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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT NO. 333-42793
Under
The Securities Act of 1933
IDS Life Insurance Company
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation or organization)
63
(Primary Standard Industrial Classification Code Number)
41-0823832
(I.R.S. Employer Indentification No.)
IDS Tower 10, Minneapolis, MN 55440-0010, (612) 671-3131
(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)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after effectiveness of the Registration Statement.
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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<TABLE>
<CAPTION>
Calculation of Registration Fee
<S> <C> <C> <C> <C>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price per aggregate offering registration fee
registered unit price
- ---------------------- -------------------- --------------------- --------------------- --------------------
Portfolio Guaranteed * * $1,661,017** $490**
Term Annuity
*The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount being registered and the proposed
maximum offering price per unit are not applicable in that these securities are
not issued in predetermined amounts or units.
**The registration fee of $490 for registration of $1,661,017 is in addition to
the $100 fee wired with the Registration Statement for registration of $338,983
of securities. The total amount registered is for $2,000,000 of securities.
</TABLE>
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 Portfolio 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 Securitie
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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Portfolio Guaranteed Term Annuity
Prospectus, May 1, 1998
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 members of a wrap-fee program sponsored by American Express
Financial Advisors Inc. (AEFA) under which this contract is made available for
non-tax qualified and tax qualified purchases. Participation in a group contract
will be accounted for separately by the issuance of a certificate showing 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."
Further details about the wrap-fee program are outlined in the client service
agreement for the program and in AEFA's Part II to Form ADV, including the
Schedule H that is filed with the Part II materials. You may obtain these
materials by calling 1-800-967-4377 (Option 3). Please remember: (1) you cannot
purchase this product unless you pay an annual wrap fee; (2) if your
participation in the wrap-fee program is terminated, you will no longer qualify
for this contract and your contract will be terminated and subject to a market
value adjustment; and (3) if your contract is terminated, you will be given the
option of exchanging into another annuity product, which may contain higher
fees, a lower guaranteed interest rate and a surrender charge.
A similar product is available outside of the wrap-fee program under which this
contract is made available. Depending on your individual circumstances, it may
be to your benefit to purchase the similar product that is available outside of
the wrap-fee program. Please consult your financial advisor or call the
telephone number below for more information.
IDS Life may offer this contract 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 (IRAs), SIMPLE IRAs and
Simplified Employee Pension (SEP) Plans eligible under Section 408 of the Code;
and (4) 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: 1-800-967-4377
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These securities may be subject to a substantial market value adjustment if not
held to the end of the guarantee period that 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.
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 bank or financial institution, and the securities it offers
are not deposits or obligations of, backed or guaranteed or endorsed by any bank
or financial institution nor are they insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investments in this
annuity involve investment risk including the possible loss of principal.
<PAGE>
Table of contents
The Portfolio Guaranteed Term Annuity in brief................................
Key terms.....................................................................
Description of contracts......................................................
General.......................................................................
Application and purchase payment..............................................
Right to cancel...............................................................
Guarantee periods.............................................................
Surrenders....................................................................
Market value adjustment.......................................................
Premium taxes.................................................................
Death benefit prior to settlement.............................................
Statement.....................................................................
Electing the settlement date and form of annuity..............................
Amendment, distribution, assignment and termination of contracts..............
Amendment of contracts........................................................
Distribution of contracts.....................................................
Assignment of contracts.......................................................
Termination 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 Portfolio Guaranteed Term Annuity in brief
Contracts: IDS Life is offering group and individual market value annuities to
members of a wrap-fee program sponsored by AEFA under which this contract is
made available 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.
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 without a surrender charge. We may defer payment of any surrender for
a period up to 6 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 7 days except under extraordinary circumstances. We will pay
annual interest of at least 3% of any amounts deferred for more than 30 days
during such period if we choose to exercise this deferral right. (p. )
Market value adjustment: Surrenders may be subject to a 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 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
<PAGE>
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
and is a member of a wrap-fee program sponsored by AEFA under which this
contract is made available.
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 is the cash surrender value. On
the last day of a guarantee period, the cash surrender value is the accumulation
value.
Contract anniversary - The same day and month as the contract date each year
that the contract remains in force.
Contract date - The 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.
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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 contract value to provide annuity payments. If
the settlement date is not the last day of a guarantee period, we apply the
market adjusted value of the contract. On the last day of a guarantee period, we
apply the accumulation value of the contract.
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
corporate office.
Description of contracts
General
This prospectus describes interests in market value annuities offered by IDS
Life to members of a wrap-fee program sponsored by AEFA under which this
contract is made available for non-tax qualified and tax qualified purchases.
The contracts may be offered in the following tax qualified programs: (1)
Section 401(a), 401(k) and 403(a) plans; (2) Section 403(b) plans; (3) IRAs,
SIMPLE IRAs and SEPs; and (4) 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. Interest is credited daily to achieve a stated
annual effective rate, based on a 365 day year. Interest is not paid on leap
days (Feb 29th). Surrenders prior to the renewal date are subject to a market
value adjustment.
<PAGE>
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 corporate office along with the purchase payment. Interest is
earned the next day. IDS Life then issues a contract and confirms the purchase
payment in writing.
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 corporate 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
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.
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Example of guaranteed rate of accumulation
Beginning account value: $50,000
Guaranteed period: 10 years
Guaranteed rate: 6% annual effective rate
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest credited to the Cumulative interest credited
Year account during year to the account Accumulation value
1 $3,000.00 $ 3,000.00 $53,000.00
2 3,180.00 6,180.00 56,180.00
3 3,370.80 9,550.80 59,550.80
4 3,573.05 13,123.85 63,123.85
5 3,787.43 16,911.28 66,911.28
6 4,014.68 20,925.96 70,925.96
7 4,255.56 25,181.51 75,181.51
8 4,510.89 29,692.40 79,692.40
9 4,781.54 34,473.95 84,473.95
10 5,068.44 39,542.38 89,542.38
</TABLE>
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 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 82 at the end of a guarantee period and the settlement
date for the annuitant is age 85, 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 that we have declared for such
duration. We may declare new schedules of guaranteed interest rates as
frequently as daily.
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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 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.)
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).
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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 adjustment.
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 next close
of business after we receive your request for a complete surrender. We may ask
you to return the contract.
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 of your
surrender check.
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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 occurring at any time other than the last day of a
guarantee period.
The market adjusted value is your accumulation value (purchase payment plus
interest credited minus surrenders) 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 Portfolio Guaranteed Term
Annuity 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 you contract's
accumulation value, equal to it or less than it depending on how the guaranteed
interest rate on your contract compares to the interest rate of a new Portfolio
Guaranteed Term Annuity for the same number of years as the guarantee period
remaining on your contract.
Relationship between your contract's guaranteed rate and new contract for the
same number of years as the guaranteed period remaining on your contract:
If your annuity rate is: Your market adjusted value will be:
greater than the new
annuity rate + .25% greater than your accumulation value
equal to the new annuity
rate + .25% equal to your accumulation value
less than the new annuity
rate + .25% less than your accumulation value
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 Portfolio
Guaranteed Term Annuity contracts with 7-year 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 Portfolio
Guaranteed Term Annuity contracts with 7-year guarantee periods is 4%, your
market adjusted value will be higher than your accumulation value.
<PAGE>
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 Portfolio
Guaranteed Term Annuity 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 contract 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 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.
<PAGE>
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 joint owner: Unless you have given us
other written instructions, if you, as owner or joint owner, die before the
settlement date and your spouse is the only beneficiary or joint owner with a
right of survivorship, 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, SIMPLE IRAs and SEPs: 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, SIMPLE IRA or SEP 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
contract in force until the date on which the annuitant would have reached
70-1/2 or any other date permitted by the Code. To do this, the spouse must,
within 60 days after 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, SIMPLE IRA, SEP or Section 457
plan) made to a surviving spouse instead of being directly rolled over to an IRA
may be subject to 20% income tax withholding. We may make payments under any
payment plan available under this contract if:
the beneficiary asks us in writing within 60 days after we receive proof of
death;
payments begin no later than one year after death or any other date permitted
by the Code; and
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.
Statement
Prior to the settlement date, at least annually, we will send a statement
showing a summary of the contract.
<PAGE>
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:
the contract anniversary nearest the annuitant's 85th birthday; or
the 10th contract anniversary.
For tax qualified contracts, to avoid IRS penalty taxes, the settlement date
generally must be:
on or after the date the annuitant reaches age 59-1/2;
for IRAs, SIMPLE IRAs and SEPs, by April 1 of the year following the
calendar year when the annuitant reaches age 70-1/2; or
for all other tax qualified contracts, by April 1 of the year following
the calendar year when the annuitant reaches age 70-1/2 or, if later,
retires; except that 5% business owners may not select a settlement date
that is later than April 1 of the year following the calendar year when
they reach age 70-1/2.
If you are taking the minimum IRA or TSA distributions as required by the Code
from another tax qualified investment, or in the form of partial surrenders from
this contract, annuity payouts can start as late as the annuitant's 85th
birthday or the 10th contract anniversary.
Annuity payments: The first payment will be made as of the settlement date. Once
annuity payments have started for an annuitant, no surrender of the annuity
benefit can be made for the purpose of receiving a lump sum in lieu of payments.
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, SIMPLE IRA, SEP or Section
457 plan), 20% income tax withholding may apply.
Plan A - This provides monthly annuity payments for the lifetime of the
annuitant. No payments will be made after the annuitant dies.
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.
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.
Plan D - We call this a joint and survivor life annuity. Monthly payments
will be paid while both the annuitant and a joint annuitant are living.
When either the annuitant or joint annuitant dies, we will continue to
make monthly payments until the death of the surviving annuitant. No
payments will be paid after the death of the second annuitant.
Plan E - This provides monthly fixed dollar annuity payments for a period
of years that you elect. 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 3% per year. The table for Plan E is
based on an interest rate of 3%. 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 you purchased a tax qualified
annuity, you must select a payment plan that provides for payments:
during the life of the annuitant;
during the joint lives of the annuitant and beneficiary;
for a period not exceeding the life expectancy of the annuitant; or
for a period not exceeding the joint life expectancies of the annuitant
and 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 selling agent agreements
with certain broker-dealers registered under the 1934 Act. IDS Life will pay a
maximum commission of 5% of the purchase payment for the sale of a contract. In
the future, we may pay a commission on an election of a subsequent guarantee
period by an owner. American Express Financial Advisors Inc., an affiliate of
IDS Life, is the sponsor of the wrap-fee program under which this contract is
made available.
Assignment of contracts
You may change ownership of your annuity at any time by filing a change of
ownership with us at our corporate 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
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.
<PAGE>
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.
Termination of contracts
If your participation in the wrap-fee program is terminated, you will no longer
qualify for this contract and your contract will be terminated. Your contract
will be subject to a market value adjustment unless the termination occurs at
the end of a guarantee period. Upon termination, you will be given the option of
exchanging into another annuity product, which may contain higher fees, a lower
guaranteed interest rate and a surrender charge.
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, all of the payments generally will be subject to taxation
except to the extent that the contributions were made with after-tax dollars.
<PAGE>
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.
The gain is subject to income tax, not estate or inheritance tax.
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.
If you receive amounts from your contract before reaching age 59-1/2, you may
have to pay a 10% IRS penalty on the amount includible in your ordinary income.
If you receive amounts from your SIMPLE IRA before reaching age 59-1/2,
generally the IRS 10% penalty provisions apply. However, if you receive these
amounts before age 59-1/2 and within the first two years of your participation
in the SIMPLE IRA plan, the IRS penalty will be assessed at the rate of 25%
instead of 10%. However, this penalty will not apply to any amount received:
after you reach age 59-1/2;
because of your death;
because you become disabled (as defined in the Code);
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
if it is allocable to a purchase payment before Aug. 14, 1982 (except for
contracts in taxqualified 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.
<PAGE>
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.
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, SIMPLE IRA, SEP or Section 457 plan), mandatory 20% income tax
withholding generally will be imposed at the time the payment is made. In
addition, federal income tax and the 10% IRS penalty tax for early withdrawals
may apply to amounts properly includible in income. This mandatory 20% income
tax withholding will not be imposed if:
instead of receiving the payment, you elect to have the payment rolled
over directly to an IRA or another eligible plan;
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
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.
<PAGE>
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.
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 (AEFC), which is a wholly owned subsidiary of American
Express Company. IDS Life acts as a direct writer of insurance policies and
annuities and as the investment manager of various investment companies. IDS
Life is licensed to write life insurance and annuity contracts in 49 states and
the District of Columbia. The headquarters of IDS Life is IDS Tower 10,
Minneapolis, MN 55440-0010.
Investments by IDS Life
Assets of IDS Life must be invested in accordance with requirements established
by applicable state laws regarding the nature and quality of investments that
may be made by life insurance companies and the percentage of their assets that
may be committed to any particular type of investment. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments. All claims by purchasers of the contracts, and other general
account products, will be funded by the general account.
IDS Life intends to construct and manage the investment portfolio using a
strategy known as "immunization". Immunization seeks to lock in a defined return
on the pool of assets versus the pool of liabilities over a specified time
horizon. Since the return on the assets versus the liabilities is locked in, it
is "immune" to any potential fluctuations in interest rates during the given
time. Immunization is achieved by constructing a portfolio of assets with a
price sensitivity to interest rate changes (i.e., price duration) that is
essentially equal to the price duration of the corresponding portfolio of
liabilities. Portfolio immunization provides flexibility and efficiency to IDS
Life in creating and managing the asset portfolio, while still assuring safety
and soundness for funding liability obligations.
<PAGE>
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:
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;
Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by the nationally recognized
rating agencies;
Debt instruments that are unrated, but which are deemed by IDS Life to
have an investment quality within the four highest grades;
Other debt instruments, which are rated below investment grade, limited to
15% of assets at the time of purchase; and
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)
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Premiums $ 206,494 $ 182,921 $ 161,530 $ 144,640 $ 127,245
Net investment income 1,988,389 1,965,362 1,907,309 1,781,873 1,783,219
Net realized (loss) on 860 (159) (4,898) (4,282) (6,737)
investments
Other 682,618 574,341 472,035 384,105 304,344
------- ------- ------- ------- -------
Total revenues $ 2,878,361 $ 2,722,465 $ 2,535,976 $ 2,306,336 $ 2,208,071
--------- --------- --------- --------- ---------
Income before income taxes $ 680,911 $ 621,714 $ 560,782 $ 512,512 $ 412,726
------- ------- ------- ------- -------
Net income $ 474,247 $ 414,576 $ 364,940 $ 336,169 $ 270,079
------- ------- ------- ------- -------
Total assets $52,974,124 $47,305,981 $42,900,078 $35,747,543 $33,057,753
</TABLE>
<PAGE>
Management's discussion and analysis of consolidated financial condition and
results of operations
Results of operations
1997 compared to 1996:
Consolidated net income increased 14% to $474 million in 1997, compared to $415
million in 1996. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges. These increases reflect higher
average insurance and annuities in force during 1997.
Consolidated income before income taxes totaled $681 million in 1997, compared
with $622 million in 1996. In 1997, $179 million was from the life, disability
income and long-term care insurance segment, compared with $161 million in 1996
and $502 million was from the annuity segment, compared with $461 million in
1996.
Total premiums received decreased to $5.2 billion in 1997, compared with $6.1
billion in 1996. This decrease is primarily due to a decrease in sales of fixed
annuities in 1997.
Total revenues increased to $2.9 billion in 1997, compared with $2.7 billion in
1996. The increase is primarily due to increases in net investment income,
policyholder and contractholder charges, and management fees. Net investment
income, the largest component of revenues, increased slightly from the prior
year, reflecting slight increases in investments owned and investment yields.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 13% to $342 million
in 1997, compared with $303 million in 1996. This increase reflects increased
total life insurance in force which grew 12% to $75 billion at Dec. 31, 1997.
Management and other fees increased 26% to $341 million in 1997, compared with
$271 million in 1996. This is primarily due to an increase in separate account
assets, which grew 25% to $23 billion at Dec. 31, 1997, due to market
appreciation and sales. The Company provides investment management services for
the mutual funds used as investment options for variable annuities and variable
life insurance. The Company also receives a mortality and expense risk fee from
the separate accounts.
Total benefits and expenses increased slightly to $2.2 billion in 1997. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, remained steady at $1.4
billion. DAC increased to $323 million compared to $279 million in 1996. These
increases were due primarily to increased aggregate amounts in force.
1996 compared to 1995:
Consolidated net income increased 14% to $415 million in 1996, compared to $365
million in 1995. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges partially offset by a slight
decrease in investment margins. These increases reflect increased average
insurance and annuities in force during 1996. Investment margins were below
prior year levels primarily due to increasing interest credited rates throughout
1996.
<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 increased
total life insurance in force which grew 13% to $67 billion at Dec. 31, 1996.
Management and other fees increased 26% to $271 million in 1996, compared with
$216 million in 1995. This is primarily due to an increase in separate account
assets, which grew 24% to $19 billion at Dec. 31, 1996, due to market
appreciation and sales. The Company provides investment management services for
the mutual funds used as investment options for variable annuities and variable
life insurance. The Company also receives a mortality and expense risk fee from
the separate accounts.
Total benefits and expenses increased slightly to $2.1 billion in 1996. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, increased to $1.4
billion. This was due to increased aggregate amounts in force and an increase in
average interest credited rates.
Risk management
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to clients' accounts. The Company does not invest
in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to clients' accounts are generally reset at shorter intervals
than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps and swaps, for hedging purposes. These derivatives
protect margins by increasing investment returns if there is a
<PAGE>
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to clients' accounts.
The amount of the fee income the Company receives is based upon the daily market
value of the separate account and mutual fund assets. As a result, the Company's
fee income could be impacted significantly by a decline in the equity markets.
Another part of the committee's strategy is to enter into index option collars
(combinations of puts and calls) for hedging purposes. These derivatives protect
fee income by providing option income when there is a significant decline in the
equity markets, which mitigates the impact of the corresponding decline in
separate account and mutual fund assets. The Company finances the cost of this
protection through selling a portion of the upside potential from an increasing
market through written options.
Liquidity and capital resources
The liquidity requirements of the Company are met by funds provided by premiums,
investment income, proceeds from sales of investments as well as maturities and
periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, dividends and investment purchases.
The Company has an available line of credit with its parent aggregating $100
million. The line of credit is used strictly as short-term sources of funds. No
borrowings were outstanding under the agreement at Dec. 31, 1997. At Dec. 31,
1997, outstanding reverse repurchase agreements totaled $163 million.
At Dec. 31, 1997, investments in fixed maturities comprised 83% of the Company's
total invested assets. Of the fixed maturity portfolio, approximately 40% is
invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
At Dec. 31, 1997, approximately 11% of the Company's investments in fixed
maturities were below investment grade bonds. These investments may be subject
to a higher degree of risk than the investment grade issues because of the
borrower's generally greater sensitivity to adverse economic conditions, such as
recession or increasing interest rates, and in certain instances, the lack of an
active secondary market. Expected returns on below investment grade bonds
reflect consideration of such factors. The Company has identified those fixed
maturities for which a decline in fair value is determined to be other than
temporary, and has written them down to fair value with a charge to earnings.
At Dec. 31, 1997, net unrealized appreciation on fixed maturities held to
maturity included $445 million of gross unrealized appreciation and $17 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $399 million of gross unrealized
appreciation and $37 million of gross unrealized depreciation.
At Dec. 31, 1997, the Company had an allowance for losses for mortgage loans
totaling $39 million and for real estate investments totaling $6 million.
<PAGE>
The economy and other factors have caused an increase in the number of insurance
companies that are under regulatory supervision. This circumstance has resulted
in an increase in assessments by state guaranty associations to cover losses to
policyholders of insolvent or rehabilitated companies. Some assessments can be
partially recovered through a reduction in future premium taxes in certain
states. The Company established an asset for guaranty association assessments
paid to those states allowing a reduction in future premium taxes over a
reasonable period of time. The asset is being amortized as premium taxes are
reduced. The Company has also estimated the potential effect of future
assessments on the Company's financial position and results of operations and
has established a reserve for such potential assessments. The Company has not
adopted Statement of Position 97-3 providing guidance when an insurer should
recognize a liability for guaranty fund assessments. The SOP is effective for
fiscal years beginning after Dec. 15, 1998. Adoption will not have a material
impact on the Company's results of operations or financial condition.
In the first quarter of 1998, the Company paid a $60 million dividend to its
parent. In 1997, dividends paid to its parent were $200 million.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of Dec. 31, 1997, the Company's total adjusted capital was well in
excess of the levels requiring regulatory attention.
Year 2000 issue
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
systems used by the Company are maintained by AEFC and are utilized by multiple
subsidiaries and affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with systems of
third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, has been conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps are being
taken to resolve any potential problems including modification to existing
software and the purchase of new software. These measures are scheduled to be
completed and tested on a timely basis. AEFC's goal is to complete internal
remediation and testing of each system by the end of 1998 and to continue
compliance efforts through 1999.
AEFC is evaluating the Year 2000 readiness of advisors and other third parties
whose system failures could have an impact on the Company's operations. The
potential materiality of any such impact is not known at this time.
<PAGE>
Segment information
The Company's operations consist of two business segments: Individual and group
life, disability income and long-term care insurance; and fixed and variable
annuity products designed for individuals, pension plans, small businesses and
employer-sponsored groups. The Company is not dependent upon any single customer
and no single customer accounted for more than 10% of revenue in 1997, 1996 or
1995. Additionally, no single distributor accounted for more than 10% of
premiums received in 1997, 1996 or 1995. (See Note 10, Segment information, in
the "Notes to Consolidated Financial Statements".)
Reinsurance
Reinsurance arrangements are used to reduce exposure to large losses. The
maximum amount of risk retained by the Company on any one life is $750,000 of
life and waiver of premium benefits plus $50,000 of accidental death benefits.
The excesses are reinsured with other life insurance companies. At Dec. 31,
1997, traditional life and universal life-type insurance in force aggregated $75
billion, of which $4 billion was reinsured.
Reserves
In accordance with the insurance laws and regulations under which IDS Life
operates, it is obligated to carry on its books, as liabilities, actuarially
determined reserves to meet its obligations on its outstanding life and health
insurance policies and annuity contracts. Reserves for policies and contracts
are based on mortality and morbidity tables in general use in the United States.
These reserves are computed amounts that, with additions from premiums to be
received, and with interest on such reserves compounded annually at assumed
rates, will be sufficient to meet IDS Life's policy obligations at their
maturities or in the event of an insured's death. In the accompanying financial
statements these reserves are determined in accordance with generally accepted
accounting principles. (See Note 1, Liabilities for future policy benefits, in
the "Notes to Consolidated Financial Statements.")
Investments
Of IDS Life's consolidated total investments of $27 billion at Dec. 31, 1997,
34% was invested in mortgage-backed securities, 48% in corporate and other
bonds, 14% in primary mortgage loans on real estate, 2% in policy loans and the
remaining 2% in other investments.
Competition
IDS Life is engaged in a business that is highly competitive due to the large
number of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,700 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life Health
edition, 1997, assigned IDS Life one of its highest classifications, A+
(Superior).
<PAGE>
Employees
As of Dec. 31, 1997, IDS Life and its subsidiaries had 303 employees; including
245 employed at the corporate office in Minneapolis, MN, 8 employed at American
Centurion Life Assurance Company located in Albany, NY and 50 employed at IDS
Life Insurance Company of New York located in Albany, NY.
Properties
IDS Life occupies office space in Minneapolis, MN, which is rented by its
parent, American Express Financial Corporation. IDS Life reimburses American
Express Financial Corporation for rent based on direct and indirect allocation
methods. Facilities occupied by IDS Life and its subsidiaries are believed to be
adequate for the purposes for which they are used and are well maintained.
State regulation
IDS Life is subject to the laws of the State of Minnesota governing insurance
companies and to the regulations of the Minnesota Department of Commerce. An
annual statement in the prescribed form is filed with the Minnesota Department
of Commerce each year covering IDS Life's operation for the preceding year and
its financial condition at the end of such year. Regulation by the Minnesota
Department of Commerce includes periodic examination to determine IDS Life's
contract liabilities and reserves so that the Minnesota Department of Commerce
may certify that these items are correct. IDS Life's books and accounts are
subject to review by the Minnesota Department of Commerce at all times. Such
regulation does not, however, involve any supervision of the account's
management or IDS Life's investment practices or policies. In addition, IDS Life
is subject to regulation under the insurance laws of other jurisdictions in
which it operates. A full examination of IDS Life's operations is conducted
periodically by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
Directors and executive officers
The members of the Board of Directors and the principal executive officers of
IDS Life, together with the principal occupation of each during the last five
years, are as follows:
Directors*
David R. Hubers
Born in 1943
Director since September 1989; president and chief executive officer, AEFC,
since August 1993, and director since January 1984. Senior vice president,
Finance and chief financial officer, AEFC, from January 1984 to August 1993.
<PAGE>
Richard W. Kling
Born in 1940
Director since February 1984; president since March 1994. Executive vice
president, Marketing and Products from January 1988 to March 1994. Senior vice
president, AEFC, since May 1994. Director of IDS Life Series Fund, Inc. and
member of the board of managers and president of IDS Life Variable Annuity Funds
A and B.
Paul F. Kolkman
Born in 1946
Director since May 1984; executive vice president since March 1994; vice
president, Finance from May 1984 to March 1994; vice president, AEFC, since
January 1987. Vice president and chief actuary of IDS Life Series Fund, Inc.
James A. Mitchell
Born in 1941
Chairman of the board since March 1994; director since July 1984; chief
executive officer since November 1986; president from July 1984 to March 1994;
executive vice president, AEFC, since March 1994; director, AEFC, since July
1984; senior vice president, AEFC, from July 1984 to March 1994.
Barry J. Murphy
Born in 1951
Director and executive vice president, Client Service, since March 1994; senior
vice president, AEFC, since May 1994; senior vice president, Travel Related
Services (TRS), a subsidiary of American Express Company, from July 1992 to
April 1994; vice president, TRS, from November 1989 to July 1992.
Stuart A. Sedlacek
Born in 1957
Director and executive vice president, Assured Assets since March 1994; vice
president, AEFC, since September 1988.
Officers other than directors*
Jeffrey S. Horton
Born in 1961
Vice president and treasurer since December 1997; vice president and corporate
treasurer, AEFC, since December 1997; controller, American Express Technologies
- - Financial Services, AEFC, from July 1997 to December 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
<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 1997 to IDS
Life and its affiliates. The table also shows the total cash compensation paid
to all executive officers of IDS Life, as a group, who were executive officers
at any time during 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of individual or number in
group Position held Cash compensation
- ------------------------------------ ----------------------------------- -----------------------------------
Five most highly compensated $8,616,958
executive officers as a group:
James A. Mitchell Chairman of the Board and Chief
Executive Officer
Richard W. Kling President
Pamela J. Moret Exec. Vice President, Variable
Assets
Barry J. Murphy Exec. Vice President, Client
Service
Stuart A. Sedlacek Exec. Vice President, Assured
Assets
All executive officers as a group $12,523,043
(10)
</TABLE>
Security ownership of management
IDS Life's directors and officers do not beneficially own any outstanding shares
of stock of IDS Life. All of the outstanding shares of stock of IDS Life are
beneficially owned by its parent, American Express Financial Corporation. The
percentage of shares of American Express Financial Corporation owned by any
director, and by all directors and officers of IDS Life as a group, does not
exceed 1% of the class outstanding.
Legal proceedings and opinion
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life and its subsidiaries do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. In December 1996, an action of this type
was brought against IDS Life and its parent, AEFC. A second action was filed in
March 1997. The plaintiffs purport to represent a class consisting of all
persons who replaced existing IDS Life policies with new IDS Life policies from
and after January 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties and
alleged violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and seek to establish a claims resolution facility for the
determination of individual issues.
IDS Life believes it has meritorious defenses to these and other actions arising
in connection with the conduct of its business activities and intends to defend
them vigorously. IDS Life believes that it is not a party to, nor are any of its
properties the subject of, any pending legal proceedings which would have a
material adverse effect on its consolidated financial condition.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the contracts described in this prospectus and the
organization of IDS Life, its authority to issue contracts under Minnesota law
and the validity of the forms of the contracts under Minnesota law have been
passed on by the general counsel of IDS Life.
Experts
The consolidated financial statements of IDS Life Insurance Company at December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the registration statement, and is
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
<PAGE>
Appendix A
Partial surrender illustration
Involving 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 accumulation
values
Contract year if no surrenders
- ------------------------------------ -----------------------------------
1 $ 10,600.00
2 11,236.00
3 11,910.16
4 12,624.77
5 13,382.26
6 14,185.19
7 15,036.30
8 15,938.48
9 16,894.79
10 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
The accumulation value surrendered is subject to 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
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)
<PAGE>
= $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 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
Net surrender amount $2,033.33
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 $1,967.21 of accumulation value
to be surrendered.
What will be your market value adjustment amount?
The market adjusted value is:
Renewal value of accumulation value surrendered
(1 + ic + .0025)(N + t)
= $1,967.21 (1 + ig)7
(1 + ic + .0025)7
= $1,967.21 (1.06)7
(1.0575)7
= $2,000.00
<PAGE>
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,000.00 - $1,967.21 = $32.79
(NOTE: This market value adjustment is positive. In other cases the market value
adjustment may be negative.)
What net amount will you receive?
Your contract's accumulation value will decrease by $1,967.21 and we will send
you a check for:
Accumulation value surrendered $1,967.21
Market value adjustment 32.79
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.
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
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)
<PAGE>
= $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:
$24,870.68 = $44,771.19
-----------------
(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:
$27,069.19 = $44,771.19
-----------------
(1 + .055 + .0025)9
<PAGE>
<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, 1997 and 1996 and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of IDS Life Insurance Company at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
February 5, 1998
<PAGE>
IDS Life Financial Information
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1997 1996
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1997, $9,743,410; 1996, $10,521,650) $9,315,450 $10,236,379
Available for sale, at fair value (Amortized cost:
1997, $12,515,030; 199, $11,008,622) 12,876,694 11,146,845
Mortgage loans on real estate 3,618,647 3,493,364
Policy loans 498,874 459,902
Other investments 318,591 251,465
Total investments 26,628,256 25,587,955
Cash and cash equivalents 19,686 224,603
Amounts recoverable from reinsurers 205,716 157,722
Amounts due from brokers 8,400 11,047
Other accounts receivable 37,895 44,089
Accrued investment income 357,390 343,313
Deferred policy acquisition costs 2,479,577 2,330,805
Deferred income taxes, net -- 33,923
Other assets 22,700 37,364
Separate account assets 23,214,504 18,535,160
Total assets $52,974,124 $47,305,981
========= =========
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities $22,009,747 $21,838,008
Universal life-type insurance 3,280,489 3,177,149
Traditional life insurance 213,676 209,685
Disability income and long-term care insurance 533,124 424,200
Policy claims and other policyholders' funds 68,345 83,634
Deferred income taxes, net 61,582 --
Amounts due to brokers 381,458 261,987
Other liabilities 345,383 332,078
Separate account liabilities 23,214,504 18,535,160
Total liabilities 50,108,308 44,861,901
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding 3,000 3,000
Additional paid-in capital 290,847 283,615
Net unrealized gain on investments 226,359 86,102
Retained earnings 2,345,610 2,071,363
Total stockholder's equity 2,865,816 2,444,080
Total liabilities and stockholder's equity $52,974,124 $47,305,981
========= =========
See accompanying notes.
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended Dec. 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Traditional life insurance $ 52,473 $ 51,403 $ 50,193
Disability income and long-term care insurance 154,021 131,518 111,337
Total premiums 206,494 182,921 161,530
Policyholder and contractholder charges 341,726 302,999 256,454
Management and other fees 340,892 271,342 215,581
Net investment income 1,988,389 1,965,362 1,907,309
Net realized gain (loss) on investments 860 (159) (4,898)
Total revenues 2,878,361 2,722,465 2,535,976
Benefits and expenses:
Death and other benefits:
Traditional life insurance 28,951 26,919 29,528
Universal life-type insurance
and investment contracts 92,814 85,017 71,691
Disability income and
long-term care insurance 22,333 19,185 16,259
Increase (decrease) in liabilities for
future policy benefits:
Traditional life insurance 3,946 1,859 (1,315)
Disability income and
long-term care insurance 63,631 57,230 51,279
Interest credited on universal life-type
insurance and investment contracts 1,386,448 1,370,468 1,315,989
Amortization of deferred policy acquisition costs 322,731 278,605 280,121
Other insurance and operating expenses 276,596 261,468 211,642
Total benefits and expenses 2,197,450 2,100,751 1,975,194
Income before income taxes 680,911 621,714 560,782
Income taxes 206,664 207,138 195,842
Net income $ 474,247 $ 414,576 $ 364,940
======== ======== =======
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended Dec. 31, 1997
(thousands)
<TABLE>
<CAPTION>
Additional Net Unrealized
Capital Paid-In Gain (Loss)on Retained
Stock Capital on Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1994 3,000 222,000 (275,708) 1,639,399 1,588,691
Net income -- -- -- 364,940 364,940
Change in net unrealized
gain (loss) on investments -- -- 505,837 -- 505,837
Capital contribution from parent -- 56,814 -- -- 56,814
Loss on reinsurance transaction
with affiliate -- -- -- (4,574) (4,574)
Cash dividends -- -- -- (180,000) (180,000)
Balance, Dec. 31, 1995 3,000 278,814 230,129 1,819,765 2,331,708
Net income -- -- -- 414,576 414,576
Change in net unrealized
gain (loss) on investments -- -- (144,027) -- (144,027)
Capital contribution from parent -- 4,801 -- -- 4,801
Other changes -- -- -- 2,022 2,022
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1996 $3,000 $283,615 $ 86,102 $2,071,363 $2,444,080
Net income -- -- -- 474,247 474,247
Change in net unrealized
gain (loss) on investments -- -- 140,257 -- 140,257
Capital contribution from parent -- 7,232 -- -- 7,232
Cash dividends -- -- -- (200,000) (200,000)
Balance, Dec. 31, 1997 $3,000 $290,847 $226,359 $2,345,610 $2,865,816
===== ======= ======= ========= ========
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Dec. 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 474,247 $ 414,576 $ 364,940
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Policy loan issuance, excluding universal
life-type insurance (54,665) (49,314) (46,011)
Policy loan repayment, excluding universal
life-type insurance 46,015 41,179 36,416
Change in amounts recoverable from reinsurers (47,994) (43,335) (34,083)
Change in other accounts receivable 6,194 (4,981) 12,231
Change in accrued investment income (14,077) 4,695 (30,498)
Change in deferred policy acquisition
costs, net (156,486) (294,755) (196,963)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance 112,915 97,479 85,575
Change in policy claims and other
policyholders' funds (15,289) 27,311 6,255
Change in deferred income tax provision (benefit) 19,982 (65,609) (33,810)
Change in other liabilities 13,305 46,724 (6,548)
(Accretion of discount)
amortization of premium, net (5,649) (23,032) (22,528)
Net realized (gain) loss on investments (860) 159 4,898
Policyholder and contractholder
charges, non-cash (160,885) (154,286) (140,506)
Other, net 7,161 (10,816) 3,849
Net cash provided by (used in) operating
activities $ 223,914 $ (14,005) $ 3,217
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Years ended Dec. 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (1,996) $ (43,751) $ (1,007,208)
Maturities, sinking fund payments and calls 686,503 759,248 538,219
Sales 236,761 279,506 332,154
Fixed maturities available for sale:
Purchases (3,160,133) (2,299,198) (2,452,181)
Maturities, sinking fund payments and calls 1,206,213 1,270,240 861,545
Sales 457,585 238,905 136,825
Other investments, excluding policy loans:
Purchases (524,521) (904,536) (823,131)
Sales 335,765 236,912 160,521
Change in amounts due from brokers 2,647 (11,047) 7,933
Change in amounts due to brokers 119,471 140,369 (105,119)
Net cash used in investing activities (641,705) (333,352) (2,350,442)
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 2,785,758 3,567,586 4,189,525
Surrenders and death benefits (3,736,242) (4,250,294) (3,141,404)
Interest credited to account balances 1,386,448 1,370,468 1,315,989
Universal life-type insurance policy loans:
Issuance (84,835) (86,501) (84,700)
Repayment 54,513 58,753 52,188
Capital contribution from parent 7,232 4,801 --
Dividends paid (200,000) (165,000) (180,000)
Net cash provided by financing activities 212,874 499,813 2,151,598
Net (decrease) increase in cash and
cash equivalents (204,917) 152,456 (195,627)
Cash and cash equivalents at
beginning of year 224,603 72,147 267,774
Cash and cash equivalents at
end of year $ 19,686 $ 224,603 $ 72,147
======= ======== ========
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies
------------------------------------------
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance
company organized under the laws of the State of Minnesota. The
Company is a wholly owned subsidiary of American Express Financial
Corporation (AEFC), which is a wholly owned subsidiary of American
Express Company. The Company serves residents of all states except New
York. IDS Life Insurance Company of New York is a wholly owned
subsidiary of the Company and serves New York State residents. The
Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company (ACLAC), American Partners
Life Insurance Company and American Express Corporation.
The Company's principal products are deferred annuities and universal
life insurance, which are issued primarily to individuals. It offers
single premium and flexible premium deferred annuities on both a fixed
and variable dollar basis. Immediate annuities are offered as well.
The Company's insurance products include universal life (fixed and
variable), whole life, single premium life and term products (including
waiver of premium and accidental death benefits). The Company also
markets disability income and long-term care insurance.
Basis of presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which vary
in certain respects from reporting practices prescribed or permitted by
state insurance regulatory authorities (see Note 4).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and
carried at amortized cost. All other fixed maturities and all
marketable equity securities are classified as available for sale and
carried at fair value. Unrealized gains and losses on securities
classified as available for sale are reported as a separate component
of stockholder's equity, net of deferred taxes.
<PAGE>
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.
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or
the fair value of collateral. The amount of the impairment is recorded
in a reserve for mortgage loan losses. The reserve for mortgage loans
losses is maintained at a level that management believes is adequate to
absorb estimated losses in the portfolio. The level of the reserve
account is determined based on several factors, including historical
experience, expected future principal and interest payments, estimated
collateral values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the reserve
for mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for
which interest payments are delinquent more than three months. Based
on management's judgment as to the ultimate collectibility of
principal, interest payments received are either recognized as income
or applied to the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment
income over the life of the contracts and payments received as a result
of these agreements are recorded as investment income when realized.
The amortized cost of interest rate caps and floors is included in
other investments. Amounts paid or received under interest rate swap
agreements are recognized as an adjustment to investment income.
During 1997, 1996 and 1995, the Company purchased and wrote index
options to protect against significant declines in fee income as a
result of a decrease in the market value of its managed assets. These
options were marked-to-market through the income statement.
During 1997, the Company purchased and wrote index options to hedge
1998 management fee and other income from separate accounts and the
underlying mutual funds. These index options are carried at market
value and are included in other investments. Gains or losses on these
instruments are deferred and recognized in management and other fees in
the same period as the hedged fee income.
Policy loans are carried at the aggregate of the unpaid loan balances
which do not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in
the underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost, which
approximates fair value.
<PAGE>
Supplementary information to the consolidated statements of cash flows
for the years ended December 31 is summarized as
follows:
1997 1996 1995
---- ---- ----
Cash paid during the year for:
Income taxes $174,472 $317,283 $191,011
Interest on borrowings 8,213 4,119 5,524
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
Recognition of profits on annuity contracts and insurance policies
Profits on fixed deferred annuities are recognized by the Company over
the lives of the contracts, using primarily the interest method.
Profits represent the excess of investment income earned from
investment of contract considerations over interest credited to
contract owners and other expenses.
The retrospective deposit method is used in accounting for universal
life-type insurance. Under this method, profits are recognized over
the lives of the policies in proportion to the estimated gross profits
expected to be realized.
Premiums on traditional life, disability income and long-term care
insurance policies are recognized as revenue when due, and related
benefits and expenses are associated with premium revenue in a manner
that results in recognition of profits over the lives of the insurance
policies. This association is accomplished by means of the provision
for future policy benefits and the deferral and subsequent amortization
of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of
insurance charges and issue and administrative fees. These charges
also include the minimum death benefit guarantee fees received from the
variable life insurance separate accounts. Management and other fees
include investment management fees and mortality and expense risk fees
received from the variable annuity and variable life insurance separate
accounts and underlying mutual funds.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation,
policy issue costs, underwriting and certain sales expenses, have been
deferred on insurance and annuity contracts.The deferred acquisition costs
for most single premium deferred annuities and installment annuities are
amortized in relation to accumulation values and surrender charge revenue.
The costs for universal life-type insurance and certain installment
annuities are amortized as a percentage of the estimated gross profits
expected to be realized on the policies. For traditional life, disability
income and long-term care insurance policies, the costs are amortized over
an appropriate period in proportion to premium revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance and deferred annuities
are accumulation values.
Liabilities for fixed annuities in a benefit status are based on
established industry mortality tables and interest rates ranging from
5% to 9.5%, depending on year of issue.
<PAGE>
Liabilities for future benefits on traditional life insurance are based
on the net level premium method, using anticipated mortality, policy
persistency and interest earning rates. Anticipated mortality rates
are based on established industry mortality tables. Anticipated policy
persistency rates vary by policy form, issue age and policy duration
with persistency on cash value plans generally anticipated to be better
than persistency on term insurance plans. Anticipated interest rates
range from 4% to 10%, depending on policy form, issue year and policy
duration.
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
Liabilities for future disability income and long-term care policy
benefits include both policy reserves and claim reserves. Policy
reserves are based on the net level premium method, using anticipated
morbidity, mortality, policy persistency and interest earning rates.
Anticipated morbidity and mortality rates are based on established
industry morbidity and mortality tables. Anticipated policy
persistency rates vary by policy form, issue age, policy duration and,
for disability income policies, occupation class. Anticipated interest
rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 10% over 5
to 10 years.
Claim reserves are calculated based on claim continuance tables and
anticipated interest earnings. Anticipated claim contuance rates are
based on a national survey. Anticipated interest rates for claim
reserves for both disability income and long-term care range from 6% to
8%.
Reinsurance
The maximum amount of life insurance risk retained by the Company on
any one life is $750 of life and waiver of premium benefits plus $50 of
accidental death benefits. The maximum amount of disability income
risk retained by the Company on any one life is $6 of monthly benefit
for benefit periods longer than three years. The excesses are
reinsured with other life insurance companies on a yearly renewable
term basis. Graded premium whole life and long-term care policies are
primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated federal
income tax return of American Express Company. The Company provides
for income taxes on a separate return basis, except that, under an
agreement between AEFC and American Express Company, tax benefit is
recognized for losses to the extent they can be used on the
consolidated tax return. It is the policy of AEFC and its subsidiaries
that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1997 and 1996 are $12,061
and $33,358, respectively, receivable from American Express Financial
Corporation for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for
the exclusive benefit of the variable annuity and variable life
insurance contract owners. The Company receives investment
management fees from the proprietary mutual funds used as investment
options for variable annuities and variable life insurance. The
Company receives mortality and expense risk fees from the separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
The Company makes contractual mortality assurances to the variable
annuity contract owners that the net assets of the separate accounts
will not be affected by future variations in the actual life expectancy
experience of the annuitants and the beneficiaries from the mortality
assumptions implicit in the annuity contracts. The Company makes
periodic fund transfers to, or withdrawals from, the separate accounts
for such actuarial adjustments for variable annuities that are in the
benefit payment period. For variable life insurance, the Company
guarantees that the rates at which insurance charges and administrative
fees are deducted from contract funds will not exceed contractual
maximums. The Company also guarantees that the death benefit will
continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform to the
1997 presentation.
2. Investments
-----------
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available.
Estimated values are determined by established procedures involving,
among other things, review of market indices, price levels of current
offerings of comparable issues, price estimates and market data from
independent brokers and financial files.
The amortized cost, gross unrealized gains and losses and fair values
of investments in fixed maturities and equity securities at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government agency oblitations $41,932 $ 2,950 $ -- $ 44,881
State and municipal obligations 9,684 568 -- 10,252
Corporate bonds and obligations 7,280,646 415,700 9,322 7,687,024
Mortgage-backed securities 1,983,188 25,976 7,911 2,001,253
--------- ------ ----- ---------
$9,315,450 $445,194 $17,233 $9,743,410
========= ======= ====== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 65,291 $ 4,154 $ -- $69,445
State and municipal obligations 11,045 1,348 -- 12,393
Corporate bonds and obligations 5,308,129 232,761 30,198 5,510,692
Mortgage-backed securities 7,130,565 160,478 6,879 7,284,164
--------- ------- ----- ---------
Total fixed maturities 12,515,030 398,741 37,077 12,876,694
Equity securities 3,000 361 -- 3,361
---------- ------- ------ ----------
$12,518,030 $399,102 $37,077 $12,880,055
========== ======= ====== ==========
</TABLE>
<PAGE>
2. Investments (continued)
-----------
The amortized cost, gross unrealized gains and losses and fair values
of investments in fixed maturities and equity securities at December
31, 1996 are as follows:
<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
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 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 and fair value of investments in fixed maturities at
December 31, 1997 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
<PAGE>
Amortized Fair
Held to maturity Cost Value
---------------- --------- --------
Due in one year or less $ 356,597 $360,956
Due from one to five years 1,536,239 1,619,875
Due from five to ten years 4,337,547 4,577,552
Due in more than ten years 1,101,879 1,183,774
Mortgage-backed securities 1,983,188 2,001,253
--------- ---------
$9,315,450 $9,743,410
========= =========
Amortized Fair
Available for sale Cost Value
--------- -----
Due in one year or less $ 162,663 $ 164,012
Due from one to five years 633,339 679,561
Due from five to ten years 2,418,162 2,517,098
Due in more than ten years 2,170,301 2,231,859
Mortgage-backed securities 7,130,565 7,284,164
---------- ----------
$12,515,030 $12,876,694
========== ==========
<PAGE>
2. Investments (continued)
-----------
During the years ended December 31, 1997, 1996 and 1995, fixed
maturities classified as held to maturity were sold with amortized cost
of $229,848, $277,527 and $333,508, respectively. Net gains and losses
on these sales were not significant. The sale of these fixed
maturities was due to significant deterioration in the issuers' credit
worthiness.
Fixed maturities available for sale were sold during 1997 with proceeds
of $457,585 and gross realized gains and losses of $6,639 and $7,518,
respectively. Fixed maturities available for sale were sold during
1996 with proceeds of $238,905 and gross realized gains and losses of
$571 and $16,084, respectively. Fixed maturities available for sale
were sold during 1995 with proceeds of $136,825 and gross realized
gains and losses of $nil and $5,781, respectively.
At December 31, 1997, bonds carried at $14,351 were on deposit with
various states as required by law.
At December 31, 1997, investments in fixed maturities comprised 83
percent of the Company's total invested assets. These securities are
rated by Moody's and Standard & Poor's (S&P), except for securities
carried at approximately $2.7 billion which are rated by American
Express Financial Corporation internal analysts using criteria similar
to Moody's and S&P. A summary of investments in fixed maturities, at
amortized cost, by rating on December 31 is as follows:
Rating 1997 1996
--------- --------- ---------
Aaa/AAA $ 9,195,619 $ 9,460,134
Aaa/AA -- 2,870
Aa/AA 232,451 241,914
Aa/A 246,792 192,631
A/A 2,787,936 2,949,895
A/BBB 1,200,345 1,034,661
Baa/BBB 5,226,616 4,531,515
Baa/BB 475,084 768,285
Below investment grade 2,465,637 2,063,096
--------- ---------
$21,830,480 $21,245,001
========== ==========
At December 31, 1997, 95 percent of the securities rated Aaa/AAA are
GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any
other issuer are greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1997, approximately 14 percent of the Company's
invested assets were mortgage loans on real estate. Summaries of
mortgage loans by region of the United States and by type of real
estate are as follows:
<PAGE>
December 31, 1997 December 31, 1996
------------------------ -----------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------- ---------- ------------ ---------- -----------
East North Central $ 748,372 $ 32,462 $ 777,960 $ 19,358
West North Central 456,934 14,340 389,285 29,620
South Atlantic 922,172 14,619 891,852 35,007
Middle Atlantic 545,601 15,507 553,869 17,959
New England 316,250 2,136 310,177 14,042
Pacific 184,917 3,204 190,770 4,997
West South Central 125,227 -- 105,173 11,246
East South Central 60,274 -- 75,176 --
Mountain 297,545 28,717 236,597 11,401
--------- ------- --------- -------
3,657,292 110,985 3,530,859 143,630
Less allowance for
losses 38,645 -- 37,495 --
--------- ------- --------- -------
$3,618,647 $110,985 $3,493,364 $143,630
========= ======= ========= =======
<PAGE>
2. Investments (continued)
-----------
December 31, 1997 December 31, 1996
------------------------ -------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
--------------- ---------- ----------- ---------- -----------
Department/retail
stores $1,189,203 $ 27,314 $1,154,179 $ 68,032
Apartments 1,089,127 16,576 1,119,352 23,246
Office buildings 716,729 34,546 611,395 27,653
Industrial buildings 295,889 21,200 296,944 6,716
Hotels/motels 101,052 -- 97,870 6,257
Medical buildings 99,979 9,748 67,178 8,289
Nursing/retirement
homes 72,359 -- 88,226 1,877
Mixed Use 71,007 -- 73,120 --
Other 21,947 1,601 22,595 1,560
--------- ------- --------- ------
3,657,292 110,985 3,530,859 143,630
Less allowance for
losses 38,645 -- 37,495 --
--------- ------- --------- -------
$3,618,647 $110,985 $3,493,364 $143,630
========= ======= ========= =======
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real
estate at the time of origination of the loan. The Company holds the
mortgage document, which gives it the right to take possession of the
property if the borrower fails to perform according to the terms of the
agreement. The fair value of the mortgage loans is determined by a
discounted cash flow analysis using mortgage interest rates currently
offered for mortgages of similar maturities. Commitments to purchase
mortgages are made in the ordinary course of business. The fair value
of the mortgage commitments is $nil.
At December 31, 1997 and 1996, the Company's recorded investment in
impaired loans was $45,714 and $79,441, respectively, with allowances
of $9,812 and $16,162, respectively. During 1997 and 1996, the average
recorded investment in impaired loans was $61,870 and $74,338,
respectively.
The Company recognized $2,981, $4,889 and $5,014 of interest income
related to impaired loans for the years ended December 31, 1997, 1996
and 1995 respectively.
<PAGE>
The following table presents changes in the allowance for investment
losses related to all loans:
1997 1996 1995
------ ------ ------
Balance, January 1 $37,495 $37,340 $35,252
Provision for investment losses 8,801 10,005 15,900
Loan payoffs (3,851) (4,700) (11,900)
Foreclosures (3,800) (5,150) (1,350)
Other -- -- (562)
------ ------ -------
Balance, December 31 $38,645 $37,495 $37,340
====== ====== ======
At December 31, 1997, the Company had commitments to purchase
investments other than mortgage loans for $234,485. Commitments to
purchase investments are made in the ordinary course of business. The
fair value of these commitments is $nil.
<PAGE>
2. Investments (continued)
-----------
Net investment income for the years ended December 31 is summarized as
follows:
1997 1996 1995
--------- --------- ---------
Interest on fixed maturities $1,692,481 $1,666,929 $1,656,136
Interest on mortgage loans 305,742 283,830 232,827
Other investment income 25,089 43,283 35,936
Interest on cash equivalents 5,914 5,754 5,363
--------- --------- ---------
2,029,226 1,999,796 1,930,262
Less investment expenses 40,837 34,434 22,953
--------- --------- ---------
$1,988,389 $1,965,362 $1,907,309
========= ========= =========
Net realized gain (loss) on investments for the years ended December 31
is summarized as follows:
1997 1996 1995
------ ----- -----
Fixed maturities $ 16,115 $ 8,736 $ 9,973
Mortgage loans (6,424) (8,745) (13,259)
Other investments (8,831) (150) (1,612)
------- ----- -------
$ 860 $ (159) $ (4,898)
======= ====== ======
Changes in net unrealized appreciation (depreciation) of investments
for the years ended December 31 are summarized as follows:
1997 1996 1995
------- ------- -------
Fixed maturities available
for sale $223,441 $(231,853) $811,649
Equity securities 53 (52) 3,118
3. Income taxes
------------
The Company qualifies as a life insurance company for federal income
tax purposes. As such, the Company is subject to the Internal Revenue
Code provisions applicable to life insurance companies.
The income tax expense consists of the following:
1997 1996 1995
Federal income taxes:
Current $176,879 $260,357 $218,040
Deferred 19,982 (65,609) (33,810)
------- -------- -------
196,861 194,748 184,230
State income taxes-current 9,803 12,390 11,612
------- ------- -------
Income tax expense $206,664 $207,138 $195,842
======= ======= =======
<PAGE>
3. Income taxes (continued)
------------
Increases (decreases) to the federal tax provision applicable to pretax
income based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ---------------
Provision Rate Provision Rate Provision Rate
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Federal income
taxes based on
the statutory rate $238,319 35.0% $217,600 35.0% $196,274 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (10,294) (1.5) (9,636) (1.5) (8,524) (1.5)
State Taxes, net of federal
benefit 6,372 0.9 8,053 1.3 7,548 1.3
Low income housing
credits (20,705) (3.0) (5,090) (0.8) (861) (0.2)
Other, net (7,028) (1.0) (3,789) (0.7) 1,405 0.3
------- ----- ------- ---- ------- ----
Federal income taxes $206,664 30.4% $207,138 33.3% $195,842 34.9%
======= ==== ======= ==== ======= ====
</TABLE>
A portion of life insurance company income earned prior to 1984 was not
subject to current taxation but was accumulated, for tax purposes, in a
policyholders' surplus account. At December 31, 1997, the Company had
a policyholders' surplus account balance of $20,114. The
policyholders' surplus account is only taxable if dividends to the
stockholder exceed the stockholder's surplus account or if the Company
is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows:
1997 1996
---- ----
Deferred tax assets:
Policy reserves $748,204 $724,412
Life insurance guarantee
fund assessment reserve 20,101 29,854
Other 9,589 2,763
------- -------
Total deferred tax assets 777,894 757,029
------- -------
<PAGE>
Deferred tax
liabilities:
Deferred policy acquisition costs 700,032 665,685
Unrealized gain on investments 121,885 48,486
Investments, other 17,559 8,935
------- -------
Total deferred tax liabilities 839,476 723,106
------- -------
Net deferred tax (liabilities) assets $(61,582) $ 33,923
====== ======
The Company is required to establish a valuation allowance for any
portion of the deferred tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not
that the Company will realize the benefit of the deferred tax assets
and, therefore, no such valuation allowance has been established.
<PAGE>
4. Stockholder's equity
--------------------
Retained earnings available for distribution as dividends to the parent
are limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory
authorities. Statutory unassigned surplus aggregated $1,468,677 as of
December 31, 1997 and $1,261,592 as of December 31, 1996 (see Note 3
with respect to the income tax effect of certain distributions). In
addition, any dividend distributions in 1998 in excess of approximately
$331,480 would require approval of the Department of Commerce of the
State of Minnesota.
Statutory net income for the years ended December 31 and capital and
surplus as of December 31 are summarized as follows:
1997 1996 1995
---------- ---------- ----------
Statutory net income $ 379,615 $ 365,585 $ 326,799
Statutory capital and surplus 1,765,290 1,565,082 1,398,649
surplus
5. Related party transactions
--------------------------
The Company loans funds to American Express Financial Corporation under
a collateral loan agreement. The balance of the loan was $nil and
$11,800 at December 31, 1997 and 1996, respectively. This loan can be
increased to a maximum of $75,000 and pays interest at a rate equal to
the preceding month's effective new money rate for the Company's
permanent investments. Interest income on related party loans totaled
$103, $780 and $1,371 in 1997, 1996 and 1995, respectively.
The Company purchased a five year secured note from an affiliated
company which was redeemed in 1996. The interest rate on the note was
8.42 percent. Interest income on the above note totaled $1,637 and
$1,937 in 1996 and 1995, respectively.
The Company participates in the American Express Company Retirement
Plan which covers all permanent employees age 21 and over who have met
certain employment requirements. Employer contributions to the plan
are based on participants' age, years of service and total compensation
for the year. Funding of retirement costs for this plan complies with
the applicable minimum funding requirements specified by ERISA. The
Company's share of the total net periodic pension cost was $201, $174
and $155 in 1997, 1996 and 1995, respectively.
The Company also participates in defined contribution pension plans of
American Express Company which cover all employees who have met certain
employment requirements. Company contributions to the plans are a
percent of either each employee's eligible compensation or basic
contributions. Costs of these plans charged to operations in 1997,
1996 and 1995 were $1,245, $990 and $815, respectively.
<PAGE>
The Company participates in defined benefit health care plans of AEFC
that provide health care and life insurance benefits to retired
employees and retired financial advisors. The plans include
participant contributions and service related eligibility
requirements. Upon retirement, such employees are considered to have
been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. Accordingly, costs of such benefits to
the Company are included in employee compensation and benefits and
cannot be identified on a separate company basis.
<PAGE>
5. Related party transactions (continued)
--------------------------
Charges by AEFC for use of joint facilities, marketing services and
other services aggregated $414,155, $397,362 and $377,139 for 1997,
1996 and 1995, respectively. Certain of these costs are included in
deferred policy acquisition costs. In addition, the Company rents its
home office space from AEFC on an annual renewable basis.
6. Commitments and contingencies
-----------------------------
At December 31, 1997 and 1996, traditional life insurance and universal
life-type insurance in force aggregated $74,730,720 and $67,274,354,
respectively, of which $4,351,904 and $3,875,921 were reinsured at the
respective year ends. The Company also reinsures a portion of the
risks assumed under disability income and long-term care policies.
Under all reinsurance agreements, premiums ceded to reinsurers amounted
to $60,495, $48,250 and $39,399 and reinsurance recovered from
reinsurers amounted to $19,042, $15,612, and $14,088 for the years
ended December 31, 1997, 1996 and 1995, respectively. Reinsurance
contracts do not relieve the Company from its primary obligation to
policyholders.
A number of lawsuits have been filed against life and health insurers
in jurisdictions in which the Company and its subsidiaries do business
involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents, and other matters. In December 1996, an
action of this type was brought against the Company and its parent,
AEFC. A second action was filed in March, 1997. The plaintiffs
purport to represent a class consisting of all persons who replaced
existing Company policies with new Company policies from and after
January 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties
and alleged violations of consumer fraud statutes. Plaintiffs seek
damages in an unspecified amount and seek to establish a claims
resolution facility for the determination of individual issues. The
Company and its parent believe they have meritorious defenses to the
claims raised in the lawsuit. The outcome of any litigation cannot be
predicted with certainty. In the opinion of management, however, the
ultimate resolution of the above lawsuit and others filed against the
Company should not have a material adverse effect on the Company's
consolidated financial position.
The IRS routinely examines the Company's federal income tax returns,
and is currently auditing the Company's returns for the 1990 through
1992 tax years. Management does not believe there will be a material
adverse effect on the Company's consolidated financial position as a
result of this audit.
7. Lines of credit
---------------
The Company has an available line of credit with its parent aggregating
$100,000. The rate for the line of credit is the parent's cost of
funds, ranging from 20 to 45 basis points over the established index.
Borrowings outstanding under this agreement were $nil at
December 31, 1997 and 1996.
<PAGE>
8. Derivative financial instruments
--------------------------------
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk and equity
market risk, including hedging specific transactions. The Company does
not hold derivative instruments for trading purposes. The Company
manages risks associated with these instruments as described below.
<PAGE>
8. Derivative financial instruments (continued)
--------------------------------
Market risk is the possibility that the value of the derivative
financial instruments will change due to fluctuations in a factor from
which the instrument derives its value, primarily an interest rate or
equity market index. The Company is not impacted by market risk
related to derivatives held for non-trading purposes beyond that
inherent in cash market transactions. Derivatives held for purposes
other than trading are largely used to manage risk and, therefore, the
cash flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill
the terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval
procedures, including setting concentration limits by counterparty, and
requiring collateral, where appropriate. A vast majority of the
Company's counterparties are rated A or better by Moody's and Standard
& Poor's.
Credit risk related to interest rate caps and floors and index options
is measured by the replacement cost of the contracts. The replacement
cost represents the fair value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid
over the life of the agreement. Notional amounts are not recorded on
the balance sheet. Notional amounts far exceed the related credit risk.
The Company's holdings of derivative financial instruments are as
follows:
Notional Carrying Fair Total Credit
December 31, 1997 Amount Amount Value Exposure
----------------- -------- -------- ----- ------------
Assets:
Interest rate caps $ 4,600,000 $ 24,963 $ 15,665 $ 15,665
Interest rate floors 1,000,000 1,561 4,551 4,551
Put index options 221,984 11,120 11,120 11,120
Liabilities:
Call index options 221,984 (8,273) (8,273) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (45,799) --
--------- ------ ------ ------
$29,371 $(22,736) $31,336
====== ====== ======
Notional Carrying Fair Total Credit
December 31, 1996 Amount Amount Value Exposure
Assets:
Interest rate caps $4,000,000 $ 16,227 $ 7,439 $ 7,439
Interest rate floors 1,000,000 2,041 4,341 4,341
Off balance sheet:
Interest rate swaps 1,000,000 -- (24,715) --
--------- ------ -------- ------
$18,268 $(12,935) $11,780
====== ====== ======
<PAGE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps and
floors expire on various dates from 1998 to 2003. The interest rate
swaps expire on various dates from 2000 to 2003. All put and call
options expire in 1998.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect
the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
<PAGE>
8. Derivative financial instruments (continued)
--------------------------------
Index options are used to manage the equity market risk related to the
fee income that the Company receives from its separate accounts and the
underlying mutual funds. The amount of the fee income received is
based upon the daily market value of the separate account and mutual
fund assets. As a result, the Company's fee income could be impacted
significantly by changing economic conditions in the equity market.
The Company entered into index option collars (combination of puts and
calls) to hedge anticipated fee income for 1998 related to separate
accounts and mutual funds which invest in equity securities. Testing
has demonstrated the impact of these instruments on the income
statement closely correlates with the amount of fee income the Company
realizes. In the event that testing demonstrates that this correlation
no longer exists, or in the event the Company disposes of the index
options collars, the instruments will be marked-to-market through the
income statement. At December 31, 1997, deferred gains on purchased
put index options were $11,120 and deferred losses on written call
index options were $8,273.
9. Fair values of financial instruments
------------------------------------
The Company discloses fair value information for most on- and
off-balance sheet financial instruments for which it is practicable to
estimate that value. Fair values of life insurance obligations and all
non-financial instruments, such as deferred acquisition costs are
excluded. Off-balance sheet intangible assets, such as the value of
the field force, are also excluded. Management believes the value of
excluded assets and liabilities is significant. The fair value of the
Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
1997 1996
------------------ ---------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- -------- ------ ------- -----
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $9,315,450 $9,743,410 $10,236,379 $10,521,650
Available for sale 12,876,694 12,876,694 11,146,845 11,146,845
Mortgage loans on
real estate (Note 2) 3,618,647 3,808,570 3,493,364 3,606,077
Other:
Equity securities (Note 2) 3,361 3,361 3,308 3,308
Derivative financial
instruments (Note 8) 37,644 31,336 18,268 11,780
Other 82,347 85,383 63,993 66,242
Cash and
cash equivalents (Note 1) 19,686 19,686 224,603 224,603
Separate account assets
(Note 1) 23,214,504 23,214,504 18,535,160 18,535,160
<PAGE>
Financial Liabilities
Future policy benefits
for fixed annuities 20,731,052 19,882,302 20,641,986 19,721,968
Derivative financial
instruments (Note 8) (8,273) (54,072) -- (24,715)
Separate account liabilities 21,488,282 20,707,620 17,358,087 16,688,519
</TABLE>
<PAGE>
9. Fair values of financial instruments (continued)
------------------------------------
At December 31, 1997 and 1996, the carrying amount and fair value of
future policy benefits for fixed annuities exclude life
insurance-related contracts carried at $1,185,155 and $1,112,155,
respectively, and policy loans of $93,540 and $83,867, respectively.
The fair value of these benefits is based on the status of the
annuities at December 31, 1997 and 1996. The fair value of deferred
annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. The fair value for annuities in
non-life contingent payout status is estimated as the present value of
projected benefit payments at rates appropriate for contracts issued in
1997 and 1996.
At December 31, 1997 and 1996, the fair value of liabilities related to
separate accounts is estimated as the carrying amount less any
applicable surrender charges and less variable insurance contracts
carried at $1,726,222 and $1,177,073, respectively.
10. Segment information
-------------------
The Company's operations consist of two business segments; first,
individual and group life insurance, disability income and long-term
care insurance, and second, annuity products designed for individuals,
pension plans, small businesses and employer-sponsored groups. The
consolidated condensed statements of income for the years ended
December 31, 1997, 1996 and 1995 and total assets at December 31, 1997,
1996 and 1995 by segment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net investment income:
Life, disability income
and long-term care insurance $ 269,874 $ 262,998 $ 256,242
Annuities 1,718,515 1,702,364 1,651,067
--------- --------- ---------
$ 1,988,389 $ 1,965,362 $ 1,907,309
========= ========= =========
Premiums, charges and fees:
Life, disability income
and long-term care insurance $ 514,838 $ 448,389 $ 384,008
Annuities 374,274 308,873 249,557
------- ------- -------
$ 889,112 $ 757,262 $ 633,565
======= ======= =======
Income before income taxes:
Life, disability income
and long-term care insurance $ 178,717 $ 161,115 $ 125,402
Annuities 501,334 460,758 440,278
Net gain (loss) on investments 860 (159) (4,898)
------- ------- -------
$ 680,911 $ 621,714 $ 560,782
======= ======= =======
<PAGE>
Total assets:
Life, disability income
and long-term care insurance $ 8,193,796 $ 7,028,906 $ 6,195,870
Annuities 44,780,328 40,277,075 36,704,208
---------- ---------- ----------
$52,974,124 $47,305,981 $42,900,078
========== ========== ==========
</TABLE>
<PAGE>
Allocations of net investment income and certain general expenses are
based on various assumptions and estimates.
Assets are not individually identifiable by segment and have been
allocated principally based on the amount of future policy benefits by
segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
11. Year 2000 Issue (unaudited)
---------------
The Year 2000 issue is the result of computer programs having been
written using two digits rather than four to define a year. Any
programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than 2000. This could result in the failure of
major systems or miscalculations, which could have a material impact on
the operations of the Company. All of the systems used by the Company are
maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with
systems of third parties.
A comprehensive review of AEFC's computer systems and business
processes, including those specific to the Company, has been conducted to
identify the major systems that could be affected by the Year 2000
issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis.
AEFC's goal is to complete internal remediation and testing of each
system by the end of 1998 and to continue compliance efforts through
1999.
AEFC is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's
operations. The potential materiality of any such impact is not known at
this time.
<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 IDS Life Insurance Company requires IDS Life
Insurance Company to indemnify directors and officers to the extent
indemnification is permitted as stated by the preceding paragraph, and contains
substantially the same language as the above-mentioned Section 300.083.
Article IX, paragraph (2), of the By-laws of IDS Life Insurance Company
provides as follows:
Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party, by reason of the fact that he is or
was a director, officer, employee or agent of this Corporation, or is or was
serving at the direction of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to any threatened, pending or completed action, suit or proceeding,
wherever brought, to the fullest extent permitted by the laws of the State of
Minnesota, as now existing or hereafter amended, provided that this Article
shall not indemnify or protect any such director, officer, employee or agent
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of his duties or by reason of his reckless
disregard of his obligations and duties.
The parent company of IDS Life Insurance Company maintains an insurance
policy which affords liability coverage to directors and officers of IDS Life
Insurance Company while acting in that capacity. IDS Life Insurance Company pays
its proportionate share of the premiums for the policy.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1. - 2. Not applicable.
3.1 Copy of Certificate of Incorporation of IDS Life Insuranc
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 Non-tax qualified Group Annuity Contract, Form
33111, filed electronically as Exhibit 4.1 to Registratio
Statement No. 333-42793 is incorporated herein by
reference.
4.2 Copy of Non-tax qualified Group Annuity Certificate,
Form 33114, filed electronically as Exhibit 4.2 to
Registration Statement No. 333-42793 is incorporated
herein by reference.
4.3 Copy of Tax qualified Group Annuity Contract, Form 33112,
filed electronically as Exhibit 4.3 to Registration
Statement No. 333-42793 is incorporated herein by
reference.
<PAGE>
4.4 Copy of Tax qualified Group Annuity Certificate, Form
33115, filed electronically as Exhibit 4.4 to Registration
Statement No. 333-42793 is incorporated herein by
reference.
4.5 Copy of Group IRA Annuity Contract, Form 33113, filed
electronically as Exhibit 4.5 to Registration Statement
No. 333-42793 is incorporated herein by reference.
4.6 Copy of Group IRA Annuity Certificate, Form 33116, filed
electronically as Exhibit 4.6 to Registration Statement
No. 333-42793 is incorporated herein by reference.
5. Copy of Opinion of Counsel regarding legality of
Contracts, filed electronically herewith.
6. - 20. Not applicable.
21. 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.
22. Not applicable.
23. Consent of Independent Auditors, filed electronically
herewith.
24.1 Power of Attorney, dated August 19, 1997, filed
electronically as Exhibit 25 to Registration Statement
No. 333-42793 is incorporated herein by reference.
24.2 Power of Attorney, dated April 9, 1998, filed
electronically herewith.
25. - 27. Not applicable.
(b) Financial Statement Schedules
Schedule I - Consolidated Summary of Investments Other than
Investments in Related Parties
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Report of Independent Auditors dated February 5, 1998.
All other schedules to the consolidated financial statements required
by Article 7 of Regulation S-X are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
<PAGE>
Item 17. Undertakings
A. The Registrant undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effectiveamendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information se
forth in the Registration Statement,
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement,
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shal
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, and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. The Registrant represents that it is relying upon the no-action
assurance given to the American Council of Life Insurance (pub. avail.
Nov. 28, 1988). Further, the Registrant represents that it has complied
with the provisions of paragraphs (1) - (4) of the no-action letter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in this City of Minneapolis, and
State of Minnesota on the 14th day of April, 1998.
IDS Life Insurance Company
(Registrant)
By /s/ James A. Mitchell*
James A. Mitchell, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities indicated on the 14th day of April, 1998.
Signature Title
/s/ James A. Mitchell* Chairman of the Board
James A. Mitchell and Chief Executive Officer
/s/ Richard W. Kling* Director and President
Richard W. Kling
/s/ Jeffrey S. Horton** Vice President and Treasurer
Jeffrey S. Horton
/s/ David R. Hubers* Director
David R. Hubers
/s/ Paul F. Kolkman* Director and Executive Vice President
Paul F. Kolkman
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President, Assured Assets
/s/ Philip C. Wentzel** Vice President and Controller
Philip C. Wentzel
*Signed pursuant to Power of Attorney dated August 19, 1997, filed
electronically as Exhibit 25 to Registration Statement No. 333-42793 for
IDS Life Insurance Company (IDS Life Account MGA).
**Signed pursuant to Power of Attorney dated April 9, 1998, filed
electronically herewith as Exhibit 24.2 for IDS Life Insurance Company (IDS
Life Account MGA).
By:
___________________________________
Bruce A. Kohn
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the financial statements of IDS Life Insurance Company as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 and have issued our report thereon dated February 5, 1998
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedules listed in the index of financial statement
schedules of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statements 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
February 5, 1998
Minneapolis, Minnesota
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE I - CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ thousands)
AS OF DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
Type of Investment Cost Value Amount at which
shown in the
balance sheet
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity:
United States Government and
government agencies and
authorities (a) $ 1,829,112 $ 1,846,833 $ 1,829,112
States, municipalities and
political subdivisions 9,684 10,252 9,684
All other corporate bonds (b) 7,476,654 7,886,325 7,476,654
------------ ---------- ----------
Total held to maturity 9,315,450 9,743,410 9,315,450
Available for sale:
United States Government and
government agencies and
authorities (c) 6,798,425 6,944,942 6,944,942
States, municipalities and
political subdivisions 11,045 12,393 12,393
All other corporate bonds (d) 5,705,560 5,919,359 5,919,359
------------ ---------- ----------
Total available for sale 12,515,030 12,876,694 12,876,694
Mortgage loans on real estate 3,618,647 XXXXXXXXX 3,618,647
Policy loans 498,874 XXXXXXXXX 498,874
Other investments 318,591 XXXXXXXXX 318,591
------------ ----------
Total investments $ 26,266,592 $ XXXXXXXXX $ 26,628,256
============ ========== ==========
(a) - Includes mortgage-backed securities with a cost and market value of $1,787,180 and $1,801,952,
respectively.
(b) - Includes mortgage-backed securities with a cost and market value of $196,008 and $199,301,
respectively.
(c) - Includes mortgage-backed securities with a cost and market value of $6,733,134 and $6,875,498,
respectively.
(d) - Includes mortgage-backed securities with a cost and market value of $397,431 and $408,667,
respectively.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($
thousands)
FOR THE YEAR ENDED DECEMBER 31, 1997
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,453,441 $ 22,009,747 $ - $ 35,007 $ - $1,718,515 $ 1,720 $229,729 $262,680 N/A
Life, DI, and
Long-term Care
Insurance 1,026,136 4,027,289 - 33,338 206,494 269,874 209,955 93,002 13,916 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 2,479,577 $ 26,037,036 $ - $ 68,345 $ 206,494 $ 1,988,389 $ 211,675 $322,731 $276,596 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1996
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Gross amount Ceded to other Assumed from Net % of amount
companies other companies Amount assumed to net
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Life insurance in force $ 73,119,122 $ 4,351,904 $ 1,611,596 $ 70,378,814 2.29%
- -------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 55,094 $ 3,124 $ 503 $ 52,473 0.96%
DI & LTC insurance 196,799 42,778 -- 154,021 0.00%
- -------------------------------------------------------------------------------------------
Total premiums $ 251,893 $ 45,902 $ 503 $ 206,494 0.24%
- -------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
---------
Balance at Charged to
Description Beginning Charged to Other Accounts- Deductions- Balance at End
of Period Costs & Expenses Describe Describe * of Period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
- ----------------------------
Reserve for Mortgage Loans $37,495 $8,801 $0 $7,651 $38,645
Reserve for Other Investments $3,963 $2,100 $0 $0 $6,063
For the year ended
December 31, 1996
- ----------------------------
Reserve for Mortgage Loans $37,340 $10,005 $0 $9,850 $37,495
Reserve for Other Investments $4,713 ($750) $0 $0 $3,963
For the year ended
December 31, 1995
- ----------------------------
Reserve for Mortgage Loans $35,252 $15,900 $0 $13,812 $37,340
Reserve for Other Investments $7,515 ($2,802) $0 $0 $4,713
* 1997, 1996 and 1995 amounts represent $7,651, $9,850, and $13,812, respectively, for loan
payoffs and foreclosures.
</TABLE>
IDS LIFE INSURANCE COMPANY
IDS LIFE ACCOUNT MGA
PORTFOLIO GUARANTEED TERM ANNUITY
EXHIBIT INDEX
EXHIBIT 5: OPINION OF COUNSEL
EXHIBIT 23: CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 24.2 POWER OF ATTORNEY, DATED APRIL 9, 1998
April 14, 1998
IDS Life Insurance Company
IDS Tower 10
Minneapolis, Minnesota 55440-0010
RE: Registration Statement on Form S-1
File No. 333-42793
Ladies and Gentlemen:
I am familiar with the establishment of IDS Life Account MGA (the "Account"), a
non-unitized separate account of IDS Life Insurance Company (the "Company"),
established by the Company's Board of Directors according to applicable
insurance law. I also am familiar with the above-referenced Registration
Statement filed by the Company on behalf of the Account with the Securities and
Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do
business in each jurisdiction where it transacts business. The Company
has all corporate powers required to carry on its business and to issue
the contracts.
2. The Account validly exists pursuant to Minnesota law.
3. The contracts, when issued, offered and sold in accordance with the
prospectus contained in the Registration Statement and in compliance
with applicable law, will be legally issued and represent binding
obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
_______________________________________________
William A. Stoltzmann
Vice President, General Counsel and Secretary
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 5, 1998 with respect to the consolidated
financial statements and schedules of IDS Life Insurance Company included in
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-1, No.
333-42793) and related Prospectus of IDS Life Account MGA for the registration
of market value adjusted annuity contract interests to be offered by IDS Life
Insurance Company.
Ernst & Young LLP
Minneapolis, Minnesota
April 14, 1998
IDS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as principal financial officer and controller,
respectively, 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>
<S> <C> <C>
1933 Act 1940 Act
Reg. Number Reg. Number
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 Insurance Company
Portfolio Guaranteed Term Annuity 333-42793 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
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 his attorney-in-fact and agent, to sign for him in
his name, place and stead any and all filings, applications (including
applications for exemptive relief), periodic reports, registration statements
for existing or future products of existing separate accounts (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 9th day of April, 1998.
/s/ Jeffrey S. Horton April 8, 1998
- ------------------------------------
Jeffrey S. Horton
Vice President, Treasurer
and Assistant Secretary
/s/ Philip C. Wentzel April 9, 1998
- ------------------------------------
Philip C. Wentzel
Vice President and Controller
