no-action letter, opinion of
counsel or other evidence satisfactory to the Fund's counsel to the effect
that maintaining such registration statement on a current basis is no
longer required.
2.2. The Company represents and warrants that the Contracts are intended to
be treated as annuity or life insurance contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and that it will make every effort to
maintain such treatment and that it will notify the Fund and the
Adviser immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Fund represents and warrants that:
(a) it is duly organized and validly existing under applicable state law;
(b) it has registered with the SEC as an open-end management investment company
under the 1940 Act;
(c) Fund shares of the Portfolios offered and sold pursuant to this Agreement
will be registered under the 1933 Act and duly authorized for issuance in
accordance with applicable law;
(d) it is and will remain registered under the 1940 Act for as long as such
shares of the Portfolios are sold;
(e) it will amend the registration statement for its shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares;
(f) it is currently qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, it will make every effort to
maintain such qualification (under Subchapter M or any successor or similar
provision) and it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future; and
(g) its investment objectives, policies and restrictions comply with applicable
state securities laws as they may apply to the Fund and it will register
and qualify the shares of the Portfolios for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies, objectives and restrictions) complies with the insurance laws and
regulations of any state. The Fund and the Adviser agree that they will
furnish, upon the Company's request, the information required by state
insurance laws so that the Company can obtain the authority needed to issue
the Contracts in the various states.
2.4. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it reserves the right to make such payments in the
future. To the extent that the Fund decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have its Fund
Board, a majority of whom are not "interested" persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
<PAGE>
2.5. The Fund and the Adviser represent and warrant that they will use their
best efforts to comply at all times with Section 817(h) of the Internal
Revenue Code and Treasury Regulation 1.817-5, as amended from time to
time, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulation. In the event of a
breach of this representation and warranty by the Fund and/or the
Adviser, they will take all reasonable steps:
(a) to notify the Company of such breach; and
(b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Treasury Regulation 1.817-5.
2.6. The Adviser represents and warrants that:
(a) it is and will remain duly registered under all applicable federal and
state securities laws; and
(b) it will perform its obligations for the Fund in accordance with applicable
state and federal securities laws and that it will notify the Company
promptly if for any reason it is unable to perform its obligations under
this Agreement.
2.7. Each party represents and warrants that, as applicable, all of its
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of
the Fund are and will continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is
issued by a reputable bonding company.
ARTICLE III. Obligations of the Parties
3.1. The Fund will prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of
additional information of the Fund. The Fund will bear the costs of
registration and qualification of its shares, preparation and filing of
documents listed in this Section 3.1 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
3.2. At the option of the Company, the Fund will either: (a) provide the Company
with as many copies of the Fund's current prospectus, statement of
additional information, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to any
of the foregoing, as the Company will reasonably request; or (b) provide
the Company with a camera-ready copy, computer disk or other medium agreed
to by the parties of such documents in a form suitable for printing. The
Fund will bear the cost of typesetting and printing such documents and of
distributing such documents to existing Contract owners. The Company will
bear the cost of distributing such documents to prospective Contract owners
and applicants as required.
3.3. The Fund, at its expense, either will:
(a) distribute its proxy materials directly to the appropriate
Contract owners; or
(b) provide the Company or its mailing agent with copies of its
proxy materials in such quantity as the Company will
reasonably require and the Company will distribute the
materials to existing Contract owners and will bill the Fund
for the reasonable cost of such distribution. The Fund will
bear the cost of tabulation of proxy votes.
<PAGE>
3.4. If and to the extent required by law the Company will:
(a) provide for the solicitation of voting instructions
from Contract owners;
(b) vote the shares of the Portfolios held in the Account
in accordance with instructions received from
Contract owners; and
(c) vote shares of the Portfolios held in the Account for
which no timely instructions have been received, in
the same proportion as shares of such Portfolio for
which instructions have been received from the
Company's Contract owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent
permitted by law.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide
for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or, as the Fund currently
intends, to comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC's interpretation
of the requirements of Section 16(a) with respect to periodic elections
of directors and with whatever rules the SEC may promulgate with
respect thereto.
3.6 The Company will prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports,
notices, prospectuses and statements of additional information of the
Contracts. The Company will bear the cost of registration and
qualification of the Contracts and preparation and filing of documents
listed in this Section 3.6. The Company also will bear the cost of
typesetting, printing and distributing the documents listed in this
Section 3.6 to existing and prospective Contract owners.
3.7. The Company will furnish, or will cause to be furnished, to the Fund or
the Adviser, each piece of sales literature or other promotional
material in which the Fund or the Adviser is named, at least ten (10)
Business Days prior to its use. No such material will be used if the
Fund or the Adviser reasonably objects to such use within five (5)
Business Days after receipt of such material.
3.8. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of
additional information for Fund shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in published reports for the Fund which are in the public domain
or approved by the Fund or the Adviser for distribution, or in sales
literature or other material provided by the Fund or by the Adviser, except
with permission of the Fund or the Adviser. The Fund and the Adviser agree
to respond to any request for approval on a prompt and timely basis.
Nothing in this Section 3.8 will be construed as preventing the Company or
its employees or agents from giving advice on investment in the Fund.
3.9. The Fund or the Adviser will furnish, or will cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is
named, at least ten (10) Business Days prior to its use. No such
material will be used if the Company reasonably objects to such use
within five (5) Business Days after receipt of such material.
<PAGE>
3.10.The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or
statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or approved by the
Company for distribution to Contract owners, or in sales literature or
other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
3.11. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate
to the Fund or its shares, contemporaneously with the filing of such
document with the SEC or the NASD.
3.12. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for
exemptions, requests for no action letters, and all amendments to any
of the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with the SEC or the
NASD.
3.13.For purposes of this Article III, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use in, a newspaper, magazine, or
other periodical), radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media, (e.g., on-line networks such as the Internet or ---- other
electronic messages), sales literature (i.e., any written communication
distributed or made ---- generally available to customers or the public,
including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials
or other communications distributed or made generally available to some or
all agents or employees, registration statements, prospectuses, statements
of additional information, shareholder reports, and proxy materials and any
other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
3.14. The Fund and the Adviser hereby consent to the Company's use of the
name Royce Capital Fund in connection with marketing the Contracts,
subject to the terms of Sections 3.7 and 3.8 of this Agreement.
Such consent will terminate with the termination of this Agreement.
3.15 The Adviser will be responsible for calculating the performance
information for the Fund. The Company will be responsible for
calculating the performance information for the Contracts. The Adviser
will be liable to the Company for any material mistakes it makes in
calculating the performance information for the Fund which cause losses
to the Company. The Company will be liable to the Adviser for any
material mistakes it makes in calculating the performance information
for the Contracts which cause losses to the Adviser. Each party will be
liable for any material mistakes it makes in reproducing the
performance information for Contracts or the Fund, as appropriate. The
Fund and the Adviser agree to provide the Company with performance
information for the Fund on a timely basis to enable the Company to
calculate performance information for the Contracts in accordance with
applicable state and federal law.
<PAGE>
ARTICLE IV. Potential Conflicts
4.1. The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the contract owners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are
being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Fund Board will promptly inform
the Company if it determines that an irreconcilable material conflict
exists and the implications thereof. A majority of the Fund Board will
consist of persons who are not "interested" persons of the Fund.
4.2. The Company will report any potential or existing conflicts of which it
is aware to the Fund Board. The Company agrees to assist the Fund Board
in carrying out its responsibilities, as delineated in the Exemptive
Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform
the Fund Board whenever Contract owner voting instructions are to be
disregarded. The Fund Board will record in its minutes, or other
appropriate records, all reports received by it and all action with
regard to a conflict.
4.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested trustees, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees), take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the
Accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another
portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity contract owners or variable life ---- insurance contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected contract owners the
option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such disregard
of voting instructions could conflict with the majority of contract owner
voting instructions, and the Company's judgment represents a minority
position or would preclude a majority vote, the Company may be required, at
the Fund's election, to withdraw the affected subaccount of the Account's
investment in the Fund and terminate this Agreement with respect to such
subaccount; provided, however, that such withdrawal and termination will be
limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested trustees of the
Fund Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place within six
(6) months after the Fund gives written notice to the Company that this
provision is being implemented. Until the end of such six-month period the
Adviser and Fund will, to the extent permitted by law and any exemptive
relief previously granted to the Fund, continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the
Fund.
<PAGE>
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will
withdraw the affected subaccount of the Account's investment in the Fund
and terminate this Agreement with respect to such subaccount; provided,
however, that such withdrawal and termination will be limited to the extent
required by the foregoing irreconcilable material conflict as determined by
a majority of the disinterested trustees of the Fund Board. No charge or
penalty will be imposed as a result of such withdrawal. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Adviser and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested members of the Fund Board will determine whether
any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company will not be required by
this Article IV to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract
owners affected by the irreconcilable material conflict.
4.7. The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so
that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Exemptive Order, and said reports, materials and data
will be submitted more frequently if deemed appropriate by the Fund
Board.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions
materially different from those contained in the Exemptive Order, then: (a)
the Fund and/or the Participating Insurance Companies, as appropriate, will
take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 4.1, 4.2, 4.3, 4.4, and 4.5 of this
Agreement will continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE V. Indemnification
5.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the Adviser,
and each person, if any, who controls or is associated with the Fund or the
Adviser within the meaning of such terms under the federal securities laws
(but not any Participating Insurance Companies) and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 5.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
<PAGE>
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Company by or on behalf of the
Adviser or the Fund for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Fund registration statement, prospectus,
statement of additional information or sales
literature or other promotional material of the Fund
(or any amendment or supplement to any of the
foregoing), or the omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund or Adviser in
writing by or on behalf of the Company or persons
under its control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal or state law by,
the Company or persons under its control or subject
to its authorization, with respect to the purchase of
Fund shares or the sale, marketing or distribution of
the Contracts; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any
other material breach of this Agreement by the
Company or persons under its control or subject to
its authorization;
except to the extent provided in Sections 5.1(b) and 5.3
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
5.1(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Fund shares or the Contracts
or the operation of the Fund.
<PAGE>
5.2. Indemnification By The Adviser
(a) The Adviser agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any director,
trustee, officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 5.2)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the
Adviser) or litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based on the
omission or alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Adviser or Fund by or on behalf of
the Company for use in the registration statement,
prospectus or statement of additional information for
the Fund or in sales literature of the Fund (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Contract registration statement, prospectus or
statement of additional information or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading in light of the circumstances
in which they were made, if such statement or
omission was made in reliance upon and in conformity
with information furnished to the Company in writing
by or on behalf of the Adviser or persons under its
control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal and state law by,
the Adviser or the Fund or persons under their
respective control or subject to their authorization
with respect to the sale of Fund shares; or
(4) arise as a result of any failure by the Fund, the
Adviser or persons under their respective control or
subject to their authorization to provide the
services and furnish the materials under the terms of
this Agreement including, but not limited to, a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification
requirements and procedures related thereto specified
in Section 2.5 of this Agreement or any material
errors in or untimely calculation or reporting of the
daily net asset value per share or dividend or
capital gain distribution rate (referred to in this
Section 5.2(a)(4) as an "error"); provided, that the
foregoing will not apply where such error is the
result of incorrect information supplied by or on
behalf of the Company to the Fund or the Adviser, and
will be limited to (i) reasonable administrative
costs necessary to correct such error, and (ii)
amounts which the Company has paid out of its own
resources to make Contract owners whole as a result
of such error; or
<PAGE>
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser or the Fund in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser or the Fund or persons under
their respective control or subject to their
authorization;
except to the extent provided in Sections 5.2(b) and 5.3 hereof.
(b) No party will be entitled to indemnification under Section
5.2(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser and
the Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or
the operation of the Account.
(d) It is understood that these indemnities shall have no effect
on any other agreements or arrangements between the Fund and
or its series and the Adviser.
5.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article V
("Indemnifying Party" for the purpose of this Section 5.3) will not be
liable under the indemnification provisions of this Article V with
respect to any claim made against a party entitled to indemnification
under this Article V ("Indemnified Party" for the purpose of this
Section 5.3) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the
summons or other first legal process giving information of the nature
of the claim will have been served upon such Indemnified Party (or
after such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the indemnification provision of
this Article V, except to the extent that the failure to notify results
in the failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged solely as a result of failure to give
such notice. In case any such action is brought against the Indemnified
Party, the Indemnifying Party will be entitled to participate, at its
own expense, in the defense thereof. The Indemnifying Party also will
be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Indemnifying Party
to the Indemnified Party of the Indemnifying Party's election to assume
the defense thereof, the Indemnified Party will bear the fees and
expenses of any additional counsel retained by it, and the Indemnifying
Party will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party
and the Indemnified Party will have mutually agreed to the retention of
such counsel; or (b) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there is a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify
the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. A successor by law of the parties to
this Agreement will be entitled to the benefits of the indemnification
contained in this Article V. The indemnification provisions contained
in this Article V will survive any termination of this Agreement.
<PAGE>
5.4 Limitation of Liability
Except as expressly stated herein, as between the parties, in no event
will any party to this Agreement be responsible to any other party for
any incidental, indirect, consequential, punitive or exemplary damages
of any kind arising from this Agreement, including without limitation,
lost revenues, loss of profits or loss of business.
5.5 Arbitration
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, will be settled by arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules and Title 9 of the U.S. Code. Judgment on the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The number of arbitrators will be three, one of
whom will be appointed by the Company or an affiliate; one of whom will
be appointed by the Fund and/or the Adviser or an affiliate; and the
third of whom will be selected by mutual agreement, if possible, within
30 days of the selection of the second arbitrator and thereafter by the
administering authority. The place of arbitration will be Minneapolis,
Minnesota. The arbitrators will have no authority to award punitive
damages or any other damages not measured by the prevailing party's
actual damages, and may not, in any event, make any ruling, finding or
award that does not conform to the terms and conditions of this
Agreement. Any party may make an application to the arbitrators seeking
injunctive relief to maintain the status quo until such time as the
arbitration award is rendered or the controversy is otherwise resolved.
Any party may apply to any court having jurisdiction hereof and seek
injunctive relief in order to maintain the status quo until such time
as the arbitration award is rendered or the controversy is otherwise
resolved.
ARTICLE VI. Applicable Law
6.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota.
6.2. This Agreement will be subject to the provisions of the 1933 Act, the
Securities Exchange Act of 1934 and the 1940 Act, and the rules and
regulations and rulings thereunder, including such exemptions from
those statutes, rules and regulations as the SEC may grant (including,
but not limited to, the Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE VII. Termination
7.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to some or all of the Portfolios, upon sixty (60)
days' advance written notice to the other parties or, if
later, upon receipt of any required exemptive relief or orders
from the SEC, unless otherwise agreed in a separate written
agreement among the parties;
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio if shares of the Portfolio are not reasonably
available to meet the requirements of the Contracts as
determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts
issued or to be issued by Company; or
<PAGE>
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the
Contracts, the operation of the Account, or the purchase of
the Fund shares, provided that the Fund determines in its sole
judgment, exercised in good faith, that any such proceeding
would have a material adverse effect on the Company's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of
formal proceedings against the Fund or the Adviser by the
NASD, the SEC, or any state securities or insurance department
or any other regulatory body, regarding the Fund's or the
Adviser's duties under this Agreement or related to the sale
of Fund shares or the administration of the Fund, provided
that the Company determines in its sole judgment, exercised in
good faith, that any such proceeding would have a material
adverse effect on the Fund's or the Adviser's ability to
perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code, or under any successor or
similar provision, or if the Company reasonably and in good
faith believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio if the Fund fails to meet the diversification
requirements specified in Article II hereof or if the Company
reasonably and in good faith believes the Fund may fail to
meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material
breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that the Fund or the
Adviser has suffered a material adverse change in its
business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity
which is likely to have a material adverse impact upon the
business and operations of the Company, such termination to be
effective sixty (60) days' after receipt by the other parties
of written notice of the election to terminate; or
(j) at the option of the Fund, if the Fund determines in its sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to
have a material adverse impact upon the business and
operations of the Fund, such termination to be effective sixty
(60) days' after receipt by the other parties of written
notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract
owners having an interest in the Account (or any subaccount)
to substitute the shares of another investment company for the
corresponding Portfolio shares of the Fund in accordance with
the terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment media.
The Company will give sixty (60) days' prior written notice to
the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
<PAGE>
(l) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of: (i) all
contract owners of variable insurance products of all separate
accounts; or (ii) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article IV of
this Agreement; or
(m) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal
and/or state law. Termination will be effective immediately
upon such occurrence without notice.
7.2. Notwithstanding any termination of this Agreement, the Fund and the Adviser
will, at the option of the Company, continue to make available additional
shares of the Fund pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts will be permitted
to reallocate investments in the Portfolios (as in effect on such date),
redeem investments in the Portfolios and/or invest in the Portfolios upon
the making of additional purchase payments under the Existing Contracts.
The parties agree that this Section 7.2 will not apply to any terminations
under Article IV and the effect of such Article IV terminations will be
governed by Article IV of this Agreement.
7.3. The provisions of Article V will survive the termination of this
Agreement and as long as shares of the Fund are held under Existing
Contracts in accordance with Section 7.2, the provisions of this
Agreement will survive the termination of this Agreement with respect
to those Existing Contracts.
ARTICLE VIII. Notices
Any notice will be deemed duly given when sent by registered or
certified mail (or other method agreed to by the parties) to each other party at
the address of such party set forth below or at such other address as such party
may from time to time specify in writing to the other parties.
If to the Company:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
Attn: President
With a Copy to:
Law Department (Unit 52)
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
If to the Fund:
John D. Diederich
Vice President
Royce Capital Fund
1414 Avenue of the Americas
New York, NY 10019
If to the Adviser:
John E. Denneen
Associate General Counsel
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019
<PAGE>
ARTICLE IX. Miscellaneous
9.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither
the directors, trustees, officers, partners, employees, agents or
shareholders assume any personal liability for obligations entered into
on behalf of the Fund.
9.2. The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 9.2), information maintained
regarding those customers, and all computer programs and procedures or
other information developed or used by the Protected Parties or any of
their employees or agents in connection with the Company's performance of
its duties under this Agreement are the valuable property of the Protected
Parties. The Fund and the Adviser agree that if they come into possession
of any list or compilation of the identities of or other information about
the Protected Parties' customers, or any other information or property of
the Protected Parties, other than such information as may be independently
developed or compiled by the Fund or the Adviser from information supplied
to them by the Protected Parties' customers who also maintain accounts
directly with the Fund or the Adviser, the Fund and the Adviser will hold
such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with the Company's prior written consent; or (b) as required by
law or judicial process. The Fund and the Adviser acknowledge that any
breach of the agreements in this Section 9.2 would result in immediate and
irreparable harm to the Protected Parties for which there would be no
adequate remedy at law and agree that in the event of such a breach, the
Protected Parties will be entitled to equitable relief by way of temporary
and permanent injunctions, as well as such other relief as any court of
competent jurisdiction deems appropriate.
9.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
9.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the
same instrument.
9.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement will not be affected thereby.
9.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
9.7. Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation
the SEC, the NASD and state insurance regulators) and will permit each
other and such authorities reasonable access to its books and records
in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
9.8. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as
applicable, by such party and when so executed and delivered this
Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
9.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund or other applicable terms of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative as of the
date specified above.
[THE FUND] [THE ADVISER]
By: By:
Name: Name:
Title: Title:
IDS LIFE INSURANCE COMPANY ATTEST:
By: By:
Name: Name:
Title: Title:
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
IDS LIFE INSURANCE COMPANY
The following Accounts of IDS Life Insurance Company are permitted in accordance
with the provisions of this Agreement to invest in Portfolios of the Fund shown
in Schedule 2:
IDS Life Variable Account 10
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
IDS LIFE INSURANCE COMPANY
The Accounts shown on Schedule 1 may invest in the following Portfolio:
Royce Micro-Cap Portfolio
AMENDMENT 1 TO PARTICIPATION AGREEMENT
By and Among
IDS LIFE INSURANCE COMPANY
And
WARBURG PINCUS TRUST
And
WARBURG, PINCUS COUNSELLORS, INC.
(now known as Warburg Pincus Asset Management, Inc.)
And
COUNSELLORS SECURITIES INC.
THIS AMENDMENT 1 TO PARTICIPATION AGREEMENT ("Amendment 1") is
effective as of April 30, 1999, by and among IDS LIFE INSURANCE COMPANY (the
"Company"), WARBURG PINCUS TRUST (the "Fund"), WARBURG PINCUS ASSET MANAGEMENT,
INC. (the "Adviser" ) and COUNSELLORS SECURITIES, INC. ("CSI"). Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
the Agreement (defined below).
WHEREAS, the Company, the Fund, Warburg, Pincus Counsellors, Inc. and
CSI are parties to the Participation Agreement dated March 1, 1996 (the
"Agreement") in connection with the participation by the Funds in Contracts
offered by the Company to its clients; and
WHEREAS, since the date of the Agreement, Warburg, Pincus Counsellors,
Inc. has changed its name to Warburg Pincus Asset Management, Inc.; and
WHEREAS, the Company now desires to add an Account to those that offer
certain Portfolios of the Warburg Pincus Trust, to expand the number of
Portfolios of the Warburg Pincus Trust made available as underlying investment
media for the Contracts and to offer a Designated Portfolio as an underlying
investment option under certain variable life insurance policies which invest in
the Fund; and
WHEREAS, the parties to this Amendment 1 now desire to modify the
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. Addition of Variable Life Insurance. The fifth "Whereas" clause of the
Agreement is hereby deleted in its entirety and replaced with the following
language:
WHEREAS, the Company has registered or will register certain variable
annuity and variable life insurance contracts (the "Contracts") under the 1933
Act; and"
2. Amendment to Sales Material and Information Provision. Section 4.8 is hereby
deleted in its entirety and replaced with the following language:
4.8 The Fund and Warburg hereby consent to the Company's use of
the name "Warburg Pincus Trust" followed by the names of the
Designated Portfolios named in Schedule 2, as such schedule
may be amended from time to time, and the name "Warburg Pincus
Asset Management, Inc." in connection with the marketing of
the Contracts, subject to the terms of Sections 4.1 and 4.2 of
this Agreement. Such consent will terminate with the
termination of this Agreement.
<PAGE>
3. Amendment to Notices Provision. In Section 11.1, the reference under notices
"If to the Company" to Jim Mortensen, Manager, Product Development, is hereby
deleted in its entirety and replaced with a reference to "President."
4. Amendment to Schedule 1. Schedule 1 of the Agreement is hereby amended to
read as follows:
Schedule 1
PARTICIPATION AGREEMENT
By and Among
IDS LIFE INSURANCE COMPANY
And
WARBURG PINCUS TRUST
And
WARBURG PINCUS ASSET MANAGMENT, INC.
And
COUNSELLORS SECURITIES INC.
The following separate accounts of IDS Life Insurance Company are permitted in
accordance with the provisions of this Agreement to invest in Designated
Portfolios of the Fund shown in Schedule 2:
IDS Life Variable Account 10, established August 23, 1995.
IDS Life Variable Life Separate Account, established October 16, 1985
April 15, 1999
5. Amendment to Schedule 2. Schedule 2 of the Agreement is hereby amended to
read as follows:
Schedule 2
PARTICIPATION AGREEMENT
By and Among
IDS LIFE INSURANCE COMPANY
And
WARBURG PINCUS TRUST
And
WARBURG PINCUS ASSET MANAGMENT, INC.
And
COUNSELLORS SECURITIES INC.
The Separate Accounts shown on Schedule 1 may invest in the following Designated
Portfolios of the Warburg Pincus Trust:
IDS Life Variable Account 10
Small Company Growth Portfolio
Emerging Growth Portfolio
IDS Life Variable Life Separate Account
Small Company Growth Portfolio
April 15, 1999
<PAGE>
6. Ratification and Confirmation of Agreement. In the event of a conflict
between the terms of this Amendment 1 and the Agreement, it is the intention of
the parties that the terms of this Amendment 1 shall control and the Agreement
shall be interpreted on that basis. To the extent the provisions of the
Agreement have not been amended by this Amendment 1, the parties hereby confirm
and ratify the Agreement.
7. Counterparts. This Amendment 1 may be executed in two or more counterparts,
each of which shall be an original and all of which together shall constitute on
instrument.
8. Full Force and Effect. Except as expressly supplemented, amended or consented
to hereby, all of the representations, warranties, terms, covenants and
conditions of the Agreement shall remain unamended and shall continue to be in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment 1 as
of the date first above written.
IDS LIFE INSURANCE COMPANY WARBURG PINCUS TRUST
By: By:
Name: Name:
Title: Title:
WARBURG PINCUS ASSET MANAGEMENT, INC.
ATTEST
By: By:
Name: Name:
Title: Title:
COUNSELLORS SECURITIES, INC.
By:
Name:
Title:
August 10, 1999
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Re: IDS Life Variable Account 10
Pre-Effective Amendment No. 1
File No. 333-79311/811-07355
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 prospectuses 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 reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report dated
February 4, 1999 with respect to the consolidated financial statements of IDS
Life Insurance Company in Pre-Effective Amendment No. 1 to the Registration
Statement (Form N-4, No. 333-79311) for the registration of the American Express
Retirement Advisor Variable Annuity Contracts to be offered by IDS Life
Insurance Company.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
August 10, 1999
American Express Retirement Advisor Variable Annuity Fund
Performance Calculations
As disclosed in the Fund's prospectus, 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 = Ending Total Value - Initial Amount Invested
Initial Amount Invested
where: Ending Total Value = Initial Investment * ((1 + Gross Total
Return) - Contract Charge Factor)
and; Contract Charge Factor = Policy Fee
Estimated Average Policy Size
Gross Total Return = Ending AUV - Initial AUV
Initial AUV
Average Policy Size = $45,500
Policy Fee = $30
n = number of years
Average annual total return (T) equates the initial amount invested (P) to the
ending redeemable value (ERV) over each period (n) in accordance with the
formula prescribed by the Securities and Exchange P(1+T)n = ERV.
Average annual total return with surrender charge
Ending Redeemable Value = Ending Total Value - Surrender Charge Amount
Initial Amount Invested
where: Surrender Charge Amount = (Ending Total Value - Free Withdrawal
Amount) * Surrender Charge %
and; Free Withdrawal Amount is the greater of 10% of the value of
the contract on the prior contract anniversary or 100% of
earnings on the contract (Ending Total Value - Initial Amount
Invested).
The surrender charge percentage depends on the number of years since you made
the payments that are surrendered, depending on the schedule you selected:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Seven year schedule Ten year schedule
Years from purchase payment Years from purchase
receipt Surrender charge percentage payment receipt Surrender charge percentage
1 7% 1 8%
2 7 2 8
3 7 3 8
4 6 4 7
5 5 4 7
6 4 6 6
7 2 7 5
Thereafter 0 8 4
9 3
10 2
Thereafter 0
</TABLE>
