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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 9
TO REGISTRATION STATEMENT NO. 33-28976
Under
The Securities Act of 1933
IDS Life Insurance Company
(Exact name of registrant as specified in charter)
Minnesota
(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
41-0823832
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(I.R.S. Employer Identification No.)
IDS Tower 10, Minneapolis, MN 55440-0010
(612) 671-3131
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Bruce Kohn, Counsel
IDS Life Insurance Company
IDS Tower 10, Minneapolis, Minnesota 55440-0010
(612) 671-2221
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
It is proposed that this filing become effective on April 30, 1997.
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered price per unit price registration fee
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<S> <C> <C> <C> <C>
Interests in a group N/A
market value annuity
contract and individual
market value annuity
contracts for non-tax
qualified purchases.
</TABLE>
<PAGE>
IDS LIFE ACCOUNT MGA
GROUP AND INDIVIDUAL MARKET VALUE ANNUITY CONTRACTS ISSUED BY
IDS LIFE INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
Form S-1 Item Number and Caption Location in Prospectus
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus......................Outside Front Cover
2. Inside Front and Outside Back
Cover Pages of Prospectus.....................Table of Contents
(inside front cover)
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges.......................................The Guaranteed Term
Annuity in brief,
Not Applicable
4. Use of Proceeds...............................Investments by IDS Life
5. Determination of Offering Price...............Not Applicable
6. Dilution......................................Not Applicable
7. Selling Security Holders......................Not Applicable
8. Plan of Distribution..........................Distribution of contracts
9. Description of Securities to Be
Registered....................................Description of contracts
10. Interests of Named Experts and
Counsel.......................................Not Applicable
11. Information with Respect to the
Registrant....................................The Company; Directors
and executive officers;
Executive compensation;
Security ownership of
management; Legal
proceedings and opinion;
and Financial statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities...............................See Item 14 in Part II
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PART I.
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus.
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IDS Life Guaranteed Term Annuity
Prospectus, April 30, 1997
This prospectus describes interests in a group market value annuity contract and
individual market value annuity contracts offered by IDS Life Insurance Company
(IDS Life) to the general public for non-tax qualified purchases. For the group
contract, eligible individuals include members of the general public.
Participation in a group contract will be accounted for separately by the
issuance of a certificate showing your interest under the group contract.
Participation in an individual contract is shown by the issuance of an
individual annuity contract. The certificate and the individual contract are
both referred to as the "contract."
In addition, IDS Life may offer these contracts in the following tax qualified
programs: (1) plans qualified under Section 401(a), 401(k) or 403(a) of the
Internal Revenue Code of 1986, as amended (the Code); (2) annuity purchase plans
adopted by public school systems and certain tax-exempt organizations pursuant
to Section 403(b) of the Code; (3) individual retirement annuities established
by persons, eligible under Section 408 of the Code (IRA); (4) contracts
purchased by the U.S. government, the government of any state or political
subdivision thereof, or by any agency or instrumentality (within the meaning of
Section 414(d) of the Code), for use in satisfying its obligation to provide a
benefit under a governmental plan; and (5) deferred compensation plans under
Section 457 of the Code.
A minimum purchase payment of at least $5,000 must accompany the application for
a contract. No additional payment is permitted under a contract. The
accumulation value will be guaranteed by the general assets of IDS Life. IDS
Life generally intends to invest funds received in relation to contracts in a
variety of debt instruments having price durations which tend to match the
applicable contract.
IDS Life Account MGA
Group and Individual Market
Value Annuity Contracts
Sold by:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
Telephone: 800-437-0602
These securities may be subject to a substantial surrender charge and/or market
value adjustment if not held to the renewal date which could result in your
receipt of less than your original purchase payment.
For renewal guarantee periods, the renewal interest rate will be declared by IDS
Life based on various factors. It may be higher or lower than the previous
guaranteed interest rate.
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The minimum guaranteed renewal interest rate is 3%.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
IDS Life is not a financial institution, and the securities it offers are not
deposits or obligations of, or guaranteed or endorsed by any financial
institution nor are they insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other agency. Investments in this annuity
involve investment risk including the possible loss of principal.
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Table of contents Page
The Guaranteed Term Annuity in brief......................
Key terms.................................................
Description of contracts..................................
General...................................................
Application and purchase payment..........................
Right to cancel...........................................
Guarantee periods.........................................
Surrenders................................................
Surrender charge..........................................
Market value adjustment...................................
Premium taxes.............................................
Death benefit prior to settlement.........................
Statement.................................................
Electing the settlement date and form of annuity..........
Amendment, distribution and assignment of contracts ......
Amendment of contracts....................................
Distribution of contracts.................................
Assignment of contracts...................................
Federal tax considerations................................
The Company...............................................
Business..................................................
Investments by IDS Life...................................
Selected financial data...................................
Management's discussion and analysis of consolidated
financial condition and results of operations.............
Directors and executive officers..........................
Executive compensation....................................
Security ownership of management..........................
Legal proceedings and opinion.............................
Experts...................................................
Appendix A - Partial surrender illustration...............
Appendix B - Market value adjustment illustration.........
IDS Life financial information............................
<PAGE>
The Guaranteed Term Annuity in brief
Contracts: IDS Life is offering group and individual market value annuities to
the general public for non-tax qualified and tax qualified purchases. IDS Life
is a wholly owned subsidiary of American Express Financial Corporation, which
itself is a wholly owned subsidiary of American Express Company. As described in
this prospectus, market value annuity contracts have a guaranteed interest rate
that is credited to the purchase payment when it is held to the end of the
guarantee period (the renewal date). Surrenders before the renewal date are
subject to a market value adjustment and a surrender charge (if applicable).
Guarantee periods: When a payment is made under an application, the applicant
selects a guarantee period from among those then offered by IDS Life. During
this guarantee period, the purchase payment earns interest at the applicable
guaranteed interest rate as established by IDS Life. Interest is credited on a
daily basis and the interest credited earns interest at the applicable
guaranteed interest rate as established by IDS Life. (p. )
Renewal guarantee periods: At the end of each guarantee period, a renewal
guarantee period of one year will begin, unless the owner elects a different
duration. The owner must elect the length of a renewal guarantee period during
the 30 days before the end of the previous guarantee period. Failure to make an
election will result in an automatic renewal for a period of one year. As of the
first day of each renewal guarantee period the renewal value will earn interest
at the then applicable renewal guaranteed interest rate and the interest
credited will earn interest at the then applicable renewal guaranteed interest
rate. (p. )
Surrenders: Subject to certain restrictions, partial or total surrenders are
permitted. We may defer payment of any surrender for a period up to six months
from the date we receive notice of surrender or the period permitted by state
law, if less. A deferral of payment will not be for a period greater than seven
days except under extraordinary circumstances. We will pay annual interest of at
least 3% of any amounts deferred for more than thirty days during such period if
we choose to exercise this deferral right. (p. )
Surrender charge: Surrenders may be subject to a surrender charge and/or a
market value adjustment. Before the eighth contract anniversary, a surrender
charge beginning at a maximum of 8% will be assessed if you surrender. No
surrender charge will be applied for any surrenders after the eighth contract
anniversary or if the surrender occurs on the last day of a guarantee period. We
will waive the surrender charge in certain instances. (p. )
Market value adjustment: A market value adjustment will be applied when the
surrender occurs before the renewal date. No market value adjustment will be
applied to any surrender effective as of the end of a guarantee period. The
market adjusted value will reflect the relationship, at the time of surrender,
between the rate we then
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are crediting on purchase payments to new contracts with the same durations as
the time remaining in the guarantee period, and the guaranteed interest rate
applicable to that contract. Generally, significant factors affecting the amount
of the market value adjustment are the level of interest rates on investments
that are similar to those supporting current contract purchase payments and the
time remaining to the end of the guarantee period. The market adjusted value is
sensitive, therefore, to changes in current interest rates. The level of the
market value adjustment is dependent on the current interest rate at the time of
surrender. The market value adjustment may increase or decrease the value of
this investment before the renewal date. It is possible that the amount you
receive on surrender would be less than your original purchase payment if
interest rates increase. Also, if interest rates decrease, the amount you
receive on surrender may be more than your original purchase payment and accrued
interest. The market adjusted value also affects settlements under an annuity
payment plan. (p. )
Premium taxes: We reserve the right to deduct applicable premium taxes from the
accumulation value of the contract. State premium taxes range from 0 to 3.5% of
the gross purchase payments. (p. )
Death benefit prior to settlement: The contract provides for a guaranteed death
benefit. In the event of the death of the annuitant or owner prior to the
settlement date, IDS Life will pay to the owner or beneficiary the death benefit
in lieu of any other payment under the contract. The amount of the death benefit
will equal the accumulation value. (p. )
Electing the settlement date and form of annuity: On the settlement date
specified by the owner, IDS Life will pay the owner a lump sum payment or start
to pay a series of payments. A series of payments may be elected under certain
annuity plans. (p. )
Key terms
In this prospectus, "we" "us" and "IDS Life" refer to IDS Life Insurance Company
and "you" and "yours" refer to an owner who has been issued a contract.
These terms can help you understand details about your annuity:
Accumulation value - The value of the purchase payment plus interest credited,
adjusted for any surrenders.
Annuitant - The person on whose life monthly annuity payments depend.
Annuity - A contract purchased from an insurance company that offers
tax-deferred growth of the purchase payment until earnings are withdrawn.
Cash surrender value - The market adjusted value less any applicable surrender
charge.
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Contract anniversary - The same day and month as the contract date each year
that the contract remains in force.
Contract date - The effective date of the contract as designated in the
contract.
Current interest rate - The applicable interest rate contained in a schedule of
rates established by us from time to time for various guarantee periods.
Initial guarantee period - The period during which the initial guarantee rate
will be credited.
Initial guarantee rate - The rate of interest credited to the purchase payment
during the initial guarantee period.
Market adjusted value - The accumulation value adjusted by the market adjusted
value formula, on any date before the end of the guarantee period.
Market value adjustment - The market adjusted value minus the accumulation
value.
Owner - The person or entity to whom the annuity contract is issued.
Purchase payment - Payment made to IDS Life for an annuity.
Renewal date - The first day of a renewal guarantee period. It will always be on
a contract anniversary.
Renewal guarantee period - A renewal guarantee period will begin at the end of
each guarantee period.
Renewal guarantee rate - The rate of interest credited to the renewal value
during the renewal guarantee period.
Renewal value - The accumulation value at the end of the current guarantee
period.
Settlement - The application of the market adjusted value of the contract to
provide annuity payments.
Settlement date - The date on which annuity payments are to begin.
Written request - A request in writing signed by you and delivered to us at our
home office.
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Description of contracts
General
This prospectus describes interests in market value annuities offered by IDS
Life for non-tax qualified purchases. In addition, IDS Life may offer the
contracts in the following tax qualified programs: (1) Section 401(a), 401(k)
and 403(a) plans; (2) Section 403(b) plans; (3) IRAs; (4) certain governmental
plans; and (5) deferred compensation plans.
As described in this prospectus, the contracts have a guaranteed interest rate
that is credited to a purchase payment in the contract when the purchase payment
is held to its renewal date. Surrenders prior to the renewal date are subject to
a market value adjustment and a surrender charge (if applicable).
Application and purchase payment
To apply for a contract, you must complete an application and make a minimum
purchase payment of $5,000. For individuals age 90 and younger, the maximum
purchase payment is $1,000,000 without prior approval. This limit applies in
total to all IDS Life annuities you own. If you purchase the contract to fund a
tax qualified plan, that plan's limit on contributions also will apply.
We will return an improperly completed application, along with the corresponding
purchase payment, five business days after we receive it if the application has
not, by that time, been properly completed.
A payment is credited to a contract on the date we receive a properly completed
application at our Minneapolis office along with the purchase payment. Interest
is earned the next day. IDS Life then issues a contract and confirms the
purchase payment in writing.
Right to cancel
State or federal law may give you the right to cancel the contract within a
specific period of time after receipt of the contract and receive a refund of
the entire purchase payment. For revocation to be effective, mailing or delivery
of notice of cancellation must be made in writing to our home office at the
following address: IDS Life Insurance Company, Attn: Transactions, P.O. Box 534,
Minneapolis, MN 55440-0534.
Guarantee periods
The owner selects the duration of the guarantee period from among those
durations we offer. As of the date of this prospectus, we are offering guarantee
periods with annual durations from one to 10 years; however, the guarantee
periods we offer in the future could be different. The duration selected will
determine the guaranteed interest rate and the purchase payment (less surrenders
made and less applicable premium taxes, if any) will earn interest at this
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guaranteed interest rate during the entire guarantee period. All interest earned
will be credited daily; this compounding effect is reflected in the guaranteed
interest rate.
Below is an illustration of how we will credit interest during the guarantee
period. For the purpose of this example, we have made the assumptions as
indicated.
Example of guaranteed rate of accumulation
Beginning account value: $50,000
Guaranteed period: 10 years
Guaranteed rate: 6% annual effective rate
Interest credited
to the account Cumulative interest
Year during year credited to the account
1 $3,000.00 $ 3,000.00
2 3,180.00 6,180.00
3 3,370.80 9,550.80
4 3,573.05 13,123.85
5 3,787.43 16,911.28
6 4,014.68 20,925.96
7 4,255.56 25,181.51
8 4,510.89 29,692.40
9 4,781.54 34,473.95
10 5,068.44 39,542.38
Guaranteed accumulation value at the end of 10 years is:
$50,000 + $39,542.38 = $89,542.38
Note: This example assumes no surrenders of any amount during the entire
ten-year period. A market value adjustment applies and a surrender charge may
apply to any interim surrender. (See Surrenders). The hypothetical interest
rates are illustrative only and are not intended to predict future interest
rates to be declared under the contract. Actual interest rates declared for any
given time may be more or less than those shown.
Renewal guarantee periods: At the end of any guarantee period, a renewal
guarantee period will begin. We will notify you in writing about the renewal
guarantee periods available before the renewal date. This written notification
will not specify the interest rate for the renewal value. You may elect in
writing, during the 30-day period before the end of the guarantee period, a
renewal guarantee period of a different duration from among those we offer at
that time. If no election is made, we will automatically apply the renewal value
to a guarantee period of one year. In no event may renewal guarantee periods
extend beyond the settlement date then in effect for the contract. For example,
if the annuitant is age 62 at the end of a guarantee period and the settlement
date for the annuitant is age 65, a three-year guarantee period is the maximum
guarantee period that may be selected under the contract. The renewal value will
then earn interest at a guaranteed interest rate
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that we have declared for such duration. We may declare new schedules of
guaranteed interest rates as frequently as daily.
At the beginning of any renewal guarantee period, the renewal value will be the
accumulation value at the end of the guarantee period just ending. The renewal
value is guaranteed by our general assets. This amount will earn interest for
the renewal guarantee period at the then applicable guaranteed interest rate for
the period selected, that may be higher or lower than the previous guaranteed
interest rate.
At your written request, we will notify you of the renewal guarantee rates for
the periods then available. You also may call us to inquire about renewal
guarantee rates.
Establishment of guaranteed interest rates: The guaranteed interest rate for a
chosen guarantee period will be known at the time a purchase payment is received
or an accumulation value is renewed. We will send a confirmation that will show
the amount and the applicable guaranteed interest rate. The minimum guaranteed
interest rate for renewal values is 3% per year. The rate on renewal values will
be equal to or greater than the rate credited on new comparable purchase
payments at that time.
IDS Life has no specific formula for determining the rate of interest that it
will declare as guaranteed interest rates in the future. We will declare the
guaranteed interest rates from time to time based on our analysis of current
market conditions. (See Investments by IDS Life). In addition, IDS Life also may
consider various other factors in determining guaranteed interest rates for a
given period, including regulatory and tax requirements; sales commission and
administrative expenses we bear; general economic trends; and competitive
factors. IDS Life management will make the final determination as to the
guaranteed interest rates to be declared. We cannot predict nor can we guarantee
future guaranteed interest rates above the 3% rate.
Surrenders
General: Subject to certain tax law and retirement plan restrictions noted
below, total and partial surrenders may be made under a contract at any time.
In the case of all surrenders, the accumulation value will be reduced by the
amount surrendered on the surrender date and that amount will be payable to the
owner. The accumulation value also will be reduced by any applicable surrender
charge and either reduced or increased by any market value adjustment applicable
to the surrender. IDS Life will, on request, inform you of the amount payable in
a total or partial surrender. Any total or partial surrender may be subject to
tax and tax penalties. Surrenders from certain tax qualified contracts also may
be subject to 20% income tax withholding. (See Federal tax considerations.)
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Tax-sheltered annuities: The Code imposes certain restrictions on an owner's
right to receive early distributions attributable to salary reduction
contributions from a contract purchased for a retirement plan qualified under
Section 403(b) of the Code as a tax-sheltered annuity (TSA).
Distributions attributable to salary reduction contributions made after Dec. 31,
1988, plus the earnings on them, or to transfers or rollovers of such amounts
from other contracts may be made from the TSA contract only if the owner has
attained age 59-1/2, has become disabled as defined in the Code, has separated
from the service of the employer that purchased the contract or has died.
Additionally, if the owner should encounter a financial hardship (within the
meaning of the Code), he or she may receive a distribution of all contract
values attributable to salary reduction contributions made after Dec. 31, 1988,
but not of the earnings on them.
Even though a distribution may be permitted under these rules (e.g., for
hardship or after separation from service), it may nonetheless be subject to a
10% IRS penalty tax (in addition to income tax) as a premature distribution and
to 20% income tax withholding. (See Federal tax considerations.)
These restrictions do not apply to transfers of contract value to another TSA
investment vehicle available through the employer.
Partial surrenders: Unless we agree otherwise, the minimum amount you may
surrender is $250. You cannot make a partial surrender if it would reduce the
accumulation value of your annuity to less than $2,000.
You may request the net check amount you wish to receive. We will determine how
much accumulation value needs to be surrendered to yield the net check amount
after any applicable market value adjustments and surrender charge deductions.
A partial surrender request not exceeding $50,000 may be made by telephone. We
have the authority to honor any telephone partial surrender request believed to
be authentic and will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. As long as
reasonable procedures are followed, neither IDS Life nor its affiliates will be
liable for any loss resulting from fraudulent requests. At times when the volume
of telephone requests is unusually high, we will take special measures to ensure
that your call is answered as promptly as possible. A telephone surrender
request will not be allowed within 30 days of a phoned-in address change.
Total surrenders: We will compute the value of your contract at the close of
business after we receive your request for a complete surrender. We may ask you
to return the contract.
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Payment on surrender: We may defer payment of any partial or total surrender for
a period not exceeding 6 months from the date we receive your notice of
surrender or the period permitted by state insurance law, if less. Only under
extraordinary circumstances will we defer a surrender payment more than 7 days,
and if we defer payment for more than 30 days, we will pay annual interest of at
least 3% on the amount deferred. While all circumstances under which we could
defer payment upon surrender may not be foreseeable at this time, such
circumstances could include, for example, our inability to liquidate assets due
to a general financial crisis. If we intend to withhold payment more than 30
days, we will notify you in writing.
NOTE: You will be charged a fee if you request express mail delivery.
Surrender charge
A surrender charge may be assessed on any total or partial surrender taken prior
to the eighth contract anniversary unless the surrender occurs on the last day
of a guarantee period. The amount of the surrender charge will be based on the
length of the guarantee period. The table below shows the maximum amount of the
surrender charge.
Surrender charge percentage:
Guarantee period Contract years as measured from the beginning
of a guarantee period
1 2 3 4 5 6 7 8
1 year 1%
2 years 2 1%
3 years 3 2 1%
4 years 4 3 2 1%
5 years 5 4 3 2 1%
6 years 6 5 4 3 2 1%
7 years 7 6 5 4 3 2 1%
8 years 8 7 6 5 4 3 2 1%
9 years 8 7 6 5 4 3 2 1
10 years 8 7 6 5 4 3 2 1
For renewal guarantee periods, the surrender charge will be based on the lesser
of:
o the length of the new guarantee period, or
o the number of years remaining until the eighth contract
anniversary.
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For example, if a contract owner chose an initial guarantee period of 5 years
and later a renewal guarantee period of 4 years, the surrender charge
percentages would be:
Contract year Surrender charge
1 5%
2 4
3 3
4 2
5 1*
6 3
7 2
8 1
9+ 0
*0% on last day of 5th contract year.
There will never be any surrender charges after the eighth contract anniversary.
Also, after the first contract anniversary, surrender charges will not apply to
surrenders of amounts totalling up to 10% of the accumulation value as of the
last contract anniversary.
Surrender charge calculation: If there is a surrender charge, it is calculated
as:
(A minus B) multiplied by P
where: A = market adjusted value surrendered
B = 10% of accumulation value on last contract
anniversary not already taken as a partial surrender
this contract year.
P = applicable surrender charge percentage
For an illustration of a partial surrender and applicable surrender charges, see
Appendix A.
Waiver of surrender charge: There will be no surrender charge:
o on the last day of a guarantee period;
o after the eighth contract anniversary;
o after the first contract anniversary for surrenders of amounts
totalling up to 10% of the contract accumulation value as of
the last contract anniversary;
o upon the death of the annuitant or owner; or
o upon the application of the market adjusted value to provide
annuity payments under an annuity payment plan (if such application
occurs on a renewal date, there will be no surrender charge or market
value adjustment, and the full accumulation value will be applied under
an annuity payment plan).
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In some cases, such as when an employer makes this annuity available to
employees, we may expect to incur lower sales and administrative expenses or
perform fewer services due to the size of the group, the average contribution
and the use of group enrollment procedures. Then we may be able to reduce or
eliminate surrender charges. However, we expect this to occur infrequently.
Market value adjustment
The accumulation value, including the interest credited, is guaranteed if the
contract is held until the end of the guarantee period. However, a market value
adjustment will be applied if a surrender occurs prior to the end of the
guarantee period. The market adjusted value also affects settlements under an
annuity payment plan.
The market adjusted value is your accumulation value (purchase payment plus
interest credited minus surrenders and surrender charges) adjusted by a formula.
The market adjusted value reflects the relationship between the guaranteed
interest rate on your contract and the interest rate we are crediting on new
contracts with guarantee periods that are the same as the time remaining in your
guarantee period.
The market adjusted value is sensitive to changes in current interest rates. The
difference between your accumulation value and market adjusted value on any day
will depend on our current schedule of guaranteed interest rates on that day,
the time remaining in your guarantee period and your guaranteed interest rate.
Upon surrender your market adjusted value may be greater than your guaranteed
term annuity's accumulation value, equal to it or less than it depending on how
the guaranteed interest rate on your annuity compares to the interest rate of a
new annuity for the same number of years as the guarantee period remaining on
your annuity.
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Relationship between your annuity's
guaranteed rate and new annuity for
the same number of years as the
guaranteed period remaining on your Your market adjusted
annuity. value will be:
If your annuity rate > new annuity rate + .25% greater than your
Accumulation Value
If your annuity rate = new annuity rate + .25% equal to your
Accumulation Value
If your annuity rate < new annuity rate + .25% less than your
Accumulation Value
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For example, assume you bought a contract with a guarantee period of 10 years
and a guaranteed interest rate of 4.5% annually. Assume that after 3 years you
decide to surrender your contract (you have 7 years left in your guarantee
period). If the current interest rate we are offering on new contracts with
7-year
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guarantee periods is 5%, your market adjusted value will be lower than your
accumulation value. On the other hand, if the current interest rate we are then
offering on new contracts with 7-year guarantee periods is 4%, your market
adjusted value will be higher than your accumulation value. A 5% surrender
charge would then be deducted from the market adjusted value.
Market adjusted value formula:
Market adjusted value = (Renewal value) (1 + ic + .0025)(N +
t)
Renewal value -- The accumulation value at the end of the current
guarantee period
ic -- The current interest rate offered for new contract
sales and renewals for the number of years
remaining in the guarantee period
N -- The number of complete contract years to the end
of the current guarantee period
t -- The fraction of the contract year remaining to the
end of the contract year (for example, if 180 days
remain in a 365 day year, t would be .493)
The current guaranteed interest rate (ic) is declared by us periodically. It is
the rate we are then paying on purchase payments and renewals paid under this
class of contracts for guarantee period durations equaling the remaining
guarantee period duration of the contract to which the formula is being applied.
If the remaining guarantee period is a number of complete years, the specific
complete year guarantee rate will be used. If the remaining guarantee period is
less than 1 year, the one year guarantee rate will be used. If the remaining
guarantee period is a number of complete years plus fractional years, the rate
will be determined by straight line interpolation between the two years' rates.
For example, if the remaining guarantee period duration is 8.5 years, and the
current guaranteed interest rate for 8 years is 4% and for 9 years is 5%, IDS
Life will use a guaranteed interest rate of 4.5%.
Market value adjustment formula:
Market value adjustment = Market adjusted value less
accumulation value
For an illustration showing an upward and downward adjustment, see Appendix B.
Premium taxes
We reserve the right to deduct an amount from the accumulation value of the
contract at the time that any applicable premium taxes not previously deducted
are payable. If a tax is payable at the
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time of the purchase payment and we choose to not deduct it at that time, we
further reserve the right to deduct it at a later date. Current premium taxes
range in an amount up to 3.5% depending on jurisdiction.
Death benefit prior to settlement
If the annuitant or owner dies before the settlement date, the death benefit
payable to the beneficiary will equal the accumulation value.
If your spouse is sole beneficiary or co-owner: If you, as owner or co-owner,
die before the settlement date and your spouse is the only beneficiary or
co-owner, your spouse may keep the annuity as owner. To do this, your spouse
must, within 60 days after we receive proof of death, give us written
instructions to keep the contract in force.
Section 401(k) plans, Section 403(b) plans (TSAs), Section 457 plans, custodial
and trusteed plans, and IRAs: If the contract is purchased under a Section
401(k) plan, Section 403(b) plan, Section 457 plan, custodial or trusteed plan
or for an IRA and we receive proof of the annuitant's death before the
settlement date, we will pay the beneficiary the death benefit described above.
If the annuitant dies before reaching the settlement date and the spouse is the
only beneficiary, the spouse may keep the annuity in force until the date on
which the annuitant would have reached 70-1/2 or any other date permitted by the
Code. To do this, the spouse must, within 60 days after we receive proof of
death, give us written instructions to keep the contract in force.
Paying the beneficiary: Unless you have given us other written instructions, we
will pay the beneficiary in a single payment. The beneficiary may elect to
receive this payment at any time within 5 years after the date of death. Payment
from a tax qualified contract (except an IRA) made to a surviving spouse instead
of being directly rolled over to an IRA may be subject to 20% income tax
withholding. We may make payments under any payment plan available under this
contract if:
o the beneficiary asks us in writing within 60 days after we
receive proof of death;
o payments begin no later than one year after death or any other
date permitted by the Code; and
o the payment period does not extend beyond the beneficiary's life
or life expectancy.
We will determine the accumulation value at the next close of business after our
death claim requirements are fulfilled. We will mail payment to the beneficiary
within seven days after our death claim requirements are fulfilled.
<PAGE>
Statement
Prior to the settlement date, at least annually, we will send a statement
showing a summary of the contract.
Electing the settlement date and form of annuity
Upon processing your application we will establish the settlement date to the
maximum age or date as specified below. You can also select a date within the
maximum limits. This date can be aligned with your actual retirement from a job,
or it can be a different future date, depending on your needs and goals and on
certain restrictions. You can also change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
For non-tax qualified contracts, the settlement date cannot be later than the
latest of:
o the contract anniversary nearest the annuitant's 85th birthday;
or
o the 10th contract anniversary.
For tax qualified contracts, to avoid IRS penalty taxes, the retirement date
generally must be:
o on or after the date the annuitant reaches age 59-1/2;
o for IRAs, by April 1 of the year following the calendar year
when the annuitant reaches age 70-1/2; or
o for all other tax qualified contracts, by April 1 of the year following the
calendar year when the annuitant reaches age 70- 1/2 or, if later, retires;
except that 5% business owners may not select a settlement date that is later
than April 1 of the year following the calendar year when they reach age
70-1/2.
Annuity payments: The first payment will be made as of the settlement date. Once
annuity payments have started for an annuitant, no surrender of the annuity
benefit can be made for the purpose of receiving a lump sum in lieu of payments.
Death after settlement date: If you or the annuitant dies after the settlement
date, the amount payable to the beneficiary, if any, will continue as provided
in the annuity payment plan then in effect.
Annuity plans: There are different ways to receive annuity payments. We call
these plans. You may select one of these plans, or another payment arrangement
to which we agree, by giving us written notice at least 30 days before the
settlement date.
<PAGE>
The market adjusted value (less applicable premium taxes, if any) may be applied
on the settlement date under any of the annuity plans described below, but in
the absence of an election, the market adjusted value will be applied on the
settlement date under Plan B to provide a life annuity with 120 monthly payments
certain.
If the amount to be applied to an annuity plan is not at least $2,000 or if
payments are to be made to other than a natural person, we have the right to
make a lump sum payment of the cash surrender value. If a lump sum payment is
made from a tax qualified contract (except an IRA), 20% income tax withholding
may apply.
o Plan A - This provides monthly annuity payments for the lifetime of the
annuitant. No payments will be made after the annuitant dies.
o Plan B - This provides monthly annuity payments for the lifetime of the
annuitant with a guarantee by us that payments will be made for a
period of at least 5, 10 or 15 years. You must select the period.
o Plan C - This provides monthly annuity payments for the lifetime of the
annuitant with a guarantee by us that payments will be made for a
certain number of months. We determine the number of months by dividing
the market adjusted value applied under this plan by the amount of the
monthly annuity payment.
o Plan D - We call this a joint and survivor life annuity. Monthly
payments will be paid for the lifetime of the annuitant and a joint
annuitant. When either the annuitant or joint annuitant dies, we will
continue to make monthly payments for the lifetime of the survivor. No
payments will be paid after the death of both the annuitant and joint
annuitant.
o Plan E - This provides monthly fixed dollar annuity payments for a
period of years. The period of years may be no less than 10 nor more
than 30.
The contract provides for annuity payment plans on a fixed basis only. The
amount of each annuity payment will not change during the annuity payment
period. The amount of the annuity payment will depend on:
- -- the market adjusted value (less any applicable premium tax
not previously deducted) on the date;
- -- the annuity table we are then using for annuity settlements
(never less than the table guaranteed in the contract);
- -- the annuitant's age; and
- -- the annuity payment plan selected.
<PAGE>
The tables for Plans A, B, C and D are based on the "1983 Individual Annuitant
Mortality Table A" and an assumed rate of 4% per year. The table for Plan E is
based on an interest rate of 4%. IDS Life may, at our discretion, if mortality
appears more favorable and interest rates justify, apply other tables that will
result in higher monthly payments.
Restrictions for some tax qualified plans: If your annuity was purchased under a
Section 401(k) plan, custodial or trusteed plan, Section 457 plan, Section
403(b) plan (TSA), or as an IRA, you must select a payment plan that provides
for payments:
o during the life of the annuitant;
o during the joint lives of the annuitant and beneficiary;
o for a period not exceeding the life expectancy of the annuitant;
or
o for a period not exceeding the joint life expectancies of the
annuitant and beneficiary.
Reference also must be made to the terms of the tax qualified plan and
applicable law for any limitations or restrictions on the settlement date or
annuity payment plan that may be selected.
Amendment, distribution and assignment of contracts
Amendment of contracts
We reserve the right to amend the contracts to meet the requirements of
applicable federal or state laws or regulations. We will notify you in writing
of any such amendments.
Distribution of contracts
IDS Life is the principal underwriter for the contracts. IDS Life is registered
with the Securities and Exchange Commission under the Securities Exchange Act of
1934 (1934 Act) as a broker-dealer and is a member of the National Association
of Securities Dealers, Inc. IDS Life may enter into distribution agreements with
certain broker-dealers registered under the 1934 Act. IDS Life will pay a
maximum commission of 5% for the sale of a contract. In the future, we may pay a
commission on an election of a subsequent guarantee period by an owner.
Assignment of contracts
You may change ownership of your annuity at any time by filing a change of
ownership with us at our home office. No change of ownership will be binding
upon us until we receive and record it. We take no responsibility for the
validity of the change. If you have a tax-qualified plan, the contract may not
be sold, assigned, transferred, discounted or pledged as collateral for a loan
or as security for the performance of an obligation or for any other
<PAGE>
purpose to any person other than IDS Life; provided, however, that 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.
The value of any part of a non-tax qualified annuity contract assigned or
pledged is taxed like a cash withdrawal to the extent allocable to investment in
annuity contracts after Aug. 13, 1982.
Transfer of a non-tax qualified annuity contract to another person without
adequate consideration is considered a gift and the transfer will be considered
a surrender of the contract for federal income tax purposes. The income in the
contract will be taxed to the transferor who may be subject to the 10% IRS
penalty tax for early withdrawal. The transferee's investment in the annuity
will be the value of the annuity at the time of the transfer. Consult with your
tax advisor before taking any action.
Federal tax considerations
Under current law, there is no liability for federal income tax on any increase
in the annuity's value until payments are made (except for change of ownership
discussed above in "Assignment of contracts"). However, since federal tax
consequences cannot always be anticipated, you should consult a tax advisor if
you have any questions about the taxation of your annuity contract.
You are not taxed on your purchase payment. Your purchase payment generally
includes purchase payments made with after-tax dollars. If the purchase payment
was made by you or on your behalf with pre-tax dollars as part of a tax
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.
If you surrender part or all of your contract before the date on which you have
decided to begin to receive annuity payments, you will be taxed on the payments
which you receive, to the extent that the value of your contract exceeds your
investment in the contract, and you may have to pay an IRS penalty tax for early
withdrawal.
If you begin receiving annuity payments under a non-tax qualified annuity
contract, a portion of each payment will be subject to tax and a portion of each
payment will be considered to be part of your investment in the contract and
will not be taxed. All amounts received after your investment in the contract is
recovered will be subject to tax. If you begin receiving payments from a tax
qualified annuity, for example an IRA, Section 403(b) plan, or Section 457 plan,
all of the payments generally will be subject to taxation except to the extent
that the contributions were made with after-tax dollars.
Unlike life insurance proceeds, the death benefit under an annuity contract is
not tax exempt. The gain, if any, is taxable as ordinary income to the
beneficiary in the year(s) he or she receives the payments.
<PAGE>
Tax law requires that all non-qualified deferred annuity contracts issued by the
same company to the same contract owner during a calendar year are to be treated
as a single, unified contract. The amount of income included and taxed in a
distribution (or a transaction deemed a distribution under tax law) taken from
any one of such contracts is determined by summing all such contracts.
The income earned on a non-tax qualified contract held by such entities as
corporations, partnerships or trusts generally will be treated as ordinary
income received during that year. However, if the trust was set up for the
benefit of a natural person only, the income will continue to be tax-deferred.
You may have to pay a 10% IRS penalty tax on any amount includible in your
ordinary income. This penalty will not apply to any amount received:
o after you reach age 59-1/2;
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 over your life or life expectancy (or joint lives or life
expectancies of you and your designated beneficiary); or
o if it is allocable to a purchase payment before Aug. 14, 1982
(except for contracts in tax qualified plans).
These are the major exceptions to the 10% IRS penalty tax. Additional exceptions
may apply depending upon whether or not the annuity is tax qualified. For tax
qualified contracts, other penalties apply if you surrender an annuity bought
under your plan before the plan specifies that payments can be made under the
plan.
In general, if you receive all or part of the contract value from an annuity,
withholding may be imposed against the taxable income portion of the payment.
Any withholding that is done represents a prepayment of your tax due for the
year. You take credit for such amounts on the annual tax return that you file.
If the payment is part of an annuity payment plan, the amount of withholding
generally is computed using payroll tables. You can provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you
can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
surrender), withholding is computed using 10% of the taxable portion. Similar to
above, as long as you've provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
<PAGE>
If a distribution is taken from a contract offered under a Section 457 Plan
(deferred compensation plan of state and local governments and tax-exempt
organizations), withholding is computed using payroll methods depending upon the
type of payment.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, any payment from which
federal withholding is deducted may also have state withholding deducted.
The withholding requirements may differ if payment is being made to a non-U.S.
citizen or if the payment is being delivered outside the United States.
If you receive all or part of the contract value from a tax qualified annuity
(except an IRA or Section 457 plan), mandatory 20% income tax withholding
generally will be imposed at the time the payment is made. In addition, federal
income tax and the 10% IRS penalty tax for early withdrawals may apply to
amounts properly includible in income. This mandatory 20% income tax withholding
will not be imposed if:
o instead of receiving the payment, you elect to have the payment rolled over
directly to an IRA or another eligible plan;
o the payment is one of a series of substantially equal periodic payments, made
at least annually, over your life or life expectancy (or joint lives or life
expectancies of you and your designated beneficiary) or made over a period of
10 years or more; or
o the payment is a minimum distribution required under the Code.
These are the major exceptions to the mandatory 20% income tax withholding.
Payments made to a surviving spouse instead of being directly rolled over to an
IRA may be subject to 20% income tax withholding. For taxable distributions that
are not subject to the mandatory 20% withholding, federal income tax will be
withheld from the taxable part of your distribution unless you elect otherwise.
State withholding also may be imposed on taxable distributions.
You will receive a tax statement for any year that you receive a taxable
distribution from your annuity contract according to our records.
The contract is intended to qualify as an annuity for federal income tax
purposes. To that end, the provisions of the contract are to be interpreted to
ensure or maintain such tax qualification, notwithstanding any other provisions
of the contract. We reserve the right to amend the contract to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification or to conform the contract to any applicable changes in the tax
qualification requirements. We will send you a copy of any such amendments.
<PAGE>
Our discussion of federal tax laws is based upon our understanding of these laws
as they are currently interpreted. Either federal tax laws or current
interpretations of them may change. You are urged to consult your tax advisor
concerning your specific circumstances.
The Company
Business
IDS Life is a stock insurance company organized in 1957 under the laws of the
State of Minnesota. IDS Life is a wholly owned subsidiary of American Express
Financial Corporation, which is a wholly owned subsidiary of American Express
Company. IDS Life acts as a direct writer of insurance policies and annuities
and as the investment manager of various investment companies. IDS Life is
licensed to write life insurance and annuity contracts in 49 states and the
District of Columbia. The headquarters of IDS Life is IDS Tower 10, Minneapolis,
MN 55440-0010.
Investments by IDS Life
Assets of IDS Life must be invested in accordance with requirements established
by applicable state laws regarding the nature and quality of investments that
may be made by life insurance companies and the percentage of their assets that
may be committed to any particular type of investment. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. All claims by purchasers of the contracts, and other general
account products, will be funded by the general account.
IDS Life intends to construct and manage the investment portfolio using a
strategy known as "immunization." Immunization seeks to lock in a defined return
on the pool of assets versus the pool of liabilities over a specified time
horizon. Since the return on the assets versus the liabilities is locked in, it
is "immune" to any potential fluctuations in interest rates during the given
time. Immunization is achieved by constructing a portfolio of assets with a
price sensitivity to interest rate changes (i.e., price duration) that is
essentially equal to the price duration of the corresponding portfolio of
liabilities. Portfolio immunization provides flexibility and efficiency to IDS
Life in creating and managing the asset portfolio, while still assuring safety
and soundness for funding liability obligations.
IDS Life's investment strategy will incorporate the use of a variety of debt
instruments having price durations tending to match the applicable guaranteed
interest periods. These instruments include, but are not necessarily limited to,
the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed
by the U.S. government;
<PAGE>
o Debt securities that have an investment grade, at the time of
purchase, within the four highest grades assigned by the
nationally recognized rating agencies;
o Debt instruments that are unrated, but which are deemed
by IDS Life to have an investment quality within the four
highest grades;
o Other debt instruments, which are rated below investment
grade, limited to 15% of assets at the time of purchase;
and
o Real estate mortgages, limited to 30% of portfolio assets
at the time of acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Minnesota and other state insurance laws.
Selected financial data
The following selected financial data for IDS Life and its subsidiaries should
be read in conjunction with the consolidated financial statements and notes
included in the prospectus beginning on page __.
<TABLE>
<CAPTION>
Years ended Dec. 31, (thousands)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Premiums $ 182,921 $ 161,530 $ 144,640 $ 127,245 $ 114,379
Net investment income 1,965,362 1,907,309 1,781,873 1,783,219 1,616,821
Net realized (loss) on investments (159) (4,898) (4,282) (6,737) (3,710)
Other 574,341 472,035 384,105 304,344 240,959
------- ------- ------- ------- -------
Total revenues $ 2,722,465 $ 2,535,976 $ 2,306,336 $ 2,208,071 $ 1,968,449
--------- --------- --------- --------- ---------
Income before income taxes $ 621,714 $ 560,782 $ 512,512 $ 412,726 $ 315,821
------- ------- ------- ------- -------
Net income $ 414,576 $ 364,940 $ 336,169 $ 270,079 $ 211,170
------- ------- ------- ------- -------
Total assets $47,305,981 $42,900,078 $35,747,543 $33,057,753 $27,295,773
</TABLE>
Management's discussion and analysis of consolidated financial condition and
results of operations
Results of operations
1996 compared to 1995:
Consolidated net income increased 14% to $415 million in 1996, compared to $365
million in 1995. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges partially offset by a slight
decrease in investment margins. These increases reflect higher average insurance
and annuities in force during 1996. Investment margins were below prior year
levels primarily due to increasing interest credited rates throughout 1996.
<PAGE>
Consolidated income before income taxes totaled $622 million in 1996, compared
with $561 million in 1995. In 1996, $161 million was from the life, disability
income and long-term care insurance segment, compared with $125 million in 1995.
In 1996, $461 million was from the annuity segment, compared with $440 million
in 1995.
Total premiums received increased to $6.1 billion in 1996, compared with $5.0
billion in 1995. This increase is primarily due to an increase in sales of
variable annuities in 1996.
Total revenues increased to $2.7 billion in 1996, compared with $2.5 billion in
1995. The increase is primarily due to increases in net investment income,
policyholder and contractholder charges, and management fees. Net investment
income, the largest component of revenues, increased from the prior year,
reflecting a slight increase in investments owned.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 18% to $303 million
in 1996, compared with $256 million in 1995. This increase reflects higher total
life insurance in force which grew 13% to $67 billion at December 31, 1996.
Management and other fees increased 26% to $271 million in 1996, compared with
$216 million in 1995. This is primarily due to an increase in separate account
assets, which grew 24% to $19 billion at December 31, 1996, due to market
appreciation and sales. The Company provides investment management services for
the mutual funds used as investment options for variable annuities and variable
life insurance. The Company also receives a mortality and expense risk fee from
the separate accounts.
Total benefits and expenses increased slightly to $2.1 billion in 1996. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, increased to $1.4
billion. This was due to higher aggregate amounts in force and an increase in
average interest credited rates.
1995 compared to 1994:
Consolidated net income increased 8.6% to $365 million in 1995, compared to $336
million in 1994. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges partially offset by a slight
decrease in investment margins. These increases reflect higher average insurance
and annuities in force during 1995. Investment margins were below prior year
levels primarily due to higher interest credited rates during the first two
quarters of 1995.
Consolidated income before income taxes totaled $561 million in 1995, compared
with $513 million in 1994. In 1995, $125 million was from the life, disability
income, health and long-term care insurance segment, compared with $123 million
in 1994. In 1995, $440 million was from the annuity segment, compared with $394
<PAGE>
million in 1994. There was a $4.9 million net realized loss on investments in
1995, compared with a net realized loss on investments of $4.3 million in 1994.
Total premiums received decreased to $5.0 billion in 1995, compared with $5.7
billion in 1994. This decrease is primarily due to a decrease in sales of
variable annuities, reflecting very strong sales of variable products during
1994.
Total revenues increased to $2.5 billion in 1995, compared with $2.3 billion in
1994. The increase is primarily due to increases in net investment income,
policyholder and contractholder charges, and management fees. Net investment
income, the largest component of revenues, increased from the prior year,
reflecting an increase in investments owned.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 16% to $256 million
in 1995, compared with $220 million in 1994. This increase reflects higher total
life insurance in force which grew 13% to $59.4 billion at December 31, 1995.
Management and other fees increased 32% to $216 million in 1995, compared with
$164 million in 1994. This is primarily due to an increase in separate account
assets, which grew 38% to $15 billion at December 31, 1995, due to market
appreciation and sales. The Company provides investment management services for
the mutual funds used as investment options for variable annuities and variable
life insurance. The Company also receives a mortality and expense risk fee from
the separate accounts.
Total benefits and expenses increased to $2.0 billion in 1995. The largest
component of expenses, interest credited to policyholder accounts for universal
life-type insurance and investment contracts, increased to $1.3 billion. This
was due to higher aggregate amounts in force and an increase in average interest
credited rates.
Risk management
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to clients' accounts. The Company does not invest
in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
<PAGE>
Rates credited to clients' accounts are generally reset at shorter intervals
than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps and swaps, for hedging purposes. These derivatives
protect margins by increasing investment returns if there is a sudden and severe
rise in interest rates, thereby mitigating the impact of an increase in rates
credited to clients' accounts.
Liquidity and capital resources
The liquidity requirements of the Company are met by funds provided from
operations and investment activity. The primary components of the funds provided
are premiums, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, dividends and investment purchases.
The Company has available lines of credit with two banks and its parent
aggregating $175 million, of which $100 million is with its parent. The $25,000
line of credit with one bank expired on Dec. 31, 1996 and the Company did not
seek renewal. The $50,000 line of credit with the other bank expires on June 30,
1997 and the Company expects to seek renewal. The lines of credit are used
strictly as short-term sources of funds. Borrowings outstanding under the
agreements were $nil at Dec. 31, 1996. At Dec. 31, 1996, outstanding reverse
repurchase agreements totaled $17 million.
At Dec. 31, 1996, investments in fixed maturities comprised 86% of the Company's
total invested assets. Of the fixed maturity portfolio, approximately 42% is
invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
At Dec. 31, 1996, approximately 9.6% of the Company's investments in fixed
maturities were below investment grade bonds. These investments may be subject
to a higher degree of risk than the high-rated issues because of the borrower's
generally greater sensitivity to adverse economic conditions, such as recession
or increasing interest rates, and in certain instances, the lack of an active
secondary market. Expected returns on below investment grade bonds reflect
consideration of such factors. The Company has identified those fixed maturities
for which a decline in fair value is determined to be other than temporary, and
has written them down to fair value with a charge to earnings.
At Dec. 31, 1996, net unrealized appreciation on fixed maturities held to
maturity included $380 million of gross unrealized appreciation and $94 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $231 million of gross unrealized
appreciation and $93 million of gross unrealized depreciation.
<PAGE>
At Dec. 31, 1996, the Company had an allowance for losses for mortgage loans
totaling $37 million and for real estate investments totaling $4 million.
The economy and other factors have caused an increase in the number of insurance
companies that are under regulatory supervision. This circumstance has resulted
in an increase in assessments by state guaranty associations to cover losses to
policyholders of insolvent or rehabilitated companies. Some assessments can be
partially recovered through a reduction in future premium taxes in certain
states. The Company established an asset for guaranty association assessments
paid to those states allowing a reduction in future premium taxes over a
reasonable period of time. The asset is being amortized as premium taxes are
reduced. The Company has also estimated the potential effect of future
assessments on the Company's financial position and results of operations and
has established a reserve for such potential assessments.
In the first quarter of 1997, the Company paid a $45 million dividend to its
parent. In 1996, dividends paid to its parent were $165 million.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of Dec. 31, 1996, the Company's total adjusted capital was well in
excess of the levels requiring regulatory attention.
Segment information
The Company's operations consist of two business segments: Individual and group
life, disability income and long-term care insurance; and fixed and variable
annuity products designed for individuals, pension plans, small businesses and
employer-sponsored groups. The Company is not dependent upon any single customer
and no single customer accounted for more than 10% of revenue in 1996, 1995 or
1994. Additionally, no single distributor accounted for more than 10% of
premiums received in 1996, 1995 or 1994. (See Note 10, Segment information, in
the "Notes to Consolidated Financial Statements".)
Reinsurance
Reinsurance arrangements are used to reduce exposure to large losses. The
maximum amount of risk retained by the Company on any one life is $750,000 of
life and waiver of premium benefits plus $50,000 of accidental death benefits.
The excesses are reinsured
<PAGE>
with other life insurance companies. At December 31, 1996, traditional life and
universal life-type insurance in force aggregated $67.2 billion, of which $3.9
billion was reinsured.
Reserves
In accordance with the insurance laws and regulations under which IDS Life
operates, it is obligated to carry on its books, as liabilities, actuarially
determined reserves to meet its obligations on its outstanding life and health
insurance policies and annuity contracts. Reserves for policies and contracts
are based on mortality and morbidity tables in general use in the United States.
These reserves are computed amounts that, with additions from premiums to be
received, and with interest on such reserves compounded annually at assumed
rates, will be sufficient to meet IDS Life's policy obligations at their
maturities or in the event of an insured's death. In the accompanying financial
statements these reserves are determined in accordance with generally accepted
accounting principles. (See Note 1, Liabilities for future policy benefits, in
the "Notes to Consolidated Financial Statements.")
Investments
Of IDS Life's consolidated total investments of $25.6 billion at Dec. 31, 1996,
36% was invested in mortgage-backed securities, 47% in corporate and other
bonds, 14% in primary mortgage loans on real estate, 2% in policy loans and the
remaining 1% in other investments.
Competition
IDS Life is engaged in a business that is highly competitive due to the large
number of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 2,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition, 1996, assigned IDS Life one of its highest classifications, A+
(Superior).
Employees
As of Dec. 31, 1996, IDS Life and its subsidiaries had 266 employees; including
209 employed at the corporate office in Minneapolis, MN, 8 employed at American
Centurion Life Assurance Company located in Albany, NY and 49 employed at IDS
Life Insurance Company of New York located in Albany, NY.
Properties
IDS Life occupies office space in Minneapolis, MN, which is rented by its
parent, American Express Financial Corporation. IDS Life reimburses American
Express Financial Corporation for rent based on direct and indirect allocation
methods. Facilities occupied by IDS Life and its subsidiaries are believed to be
adequate for the purposes for which they are used and are well maintained.
<PAGE>
State regulation
IDS Life is subject to the laws of the State of Minnesota governing insurance
companies and to the regulations of the Minnesota Department of Commerce. An
annual statement in the prescribed form is filed with the Minnesota Department
of Commerce each year covering IDS Life's operation for the preceding year and
its financial condition at the end of such year. Regulation by the Minnesota
Department of Commerce includes periodic examination to determine IDS Life's
contract liabilities and reserves so that the Minnesota Department of Commerce
may certify that these items are correct. IDS Life's books and accounts are
subject to review by the Minnesota Department of Commerce at all times. Such
regulation does not, however, involve any supervision of the account's
management or IDS Life's investment practices or policies. In addition, IDS Life
is subject to regulation under the insurance laws of other jurisdictions in
which it operates. A full examination of IDS Life's operations is conducted
periodically by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
Directors and executive officers*
The members of the Board of Directors and the principal executive officers of
IDS Life, together with the principal occupation of each during the last five
years, are as follows:
Directors
David R. Hubers
Born in 1943
Director since September 1989; president and chief executive officer, AEFC,
since August 1993, and director since January 1984. Senior vice president,
Finance and chief financial officer, AEFC, from January 1984 to August 1993.
Richard W. Kling
Born in 1940
Director since February 1984; president since March 1994. Executive vice
president, Marketing and Products from January 1988 to March 1994. Senior vice
president, AEFC, since May 1994. Director of IDS Life Series Fund, Inc. and
member of the board of managers and president of IDS Life Variable Annuity Funds
A and B.
<PAGE>
Paul F. Kolkman
Born in 1946
Director since May 1984; executive vice president since March 1994; vice
president, Finance from May 1984 to March 1994; vice president, AEFC, since
January 1987. Vice president and chief actuary of IDS Life Series Fund, Inc.
James A. Mitchell
Born in 1941
Chairman of the board since March 1994; director since July 1984; chief
executive officer since November 1986; president from July 1984 to March 1994;
executive vice president, AEFC, since March 1994; director, AEFC, since July
1984; senior vice president, AEFC, from July 1984 to March 1994.
Barry J. Murphy
Born in 1951
Director and executive vice president, Client Service, since March 1994; senior
vice president, AEFC, since May 1994; senior vice president, Travel Related
Services (TRS), a subsidiary of American Express Company, from July 1992 to
April 1994; vice president, TRS, from November 1989 to July 1992.
Stuart A. Sedlacek
Born in 1957
Director and executive vice president, Assured Assets since March 1994; vice
president, AEFC, since September 1988.
Melinda S. Urion
Born in 1953
Director and controller since September 1991; executive vice president since
March 1994; vice president and treasurer from September 1991 to March 1994;
senior vice president, chief financial officer and director, AEFC, since
November 1995; corporate controller, AEFC, from April 1994 to November 1995;
vice president, AEFC, from September 1991 to November 1995; chief accounting
officer, AEFC, from July 1988 to September 1991.
Officers other than directors
Morris Goodwin Jr.
Born in 1951
Vice president and treasurer since March 1994; vice president and corporate
treasurer, AEFC, since July 1989. Vice president and treasurer of IDS Life
Series Fund, Inc. and IDS Life Variable Annuity Funds A and B.
<PAGE>
William A. Stoltzmann
Born in 1948
Vice president, general counsel and secretary since 1989; vice president and
assistant general counsel, AEFC, since November 1985.
*The address for all of the directors and principal officers is:
IDS Tower 10, Minneapolis, MN 55440-0010.
Executive compensation
Executive officers of IDS Life also may serve one or more affiliated companies.
The following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in 1996 to IDS
Life and its affiliates. The table also shows the total cash compensation paid
to all executive officers of IDS Life, as a group, who were executive officers
at any time during 1996.
Name of individual Cash
or number in group Position held compensation
Five most highly compensated
executive officers as a group: $3,448,681
James A. Mitchell Chairman of the Board and
Chief Executive Officer
Richard W. Kling President
Barry J. Murphy Exec. Vice President,
Client Service
Stuart A. Sedlacek Exec. Vice President,
Assured Assets
Lorraine R. Hart Vice President,
Investments
All executive officers
as a group (10) $4,923,385
Security ownership of management
IDS Life's directors and officers do not beneficially own any outstanding shares
of stock of IDS Life. All of the outstanding shares of stock of IDS Life are
beneficially owned by its parent, American Express Financial Corporation. The
percentage of shares of American Express Financial Corporation owned by any
director, and by all directors and officers of IDS Life as a group, does not
exceed 1% of the class outstanding.
Legal proceedings and opinion
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life does business involving insurers' sales
practices, alleged agent misconduct, failure to
<PAGE>
properly supervise agents, and other matters. IDS Life, like other life and
health insurers, from time to time is involved in such litigation. On December
13, 1996, an action of this nature was commenced in Minnesota state court. The
plaintiffs purport to represent a class consisting of all persons who replaced
existing IDS Life policies with new IDS Life policies from and after January 1,
1985. Plaintiffs seek damages in an unspecified amount and also seek to
establish a claims resolution facility for the determination of individual
issues. IDS Life filed an answer to the Complaint on February 18, 1997. A
similar action involving the replacement of existing IDS Life insurance policies
and annuity contracts was filed in the same court on March 21, 1997.
IDS Life believes it has meritorious defenses to these and other actions arising
in connection with the conduct of its business activities and intends to defend
them vigorously. IDS Life believes that it is not a party to, nor are any of its
properties the subject of, any pending legal proceedings which would have a
material adverse effect on its consolidated financial condition.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the contracts described in this prospectus and the
organization of IDS Life, its authority to issue contracts under Minnesota law
and the validity of the forms of the contracts under Minnesota law have been
passed on by the general counsel of IDS Life.
Experts
The consolidated financial statements of IDS Life Insurance Company at December
31, 1996, and 1995, and for each of the three years in the period ended December
31, 1996, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the registration statement, and is
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
<PAGE>
Appendix A
Partial surrender illustration
Involving a surrender charge and a market value adjustment
Annuity assumptions:
Single payment $10,000
Guarantee period 10 years
Guarantee rate (ig) 6% effective
annual yield
End of contract year
Contract Surrender accumulation values
year charge % if no surrenders
- --------------------------------------------
1 8% $10,600.00
2 7 11,236.00
3 6 11,910.16
4 5 12,624.77
5 4 13,382.26
6 3 14,185.19
7 2 15,036.30
8 1 15,938.48
9 0 16,894.79
10 0 17,908.48
Partial surrender assumptions:
On the first day of your 4th contract year you request a partial surrender of:
Example I - $2,000 of your accumulation value Example II - A $2,000 net
surrender check
You may surrender 10% of $11,910.16 (end of 3rd contract year accumulation
value) without surrender charge but subject to a market value adjustment -- this
is $1,191.02
The excess market adjusted value surrendered is subject to both a 5% (4th
contract year) surrender charge and a market value adjustment.
The current rate (ic) for applicable new sales and renewals = 5.5%
The number of full years left in your guarantee period (N) = 7
The number of fractional years left in your guarantee period (t) =
0
<PAGE>
Example I - $2,000 of accumulation value surrendered
What will be your market value adjustment amount?
The market adjusted value of your $2,000 partial surrender will be:
Renewal value of accumulation value surrendered
(1 + ic + .0025)(N+t)
= $2,000 (1 + ig)7
(1 + ic + .0025)7
= $2,000 (1.06)7
(1.0575)7
= $2,033.33
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,033.33 - $2,000 = $33.33
(NOTE: This market value adjustment is positive. In other cases the market
value adjustment may be negative.)
What will be your surrender charge amount?
The surrender charge will be 5% multiplied by the excess of the market adjusted
value over the accumulation value that may be surrendered without surrender
charge:
($2,033.33 - $1,191.02) x .05 = $42.12
What net amount will you receive?
Your contract's accumulation value will decrease by $2,000 and we will send you
a check for:
Accumulation value surrendered $2,000.00
Market value adjustment 33.33
Less surrender charge (42.12)
Net surrender amount $1,991.21
Example II - $2,000 net surrender check requested
What will be the accumulation value surrendered?
Tell us if you want a specific net surrender check amount. We will work
backwards using an involved formula to determine how much accumulation value
must be surrendered to result in a net check to you for a specific amount. For a
$2,000 net check to you, the formula results in $2,009.09 of accumulation value
to be surrendered.
<PAGE>
What will be your market value adjustment amount?
The market adjusted value is:
Renewal value of accumulation value surrendered
(1 + ic + .0025)(N+t)
= $2,009.09 (1 + ig)7
(1 + ic + .0025)7
= $2,009.09 (1.06)7
(1.0575)7
= $2,042.58
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,042.58 - $2,009.09 = $33.49
(NOTE: This market value adjustment is positive. In other cases
the market value adjustment may be negative.)
What will be your surrender charge amount?
The surrender charge will be 5% multiplied by the excess of the market adjusted
value over the accumulation value that may be surrendered without surrender
charge:
($2,042.58 - $1,191.02) x .05 = $42.58
What net amount will you receive?
Your contract's accumulation value will decrease by $2,009.09 and we will send
you a check for:
Accumulation value surrendered $2,009.09
Market value adjustment 33.49
Less surrender charge (42.58)
Net surrender amount $2,000.00
<PAGE>
Appendix B
Market value adjustment illustration
Annuity assumptions:
Single payment $50,000
Guarantee period 10 years
Guarantee rate 6% effective annual yield
Market adjustment assumptions: These examples show how the market value
adjustment may affect your contract values. The surrenders in these examples
occur one year after the contract date. There are no previous surrenders.
The accumulation value at the end of one year is $53,000. If there aren't any
surrenders, the renewal value at the end of the 10 year guarantee period will be
$89,542.38.
The market value adjustment is based on the rate we are crediting (at the time
of your surrender) on new contracts with the same length guarantee period as the
time remaining in your guarantee period. After one year, you have 9 years left
of your 10 year guarantee period.
Example I shows a downward market value adjustment. Example II shows an upward
market value adjustment. These examples do not show the surrender charge (if
any) which would be calculated separately after the market value adjustment.
Surrender charge calculations are shown in Appendix A.
Market adjusted value formula:
Market adjusted = (Renewal value)
value (1 + ic + .0025)(N+t)
Renewal value -- The accumulation value at the end of the
current guarantee period
ic -- The current interest rate offered for new
contract sales and renewals for the number of
years remaining in the guarantee period
N -- The number of complete contract years to the
end of the current guarantee period
t -- The fraction of the contract year remaining to
the end of the contract year
<PAGE>
Example I - Downward market value adjustment
A surrender results in a downward market value adjustment when interest rates
have increased. Assume after 1 year, we are now crediting 6.5% for a new
contract with a 9 year guarantee period. If you fully surrender, the market
adjusted value would be:
Renewal value
(1 + ic + .0025)(N+t)
= $89,542.38
(1 + .065 + .0025)9
= $49,741.36
The market value adjustment is a $3,258.64 reduction of the accumulation value:
($3,258.64) = $49,741.36 - $53,000
If you surrendered half of your contract instead of all, the market adjusted
value of the surrendered portion would be one-half that of the full surrender:
$44,771.19
$24,870.68 = (1 + .065 + .0025)9
Example II - Upward market value adjustment
A surrender results in an upward market value adjustment when interest rates
have decreased more than .25%. Assume after 1 year, we are now crediting 5.5%
for a new contract with a 9 year guarantee period. If you fully surrender, the
market adjusted value would be:
Renewal value
(1 + ic + .0025)(N+t)
= $89,542.38
(1 + .055 + .0025)9
= $54,138.38
The market value adjustment is a $1,138.38 increase of the accumulation value:
$1,138.38 = $54,138.38 - $53,000
If you surrendered half of your contract instead of all, the market adjusted
value of the surrendered portion would be one-half that of the full surrender:
$44,771.19
--------------
$27,069.19 = (1 + .055 + .0025)9
<PAGE>
IDS Life Financial Information
The financial statements shown below are those of the insurance company and not
those of any other entity. They are included in the prospectus for the purpose
of informing the investor as to the financial condition of the insurance company
and its ability to carry out its obligations under its variable contracts.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1996 1995
- ------ ---- ---------
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1996, $10,521,650; 1995, $11,878,377) .............. $10,236,379 $11,257,591
Available for sale, at fair value (Amortized cost:
1996, $11,008,622; 1995, $10,146,136) .............. 11,146,845 10,516,212
Mortgage loans on real estate ...................... 3,493,364 2,945,495
Policy loans ....................................... 459,902 424,019
Other investments .................................. 251,465 146,894
Total investments .................................. 25,587,955 25,290,211
Cash and cash equivalents .......................... 224,603 72,147
Amounts recoverable from reinsurers ................ 157,722 114,387
Amounts due from brokers ........................... 11,047 --
Other accounts receivable .......................... 44,089 39,108
Accrued investment income .......................... 343,313 348,008
Deferred policy acquisition costs .................. 2,330,805 2,025,725
Deferred income taxes .............................. 33,923 --
Other assets ....................................... 37,364 36,410
Separate account assets ............................ 18,535,160 14,974,082
Total assets ....................................... $47,305,981 $42,900,078
=========== ===========
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
- ------------------------------------ ---- ----
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities .................................... $21,838,008 $21,404,836
Universal life-type insurance ...................... 3,177,149 3,076,847
Traditional life insurance ......................... 209,685 209,249
Disability income and long-term care insurance ..... 424,200 327,157
Policy claims and other
policyholders' funds ............................... 83,634 56,323
Deferred income taxes .............................. -- 112,904
Amounts due to brokers ............................. 261,987 121,618
Other liabilities .................................. 332,078 285,354
Separate account liabilities ....................... 18,535,160 14,974,082
Total liabilities .................................. 44,861,901 40,568,370
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding .. 3,000 3,000
Additional paid-in capital ......................... 283,615 278,814
Net unrealized gain on investments ................. 86,102 230,129
Retained earnings .................................. 2,071,363 1,819,765
Total stockholder's equity ......................... 2,444,080 2,331,708
Total liabilities and stockholder's equity ......... $47,305,981 $42,900,078
=========== ===========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended Dec. 31,
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Traditional life insurance $ 51,403 $ 50,193 $ 48,184
Disability income and long-term care insurance 131,518 111,337 96,456
Total premiums 182,921 161,530 144,640
Policyholder and contractholder charges 302,999 256,454 219,936
Management and other fees 271,342 215,581 164,169
Net investment income 1,965,362 1,907,309 1,781,873
Net realized loss on investments (159) (4,898) (4,282)
Total revenues 2,722,465 2,535,976 2,306,336
Benefits and expenses:
Death and other benefits:
Traditional life insurance 26,919 29,528 28,263
Universal life-type insurance
and investment contracts 85,017 71,691 52,027
Disability income and
long-term care insurance 19,185 16,259 13,393
Increase (decrease) in liabilities for future policy benefits:
Traditional life insurance 1,859 (1,315) (3,229)
Disability income and
long-term care insurance 57,230 51,279 37,912
Interest credited on universal life-type
insurance and investment contracts 1,370,468 1,315,989 1,174,985
Amortization of deferred policy acquisition costs 278,605 280,121 280,372
Other insurance and operating expenses 261,468 211,642 210,101
Total benefits and expenses 2,100,751 1,975,194 1,793,824
Income before income taxes 621,714 560,782 512,512
Income taxes 207,138 195,842 176,343
Net income $ 414,576 $ 364,940 $ 336,169
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended Dec. 31, 1996
(thousands)
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital Investments Earnings Total
----- ------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1993 $3,000 $ 222,000 $ 114 $1,468,230 $1,693,344
Initial adoption of SFAS No. 115 -- -- 181,269 -- 181,269
Net income -- -- -- 336,169 336,169
Change in net unrealized
gain (loss) on investments -- -- (457,091) -- (457,091)
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1994 3,000 222,000 (275,708) 1,639,399 1,588,691
Net income -- -- -- 364,940 364,940
Change in net unrealized
gain (loss) on investments -- -- 505,837 -- 505,837
Capital contribution from parent -- 56,814 -- -- 56,814
Loss on reinsurance transaction
with affiliate -- -- -- (4,574) (4,574)
Cash dividends -- -- -- (180,000) (180,000)
Balance, Dec. 31, 1995 3,000 278,814 230,129 1,819,765 2,331,708
Net income -- -- -- 414,576 414,576
Change in net unrealized
gain (loss) on investments -- -- (144,027) -- (144,027)
Capital contribution from parent -- 4,801 -- -- 4,801
Other changes -- -- -- 2,022 2,022
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1996 $3,000 $283,615 $ 86,102 $2,071,363 $2,444,080
===== ======= ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 414,576 $ 364,940 $ 336,169
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Policy loan issuance, excluding universal
life-type insurance (49,314) (46,011) (37,110)
Policy loan repayment, excluding universal
life-type insurance 41,179 36,416 33,384
Change in amounts recoverable from reinsurers (43,335) (34,083) (25,006)
Change in other accounts receivable (4,981) 12,231 (28,551)
Change in accrued investment income 4,695 (30,498) (10,333)
Change in deferred policy acquisition
costs, net (294,755) (196,963) (192,768)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance 97,479 85,575 55,354
Change in policy claims and other
policyholders' funds 27,311 6,255 5,552
Change in deferred income taxes (65,609) (33,810) (19,176)
Change in other liabilities 46,724 (6,548) (122)
(Accretion of discount)
amortization of premium, net (23,032) (22,528) 30,921
Net realized loss on investments 159 4,898 4,282
Policyholder and contractholder
charges, non-cash (154,286) (140,506) (126,918)
Other, net (10,816) 3,849 (8,709)
Net cash (used in) provided by operating
activities $ (14,005) $ 3,217 $ 16,969
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (43,751) $ (1,007,208) $ (879,740)
Maturities, sinking fund payments and calls 759,248 538,219 1,651,762
Sales 279,506 332,154 58,001
Fixed maturities available for sale:
Purchases (2,299,198) (2,452,181) (2,763,278)
Maturities, sinking fund payments and calls 1,270,240 861,545 1,234,401
Sales 238,905 136,825 374,564
Other investments, excluding policy loans:
Purchases (904,536) (823,131) (634,807)
Sales 236,912 160,521 243,862
Change in amounts due from brokers (11,047) 7,933 (2,214)
Change in amounts due to brokers 140,369 (105,119) (124,749)
Net cash used in investing activities (333,352) (2,350,442) (842,198)
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 3,567,586 4,189,525 3,566,814
Surrenders and death benefits (4,250,294) (3,141,404) (3,602,392)
Interest credited to account balances 1,370,468 1,315,989 1,174,985
Universal life-type insurance policy loans:
Issuance (86,501) (84,700) (78,239)
Repayment 58,753 52,188 50,554
Capital contribution from parent 4,801 -- --
Cash dividends to parent (165,000) (180,000) (165,000)
Net cash provided by financing activities 499,813 2,151,598 946,722
Net increase (decrease) in cash and
cash equivalents 152,456 (195,627) 121,493
Cash and cash equivalents at
beginning of year 72,147 267,774 146,281
Cash and cash equivalents at
end of year $ 224,603 $ 72,147 $ 267,774
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<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, which is a wholly
owned subsidiary of American Express Company. The Company serves residents of
all states except New York. IDS Life Insurance Company of New York is a
wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company (ACLAC) and American Partners Life
Insurance Company.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single
premium and flexible premium deferred annuities on both a fixed and variable
dollar basis. Immediate annuities are offered as well. The Company's
insurance products include universal life (fixed and variable), whole life,
single premium life and term products (including waiver of premium and
accidental death benefits). The Company also markets disability income and
long-term care insurance.
Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which vary in
certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried at
amortized cost. All other fixed maturities and all marketable equity
securities are classified as available for sale and carried at fair value.
Unrealized gains and losses on securities classified as available for sale
are carried as a separate component of stockholder's equity, net of deferred
taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received from
brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of the loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for
mortgage loan losses. The reserve for mortgage loans losses is maintained at
a level that management believes is adequate to absorb estimated losses in
the portfolio. The level of the reserve account is determined based on
several factors, including historical experience, expected future principal
and interest payments, estimated collateral values, and current and
anticipated economic and political conditions. Management regularly evaluates
the adequacy of the reserve for mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgement as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to the
recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
Amounts paid or received under interest rate swap agreements are recognized
as an adjustment to investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which
do not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities
are carried principally at amortized cost which approximates fair value.
Supplementary information to the consolidated statements of cash flows
for the years ended Dec. 31 is summarized as follows:
1996 1995 1994
--------- -------- -----
Cash paid during the year for:
Income taxes $317,283 $191,011 $226,365
Interest on borrowings 4,119 5,524 1,553
Recognition of profits on annuity contracts and insurance policies
Profits on fixed deferred annuities are recognized by the Company over the
lives of the contracts, using primarily the interest method. Profits
represent the excess of investment income earned from investment of contract
considerations over interest credited to contract owners and other expenses.
The retrospective deposit method is used in accounting for universal
life-type insurance. This method recognizes profits over the lives of the
policies in proportion to the estimated gross profits expected to be
realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and
expenses are associated with premium revenue in a manner that results in
recognition of profits over the lives of the insurance policies. This
association is accomplished by means of the provision for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges and issue and administrative fees. These charges also include the
minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees and mortality and expense risk fees from the variable annuity
and variable life insurance separate accounts and underlying funds.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most
single premium deferred annuities and installment annuities are amortized in
relation to surrender charge revenue and a portion of the excess of
investment income earned from investment of the contract considerations over
the interest credited to contract owners. The costs for universal life-type
insurance and certain installment annuities are amortized as a percentage of
the estimated gross profits expected to be realized on the policies. For
traditional life, disability income and long-term care insurance policies,
the costs are amortized over an appropriate period in proportion to premium
revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance, single premium deferred
annuities and installment annuities are accumulation values.
Liabilities for fixed annuities in a benefit status are based on the
Progressive Annuity Table with interest at 5 percent, the 1971 Individual
Annuity Table with interest at 7 percent or 8.25 percent, or the 1983a Table
with various interest rates ranging from 5.5 percent to 9.5 percent,
depending on year of issue.
Liabilities for future benefits on traditional life insurance are based on
the net level premium method and anticipated rates of mortality, policy
persistency and interest earnings. Anticipated mortality rates generally
approximate the 1955-1960 Select and Ultimate Basic Table for policies issued
prior to 1980, the 1965-1970 Select and Ultimate Basic Table for policies
issued from 1981-1984 and the 1975-1980 Select and Ultimate Basic Table for
policies issued after 1984. Anticipated policy persistency rates vary by
policy form, issue age and policy duration with persistency on cash value
plans generally anticipated to be better than persistency on term insurance
plans. Anticipated interest rates are 4% for policies issued before 1974,
5.25% for policies issued from 1974-1980, and range from 10% to 6% depending
on policy form, issue year and policy duration for policies issued after
1980.
Liabilities for future disability income policy benefits include both policy
reserves and claim reserves. Policy reserves are based on the net level
premium method and anticipated rates of morbidity, mortality, policy
persistency and interest earnings. Anticipated morbidity rates are based on
the 1964 Commissioners Disability Table for policies issued before 1996 and
the 1985 CIDA table for policies issued in 1996. Anticipated mortality rates
are based on the 1958 Commissioners Standard Ordinary Table for policies
issued before 1996 and the 1975-1980 Basic Table for policies issued in 1996.
Anticipated policy persistency rates vary by policy form, occupation class,
issue age and policy duration. Anticipated interest rates are 3% for policies
issued before 1996 and grade from 7.5% to 5% over five years for policies
issued in 1996. Claim reserves are calculated on the basis of anticipated
rates of claim continuance and interest earnings. Anticipated claim
continuance rates are based on the 1964 Commissioners Disability Table for
claims incurred before 1993 and the 1985 CIDA Table for claims incurred after
1992. Anticipated interest rates are 8% for claims incurred prior to 1992, 7%
for claims incurred in 1992 and 6% for claims incurred after 1992.
Liabilities for future long-term care policy benefits include both policy
reserves and claim reserves. Policy reserves are based on the net level
premium method and anticipated rates of morbidity, mortality, policy
persistency and interest earnings. Anticipated morbidity rates are based on
the 1985 National Nursing Home Survey. Anticipated mortality rates are based
on the 1983a Table. Anticipated policy persistency rates vary by policy form,
issue age and policy duration. Anticipated interest rates are 9.5% grading to
7% over 10 years for policies issued from 1989-1992 and 7.75% grading to 7%
over 4 years for policies issued after 1992. Claim reserves are calculated on
the basis of anticipated rates of claim continuance and interest earnings.
Anticipated claim continuance rates are based on the 1985 National Nursing
Home Survey. Anticipated interest rates are 8% for claims incurred prior to
1992, 7% claims incurred in 1992 and 6% for claims incurred after 1992.
Reinsurance
The maximum amount of life insurance risk retained by the Company on any one
life is $750 of life and waiver of premium benefits plus $50 of accidental
death benefits. The maximum amount of disability income risk retained by the
Company on any one life is $6 of monthly benefit for benefit periods longer
than three years. The excesses are reinsured with other life insurance
companies on a yearly renewable term basis. Graded premium whole life and
long-term care policies are primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income taxes
on a separate return basis, except that, under an agreement between American
Express Financial Corporation and American Express Company, tax benefit is
recognized for losses to the extent they can be used on the consolidated tax
return. It is the policy of American Express Financial Corporation to
reimburse subsidiaries for all tax benefits.
Included in other liabilities at Dec. 31, 1996 and 1995 are $33,358 and
($13,415), respectively, receivable from/(payable to) American Express
Financial Corporation for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance
contract owners.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and the beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate accounts for such actuarial adjustments for
variable annuities that are in the benefit payment period. For variable life
insurance, the Company guarantees that the rates at which insurance charges
and administrative fees are deducted from contract funds will not exceed
contractual maximums. The Company also guarantees that the death benefit will
continue payable at the initial level regardless of investment performance so
long as minimum premium payments are made.
Accounting changes
The Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was effective
Jan. 1, 1996. The new rule did not have a material impact on the Company's
results of operations or financial condition. The Company adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." The
effect of adopting the new rule was to increase stockholder's equity by
$181,269, net of tax, as of Jan. 1, 1994, but the adoption had no impact on
the Company's net income.
Reclassification
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
2. Investments
Fair values of investments in fixed maturities represent quoted market prices
and estimated values when quoted prices are not available. Estimated values
are determined by established procedures involving, among other things,
review of market indices, price levels of current offerings of comparable
issues, price estimates and market data from independent brokers and
financial files.
Net realized gain (loss) on investments for the years ended Dec. 31 is
summarized as follows:
1996 1995 1994
-------- -------- --------
Fixed maturities ............ $ 8,736 $ 9,973 $ (1,575)
Mortgage loans .............. (8,745) (13,259) (3,013)
Other investments ........... (150) (1,612) 306
-------- -------- --------
$ (159) $ (4,898) $ (4,282)
======== ======== ========
<PAGE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended Dec. 31 are summarized as follows:
1996 1995 1994
---------- ------------ -----------
Fixed maturities:
Held to maturity ....... $ (335,515) $ 1,195,847 $(1,329,740)
Available for sale ..... (231,853) 811,649 (720,449)
Equity securities ......... (52) 3,118 (2,917)
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at Dec. 31, 1996 are as
follows:
<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 $ 44,002 $ 933 $ 1,276 $ 43,659
State and municipal obligations 9,685 412 -- 10,097
Corporate bonds and obligations 8,057,997 356,687 47,639 8,367,045
Mortgage-backed securities 2,124,695 21,577 45,423 2,100,849
------------ --------- ------- ------------
$10,236,379 $379,609 $94,338 $10,521,650
=========== ======== ======= ===========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---- ----- ------ -----
U.S. Government agency obligations $ 77,944 $ 2,607 $ 96 $ 80,455
State and municipal obligations 11,032 1,336 -- 12,368
Corporate bonds and obligations 3,701,604 122,559 24,788 3,799,375
Mortgage-backed securities 7,218,042 104,808 68,203 7,254,647
---------- -------- ------ -----------
Total fixed maturities 11,008,622 231,310 93,087 11,146,845
Equity securities 3,000 308 -- 3,308
----------- -------- ------- -----------
$11,011,622 $231,618 $93,087 $11,150,153
=========== ======== ======= ===========
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at Dec. 31, 1995 are as
follows:
<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 $ 64,523 $ 3,919 $ -- $ 68,442
State and municipal obligations 11,936 362 32 12,266
Corporate bonds and obligations 8,921,431 620,327 36,786 9,504,972
Mortgage-backed securities 2,259,701 42,684 9,688 2,292,697
----------- --------- ------- -----------
$11,257,591 $667,292 $46,506 $11,878,377
=========== ======== ======= ===========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency obligations $ 84,082 $ 3,248 $ 50 $ 87,280
State and municipal obligations 11,020 1,476 -- 12,496
Corporate bonds and obligations 2,514,308 186,596 3,451 2,697,453
Mortgage-backed securities 7,536,726 206,288 24,031 7,718,983
---------- -------- ------- ----------
Total fixed maturities 10,146,136 397,608 27,532 10,516,212
Equity securities 3,156 361 -- 3,517
---------- -------- ------- ----------
$10,149,292 $397,969 $27,532 $10,519,729
=========== ======== ======= ===========
</TABLE>
<PAGE>
The amortized cost and fair value of investments in fixed maturities at Dec.
31, 1996 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 197,711 $ 200,134
Due from one to five years 2,183,374 2,294,335
Due from five to ten years 4,606,775 4,779,690
Due in more than ten years 1,123,824 1,146,642
Mortgage-backed securities 2,124,695 2,100,849
------------ ------------
$10,236,379 $10,521,650
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 227,051 $ 229,650
Due from one to five years 851,428 899,098
Due from five to ten years 2,140,579 2,182,079
Due in more than ten years 571,522 581,371
Mortgage-backed securities 7,218,042 7,254,647
------------ ------------
$11,008,622 $11,146,845
During the years ended Dec. 31, 1996, 1995 and 1994, fixed maturities
classified as held to maturity were sold with amortized cost of $277,527,
$333,508 and $61,290, respectively. Net gains and losses on these sales were
not significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' creditworthiness.
As a result of adopting the FASB Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," the Company reclassified securities with a book value of $91,760
and net unrealized gains of $881 from held to maturity to available for sale
in December 1995.
In addition, fixed maturities available for sale were sold during 1996 with
proceeds of $238,905 and gross realized gains and losses of $571 and $16,084,
respectively. Fixed maturities available for sale were sold during 1995 with
proceeds of $136,825 and gross realized gains and losses of $nil and $5,781,
respectively. Fixed maturities available for sale were sold during 1994 with
proceeds of $374,564 and gross realized gains and losses of $1,861 and
$7,602, respectively.
At Dec. 31, 1996, bonds carried at $13,571 were on deposit with various
states as required by law.
<PAGE>
Net investment income for the years ended Dec. 31 is summarized as follows:
1996 1995 1994
--------- ------- -----
Interest on fixed maturities $1,666,929 $1,656,136 $1,556,756
Interest on mortgage loans 283,830 232,827 196,521
Other investment income 43,283 35,936 38,366
Interest on cash equivalents 5,754 5,363 6,872
------------- ------- -----------
1,999,796 1,930,262 1,798,515
Less investment expenses 34,434 22,953 16,642
------------ --------- ----------
$1,965,362 $1,907,309 $1,781,873
========== ========== ==========
At Dec. 31, 1996, investments in fixed maturities comprised 84 percent of the
Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $1.9
billion which are rated by American Express Financial Corporation internal
analysts using criteria similar to Moody's and S&P. A summary of investments
in fixed maturities, at amortized cost, by rating on Dec. 31 is as follows:
Rating 1996 1995
------ ----------- -----------
Aaa/AAA ....................... $ 9,460,134 $ 9,907,664
Aaa/AA ........................ 2,870 3,112
Aa/AA ......................... 241,914 279,403
Aa/A .......................... 192,631 154,846
A/A ........................... 2,949,895 3,104,122
A/BBB ......................... 1,034,661 871,782
Baa/BBB ....................... 4,531,515 4,417,654
Baa/BB ........................ 768,285 657,633
Below investment grade ........ 2,063,096 2,007,511
----------- -----------
$21,245,001 $21,403,727
At Dec. 31, 1996, 95 percent of the securities rated Aaa/AAA are GNMA, FNMA
and FHLMC mortgage-backed securities. No holdings of any other issuer are
greater than 1 percent of the Company's total investments in fixed
maturities.
<PAGE>
At Dec. 31, 1996, approximately 13.7 percent of the Company's invested assets
were mortgage loans on real estate. Summaries of mortgage loans by region of
the United States and by type of real estate are as follows:
Dec. 31, 1996 Dec. 31, 1995
------------------------- ------------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------------ ----------- ----------- ----------- ----------
East North Central $ 777,960 $ 19,358 $ 720,185 $ 67,206
West North Central 389,285 29,620 303,113 34,411
South Atlantic 891,852 35,007 732,529 111,967
Middle Atlantic 553,869 17,959 508,634 37,079
New England 310,177 14,042 244,816 40,452
Pacific 190,770 4,997 168,272 23,161
West South Central 105,173 11,246 61,860 27,978
East South Central 75,176 -- 58,462 10,122
Mountain 236,597 11,401 184,964 16,774
---------- -------- -------- ------
3,530,859 143,630 2,982,835 369,150
Less allowance for losses 37,495 -- 37,340 --
---------- -------- ------- ---
$3,493,364 $143,630 $2,945,495 $369,150
========== ======== ========== ========
Dec. 31, 1996 Dec. 31, 1995
------------------------- ------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
- ----------------------- --------- --------- ----------- -----------
Department/retail stores $1,154,179 $ 68,032 $ 985,660 $ 134,538
Apartments 1,119,352 23,246 1,038,446 84,978
Office buildings 611,395 27,653 464,381 62,664
Industrial buildings 296,944 6,716 255,469 22,721
Hotels/motels 97,870 6,257 31,335 48,816
Nursing/retirement homes 88,226 1,877 80,864 4,378
Mixed Use 73,120 -- 53,169 --
Medical buildings 67,178 8,289 57,772 2,495
Other 22,595 1,560 15,739 8,560
------------ ---------- --------- --------
3,530,859 143,630 2,982,835 369,150
Less allowance for losses 37,495 -- 37,340 --
------------ ------ --------- ------
$3,493,364 $143,630 $2,945,495 $369,150
========== ======== ========== ========
<PAGE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. The fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities. Commitments to purchase
mortgages are made in the ordinary course of business. The fair value of the
mortgage commitments is $nil.
At Dec. 31, 1996 and 1995, the Company's recorded investment in impaired loans
was $79,441 and $83,874 with a reserve of $16,162 and $19,307, respectively.
During 1996 and 1995, the average recorded investment in impaired loans was
$74,338 and $74,567, respectively.
The Company recognized $4,889 and $5,014 of interest income related to impaired
loans for the year ended Dec. 31, 1996 and 1995, respectively.
The following table presents changes in the reserve for investment losses
related to all loans:
1996 1995
--------- --------
Balance, Jan. 1 .................... $ 37,340 $ 35,252
Provision for investment losses .... 10,005 15,900
Loan payoffs ....................... (4,700) (11,900)
Foreclosures ....................... (5,150) (1,350)
Other .............................. -- (562)
-------- --------
Balance, Dec. 31 ................... $ 37,495 $ 37,340
======== ========
At Dec. 31, 1996, the Company had commitments to purchase affordable housing
limited partnership investments of $28,476, which is recorded as a liability in
the accompanying balance sheets. The total amounts committed in 1997 and 1998
are $25,234 and $3,242, respectively. The Company also had commitments to
purchase real estate investments for $35,425. Commitments to purchase real
estate investments are made in the ordinary course of business. The fair value
of these commitments is $nil.
<PAGE>
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
Income tax expense consists of the following:
1996 1995 1994
------ -------- -------
Federal income taxes:
Current $260,357 $218,040 $186,508
Deferred (65,609) (33,810) (19,175)
-------- -------- --------
194,748 184,230 167,333
State income taxes-current 12,390 11,612 9,010
--------- ------- ------
Income tax expense $207,138 $195,842 $176,343
======== ======== ========
Increases (decreases) to the federal tax provision applicable to pretax
income based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
Provision Rate Provision Rate Provision Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income
taxes based on
the statutory rate $217,600 35.0% $196,274 35.0% $179,379 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (9,636) (1.6) (8,524) (1.5) (9,939) (2.0)
Other, net (13,216) (2.1) (3,520) (0.6) (2,107) (0.4)
--------- ----- -------- ---- -------- ----
Federal income taxes $194,748 31.3% $184,230 32.9% $167,333 32.6%
======== ===== ======== ==== ======== ====
</TABLE>
A portion of life insurance company income earned prior to 1984 was not
subject to current taxation but was accumulated, for tax purposes, in a
policyholders' surplus account. At Dec. 31, 1996, the Company had a
policyholders' surplus account balance of $20,114. The policyholders' surplus
account is only taxable if dividends to the stockholder exceed the
stockholder's surplus account or if the Company is liquidated. Deferred
income taxes of $7,040 have not been established because no distributions of
such amounts are contemplated.
<PAGE>
Significant components of the Company's deferred tax assets and liabilities
as of Dec. 31 are as follows:
1996 1995
------- -----
Deferred tax assets:
Policy reserves $724,412 $600,176
Life insurance guarantee
fund assessment reserve 29,854 26,785
Other 2,763 --
--------- -------
Total deferred tax assets 757,029 626,961
--------- -------
Deferred tax liabilities:
Deferred policy acquisition costs 665,685 590,762
Unrealized gain on investments 48,486 129,653
Investments, other 8,935 17,152
Other -- 2,298
-------- -------
Total deferred tax liabilities 723,106 739,865
-------- -------
Net deferred tax assets (liabilities)$ 33,923 $(112,904)
========= =========
The Company is required to establish a "valuation allowance" for any portion
of the deferred tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets and, therefore, no such
valuation allowance has been established.
4. Stockholder's equity
During 1996, the Company received a $4,801 capital contribution from its
parent, American Express Financial Corporation. During 1995, the Company
received a $39,700 capital contribution from its parent in the form of
investments in fixed maturities and mortgage loans. In addition, effective
Jan. 1, 1995, the Company began consolidating the financial results of ACLAC.
This change reflected the transfer of ownership of ACLAC from Amex Life
Assurance Company (Amex Life), a former affiliate, to the Company prior to
the sale of Amex Life to an unaffiliated third party on Oct. 2, 1995. This
transfer of ownership to the Company has been reflected as a capital
contribution of $17,114 in the accompanying financial statements. The effect
of this change in reporting entity was not significant and prior periods have
not been restated.
As discussed in Note 5, the Company entered into a reinsurance agreement with
Amex Life during 1995. As a result of this transaction, a loss of $4,574 was
realized and reported as a direct charge to retained earnings.
Other changes in the statements of stockholder's equity are primarily related
to reinsurance transactions with affiliates.
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by state insurance regulatory authorities. Statutory
unassigned surplus aggregated $1,261,592 as of Dec. 31, 1996 and $1,103,993
as of Dec. 31, 1995 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in 1997 in
excess of approximately $351,306 would require approval of the Department of
Commerce of the State of Minnesota.
Statutory net income for the years ended Dec. 31 and capital and surplus as
of Dec. 31 are summarized as follows:
1996 1995 1994
------ ------ ------
Statutory net income $ 365,585 $ 326,799 $ 294,699
Statutory capital and surplus 1,565,082 1,398,649 1,261,958
Dividends paid to American Express Financial Corporation were $165,000 in
1996, $180,000 in 1995, and $165,000 in 1994.
5. Related party transactions
The Company has loaned funds to American Express Financial Corporation under
a collateral loan agreement. The balance of the loan was $11,800 and $25,800
at Dec. 31, 1996 and 1995, respectively. This loan can be increased to a
maximum of $75,000 and pays interest at a rate equal to the preceding month's
effective new money rate for the Company's permanent investments. It is
collateralized by equity securities valued at $116,543 at Dec. 31, 1996.
Interest income on related party loans totaled $780, $1,371 and $2,894 in
1996, 1995 and 1994, respectively.
The Company purchased a five year secured note from an affiliated company
which had an outstanding balance of $nil and $19,444 at Dec. 31, 1996 and
1995, respectively. The note bears a fixed rate of 8.42 percent. Interest
income on the above note totaled $1,637, $1,937 and $2,278 in 1996, 1995 and
1994, respectively.
The Company has a reinsurance agreement whereby it assumed 100 percent of a
block of single premium life insurance business from Amex Life Assurance
Company (Amex Life), a former affiliate. The accompanying consolidated
balance sheets at Dec. 31, 1996 and 1995 include $758,812 and $764,663,
respectively, of future policy benefits related to this agreement.
The Company has a reinsurance agreement to cede 50 percent of its long-term
care insurance business to Amex Life. The accompanying consolidated balance
sheets at Dec. 31, 1996 and 1995 include $134,121 and $95,484, respectively,
of reinsurance receivables related to this agreement. Premiums ceded amounted
to $32,917, $25,553 and $20,360 and reinsurance recovered from reinsurers
amounted to $5,135, $4,998 and $3,022 for the years ended Dec. 31, 1996, 1995
and 1994, respectively.
The Company has a reinsurance agreement to assume deferred annuity contracts
from Amex Life. At Oct. 1, 1995, a $803,618 block of deferred annuities and
$28,327 of deferred policy acquisition costs were transferred to the Company.
The accompanying consolidated balance sheet at Dec. 31, 1996 includes
$828,298 of future policy benefits related to this agreement. Contracts with
future policy benefits totaling $50,400 were still reinsured with the former
affiliate at Dec. 31, 1996. The remaining contracts had been novated to
Company contracts.
Until July 1, 1995, the Company participated in the IDS Retirement Plan of
American Express Financial Corporation which covered all permanent employees
age 21 and over who had met certain employment requirements. Effective July
1, 1995, the IDS Retirement Plan was merged with American Express Company's
American Express Retirement Plan, which simultaneously was amended to include
a cash balance formula and a lump sum distribution option. Employer
contributions to the plan are based on participants' age, years of service
and total compensation for the year. Funding of retirement costs for this
plan complies with the applicable minimum funding requirements specified by
ERISA. The Company's share of the total net periodic pension cost was $174,
$155 and $156 in 1996, 1995 and 1994, respectively.
The Company also participates in defined contribution pension plans of
American Express Company which cover all employees who have met certain
employment requirements. Company contributions to the plans are a percent of
either each employee's eligible compensation or basic contributions. Costs of
these plans charged to operations in 1996, 1995 and 1994 were $990, $815 and
$957, respectively.
The Company participates in defined benefit health care plans of American
Express Financial Corporation that provide health care and life insurance
benefits to retired employees and retired financial advisors. The plans
include participant contributions and service related eligibility
requirements. Upon retirement, such employees are considered to have been
employees of American Express Financial Corporation. American Express
Financial Corporation expenses these benefits and allocates the expenses to
its subsidiaries. Accordingly, costs of such benefits to the Company are
included in employee compensation and benefits and cannot be identified on a
separate company basis.
Charges by American Express Financial Corporation for use of joint
facilities, marketing services and other services aggregated $397,362,
$377,139, and $335,183 for 1996, 1995 and 1994, respectively. Certain of
these costs are included in deferred policy acquisition costs. In addition,
the Company rents its home office space from American Express Financial
Corporation on an annual renewable basis.
6. Commitments and contingencies
At Dec. 31, 1996 and 1995, traditional life insurance and universal life-type
insurance in force aggregated $67,274,354 and $59,683,532, respectively, of
which $3,875,921 and $3,771,204 were reinsured at the respective year ends.
The Company also reinsures a portion of the risks assumed under disability
income and long-term care policies. Under all reinsurance agreements,
premiums ceded to reinsurers amounted to $48,250, $39,399 and $31,016 and
reinsurance recovered from reinsurers amounted to $15,612, $14,088, and
$10,778 for the years ended Dec. 31, 1996, 1995 and 1994. Reinsurance
contracts do not relieve the Company from its primary obligation to
policyholders.
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company and its subsidiaries do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. In December 1996, an action of this type
was brought against the Company and its parent, American Express Financial
Corporation. The plaintiffs purport to represent a class consisting of all
persons who replaced existing Company policies with new Company policies from
and after Jan. 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties and
alleged violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and seek to establish a claims resolution facility for the
determination of individual issues. The Company and its parent believe they
have meritorious defenses to the claims raised in the lawsuit. The outcome of
any litigation cannot be predicted with certainty, particularly in the early
stages of an action. In the opinion of management, however, the ultimate
resolution of the above lawsuit and others filed against the Company should
not have a material adverse effect on the Company's consolidated financial
position.
During 1996, the Company settled the federal tax audit for 1987 through 1989
tax years. There was no material impact as a result of that audit. Also, the
IRS is currently auditing the Company's 1990 through 1992 tax years.
Management does not believe there will be a material impact as a result of
this audit.
7. Lines of credit
The Company has available lines of credit with two banks and its parent
aggregating $175,000, of which $100,000 is with its parent. The lines of
credit are at 40 to 80 basis points over the lenders' cost of funds or equal
to the prime rate, depending on which line of credit agreement is used. The
$25,000 line of credit with one bank expired on Dec. 31, 1996 and the Company
did not seek renewal. The $50,000 line of credit with the other bank expires
on June 30, 1997 and the Company expects to seek renewal. Borrowings
outstanding under these agreements were $nil at Dec. 31, 1996 and 1995.
8. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these instruments
as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is not
impacted by market risk related to derivatives held for non-trading purposes
beyond that inherent in cash market transactions. Derivatives held for
purposes other than trading are largely used to manage risk and, therefore,
the cash flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit exposure related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty and industry, and
requiring collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit exposure related to interest rate caps and floors is measured by the
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
<PAGE>
The Company's holdings of derivative financial instruments are as follows:
Notional Carrying Fair Total Credit
Dec. 31, 1996 Amount Value Value Exposure
------------- --------- ------- -------- ------------
Assets:
Interest rate caps $ 4,000,000 $16,227 $ 7,439 $ 7,439
Interest rate floors 1,000,000 2,041 4,341 4,341
Interest rate swaps 1,000,000 -- (24,715) --
---------- ------- -------- -------
$6,000,000 $18,268 $(12,935) $11,780
========== ======= ======== =======
Dec. 31, 1995
Assets:
Interest rate caps $5,100,000 $26,680 $ 8,366 $ 8,366
========== ======= ======== =======
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps and floors
expire on various dates from 1996 to 2001. The interest rate swaps are in
effect through 2001.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the
margin between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
9. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair values of life insurance obligations and all non-financial
instruments, such as deferred acquisition costs are excluded. Off-balance
sheet intangible assets, such as the value of the field force, are also
excluded. Management believes the value of excluded assets is significant.
The fair value of the Company, therefore, cannot be estimated by aggregating
the amounts presented.
1996 1995
------ -----
<TABLE>
<CAPTION>
Carrying Fair Carrying Fair
Financial Assets Value Value Value Value
---------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $10,236,379 $10,521,650 $11,257,591 $11,878,377
Available for sale 11,146,845 11,146,845 10,516,212 10,516,212
Mortgage loans on
real estate (Note 2) 3,493,364 3,606,077 2,945,495 3,184,666
Other:
Equity securities (Note 2) 3,308 3,308 3,517 3,517
Derivative financial
instruments (Note 8) 18,268 (12,935) 26,680 8,366
Other 63,993 66,242 52,182 52,182
Cash and
cash equivalents (Note 1) 224,603 224,603 72,147 72,147
Separate account assets
(Note 1) 18,535,160 18,535,160 14,974,082 14,974,082
Financial Liabilities
Future policy benefits
for fixed annuities 20,641,986 19,721,968 20,259,265 19,603,114
Separate account
liabilities 17,358,087 16,688,519 14,208,619 13,665,636
</TABLE>
<PAGE>
At Dec. 31, 1996 and 1995, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,112,155 and $1,070,598, respectively, and policy loans of
$83,867 and $74,973, respectively. The fair value of these benefits is based
on the status of the annuities at Dec. 31, 1996 and 1995. The fair value of
deferred annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. The fair value for annuities in non-life
contingent payout status is estimated as the present value of projected
benefit payments at rates appropriate for contracts issued in 1996 and 1995.
At Dec. 31, 1996 and 1995, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less any applicable surrender
charges and less variable insurance contracts carried at $1,177,073 and
$765,463, respectively.
10.Segment information
The Company's operations consist of two business segments; first, individual
and group life insurance, disability income and long-term care insurance, and
second, annuity products designed for individuals, pension plans, small
businesses and employer-sponsored groups. The consolidated condensed
statements of income for the years ended Dec. 31, 1996, 1995 and 1994 and
total assets at Dec. 31, 1996, 1995 and 1994 by segment are summarized as
follows:
1996 1995 1994
------ ------ -----
Net investment income:
Life, disability income
and long-term care insurance $ 262,998 $ 256,242 $ 247,047
Annuities 1,702,364 1,651,067 1,534,826
----------- ----------- ------------
$ 1,965,362 $ 1,907,309 $ 1,781,873
=========== =========== ============
Premiums, charges and fees:
Life, disability income
and long-term care insurance $ 448,389 $ 384,008 $ 335,375
Annuities 308,873 249,557 193,370
------------ ------------ -------------
$ 757,262 $ 633,565 $ 528,745
============ ============ =============
Income before income taxes:
Life, disability income
and long-term care insurance $ 161,115 $ 125,402 $ 122,677
Annuities 460,758 440,278 394,117
Net loss on investments (159) (4,898) (4,282)
------------- ------------- --------------
$ 621,714 $ 560,782 $ 512,512
============ ============ =============
Total assets:
Life, disability income
and long-term care insurance $ 7,028,906 $ 6,195,870 $ 5,269,188
Annuities 40,277,075 36,704,208 30,478,355
----------- ----------- -----------
$47,305,981 $42,900,078 $35,747,543
=========== =========== ===========
Allocations of net investment income and certain general expenses are based
on various assumptions and estimates.
Assets are not individually identifiable by segment and have been allocated
principally based on the amount of future policy benefits by segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying consolidated balance sheets of IDS Life
Insurance Company (a wholly owned subsidiary of American Express Financial
Corporation) as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDS Life Insurance
Company at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1994.
Ernst & Young LLP
February 7, 1997
Minneapolis, Minnesota
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses of the issuance and distribution of the interests in the IDS
Life Account MGA of IDS Life Insurance Company to be registered, other than
commissions on sales of the Contracts, are to be borne by the registrant.
Item 14. Indemnification of Directors and Officers
Section 300.083 of Minnesota Law provides in part that a corporation
organized under such law shall have power to indemnify anyone made, or
threatened to be made, a party to a threatened, pending or completed proceeding,
whether civil or criminal, administrative or investigative, because he is or was
a director or officer of the corporation, or served as a director or officer of
another corporation at the request of the corporation. Indemnification in such a
proceeding may extend to judgments, penalties, fines and amounts paid in
settlement, as well as to reasonable expenses, including attorneys' fees and
disbursements. In a civil proceeding, there can be no indemnification under the
statute, unless it appears that the person seeking indemnification has acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and its shareholders and unless such
person has received no improper personal benefit; in a criminal proceeding, the
person seeking indemnification must also have no reasonable cause to believe his
conduct was unlawful.
Article IX of the By-laws of the IDS Life Insurance Company requires the
IDS Life Insurance Company to indemnify directors and officers to the extent
indemnification is permitted as stated by the preceding paragraph, and contains
substantially the same language as the above-mentioned Section 300.083.
Article IX, paragraph (2), of the By-laws of the IDS Life Insurance Company
provides as follows:
"Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party, by reason of the fact that he is or
was a director, officer, employee or agent of this Corporation, or is or was
serving at the direction of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to any threatened, pending or completed action, suit or proceeding,
wherever brought, to the fullest extent permitted by the laws of the State of
Minnesota, as now existing or hereafter amended, provided that this Article
shall not indemnify or protect any such director, officer, employee or agent
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of his duties or by reason of his reckless
disregard of his obligations and duties."
<PAGE>
The parent company of IDS Life Insurance Company maintains an insurance
policy which affords liability coverage to directors and officers of the IDS
Life Insurance Company while acting in that capacity. IDS Life Insurance Company
pays its proportionate share of the premiums for the policy.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 Copy of Certificate of Incorporation of IDS Life
Insurance Company filed electronically as Exhibit 3.1 to
Post-Effective Amendment No. 5 to Registration Statement
No. 33-28976 is incorporated herein by reference.
3.2 Copy of the Amended By-laws of IDS Life Insurance Company
filed electronically as Exhibit 3.2 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
3.3 Copy of Resolution of the Board of Directors of IDS Life
Insurance Company, dated May 5, 1989, establishing IDS
Life Account MGA filed electronically as Exhibit 3.3 to
Post-Effective Amendment No. 5 to Registration Statement
No. 33-28976 is incorporated herein by reference.
4.1 Copy of Group Annuity Contract, Form 30363C, filed
electronically as Exhibit 4.1 to Post-Effective Amendment
No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
<PAGE>
4.2 Copy of Group Annuity Certificate, Form 30360C, filed
electronically as Exhibit 4.2 to Post-Effective Amendment
No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.3 Copy of Endorsement No. 30340C-GP to the Group Annuity
Contract filed electronically as Exhibit 4.3 to Post-
Effective Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.4 Copy of Endorsement No. 30340C to the Group Annuity
Certificate filed electronically as Exhibit 4.4 to Post-
Effective Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
5. Copy of Opinion of Counsel regarding legality of
Contracts, dated Oct. 3, 1990, filed electronically as
Exhibit 5 to Post-Effective Amendment No. 5 to
Registration Statement No. 33-28976 is incorporated
herein by reference.
22. Copy of List of Subsidiaries filed electronically as
Exhibit 22 to Post-Effective Amendment No. 8 to
Registration Statement No. 33-28976 is incorporated
herein by reference.
23. Consent of Independent Auditors is filed electronically
herewith.
24. Power of Attorney, dated March 12, 1997, is filed
electronically herewith.
(b) Financial Statement Schedules
Schedule I - Consolidated Summary of Investments Other
than Investments in Related Parties
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Report of Independent Auditors dated February 7, 1997.
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions
or are inapplicable and, therefore, have been omitted.
Item 17. Undertakings
A. The Registrant undertakes: (a) to file, during any period in which offers or
sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, (ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
<PAGE>
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement,
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement, (b) that, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment may be deemed to be a new Registration Statement
relating to the securities offered therein and the offering of such securities
at that time may be deemed to be the initial bona fide offering thereof, (c)
that all post-effective amendments will comply with the applicable forms, rules
and regulations of the Commission in effect at the time such post-effective
amendments are filed, and (d) to remove from registration by means of a
post-effective amendment any of the securities being registered which will
remain at the termination of the offering.
B. The Registrant represents that it is relying upon the no-action assurance
given to the American Council of Life Insurance (pub. avail. Nov. 28, 1988).
Further, the Registrant represents that it has complied with the provisions of
paragraphs (1) - (4) of the no- action letter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IDS Life Insurance
Company has duly caused this Registration Statement to be signed on behalf of
the Registrant by the undersigned, thereunto duly authorized in this City of
Minneapolis, and State of Minnesota on the 4th day of April, 1997.
IDS Life Insurance Company
(Registrant)
By IDS Life Insurance Company
By /s/ James A. Mitchell*
James A. Mitchell
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 4th day of April, 1997.
Signature Title
/s/ James A. Mitchell* Chairman of the Board
James A. Mitchell and Chief Executive
Officer
/s/ Richard W. Kling* Director and President
Richard W. Kling
/s/ David R. Hubers* Director
David R. Hubers
/s/ Paul F. Kolkman* Director and Executive Vice
Paul F. Kolkman President
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President, Assured Assets
/s/ Melinda S. Urion* Director, Exective Vice
Melinda S. Urion President and Controller
*Signed pursuant to Power of Attorney dated March 12, 1997, filed electronically
herewith for IDS Life Insurance Company (IDS Life Account MGA).
By:
Bruce A. Kohn
<PAGE>
IDS LIFE INSURANCE COMPANY
SCHEDULE I - CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ thousands)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Column A Column B Column C Column D
Type of Investment Cost Value Amount at which
shown in the
balance sheet
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity:
United States Government and
government agencies and
authorities (a) $ 2,085,280 $ 2,060,778 $ 2,085,280
States, municipalities and
political subdivisions 9,685 10,097 9,685
All other corporate bonds 8,141,414 8,450,775 8,141,414
------------- --------------- -----------------
Total held to maturity 10,236,379 10,521,650 10,236,379
Available for sale:
United States Government and
government agencies and
authorities (b) 6,925,876 6,960,002 6,960,002
States, municipalities and
political subdivisions 11,032 12,368 12,368
All other corporate bonds 4,071,714 4,174,475 4,174,475
------------- --------------- -----------------
Total available for sale 11,008,622 11,146,845 11,146,845
Mortgage loans on real estate 3,493,364 XXXXXXXXX 3,493,364
Policy loans 459,902 XXXXXXXXX 459,902
Other investments 251,465 XXXXXXXXX 251,465
------------- -----------------
Total investments $ 25,449,732 $ XXXXXXXXX $ 25,587,955
============= =================
(a) - Includes mortgage-backed securities with a cost and market value of $2,041,278 and $2,017,119,
respectively.
(b) - Includes mortgage-backed securities with a cost and market value of $6,847,932 and $6,879,547,
respectively.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,398,025 $ 21,838,008 $ - $ 50,137 $ - $1,702,364 $ 2,724 $ 189,645 $ 180,942 N/A
Life, DI, and
Long-term
Care Insurance 932,780 3,811,034 - 33,497 182,921 262,998 187,486 88,960 80,526 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,330,805 $ 25,649,042 $ - $ 83,634 $ 182,921 $1,965,362 $ 190,210 $ 278,605 $ 261,468 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,227,169 $ 21,404,836 $ - $ 28,191 $ - $1,651,067 $ 2,693 $ 189,626 $ 166,191 N/A
Life, DI,
and Long-term
Care Insurance 798,556 3,613,253 - 28,132 161,530 256,242 164,749 90,495 45,451 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,025,725 $ 25,018,089 $ - $ 56,323 $ 161,530 $1,907,309 $ 167,442 $ 280,121 $ 211,642 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,150,585 $ 19,361,979 $ - $ 23,888 $ - $1,534,826 $ (5,762) $ 194,060 $ 131,515 N/A
Life, DI, and
Long-term Care
Insurance 714,739 3,346,931 - 26,180 144,640 247,047 134,128 86,312 78,586 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 1,865,324 $ 22,708,910 $ - $ 50,068 $ 144,640 $1,781,873 $ 128,366 $ 280,372 $ 210,101 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Gross amount Ceded to other Assumed from Net % of amount
companies other companies Amount assumed to net
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Life insurance in force $ 65,571,173 $ 3,875,921 $ 1,703,181 $63,398,433 2.69%
===================================================================================================
Premiums:
Life insurance $ 54,111 $ 3,253 $ 545 $ 51,403 1.06%
DI & LTC insurance 164,561 33,043 -- 131,518 0.00%
- ---------------------------------------------------------------------------------------------------
Total premiums $ 218,672 $ 36,296 $ 545 $ 182,921 0.30%
===================================================================================================
For the year ended
December 31, 1995
Life insurance in force $ 57,895,180 $ 3,771,204 $ 1,788,352 $55,912,328 3.20%
===================================================================================================
Premiums:
Life insurance $ 53,089 $ 2,648 $ (248) $ 50,193 -0.49%
DI & LTC insurance 137,016 25,679 -- 111,337 0.00%
- ---------------------------------------------------------------------------------------------------
Total premiums $ 190,105 $ 28,327 $ (248) $ 161,530 -0.15%
===================================================================================================
For the year ended
December 31, 1994
Life insurance in force $ 50,814,651 $ 3,246,608 $ 1,851,916 $49,419,959 3.75%
===================================================================================================
Premiums:
Life insurance $ 51,219 $ 3,354 $ 319 $ 48,184 0.66%
DI & LTC insurance 114,049 17,593 -- 96,456 0.00%
- ---------------------------------------------------------------------------------------------------
Total premiums $ 165,268 $ 20,947 $ 319 $ 144,640 0.22%
===================================================================================================
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
-------------
Balance at Charged to
Description Beginning Charged to Other Accounts- Deductions- Balance at End
of Period Costs & Expenses Describe Describe * of Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
- ------------------------------
Reserve for Mortgage Loans $37,340 $155 $0 $0 $37,495
Reserve for Other Investments $4,713 ($750) $0 $0 $3,963
For the year ended
December 31, 1995
- ------------------------------
Reserve for Mortgage Loans $35,252 $1,088 $0 ($1,000) $37,340
Reserve for Other Investments $7,515 ($2,802) $0 $0 $4,713
For the year ended
December 31, 1994
- ------------------------------
Reserve for Mortgage Loans $35,020 $232 $0 $0 $35,252
Reserve for Fixed Maturities $22,777 ($16,777) $0 $6,000 $0
Reserve for Other Investments $10,700 ($3,185) $0 $0 $7,515
* 1995 amount represents a reserve on mortgage loans which were transferred from an affiliate.
1994 amount represents a direct writedown of the related investments in fixed maturities.
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the consolidated financial statements of IDS Life Insurance
Company as of December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, and have issued our report thereon dated
February 7, 1997 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Ernst & Young LLP
Minneapolis, Minnesota
February 7, 1997
<PAGE>
IDS Life Guaranteed Term Annuity (GTA)
Registration No. 33-28976
EXHIBIT INDEX
Exhibit 23. Consent of Independent Auditors
Exhibit 24. Power of Attorney, dated March 12, 1997
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 7, 1997 with respect to the consolidated
financial statements and schedules of IDS Life Insurance Company included in
Post-Effective Amendment No. 9 to the Registration Statement (Form S-1, No.
33-28976) and related Prospectus of IDS Life Account MGA for the registration of
market value adjusted annuity interests to be offered by IDS Life Insurance
Company.
Minneapolis, Minnesota
April 2, 1997
<PAGE>
IDS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors of IDS Life Insurance Company on
behalf of the below listed registrants that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
<TABLE>
<CAPTION>
1933 Act 1940 Act
Reg. Number Reg. Number
<S> <C> <C>
IDS Life Variable Account 10
IDS Life Flexible Portfolio Annuity 33-62407 811-07355
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Flexible Annuity 33-4173 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Variable Retirement and Combination
Retirement Annuities 2-73114 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Employee Benefit Annuity 33-52518 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Group Variable Annuity Contract 33-47302 811-3217
IDS Life Insurance Company
IDS Life Group Variable Annuity Contract
(Fixed Account) 33-48701 N/A
IDS Life Insurance Company
IDS Life Guaranteed Term Annuity 33-28976 N/A
IDS Life Insurance Company
IDS Life Flexible Payment Market Value Annuity 33-50968 N/A
IDS Life Variable Life Separate Account
Flexible Premium Variable Life Insurance Policy 33-11165 811-4298
IDS Life Variable Life Separate Account
Flexible Premium Survivorship Variable
Life Insurance Policy 33-62457 811-4298
IDS Life Variable Life Separate Account
Single Premium Variable Life
Insurance Policy 2-97637 811-4298
IDS Life Variable Account for Smith Barney
Single Premium Variable Life Insurance Policy 33-5210 811-4652
IDS Life Account SBS
Symphony Annuity 33-40779 812-7731
IDS Life Account RE
IDS Life Real Estate Variable Annuity 33-13375 N/A
IDS Life Variable Annuity Fund A 2-29081 811-1653
IDS Life Variable Annuity Fund B 2-47430 811-1674
</TABLE>
hereby constitutes and appoints William A. Stoltzmann, Mary Ellyn Minenko,
Eileen J. Newhouse, Sherilyn K. Beck, Colin Lancaster, Bruce Kohn and Timothy S.
Meehan or any one of them, as her or his attorney-in-fact and agent, to sign for
her or him in her or his name, place and stead any and all filings, applications
(including
<PAGE>
applications for exemptive relief), periodic reports, registration statements
(with all exhibits and other documents required or desirable in connection
therewith), other documents, and amendments thereto and to file such filings,
applications, periodic reports, registration statements, other documents, and
amendments thereto with the Securities and Exchange Commission, and any
necessary states, and grants to any or all of them the full power and authority
to do and perform each and every act required or necessary in connection
therewith.
Dated the 12th day of March, 1997.
/s/ David R. Hubers March 10, 1997
- ---------------------------------
David R. Hubers
Director
/s/ Richard W. Kling March 12, 1997
- ---------------------------------
Richard W. Kling
Director and President
/s/ Paul F. Kolkman March 11, 1997
- ---------------------------------
Paul F. Kolkman
Director and Executive Vice
President
/s/ James A. Mitchell March 10, 1997
- ---------------------------------
James A. Mitchell
Director, Chairman of the
Board and Chief Executive Officer
/s/ Barry J. Murphy March 10, 1997
- ---------------------------------
Barry J. Murphy
Director and Executive Vice
President, Client Service
/s/ Stuart A. Sedlacek March 7, 1997
- ---------------------------------
Stuart A. Sedlacek
Director and Executive Vice
President, Assured Assets
/s/ Melinda S. Urion March 10, 1997
- ---------------------------------
Melinda S. Urion
Director, Executive Vice
President and Controller
