SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
POST EFFECTIVE AMENDMENT NO. 9
TO REGISTRATION STATEMENT NO. 33-48701
Under
The Securities Act of 1933
IDS Life Insurance Company
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(Exact name of registrant as specified in charter)
Minnesota
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(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
41-0823832
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(I.R.S. Employer Identification No.)
200 AXP Financial Center, Minneapolis, MN 55474
(612) 671-3131
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Mary Ellyn Minenko, Counsel
IDS Life Insurance Company
200 AXP Financial Center, Minneapolis, Minnesota 55474
(612) 671-3678
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
It is proposed that this filing become effective on May 1, 2000.
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]
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
<S> <C> <C> <C> <C>
- ------------------------------------- ----------------- ------------------------ ----------------------- -------------------
Proposed maximum
Title of each class of securities Amount to be Proposed maximum aggregate offering Amount of
to be registered registered offering price per unit price registration fee
- ------------------------------------- ----------------- ------------------------ ----------------------- -------------------
Interests in the Fixed Account of N/A
the Group, Unallocated Deferred
Combination Fixed/Variable Annuity
Contracts for Qualified Retirement
Plans
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
Registration Statement on Form S-1
Cross-Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
Form S-1 Item Number and Caption Located 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
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................................Summary or, as to ratio of
earnings to fixed charges,
Not Applicable
4. Use of Proceeds................................The variable accounts;
The fixed account
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.....The variable accounts;
The fixed account
10. Interests of Named Experts and Counsel.........Not Applicable
11. Information with Respect to the Registrant.....About IDS Life; Additional
Information about IDS Life
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................................See Item 14 in Part II
<PAGE>
PART I.
INFORMATION REQUIRED IN PROSPECTUS
Attached is the Prospectus dated May 1, 2000.
<PAGE>
<PAGE>
IDS LIFE
GROUP
VARIABLE ANNUITY
CONTRACT
PROSPECTUS
MAY 1, 2000
GROUP, UNALLOCATED DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
NEW GROUP VARIABLE ANNUITY CONTRACTS ARE NOT CURRENTLY BEING OFFERED.
IDS LIFE ACCOUNTS F, IZ, JZ, G, H, N, KZ, LZ AND MZ
ISSUED BY: IDS LIFE INSURANCE COMPANY (IDS LIFE)
200 AXP Financial Center
Minneapolis, MN 55474
800-862-7919
This prospectus contains information that you should know before
investing. You also will receive the American
Express-Registered Trademark- Variable Portfolio Funds prospectus.
Please read the prospectuses carefully and keep them for future
reference. This contract is designed to fund employer group retirement
plans that qualify as retirement programs under Sections 401
(including 401 (k)) and 457 of the Internal Revenue Code of 1986, as
amended (the Code).
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL
INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THIS CONTRACT INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information (SAI), dated the same date as
this prospectus, is incorporated by reference into this prospectus. It
is filed with the SEC, and is available without charge by contacting
IDS Life at the telephone number above or by completing and sending
the order form on the last page of this prospectus. The table of
contents of the SAI is on the last page of this prospectus.
<PAGE>
TABLE OF CONTENTS
KEY TERMS.................................... 3
THE CONTRACT IN BRIEF........................ 4
EXPENSE SUMMARY.............................. 6
CONDENSED FINANCIAL INFORMATION
(UNAUDITED)................................ 8
FINANCIAL STATEMENTS......................... 9
PERFORMANCE INFORMATION...................... 10
THE VARIABLE ACCOUNTS AND THE FUNDS.......... 11
THE FIXED ACCOUNT............................ 12
BUYING THE CONTRACT.......................... 12
CHARGES...................................... 13
VALUING THE INVESTMENT....................... 15
WITHDRAWALS, LOANS AND CONVERSIONS........... 16
CONTRACT TRANSFER, MARKET VALUE ADJUSTMENT
AND CONTRACT TERMINATION................... 18
CHANGING OWNERSHIP........................... 21
THE ANNUITY PAYOUT PERIOD.................... 21
TAXES........................................ 22
VOTING RIGHTS................................ 24
OTHER CONTRACTUAL PROVISIONS................. 24
RECORDKEEPING SERVICES....................... 25
ABOUT THE SERVICE PROVIDERS.................. 25
ADDITIONAL INFORMATION ABOUT IDS LIFE........ 26
DIRECTORS AND EXECUTIVE OFFICERS............. 32
EXPERTS...................................... 34
IDS LIFE INSURANCE COMPANY FINANCIAL
INFORMATION................................ F-1
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION..................... 35
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2 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT.
ACCUMULATION UNIT: A measure of the value of each variable account before
annuity payouts begin.
ANNUITY PAYOUTS: A fixed amount paid at regular intervals.
CLOSE OF BUSINESS: When the New York Stock Exchange (NYSE) closes, normally
4:00 p.m. Eastern time.
CONTRACT: A deferred annuity contract that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
CONTRACT ANNIVERSARY: An anniversary of the effective date of this contract.
CONTRACT VALUE: The total value of your contract before we deduct any applicable
charges.
CONTRACT YEAR: A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
FIXED ACCOUNT: An account to which you may allocate purchase payments. Amounts
you allocate to this account earn interest at rates that we declare
periodically.
FUNDS: Investment options under your contract. You may allocate your purchase
payments into variable accounts investing in shares of any or all of these
funds.
OWNER (YOU, YOUR): The plan sponsor or trustee of the Plan.
PARTICIPANT: An eligible employee or other person who is entitled to benefits
under the Plan.
PLAN: The retirement plan under which the contract is issued and which meets the
requirements of Code Sections 401 (including 401(k)) or 457. The contract will
not provide any necessary or additional tax deferral if it is used to fund a
retirement plan that is already tax-deferred.
RETIREMENT DATE: The date when annuity payouts are scheduled to begin.
VALUATION DATE: Any normal business day, Monday through Friday, that the NYSE is
open. Each valuation date ends at the close of business. We calculate the value
of each variable account at the close of business on each valuation date.
VARIABLE ACCOUNTS: Separate accounts to which you may allocate purchase
payments; each invests in shares of one fund. The value of your investment in
each variable account changes with the performance of the particular fund.
WITHDRAWAL CHARGE: A deferred sales charge that we may apply if the you take a
total or partial withdrawal or you transfer or terminate the contract.
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PROSPECTUS -- MAY 1, 2000 3
<PAGE>
THE CONTRACT IN BRIEF
PURPOSE: The contract is designed to fund employer group retirement plans that
meet the requirements of Code sections 401 (including 401(k)) and 457. The
contract provides for the accumulation of values on a fixed and/or variable
basis. Beginining at a specified time in the future called the retirement date,
the contract provides lifetime or other forms of payout of your contract value
on a fixed basis.
The contract does not provide any necessary or additional tax-deferral because
it is used to fund retirement plans that are tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
ACCOUNTS: Currently, the owner may elect to accumulate contract values in any or
all of:
- - the variable accounts, each of which invests in a fund with a particular
investment objective. The value of each variable account varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total purchase
payments allocated to the variable accounts. (p. 11)
- - the fixed account, which earns interest at a rate that we adjust periodically.
(p. 12)
BUYING THE CONTRACT: A sales representative will help you complete and submit an
application. Applications are subject to acceptance at our office. Generally,
purchase payments may be made annually, semiannually, quarterly or monthly or
any other frequency we accept. (p. 12)
WITHDRAWALS, LOANS AND CONVERSIONS: You may withdraw all or part of the
contract's value at any time. Withdrawals may be subject to charges and IRS
penalty taxes and may have tax consequences. Total withdrawals may be subject to
a market value adjustment. (p. 16)
You also may request a withdrawal for the purpose of funding loans for
participants. A withdrawal for a loan is not subject to withdrawal charges.
However, we reserve the right to deduct withdrawal charges from the remaining
contract value if there are any unpaid loans at the time of a total withdrawal,
contract transfer or termination. (p. 17)
If a participant terminates employment, you may direct us to withdraw a part of
the contract value so that the participant can purchase an individual deferred
annuity from us. Withdrawal charges will not apply at the time of withdrawal for
this conversion. (p. 17)
CONTRACT TRANSFER, MARKET VALUE ADJUSTMENT AND CONTRACT TERMINATION: Subject to
certain restrictions, you currently may redistribute money among accounts
without charge at any time while the contract is in force. (p. 18)
You may direct us to withdraw the total contract value and transfer that value
to another funding agent. (p. 18)
If the value of the fixed account is canceled due to total withdrawal, contract
transfer or contract termination, we may impose a market value adjustment in
addition to applicable contract charges. The amount of the market value
adjustment approximates the gain or loss resulting from our sale of assets we
purchased with the purchase payments. (p. 19)
Under certain circumstances, we may terminate the contract. (p. 21)
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4 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
Prohibited investments: You will not offer under the plan any of the following
funding vehicles to which future contributions may be made:
- - guaranteed investment contracts;
- - bank investment contracts;
- - annuity contracts with fixed and/or variable accounts; or
- - funding vehicles providing a guarantee of principal. (p. 21)
ANNUITY PAYOUTS: You can direct us to begin retirement payouts to a payee under
an annuity payout plan that begins on the participant's retirement date. You may
choose from a variety of plans, or we may agree to other payout arrangements.
The annuity payout plan you select must meet the requirements of the plan.
Payouts will be made on a fixed basis. (p. 21)
TAXES: Generally there is no federal income tax to participants on contributions
made to the contract or on increases in the contract's value until distributions
are made (under certain circumstances, IRS penalty taxes and other tax
consequences may apply). (p. 22)
CHARGES: We assess certain charges in connection with your contract (p.13):
- - $125 quarterly ($500 annual) contract administrative charge;
- - 1.00% mortality and expense risk fee (if you allocate money to one or more
variable accounts);
- - withdrawal charge; and
- - the operating expenses of the fund in which variable accounts invest.
CHANGING OWNERSHIP: In general, ownership of the contract may not be
transferred. (p. 21)
RECORDKEEPER: We must approve any person or entity authorized by you to
administer recordkeeping services for the plan and participants (p. 25)
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PROSPECTUS -- MAY 1, 2000 5
<PAGE>
EXPENSE SUMMARY
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the variable accounts
and funds below. Some expenses may vary as we explain under "Charges." Please
see the fund prospectuses for more information on the operating expenses for
each fund.
CONTRACT OWNER EXPENSES
WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of purchase
payment withdrawn)
<TABLE>
<CAPTION>
WITHDRAWAL CHARGE
CONTRACT YEAR PERCENTAGE
<S> <C>
1 6%
2 6
3 5
4 4
5 3
6 2
7 1
8 and later 0
</TABLE>
In no event will the withdrawal charges exceed 8.5% of aggregate purchase
payments.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE $500 ($125 per quarter)
ANNUAL VARIABLE ACCOUNT EXPENSES
(as a percentage of average variable account value):
MORTALITY AND EXPENSE RISK FEE 1%
ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER
FEES FEES EXPENSES TOTAL(1)
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Bond Fund .60% .13 .08 .81%
Capital Resource Fund .60% .13 .06 .79%
Cash Management Fund .51% .13 .05 .69%
Extra Income Fund .62% .13 .08 .83%
Global Bond Fund .84% .13 .12 1.09%
International Fund .83% .13 .11 1.07%
Managed Fund .59% .13 .04 .76%
New Dimensions Fund-Registered Trademark- .61% .13 .07 .81%
Strategy Aggressive Fund .60% .13 .07 .80%
</TABLE>
(1) The Fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999, restated to include a 12b-1 distribution fee of .125%
that went into effect Sept. 21, 1999.
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6 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return and...
<TABLE>
<CAPTION>
TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF
END OF EACH TIME PERIOD AN ANNUITY PAYOUT PLAN AT
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Bond Fund $79.44 $110.13 $133.35 $223.48 $19.44 $60.13 $103.35 $223.48
Capital Resource Fund 79.24 109.51 132.30 221.33 19.24 59.51 102.30 221.33
Cash Management Fund 78.21 106.40 127.05 210.53 18.21 56.40 97.05 210.53
Extra Income Fund 79.65 110.75 134.39 225.62 19.65 60.75 104.39 225.62
Global Bond Fund 82.31 118.81 147.92 253.10 22.31 68.81 117.92 253.10
International Fund 82.11 118.19 146.89 251.01 22.11 68.19 116.89 251.01
Managed Fund 78.93 108.58 130.73 218.10 18.93 58.58 100.73 218.10
New Dimensions Fund-Registered Trademark- 79.44 110.13 133.35 223.48 19.44 60.13 103.35 223.48
Strategy Aggressive Fund 79.34 109.82 132.82 222.40 19.34 59.82 102.82 222.40
</TABLE>
* In this example, the $500 contract administrative charge is approximated as
a 0.087% charge based on our average contract size.
YOU SHOULD NOT CONSIDER THIS EXAMPLE AS A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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PROSPECTUS -- MAY 1, 2000 7
<PAGE>
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following tables give per-unit information about the financial history of
each variable account.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ACCOUNT G (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - BOND FUND)
Accumulation unit value
at beginning of period $5.27 $5.25 $4.86 $4.59 $3.80 $3.99 $3.48 $3.21 $2.76 $2.67
Accumulation unit value
at end of period $5.31 $5.27 $5.25 $4.86 $4.59 $3.80 $3.99 $3.48 $3.21 $2.76
Number of accumulation
units outstanding at
end of
period (000 omitted) 238,818 287,881 316,789 362,167 393,697 361,640 405,429 330,000 270,858 236,926
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNT F (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND)
Accumulation unit value
at beginning of period $10.09 $8.21 $6.67 $6.25 $4.94 $4.93 $4.82 $4.67 $3.22 $3.23
Accumulation unit value
at end of period $12.36 $10.09 $8.21 $6.67 $6.25 $4.94 $4.93 $4.82 $4.67 $3.22
Number of accumulation
units outstanding at
end of
period (000 omitted) 449,948 507,310 556,866 628,555 641,903 576,724 488,632 402,977 309,984 242,767
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNT H (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - CASH MANAGEMENT FUND)
Accumulation unit value
at beginning of period $2.56 $2.46 $2.36 $2.27 $2.18 $2.12 $2.09 $2.04 $1.95 $1.82
Accumulation unit value
at end of period $2.66 $2.56 $2.46 $2.36 $2.27 $2.18 $2.12 $2.09 $2.04 $1.95
Number of accumulation
units outstanding at
end of
period (000 omitted) 129,561 98,897 87,255 89,644 102,568 84,475 74,935 102,277 126,489 139,005
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Simple yield(1) 5.01% 3.71% 4.10% 3.77% 3.97% 4.16% 1.89% 1.76% 3.26% 6.25%
Compound yield(1) 5.14% 3.78% 4.18% 3.84% 4.05% 4.24% 1.90% 1.77% 3.31% 6.44%
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNT LZ(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - EXTRA INCOME FUND)
Accumulation unit value
at beginning of period $1.12 $1.18 $1.05 $1.00 -- -- -- -- -- --
Accumulation unit value
at end of period $1.17 $1.12 $1.18 $1.05 -- -- -- -- -- --
Number of accumulation
units outstanding at
end of
period (000 omitted) 218,583 228,165 175,024 59,939 -- -- -- -- -- --
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNT KZ(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - GLOBAL BOND FUND)
Accumulation unit value
at beginning of period $1.18 $1.10 $1.07 $1.00 -- -- -- -- -- --
Accumulation unit value
at end of period $1.12 $1.18 $1.10 $1.07 -- -- -- -- -- --
Number of accumulation
units outstanding at
end of
period (000 omitted) 70,499 78,150 65,609 24,878 -- -- -- -- -- --
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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8 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ACCOUNT IZ(3) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - INTERNATIONAL FUND)
Accumulation unit value
at beginning of period $1.74 $1.52 $1.49 $1.38 $1.25 $1.29 $0.98 $1.00 -- --
Accumulation unit value $2.51 $1.74 $1.52 $1.49 $1.38 $1.25 $1.29 $0.98 -- --
Number of accumulation
units outstanding at
end of period (000
omitted) 898,715 1,042,405 1,168,353 1,220,486 1,088,874 913,364 405,536 69,874 -- --
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% -- --
- ----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT N (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - MANAGED FUND)
Accumulation unit value
at beginning of period $4.03 $3.51 $2.97 $2.56 $2.09 $2.21 $1.98 $1.86 $1.45 $1.42
Accumulation unit value
at end of period $4.58 $4.03 $3.51 $2.97 $2.56 $2.09 $2.21 $1.98 $1.86 $1.45
Number of accumulation
units outstanding at
end of period (000
omitted) 986,013 1,100,357 1,178,735 1,197,162 1,212,021 1,127,834 910,254 650,797 496,554 400,961
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT MZ(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-REGISTERED TRADEMARK-)
Accumulation unit value
at beginning of period $1.74 $1.37 $1.11 $1.00 -- -- -- -- -- --
Accumulation unit value
at end of period $2.27 $1.74 $1.37 $1.11 -- -- -- -- -- --
Number of accumulation
units outstanding at
end of period (000
omitted) 1,188,480 1,001,826 831,259 350,598 -- -- -- -- -- --
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT JZ(3) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - STRATEGY AGGRESSIVE FUND)
Accumulation unit value
at beginning of period $1.91 $1.88 $1.68 $1.46 $1.12 $1.21 $1.08 $1.00 -- --
Accumulation unit value
at end of period $3.24 $1.91 $1.88 $1.68 $1.46 $1.12 $1.21 $1.08 -- --
Number of accumulation
units outstanding at
end of period (000
omitted) 927,190 1,087,314 1,168,829 1,172,793 1,007,976 780,423 347,336 115,574 -- --
Ratio of operating
expense to average net
assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% -- --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of annual contract administrative charge and mortality and expense risk
fee.
(2) Operations commenced on May 1, 1996.
(3) Operations commenced on Jan. 13, 1992.
FINANCIAL STATEMENTS
You can find the audited financial statements of the variable accounts in the
SAI. You can find our audited financial statements later in this prospectus.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 9
<PAGE>
PERFORMANCE INFORMATION
Performance information for the variable accounts may appear from time to time
in advertisements or sales literature. This information reflects the performance
of a hypothetical investment in a particular variable account during a specified
time period. Although we base performance figures on historical earnings, past
performance does not guarantee future results.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including:
- - contract administrative charge,
- - mortality and expense risk fee, and
- - withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
We also show optional total return quotations that do not reflect a withdrawal
charge deduction (assuming no withdrawal). We may show total return quotations
by means of schedules, charts or graphs.
AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the variable account if it is less than ten years old).
CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return will generally be higher than average annual
total return.
ANNUALIZED SIMPLE YIELD (FOR VARIABLE ACCOUNTS INVESTING IN MONEY MARKET
FUNDS) "annualizes" the income generated by the investment over a given
seven-day period. That is, we assume the amount of income generated by the
investment during the period will be generated each seven-day period for a year.
We show this as a percentage of the investment.
ANNUALIZED COMPOUND YIELD (FOR VARIABLE ACCOUNTS INVESTING IN MONEY MARKET
FUNDS) is calculated like simple yield except that we assume the income is
reinvested when we annualize it. Compound yield will be higher than the simple
yield because of the compounding effect of the assumed reinvestment.
ANNUALIZED YIELD (FOR VARIABLE ACCOUNTS INVESTING IN INCOME FUNDS) divides the
net investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
variable account invests and the market conditions during the specified time
period. Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare variable account
performance to that of mutual funds that sell their shares directly to the
public. (See the SAI for a further description of methods used to determine
total return and yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
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10 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
THE VARIABLE ACCOUNTS AND THE FUNDS
You may allocate payments to any or all of the variable accounts that invest in
shares of the following funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
IDS LIFE
ACCOUNT ESTABLISHED INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
G 05/13/81 AXP(SM) Variable Portfolio - Bond Objective: high level of current IDS Life Insurance Company (IDS Life),
Fund income while conserving the value investment manager; American Express
of the investment and continuing a Financial Corporation (AEFC),
high level of income for the investment advisor.
longest time period. Invests
primarily in bonds and other debt
obligations.
- ------------------------------------------------------------------------------------------------------------------------------------
F 05/13/81 AXP(SM) Variable Portfolio - Objective: capital appreciation. IDS Life, investment manager; AEFC
Capital Resource Fund Invests primarily in U.S. common investment advisor.
stocks and other securities
convertible into common stocks.
- ------------------------------------------------------------------------------------------------------------------------------------
H 05/13/81 AXP(SM) Variable Portfolio - Cash Objective: maximum current income IDS Life, investment manager; AEFC
Management Fund consistent with liquidity and investment advisor.
conservation of capital. Invests
in money market securities.
- ------------------------------------------------------------------------------------------------------------------------------------
LZ 04/02/96 AXP(SM) Variable Portfolio - Objective: high current income, IDS Life, investment manager; AEFC
Extra Income Fund with capital growth as a secondary investment advisor.
objective. Invests primarily
high-yielding, high-risk corporate
bonds issued by U.S. and foreign
companies and governments.
- ------------------------------------------------------------------------------------------------------------------------------------
KZ 04/02/96 AXP(SM) Variable Portfolio - Objective: high total return IDS Life, investment manager; AEFC
Global Bond Fund through income and growth of investment advisor.
capital non-diversified mutual
fund that invests primarily in
debt obligations of U.S. and
foreign issuers.
- ------------------------------------------------------------------------------------------------------------------------------------
IZ 09/20/91 AXP(SM) Variable Portfolio - Objective: capital appreciation. IDS Life, investment manager; AEFC
International Fund Invests primarily in common stocks investment advisor. American Express
or convertible securities of Asset Management International, Inc.,
foreign issuers that offer growth a wholly-owned subsidiary of AEFC, is
potential. the sub-investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------------
N 04/17/85 AXP(SM) Variable Portfolio - Objective: maximum total IDS Life, investment manager; AEFC
Managed Fund investment return through a investment advisor.
combination of capital growth and
current income. Invests primarily
in a combination of common and
preferred stocks, convertible
securities, bonds and other debt
securities.
- ------------------------------------------------------------------------------------------------------------------------------------
MZ 04/02/96 AXP(SM) Variable Portfolio - New Objective: long-term growth of IDS Life, investment manager; AEFC
Dimensions capital. Invests primarily in investment advisor.
Fund-Registered Trademark- common stocks of U.S. and foreign
companies showing potential for
significant growth.
- ------------------------------------------------------------------------------------------------------------------------------------
JZ 09/20/91 AXP(SM) Variable Portfolio - Objective: capital appreciation. IDS Life, investment manager; AEFC
Strategy Aggressive Fund Invests primarily in common stocks investment advisor.
of small-and medium-sized
companies.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that the investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results, and those
results may differ significantly from other funds with similar investment
objectives and policies.
The investment manager and advisor cannot guarantee that the funds will meet
their investment objectives. Please read the fund prospectus for facts you
should know before investing. The fund prospectus is also available by
contacting us at the address or telephone number on the first page of this
prospectus.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 11
<PAGE>
All variable accounts were established under Minnesota law and are registered
together as a single unit investment trust under the Investment Company Act of
1940 (the 1940 Act). This registration does not involve any supervision of our
management or investment practices and policies by the SEC. All obligations
arising under the contracts are general obligations of IDS Life.
Each variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each variable account only to that variable account. State insurance law
prohibits us from charging a variable account with liabilities of any other
variable account or of our general business. Each variable account's net assets
are held in relation to the contracts described in this prospectus as well as
other contracts that we issue that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable accounts an
insurance company may offer and how many exchanges among variable accounts it
may allow before the contract owner would be currently taxed on income earned
within variable account assets. At this time, we do not know what the additional
guidance will be or when action will be taken. We reserve the right to modify
the contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the variable account assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
THE FIXED ACCOUNT
You also may allocate purchase payments to the fixed account. We back the
principal and interest guarantees relating to the fixed account. The value of
the fixed account increases as we credit interest to the account. Purchase
payments and transfers to the fixed account become part of our general account.
We credit interest daily and compound it annually. We will change the interest
rates from time to time at our discretion. These rates will be based on various
factors including, but not limited to, the interest rate environment, returns
earned on investments backing these annuities, the rates currently in effect for
new and existing company annuities, product design, competition, and the
company's revenues and expense.
In addition, a market value adjustment is imposed on the fixed account if the
owner cancels the value of the fixed account due to total withdrawal, contract
transfer or contract termination. The amount of the market value adjustment
approximates the gain or loss resulting from sale by IDS Life of assets
purchased with purchase payments. (See "Market value adjustment.")
BUYING THE CONTRACT
You can fill out an application and send it along with the initial purchase
payment to our office.
When applying, you may select:
- - the accounts in which to invest, and
- - how to make purchase payments
If your application is complete, we will process it and apply your purchase
payment to the accounts you selected within two business days after we receive
it at our office. If we accept your application, we will send you a contract. If
we cannot accept your application within five business days, we will decline it
and return your payment. We will credit additional purchase payments you
- --------------------------------------------------------------------------------
12 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
make to your accounts on the valuation date we receive them. We will value the
additional payments at the next accumulation unit value calculated after we
receive your payments at our office.
HOW TO MAKE PURCHASE PAYMENTS
1 BY LETTER
- --------------------------------------------------------------------------------
Send your check along with your name and contract number to:
IDS Life Insurance Company
70200 AXP Financial Center
Minneapolis, MN 55474
2 BY SCHEDULED PAYMENT PLAN:
- --------------------------------------------------------------------------------
A sales representative can help set up:
- - participant salary reduction
CHARGES
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $125
from the contract value at the end of each contract quarter (each three-month
period measured from the effective date of your contract). This equates to an
annual charge of $500. We prorate this charge among the variable accounts and
the fixed account in the same proportion your interest in each account bears to
your total contract value. We reserve the right to increase the contract
administrative charge in the future, but we guarantee that it will never exceed
$250 per quarter ($1,000 per year).
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to your variable accounts. The unit values of your
variable accounts reflect this fee and it totals 1% of the variable accounts'
average daily net assets on an annual basis. This fee covers the mortality risk
and expense risk that we assume. Approximately two-thirds of this amount is for
our assumption of mortality risk, and one-third is for our assumption of expense
risk. This fee does not apply to the fixed account.
Mortality risk arises because of our guarantee to make annuity payouts according
to the terms of the contract, no matter how long a specific participant lives
and no matter how long our entire group of annuitants live. If, as a group,
annuitants outlive the life expectancy we assumed in our actuarial tables, then
we must take money from our general assets to meet our obligations. If, as a
group, annuitants do not live as long as expected, we could profit from the
mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge above $1,000 per year and this charge may not cover our expenses. We
would have to make up any deficit from our general assets. We could profit from
the expense risk fee if future expenses are less than expected.
The variable accounts pay us the mortality and expense risk fee they accrued as
follows:
- - first, to the extent possible, the variable accounts pay this fee from any
dividends distributed from the funds in which they invest;
- - then, if necessary, the funds redeem shares to cover any remaining fees
payable.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 13
<PAGE>
We may use any profits we realize from the variable accounts' payment to us of
the mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
WITHDRAWAL CHARGE
If the owner withdraws part or all of the contract, a withdrawal charge may
apply. This withdrawal charge represents a percentage of the amount withdrawn as
follows:
<TABLE>
<CAPTION>
WITHDRAWAL CHARGE AS A
PERCENTAGE OF
CONTRACT YEAR AMOUNT WITHDRAWN
<S> <C>
1 6%
2 6
3 5
4 4
5 3
6 2
7 1
Thereafter 0
</TABLE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested.
In no event would your withdrawal charge exceed 8.5% of aggregate purchase
payments.
WITHDRAWAL CHARGE CALCULATION EXAMPLE:
Owner requests $1,000 partial withdrawal and the withdrawal charge is 5%:
<TABLE>
<S> <C>
$1,000 partial withdrawal/.95 =
$1,052.63
Total amount withdrawn $1,052.63
x 0.05
---------
Total withdrawal charge $ 52.63
</TABLE>
WAIVER OF WITHDRAWAL CHARGE
We do not assess withdrawal charges for withdrawals on behalf of a participant
if the participant:
- - attains age 59 1/2;
- - purchases an immediate annuity under the annuity payout plans of this contract
after separation from service;
- - retires under the plan after age 55;
- - becomes disabled (as defined by the Code);
- - dies;
- - encounters financial hardship as permitted under the plan and the Code;
- - receives a loan as requested by the owner;
- - converts contract value to an IRA or other qualified annuity offered by us as
requested by the owner.
- --------------------------------------------------------------------------------
14 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and
administrative expenses or we may perform fewer services. In such cases, we may
be able to reduce or eliminate certain contract charges. However, we expect this
to occur infrequently.
PREMIUM TAXES
Currently, there are no premium taxes under this contract. However, a charge
will be made by us against the contract value for any state and local premium
taxes to the extent the taxes are payable in connection with the purchase of a
contract under the annuity payout plans.
VALUING THE INVESTMENT
We value your accounts as follows:
FIXED ACCOUNT
We value the amounts allocated to the fixed account directly in dollars. The
fixed account value equals:
- - the sum of your purchase payments and transfer amounts allocated to the fixed
account;
- - plus interest credited;
- - minus the sum of amounts surrendered (including any applicable surrender
charges) and amounts transferred out; and
- - minus any prorated contract administrative charge.
VARIABLE ACCOUNTS
We convert amounts you allocated to the variable accounts into accumulation
units. Each time you make a purchase payment or transfer amounts into one of the
variable accounts, we credit a certain number of accumulation units to the
contract for that account. Conversely, each time the you take a partial
withdrawal, transfer amounts out of a variable account or we assess a contract
administrative charge, we subtract a certain number of accumulation units from
the contract.
The accumulation units are the true measure of investment value in each account
during the accumulation period. They are related to, but not the same as, the
net asset value of the fund in which the account invests. The dollar value of
each accumulation unit can rise or fall daily depending on the variable account
expenses, performance of the fund and on certain fund expenses. Here is how we
calculate accumulation unit values:
NUMBER OF UNITS: To calculate the number of accumulation units for a particular
account we divide your investment by the current accumulation unit value.
ACCUMULATION UNIT VALUE: The current accumulation unit value for each variable
account equals the last value times the account's current net investment factor.
WE DETERMINE THE NET INVESTMENT FACTOR BY:
- - adding the fund's current net asset value per share, plus the per share amount
of any accrued income or capital gain dividends to obtain a current adjusted
net asset value per share; then
- - dividing that sum by the previous adjusted net asset value per share; and
- - subtracting the percentage factor representing the mortality and expense risk
fee from the result.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 15
<PAGE>
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a variable
account.
FACTORS THAT AFFECT VARIABLE ACCOUNT ACCUMULATION UNITS: accumulation units may
change in two ways - in number and in value.
The number of accumulation units owned may fluctuate due to:
- - additional purchase payments you allocate to the variable accounts;
- - transfers into or out of the variable accounts;
- - partial withdrawals;
- - withdrawal charges; and/or
- - prorated portions of the contract administrative charge.
Accumulation unit values may fluctuate due to:
- - changes in funds' net asset value;
- - dividends distributed to the variable accounts;
- - capital gains or losses of funds;
- - fund operating expenses; and/or
- - mortality and expense risk fees.
WITHDRAWALS, LOANS AND CONVERSIONS
WITHDRAWAL POLICIES
- - If you request a total withdrawal, payment will equal the total contract value
less the contract administrative charge, any applicable premium tax and
withdrawal charge.
- - You or the recordkeeper must state the reason for a partial withdrawal.
- - If the contract has a balance in more than one account and you request a
partial withdrawal, we will withdraw money from all your accounts in the same
proportion as your value in each account correlates to your total contract
value, unless
requested otherwise.
- - A market value adjustment may apply to total withdrawals from the fixed
account. (See "Contract Transfer, Market Value Adjustment and Contract
Termination".)
SPECIAL WITHDRAWAL PROVISIONS
- - The rights of any person to benefits under the plans in which these contracts
are issued will be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the contract.
- - We reserve the right to defer withdrawal payments from the fixed account for a
period not to exceed six months from the date we receive the withdrawal
request.
- - Since contracts offered will be issued in connection with retirement plans you
should refer to the terms of the particular plan for any further limitations
or restrictions on withdrawals.
- --------------------------------------------------------------------------------
16 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
- - You may pay withdrawal charges (see "Charges -- Withdrawal charge") and IRS
taxes and penalties (see "Taxes").
RECEIVING WITHDRAWAL PAYMENTS
By regular or express mail:
- - payable to you.
- - mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
LOANS
You may request withdrawals to fund loans for participants. You must specify
from which accounts to make withdrawals at the time of the loan request. Loan
amounts and terms must comply with the applicable requirements of the plan and
Code. We assume no responsibility for the validity or compliance of the loan.
Withdrawals to fund loans under the plan will not be subject to withdrawal
charges when the loan is made. However, we reserve the right to deduct
withdrawal charges from the remaining contract value if there is an unpaid loan
balance at the time of a total withdrawal, contract transfer or termination (see
"Charges -- Withdrawal charge").
CONVERSION
You may transfer on the participant's behalf part of the contract value to an
individual deferred annuity contract offered by us in the event of:
- - the termination of participant's employment, or
- - other reasons which are acceptable to us and meet the requirements of the plan
and the Code.
This individual contract will qualify as an individual retirement annuity under
Section 408 or another applicable section of the Code. Withdrawal charges will
not apply at the time of conversion.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 17
<PAGE>
CONTRACT TRANSFER, MARKET VALUE ADJUSTMENT
AND CONTRACT TERMINATION
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one account to another account before annuity
payouts begin. We will process your transfer on the valuation date we receive
your request. We will value your transfer at the next accumulation unit value
calculated after we receive your request. There is no charge for transfers.
Before making a transfer, you should consider the risks involved in switching
investments.
We may suspend or modify transfer privileges at any time. Any restrictions
imposed by the plan will apply.
HOW TO REQUEST A TRANSFER OR WITHDRAWAL
You can request a transfer or withdrawal by letter or any other method we agree
to. Send the plan name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
IDS Life Insurance Company
70200 AXP Financial Center
Minneapolis, MN 55474
You may withdraw all or part of the contract value at any time. We will process
your withdrawal request on the valuation date we receive it. For total
withdrawals, we will compute the value of the contract at the next accumulation
unit value calculated after we receive your request. We may ask you to return
the contract. You may have to pay withdrawal charges (see "Charges -- Withdrawal
charge") and IRS taxes and penalties (see "Taxes").
WITHDRAWALS BY OWNER FOR TRANSFER OF FUNDS
You may direct us to withdraw the total contract value and transfer that value
to another funding agent. You will pay all applicable contract charges including
withdrawal charges, and we will deduct them from the first payout unless you
transfer the total contract value to a plan offered by us or our affiliates.
(See "Charges".)
You must provide us with a written request to make such a withdrawal. This
written request must be sent to our office and must specify the initial
withdrawal date and payee to whom the payouts are to be made.
At your option, we will pay the contract value, less any applicable charges, in
annual installments or in a lump sum as follows:
1. We may pay the contract value in five annual installments beginning on the
initial withdrawal date and then on each of the next four anniversaries of such
date as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF THEN REMAINING
INSTALLMENT PAYMENT CONTRACT VALUE BALANCE
<S> <C>
- ----------------------------------------------------
1 20%
2 25
3 33
4 50
5 100
- ----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
18 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
We will not allow additional withdrawals for benefits or other transfers of
contract values and we will not accept additional purchase payments after we
make the first withdrawal payment. We will continue to credit interest to any
contract value balance remaining after an installment payment at the interest
rate then in effect for the fixed account.
2. We may pay the contract value in a lump sum. We will base any contract value
attributable to the fixed account on market value. We will determine the market
value by applying the formula described below under "Market value adjustment."
We will make lump sum payments according to the withdrawal provisions (see
"Withdrawals, Loans and Conversions--Receiving withdrawal payments").
MARKET VALUE ADJUSTMENT
A Market Value Adjustment (MVA) applies only when we pay out the fixed account
value in a lump sum when:
- - you withdraw the total contract value to transfer that value to another
funding vehicle;
- - you make a total withdrawal of the fixed account contract value; or
- - we terminate the contract as described below. (See "Contract termination.")
We will apply the MVA to the contract value withdrawn from the fixed account
after deducting any applicable contract administrative charge and withdrawal
charge. (See "Charges.")
The MVA will reflect the relationship between the current interest rate credited
to new purchase payments allocated to the fixed account and the rate credited to
all prior purchase payments. We calculate the MVA as follows:
MVA = fixed account value X (A - B) X C
Where:
A = the weighted average interest rate (in decimal form) credited to all fixed
account purchase payments made by you at the time of termination, rounded to
four decimal places;
B = the interest rate (in decimal form) credited to new purchase payments to the
contract at the time of termination or total withdrawal, rounded to four
decimal places; and
C = the annuity factor, which represents the relationship between the contract
year and the average duration of underlying investments from the following
table:
<TABLE>
<CAPTION>
CONTRACT YEAR ANNUITY FACTOR
<S> <C>
- -----------------------------
1-3 6.0
4-6 5.0
7+ 4.0
- -----------------------------
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 19
<PAGE>
The following example shows a downward and upward MVA.
1. Assume: contract effective date of October 1, 1993
contract termination date of July 1, 1998
contract year at termination is five
<TABLE>
<CAPTION>
PURCHASE ACCUMULATION
YEAR PAYMENTS INITIAL RATE CURRENT RATE ACCOUNT VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------
1 $10,000 6.50% 6.25% $12,560
2 8,000 6.00 6.25 9,870
3 12,000 6.25 6.25 13,960
4 15,000 7.50 6.75 16,660
5 20,000 6.50 6.50 20,640
- ---------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Total accumulation account value = $ 73,690
Withdrawal charge = .03 X 73,690 = 2,211
Fixed account value = 73,690 - 2,211 = 71,479
Weighted average interest rate = 6.433%
Interest rate on new purchase payments = 6.750
MVA = $71,479 X (.06433 - .06750) X 5.0 = $(1,132.94)
Market value = 71,479 - 1,132.94 = 70,346.06
</TABLE>
2. Assume: contract effective date of January 15, 1994
contract termination date of September 20, 1996
contract year at termination is three
<TABLE>
<CAPTION>
PURCHASE ACCUMULATION
YEAR PAYMENTS INITIAL RATE CURRENT RATE ACCOUNT VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------
1 $15,000 7.00% 6.25% $17,710
2 20,000 6.50 6.00 22,140
3 25,000 5.50 5.50 25,910
- ---------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Total accumulation account value = $ 65,760
Withdrawal charge = .05 X 65,760 = 3,288
Fixed account value = 65,760 - 3,288 = 62,472
Weighted average interest rate = 5.870%
Interest rate on0 new purchase payments = 5.250
MVA = $62,472 X (.05870 - .05250) X 6 = $ 2,323.96
Market value = 62,472 + 2,323.96 = 64,795.96
</TABLE>
No MVA applies if:
- - you make a partial withdrawal of the fixed account contract value;
- - we pay you installment payments when you withdraw the total contract value and
transfer that value to another funding vehicle or we terminate the contract;
or
- - you transfer contract values from the fixed account to the variable accounts
"Transferring money between accounts."
- --------------------------------------------------------------------------------
20 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
CONTRACT TERMINATION
We reserve the right, upon at least 30 days' written notice, to declare a
contract termination date.
We may declare a contract termination date if:
- - you adopt an amendment to the plan that causes the plan to be materially
different from the original plan. (to be "materially different," the amendment
must cause a substantial change in the level of the dollar amounts of purchase
payments or contract benefits paid by us);
- - the plan fails to qualify or becomes disqualified under the appropriate
sections of the Code;
- - while the contract is in force, and prior to any withdrawal or contract
termination, you offer under the plan a prohibited investment as a funding
vehicle to which future contributions may be made (prohibited investments
include: guaranteed investment contracts, bank investment contracts, annuity
contracts with fixed and/or variable accounts, and funding vehicles providing
a guarantee of principal); or
- - you change to a recordkeeper not approved by us.
If we waive our rights to terminate the contract under any provision of this
section at any time, such waiver will not be considered a precedent and will not
prohibit us from exercising the right to terminate this contract, for the
reasons noted above, at any
future time.
PROCEDURES AT CONTRACT TERMINATION
On the contract termination date, we will withdraw any outstanding charges,
including any contract administrative charges, from the contract value. A
withdrawal charge may apply on account of any termination under this provision.
We will deduct it from the first termination payment. (See "Charges.")
At your option, we will pay the contract value in a lump sum or in annual
installment payouts according to the table under "Withdrawals by owner for
transfer of funds" above. A lump sum payout will be subject to an applicable MVA
to the fixed account value. If you do not select an option, we will pay the
contract value to you under the installment option.
CHANGING OWNERSHIP
You may not transfer ownership of the contract except to:
- - a trustee or successor trustee of a pension or profit sharing trust that is
qualified under the Code; or
- - as otherwise permitted by laws and regulations governing the plans under which
the contract is issued.
Subject to the provisions above, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan or as a security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code.
THE ANNUITY PAYOUT PERIOD
When a plan participant reaches his or her retirement date, you may select one
of the annuity payout plans outlined below or we may mutually agree on other
payout arrangements. We do not deduct any withdrawal charges under the payout
plans listed below.
We will make retirement payouts on a fixed basis under a supplemental fixed
immediate annuity in the form customarily offered by us at the time of purchase.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 21
<PAGE>
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
PLAN A -- LIFE ANNUITY -- NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the annuitant
dies after we have made only one monthly payout, we will not make any more
payouts.
PLAN B -- LIFE ANNUITY WITH FIVE, TEN OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you elect.
This election will determine the length of the payout period to the beneficiary
if the annuitant should die before the elected period expires. We calculate the
guaranteed payout period from the retirement date. If the annuitant outlives the
elected guaranteed payout period, we will continue to make payouts until the
annuitant's death.
PLAN C -- LIFE ANNUITY -- INSTALLMENT REFUND: We make monthly payouts until the
annuitant's death, with our guarantee that payouts will continue for some period
of time. We will make payouts for at least the number of months determined by
dividing the amount applied under this option by the first monthly payout,
whether or not the annuitant is living.
PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: We make monthly
payouts while both the annuitant and a joint annuitant are living. If either
annuitant dies, we will continue to make monthly payouts at the full amount
until the death of the surviving annuitant. Payouts end with the death of the
second annuitant.
PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: We make monthly payouts for a specific
payout period of ten to 30 years that you elect. We will make payouts only for
the number of years specified whether the annuitant is living or not. Depending
on the selected time period, it is foreseeable that an annuitant can outlive the
payout period selected. In addition, a 10% IRS penalty tax could apply under
this payout plan. (See "Taxes.")
RESTRICTIONS ON PAYOUT OPTIONS: Since the contract is issued in connection with
plans that meet the requirements of Code section 401 (including 401(k)) and 457,
the payout schedule must meet the applicable requirements of the particular plan
and of the Code, including the distribution and incidental death benefit
requirements. In general, the plan must provide for retirement payouts:
- - over the life of the participant;
- - over the joint lives of the participant and a designated beneficiary;
- - for a period not exceeding the life expectancy of the participant; or
- - for a period not exceeding the joint life expectancies of the participant and
a designated beneficiary.
IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of
monthly payouts at the time the immediate annuity is purchased to provide
retirement payouts. If the calculations show that monthly payouts would be less
than $20, we have the right to pay the contract value to the owner in a lump
sum.
TAXES
TAX TREATMENT OF IDS LIFE AND THE VARIABLE ACCOUNTS: We are taxed as a life
insurance company under the Code. Although the operations of the variable
accounts are accounted for separately from our other operations for purposes of
federal income taxation,
- --------------------------------------------------------------------------------
22 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
the variable accounts are not taxable as entities separate from us. Under
existing federal income tax laws, the income and capital gains of the variable
accounts, to the extent applied to increase reserves under the contracts, are
not taxable to us.
TAXATION OF ANNUITIES IN GENERAL: Generally, there is no tax to a participant on
contributions made to the contract or on any increases in the value of the
contract. However, when distribution to a participant occurs, the distribution
will be subject to taxation (except contributions that were made with after-tax
dollars).
TAX-DEFERRED RETIREMENT PLANS: This contract is used to fund tax-deferred
retirement plans that are already tax-deferred under the Code. The contract will
not provide any necessary or additional tax deferral.
PENALTIES: If participants receive amounts from the contract before reaching age
59 1/2, they may have to pay a 10% IRS penalty on the amount includable in their
ordinary income. However, this penalty will not apply to any amount received by
the participant or designated beneficiary:
- - because of the participant's death;
- - because the participant becomes disabled (as defined in the Code);
- - if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over the participant's life or life
expectancy (or joint lives or life expectancies of the participant and
designated beneficiary);
- - if the participant retires under the plan during or after the year he or she
attains age 55; or
- - if the payout is a 457 plan distribution.
Other penalties or exceptions may apply if you withdraw from the contract before
your plan specifies that payouts can be made.
MANDATORY WITHHOLDING: If the participant receives a distribution, mandatory 20%
federal income tax withholding (and possibly state income tax withholding)
generally will be imposed at the time we make the payout. Any withholding that
is done represents a prepayment of the participant's tax due for the year and
the participant will take credit for such amounts when filing an annual tax
return. This mandatory withholding will not be imposed if:
- - instead of receiving the distribution check, the participant elects to roll
the distribution over directly to an IRA or another eligible plan;
- - the payout is one in a series of substantially equal periodic payouts, made at
least annually, over the participant's life or life expectancy (or the joint
lives or life expectancies of the participant and designated beneficiary) or
over a specified period of ten years or more;
- - the payout is a minimum distribution required under the Code; or
- - the payout is a 457 plan distribution.
Payouts made to a surviving spouse instead of being directly rolled over to an
IRA may also be subject to 20% income tax withholding.
If a distribution is made to the participant 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.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 23
<PAGE>
ELECTIVE WITHHOLDING: If the distribution is not subject to mandatory
withholding as described above, the participant can elect not to have any
withholding occur. To do this the participant must provide us with a valid
Social Security Number or Taxpayer Identification Number.
If the participant does not make this election and if the payout is part of an
annuity payout plan, the amount of withholding generally is computed using
payroll tables. Please provide us with a statement of how many exemptions to use
in calculating the withholding. If the distribution is any other type of payment
(such as a partial or full withdrawal), withholding is computed using 10% of the
taxable portion.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
these laws as they are currently interpreted. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of the contract.
TAX QUALIFICATION: We intend that the contract qualify as an annuity for Federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions to the contrary. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any such amendment.
VOTING RIGHTS
You or another authorized party with investments in the variable accounts may
vote on important fund policies. We will vote fund shares according to the
instructions we receive.
The number of votes is determined by applying the percentage interest in each
variable account to the total number of votes allowed to the account.
We calculate votes separately for each account. We will send notice of these
meetings, proxy materials and a statement of the number of votes to which the
voter is entitled.
We will vote shares for which we have not received instructions in the same
proportion as the votes for which we received instructions. We also will vote
the shares for which we have voting rights in the same proportion as the votes
for which we received instructions.
OTHER CONTRACTUAL PROVISIONS
MODIFICATION
We may modify the contract upon notice to you, if such modification:
- - is necessary to make the contract or the variable accounts comply with any law
or regulation issued by a governmental agency to which we or the variable
accounts are subject;
- --------------------------------------------------------------------------------
24 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
- - is necessary to assure continued qualification of the contract under the Code
or other federal or state laws relating to retirement annuities or annuity
contracts;
- - is necessary to reflect a change in the variable accounts; or
- - provides additional accumulation options for the variable accounts.
In the event of any such modification, we may make appropriate endorsement to
the contract to reflect such modification.
PROOF OF CONDITION OR EVENT
Where any payments under the contract depend on the recipient being alive and/or
being a certain age on a given date, or depend on the occurrence of a specific
event, we may require satisfactory proof that such a condition has been met
prior to making the payment.
RECORDKEEPING SERVICES
We provide a contract to fund plans that meet the requirements of Code Sections
401 (including 401(k)) and 457. We do not provide any administrative or
recordkeeping services in connection with the Plan. We will rely on information
and/or instructions provided by the Plan administrator and/or recordkeeper in
order to properly administer the contract. For this reason, we must approve any
person or entity authorized by the owner to administer recordkeeping services
for the Plan and participants.
ABOUT THE SERVICE PROVIDERS
ISSUER AND PRINCIPAL UNDERWRITER
IDS Life issues and is the principal underwriter for the contracts. IDS Life is
a stock life insurance company organized in 1957 under the laws of the State of
Minnesota and is located at 200 AXP Financial Center, Minneapolis, MN 55474. IDS
Life conducts a conventional life insurance business.
IDS Life is a wholly-owned subsidiary of AEFC, which itself is a wholly-owned
subsidiary of American Express Company, a financial services company
headquartered in New York City. The AEFC family of companies offers not only
insurance and annuities, but also mutual funds, investment certificates, and a
broad range of financial management services. American Express Financial
Advisors Inc. (AEFA) serves individuals and businesses through its nationwide
network of more than 600 supervisory offices, more than 3,800 branch offices and
9,480 financial advisors.
IDS Life pays commissions for sales of the contracts of up to 7% of the total
purchase payments to AEFA. This revenue is used to cover distribution costs that
include compensation to advisors and field leadership for the selling advisors.
These commissions consist of a combination of time of sale and on-going
service/trail commissions (which, when totaled, could exceed 7% of purchase
payments). From time to time, IDS Life will pay or permit other promotional
incentives, in cash or credit or other compensation.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life and AEFC do business involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents and
other matters. IDS Life and AEFC, like other life and health insurers, from time
to time are involved in such litigation. On December 13, 1996, an action
entitled Lesa Benacquisto and Daniel Benacquisto vs. IDS Life Insurance Company
and American Express Financial Corporation was commenced in Minnesota state
court. The action was brought by individuals who replaced an existing IDS Life
insurance policy
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 25
<PAGE>
with a new IDS Life policy. The plaintiffs purport to represent a class
consisting of all persons who replaced existing IDS Life policies with new
policies from and after January 1, 1985. The complaint puts at issue various
alleged sales practices and misrepresentations, alleged breaches of fiduciary
duties and alleged violations of consumer fraud statutes. IDS Life and AEFC
filed an answer to the complaint on February 18, 1997, denying the allegations.
A second action, entitled Arnold Mork, Isabella Mork, Ronald Melchart and Susan
Melchart vs. IDS Life Insurance Company and American Express Financial
Corporation was commenced in the same court on March 21, 1997. In addition to
claims that are included in the Benacquisto lawsuit, the second action includes
an allegation of improper replacement of an existing IDS Life annuity contract.
A subsequent class action, Richard Thoresen and Elizabeth Thoresen vs. AEFC,
American Partners Life Insurance Company, American Enterprise Life Insurance
Company, American Centurion Life Assurance Company, IDS Life Insurance Company
and IDS Life Insurance Company of New York, was filed in the same court on
October 13, 1998 alleging that the sale of annuities in tax-deferred
contributory retirement investment plans (e.g. IRAs) was done through deceptive
marketing practices, which IDS Life denies. Plaintiffs in each of the above
actions seek damages in an unspecified amount and also seek to establish a
claims resolution facility for the determination of individual issues.
IDS Life is included as a party to preliminary settlement of all three class
action lawsuits. We believe this approach will put these cases behind us and
provide a fair outcome for our clients. Our decision to settle does not include
any admission of wrongdoing. We do not anticipate that this proposed settlement,
or any other lawsuits in which IDS Life is a defendant, will have a material
adverse effect on our financial condition.
ADDITIONAL INFORMATION ABOUT IDS LIFE
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.
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31, (THOUSANDS)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Premiums $ 255,427 $ 229,430 $ 206,494 $ 182,921 $ 161,530
Net investment income 1,919,573 1,986,485 1,988,389 1,965,362 1,907,309
Net gain (loss) on
investments 26,608 6,902 860 (159) (4,898)
Other 1,140,529 785,022 682,618 574,341 472,035
Total revenues $ 3,086,710 $ 3,007,839 $ 2,878,361 $ ,722,465 $ 2,535,976
Income before income
taxes $ 904,317 $ 775,792 $ 680,911 $ 621,714 $ 560,782
Net income $ 636,453 $ 540,111 $ 474,247 $ 414,576 $ 364,940
Total assets $64,441,538 $56,550,563 $52,974,124 $47,305,981 $42,900,078
- ------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1999 COMPARED TO 1998:
Consolidated net income increased 18 percent to $636 million in 1999, compared
to $540 million in 1998. 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 1999.
Consolidated income before income taxes totaled $904 million in 1999, compared
with $776 million in 1998.
- --------------------------------------------------------------------------------
26 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
Total premiums and investment contract deposits received increased to $5.0
billion in 1999, compared with $4.4 billion in 1998. This increase is primarily
due to an increase in variable annuity deposits in 1999.
Total revenues increased to $3.1 billion in 1999, compared with $3.0 billion in
1998. The increase is primarily due to increased policyholder and contractholder
charges and management fees. Net investment income, the largest component of
revenues, decreased slightly from the prior year, reflecting decreases in
investments owned and investment yields.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 7 percent to $412
million in 1999, compared with $384 million in 1998. This increase reflects
increased total life insurance in force, which grew 10 percent to $89 billion at
December 31, 1999.
Net realized gain on investments increased to $27 million in 1999, compared to
$7 million in 1998. The increase was primarily due to the sale of available for
sale fixed maturity investments at a gain as well as a decrease in the allowance
for mortgage loan losses based on management's regular evaluation of allowance
adequacy.
Management and other fees increased 18 percent to $473 million in 1999, compared
with $401 million in 1998. This is primarily due to an increase in separate
account assets, which grew 31 percent to $35.9 billion at December 31, 1999, due
to market appreciation and sales. The Company provides investment management
services for 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 decreased slightly to $2.2 billion in 1999. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, decreased to $1.2
billion, reflecting a decrease in fixed annuities in force. Amortization of
deferred policy acquisition costs decreased to $333 million, compared to $383
million in 1998. This decrease was due primarily to the impact of changing
prospective separate account investment performance assumptions.
Other insurance and operating expenses increased 17 percent to $335 million in
1999, compared to $287 million in 1998. This increase is primarily a result of
business growth and technology costs related to growth initiatives.
1998 COMPARED TO 1997:
Consolidated net income increased 14 percent to $540 million in 1998, compared
to $474 million in 1997. 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 1998.
Consolidated income before income taxes totaled $776 million in 1998, compared
with $681 million in 1997.
Total premiums and investment contract deposits received decreased to $4.4
billion in 1998, compared with $5.2 billion in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $3.0 billion in 1998, compared with $2.9 billion in
1997. The increase is primarily due to increased policyholder and contractholder
charges and management fees. Net investment income, the largest component of
revenues, decreased slightly from the prior year, reflecting slight decreases in
investments owned and investment yields.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 12 percent to $384
million in 1998, compared with $342 million in 1997. This increase reflects
increased total life insurance in force, which grew 8 percent to $81 billion at
December 31, 1998.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 27
<PAGE>
Management and other fees increased 18 percent to $401 million in 1998, compared
with $341 million in 1997. This is primarily due to an increase in separate
account assets, which grew 18 percent to $27.3 billion at December 31, 1998, 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 1998. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, decreased to $1.3
billion, reflecting a decrease in fixed annuities in force and lower interest
rates. Amortization of deferred policy acquisition costs increased to $383
million, compared to $323 million in 1997. This increase was due primarily to
increased aggregate amounts in force, as well as accelerating amortization to
reflect actual lapse experience on certain fixed annuities.
RISK MANAGEMENT
The sensitivity analysis of two different tests of market risk discussed below
estimates the effects of hypothetical sudden and sustained changes in the
applicable market conditions on the ensuing year's earnings based on year-end
positions. The market changes, assumed to occur as of year-end, are a 100 basis
point increase in market interest rates and a 10% decline in equity prices.
Computations of the prospective effects of hypothetical interest rate and equity
price changes are based on numerous assumptions, including relative levels of
market interest rates and equity prices, as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
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 contractholders' 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 contractholders' 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, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be approximately $11 million.
On a certain annuity product, the interest is credited to contractholders'
accounts based upon the relative change in a major stock market index between
the beginning and end of the product's term. As a means of hedging the Company's
obligation under the provisions of this product, the committee's strategy is to
purchase and write options on the major stock market index.
- --------------------------------------------------------------------------------
28 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
The amount of the fee income the Company receives is based upon the daily market
value of the separate account assets. As a result, the Company's fee income
would be negatively impacted by a decline in the equity markets. Another part of
the committee's strategy is to enter into index option collars (combination 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. The Company finances the cost of this protection through selling a
portion of the upside potential from an increasing market through written
options.
The negative effect on the Company's pretax earnings of the 10% decline in
equity prices would be approximately $45 million based on assets under
management and the index options as of December 31, 1999.
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 available lines of credit with its parent aggregating $200
million ($100 million committed and $100 million uncommitted). The line of
credit is used strictly as a short-term source of funds. Borrowings outstanding
were $50,000 uncommitted at December 31, 1999. At December 31, 1999, outstanding
reverse repurchase agreements totaled $130 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 31 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent 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 December 31, 1999, net unrealized depreciation on fixed maturities held to
maturity included $97 million of gross unrealized appreciation and $147 million
of gross unrealized depreciation. Net unrealized depreciation on fixed
maturities available for sale included $71 million of gross unrealized
appreciation and $725 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $28 million and for real estate investments totaling $nil.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted 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 adopted Statement of Position 97-3 providing
guidance
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 29
<PAGE>
when an insurer should recognize a liability for guaranty fund assessments. The
SOP is effective for fiscal years beginning after December 15, 1998. Adoption
did not have a material impact on the Company's results of operations or
financial condition.
In the first quarter of 2000, the Company paid a $70 million dividend to its
parent. In 1999, dividends paid to its parent were $350 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 December 31, 1999, 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 IDS Life and the
variable accounts. All of the major systems used by IDS Life and the variable
accounts are maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. IDS Life's and the variable accounts' businesses are heavily
dependent upon AEFC's computer systems and have significant interaction with
systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to IDS Life and the variable accounts, was conducted to
identify the major systems that could be affected by the Year 2000 issue. Steps
were taken to resolve potential problems including modification to existing
software and the purchase of new software. As of Dec. 31, 1999, AEFC had
completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC
had also completed an evaluation of the Year 2000 readiness of other third
parties whose system failures could have an impact on IDS Life's and the
variable accounts' operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on IDS Life's and the variable
accounts' business, results of operations, or financial condition as a result of
the Year 2000 issue.
REINSURANCE
The maximum amount of life insurance risk retained by IDS Life is $750,000 on
any policy insuring a single life and $1,500,000 on any policy insuring a
joint-life combination. Beginning in 1999, the Company retains only 20% of the
mortality risk on new variable universal life insurance policies. Risk not
retained is reinsured with other life insurance companies, primarily on a yearly
renewable term basis. At December 31, 1999, traditional life and universal
life-type insurance in force aggregated $89 billion, of which, $8.3 billion was
reinsured.
- --------------------------------------------------------------------------------
30 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
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
Our total investments of $24,880,849 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 15% in primary
mortgage loans on real estate and the remaining 4% 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 1,600 stock, mutual and other types of
insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health
edition, 1999, assigned IDS Life one of its highest classifications, A+
(Superior).
EMPLOYEES
As of Dec. 31, 1999, IDS Life and its subsidiaries had 315 employees; including
267 employed at the corporate office in Minneapolis, MN, 9 employed at the
American Centurion Life Assurance Company, located in Albany, NY and 39 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, AEFC. IDS Life reimburses AEFC for rent based on direct and indirect
allocation methods. Facilities occupied by IDS Life and our 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 our 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. The Company'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 the company'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.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 31
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS*
The directors and principal executive officers of IDS Life and the principal
occupation of each during the last five years is as follows:
DIRECTORS
DAVID R. HUBERS
Born in 1943
Director since September 1989; president and chief executive officer, AEFC,
since August 1993, and director since January 1984. Senior vice president,
Finance and chief financial officer, AEFC, from January 1984 to August 1993.
RICHARD W. KLING
Born in 1940
Director since February 1984; president since March 1994. Executive vice
president, Marketing and Products from January 1988 to March 1994. Senior vice
president, AEFC, since May 1994. Director of IDS Life Series Fund, Inc. and
member of the board of managers and president of IDS Life Variable Annuity Funds
A and B.
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.
PAULA R. MEYER
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from October 1997 to May 1998;
PCM Director of Marketing from June 1995 to October 1997; PCM Director of Retail
Marketing from December 1993 to June 1995.
JAMES A. MITCHELL
Born in 1941
Chairman of the board since March 1994; director since July 1984; chief
executive officer from November 1986 to March 1999; 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.
PAMELA J. MORET
Born in 1956
Director since March 2000; executive vice president -- Variable Assets since
1997; vice president -- Retail Service Group, AEFC, from 1996 to 1997; and vice
president -- Communications, AEFC, from 1993 to 1996.
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.
- --------------------------------------------------------------------------------
32 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
STUART A. SEDLACEK
Born in 1957
Director since 1994, executive vice president since 1998; executive vice
president, Assured Assets from March 1994 to 1998; senior vice president and
chief financial officer, AEFC, since 1998; vice president, AEFC, from September
1988 to 1998.
OFFICERS OTHER THAN DIRECTORS
TIMOTHY V. BECHTOLD
Born in 1953
Executive vice president, Risk Management Products since 1995; vice president,
Risk Management, AEFC since 1995; and vice president, Insurance Product
Development from 1989 to 1995.
MARK W. CARTER
Born in 1954
Executive vice president, Marketing since 1997; senior vice president and chief
marketing officer, AEFC since 1997; vice president of TVSM Inc. from 1996 to
1997; and regional vice president and general manager of ADVO Inc. from 1991 to
1996.
LORRAINE R. HART
Born in 1951
Vice president, Investments since 1992; vice president, Insurance Investments,
AEFC since 1998; and vice president, Investments, IDS Certificate Company since
1994.
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.
WILLIAM A. STOLTZMANN
Born in 1948
Vice president, general counsel and secretary since 1989; vice president and
assistant general counsel, AEFC, since November 1985.
PHILIP C. WENTZEL
Born in 1961
Vice president and controller since 1998; vice president -- Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
* The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474.
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 the most
recent year to IDS Life and its
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 33
<PAGE>
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 the most recent year.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION
<S> <C> <C>
Five most highly compensated
executive officers as a group: $ 12,688,646
James A. Mitchell Chairman of the Board
Richard W. Kling President and CEO
Stuart A. Sedlacek Executive Vice President
Barry J. Murphy Executive Vice President,
Client Services
Lorraine R. Hart Vice President, Investments
All executive officers as a group
(13) $ 16,637,116
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
IDS Life's directors and officers do not beneficially own any outstanding shares
of stock of the company. All of the outstanding shares of stock of IDS Life are
beneficially owned by its parent, AEFC. The percentage of shares of AEFC owned
by any director, and by all directors and officers of IDS Life as a group, does
not exceed 1% of the class outstanding.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of IDS Life Insurance Company at Dec. 31, 1999 and 1998, and for each
of the three years in the period ended Dec. 31, 1999, and the individual and
combined Financial Statements of the segregated assets of IDS Life Accounts G,
F, H, LZ, KZ, IZ, N, MZ, and TZ as of Dec. 31, 1999, and for each of the two
years in the period then ended, as set forth in their reports. We've included
our consolidated financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
- --------------------------------------------------------------------------------
34 IDS LIFE GROUP VARIABLE ANNUITY CONTRACT
<PAGE>
IDS LIFE INSURANCE COMPANY
FINANCIAL INFORMATION
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, 1999 and 1998, 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, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDS Life Insurance
Company at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
February 3, 2000
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-1
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, ($ THOUSANDS) 1999 1998
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value:
1999, $7,105,743; 1998, $8,420,035) $ 7,156,292 $ 7,964,114
Available for sale, at fair value
(amortized cost:
1999, $13,703,137; 1998,
$13,344,949) 13,049,549 13,613,139
- ------------------------------------------------------------------
20,205,841 21,577,253
Mortgage loans on real estate 3,606,377 3,505,458
Policy loans 561,834 525,431
Other investments 506,797 366,604
- ------------------------------------------------------------------
Total investments 24,880,849 25,974,746
Cash and cash equivalents 32,333 22,453
Amounts recoverable from reinsurers 327,168 262,260
Amounts due from brokers 145 327
Other accounts receivable 48,578 47,963
Accrued investment income 343,449 366,574
Deferred policy acquisition costs 2,665,175 2,496,352
Deferred income taxes, net 216,020 --
Other assets 33,089 30,487
Separate account assets 35,894,732 27,349,401
- ------------------------------------------------------------------
Total assets $64,441,538 $56,550,563
- ------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities $20,552,159 $21,172,303
Universal life-type insurance 3,391,203 3,343,671
Traditional life insurance 226,842 225,306
Disability income and long-term care
insurance 811,941 660,320
Policy claims and other policyholders'
funds 24,600 70,309
Deferred income taxes, net -- 16,930
Amounts due to brokers 148,112 195,406
Other liabilities 579,678 410,285
Separate account liabilities 35,894,732 27,349,401
- ------------------------------------------------------------------
Total liabilities 61,629,267 53,443,931
- ------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Capital stock, $30 par value per
share;
100,000 shares authorized, issued and
outstanding 3,000 3,000
Additional paid-in capital 288,327 288,327
Accumulated other comprehensive (loss)
income, net of tax:
Net unrealized securities (losses) gains (411,230) 169,584
- ------------------------------------------------------------------
Retained earnings 2,932,174 2,645,721
- ------------------------------------------------------------------
Total stockholder's equity 2,812,271 3,106,632
- ------------------------------------------------------------------
Total liabilities and stockholder's
equity $64,441,538 $56,550,563
==================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-2 IDS LIFE INSURANCE COMPANY
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
REVENUES:
- -----------------------------------------------------------------------------
Premiums:
Traditional life insurance $ 53,790 $ 53,132 $ 52,473
Disability income and long-term care
insurance 201,637 176,298 154,021
- -----------------------------------------------------------------------------
Total premiums 255,427 229,430 206,494
Policyholder and contractholder charges 411,994 383,965 341,726
Management and other fees 473,108 401,057 340,892
Net investment income 1,919,573 1,986,485 1,988,389
Net realized gain on investments 26,608 6,902 860
- -----------------------------------------------------------------------------
Total revenues 3,086,710 3,007,839 2,878,361
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
- -----------------------------------------------------------------------------
Death and other benefits:
Traditional life insurance 29,819 29,835 28,951
Universal life-type insurance and
investment contracts 118,561 108,349 92,814
Disability income and long-term care
insurance 30,622 27,414 22,333
Increase in liabilities for future
policy benefits:
Traditional life insurance 7,311 6,052 3,946
Disability income and long-term care
insurance 87,620 73,305 63,631
Interest credited on universal life-type
insurance and investment contracts 1,240,575 1,317,124 1,386,448
Amortization of deferred policy
acquisition costs 332,705 382,642 322,731
Other insurance and operating expenses 335,180 287,326 276,596
- -----------------------------------------------------------------------------
Total benefits and expenses 2,182,393 2,232,047 2,197,450
- -----------------------------------------------------------------------------
Income before income taxes 904,317 775,792 680,911
Income taxes 267,864 235,681 206,664
- -----------------------------------------------------------------------------
Net income $ 636,453 $ 540,111 $ 474,247
=============================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-3
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TOTAL ADDITIONAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL PAID-IN (LOSS) INCOME, RETAINED
THREE YEARS ENDED DECEMBER 31, 1999 ($ THOUSANDS) EQUITY STOCK CAPITAL NET OF TAX EARNINGS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $2,444,080 $3,000 $283,615 $ 86,102 $2,071,363
Comprehensive income:
Net income 474,247 -- -- -- 474,247
Unrealized holding gains arising during the year,
net of deferred policy acquisition costs of
($7,714) and taxes of ($75,215) 139,686 -- -- 139,686 --
Reclassification adjustment for losses included in
net income, net of tax of ($308) 571 -- -- 571 --
Other comprehensive income 140,257 -- -- 140,257 --
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income 614,504 -- -- -- --
Capital contribution from parent 7,232 -- 7,232 -- --
Cash dividends to parent (200,000) -- -- -- (200,000)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,865,816 3,000 290,847 226,359 2,345,610
Comprehensive income:
Net income 540,111 -- -- -- 540,111
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of
$6,333 and taxes of $32,826 (60,964) -- -- (60,964) --
Reclassification adjustment for losses included in
net income, net of tax of ($2,254) 4,189 -- -- 4,189 --
Other comprehensive loss (56,775) -- -- (56,775) --
Comprehensive income 483,336 -- -- -- --
Other changes (2,520) -- (2,520) -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (240,000) -- -- -- (240,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,106,632 3,000 288,327 169,584 2,645,721
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $3,106,632 $3,000 $288,327 $ 169,584 $2,645,721
Comprehensive income:
Net income 636,453 -- -- -- 636,453
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of
$28,444 and taxes of $304,936 (566,311) -- -- (566,311) --
Reclassification adjustment for gains included in
net income, net of tax of $7,810 (14,503) -- -- (14,503) --
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (580,814) -- -- (580,814) --
Comprehensive income 55,639 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (350,000) -- -- -- (350,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $2,812,271 $3,000 $288,327 $(411,230) $2,932,174
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-4 IDS LIFE INSURANCE COMPANY
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------
Net income $ 636,453 $ 540,111 $ 474,247
Adjustments to reconcile net income to
net cash provided by operating
activities: Policy loans, excluding
universal life-type insurance:
Issuance (56,153) (53,883) (54,665)
Repayment 54,105 57,902 46,015
Change in amounts recoverable from
reinsurers (64,908) (56,544) (47,994)
Change in other accounts receivable (615) (10,068) 6,194
Change in accrued investment income 23,125 (9,184) (14,077)
Change in deferred policy acquisition
costs, net (140,379) (10,443) (156,486)
Change in liabilities for future policy
benefits for traditional life,
disability income and long-term care
insurance 153,157 138,826 112,915
Change in policy claims and other
policyholders' funds (45,709) 1,964 (15,289)
Deferred income tax provision (benefit) 79,796 (19,122) 19,982
Change in other liabilities 169,395 64,902 13,305
(Accretion of discount), amortization of
premium, net (17,907) 9,170 (5,649)
Net realized gain on investments (26,608) (6,902) (860)
Policyholder and contractholder charges,
non-cash (175,059) (172,396) (160,885)
Other, net (5,324) 10,786 7,161
- -------------------------------------------------------------------------------
Net cash provided by operating
activities $ 583,369 $ 485,119 $ 223,914
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------------------------------------------------
Fixed maturities held to maturity:
Purchases $ (3,030) $ (1,020) $ (1,996)
Maturities, sinking fund payments and
calls 741,949 1,162,731 686,503
Sales 66,547 236,963 236,761
Fixed maturities available for sale:
Purchases (3,433,128) (4,100,238) (3,160,133)
Maturities, sinking fund payments and
calls 1,442,507 2,967,311 1,206,213
Sales 1,691,389 278,955 457,585
Other investments, excluding policy
loans:
Purchases (657,383) (555,647) (524,521)
Sales 406,684 579,038 335,765
Change in amounts due from brokers 182 8,073 2,647
Change in amounts due to brokers (47,294) (186,052) 119,471
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 208,423 390,114 (641,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------------------------------------------------
Activity related to universal life-type
insurance and investment contracts:
Considerations received 2,031,630 1,873,624 2,785,758
Surrenders and other benefits (3,669,759) (3,792,612) (3,736,242)
Interest credited to account balances 1,240,575 1,317,124 1,386,448
Universal life-type insurance policy
loans:
Issuance (102,239) (97,602) (84,835)
Repayment 67,881 67,000 54,513
Capital transaction with parent -- -- 7,232
Dividends paid (350,000) (240,000) (200,000)
- -------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (781,912) (872,466) 212,874
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 9,880 2,767 (204,917)
Cash and cash equivalents at beginning
of year 22,453 19,686 224,603
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 32,333 $ 22,453 $ 19,686
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a
wholly-owned subsidiary of American Express Financial Corporation (AEFC), which
is a wholly owned subsidiary of American Express Company. The Company serves
residents of all states except New York. IDS Life Insurance Company of New York
is a wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company, American Partners Life Insurance
Company and American Express Corporation.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single premium
and flexible premium deferred annuities on both a fixed and variable dollar
basis. Immediate annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single premium life and
term products (including waiver of premium and accidental death benefits). The
Company also markets disability income and long-term care insurance.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
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 accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized gains and
losses on securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of the related
deferred policy acquisition costs effect and deferred taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.
- --------------------------------------------------------------------------------
F-6 IDS LIFE INSURANCE COMPANY
<PAGE>
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of a loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for mortgage
loan losses. The reserve for mortgage loan losses is maintained at a level that
management believes is adequate to absorb estimated losses in the portfolio. The
level of the reserve account is determined based on several factors, including
historical experience, expected future principal and interest payments,
estimated collateral values, and current economic and political conditions.
Management regularly evaluates the adequacy of the reserve for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
The cost of interest rate caps and floors is amortized to investment income over
the life of the contracts and payments received as a result of these agreements
are recorded as investment income when realized. The amortized cost of interest
rate caps and floors is included in other investments. Amounts paid or received
under interest rate swap agreements are recognized as an adjustment to
investment income.
The Company may purchase and write index options to hedge the fee income earned
on the management of equity securities in separate accounts and the underlying
mutual funds. These index options are carried at market value and are included
in other investments or other liabilities, as appropriate. Gains or losses on
index options that qualify as hedges are deferred and recognized in management
and other fees in the same period as the hedged fee income.
The Company also uses index options to manage the risks related to a certain
annuity product that pay interest based upon the relative change in a major
stock market index between the beginning and end of the product's term.
Purchased options used in conjunction with this product are reported in other
investments and written options are included in other liabilities. The
amortization of the cost of purchased options, the proceeds of written options
and the changes in intrinsic value of the contracts are included in net
investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost, which approximates fair value.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-7
<PAGE>
Supplementary information to the consolidated statements of cash flows for the
years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $214,940 $215,003 $174,472
Interest on borrowings 4,521 14,529 8,213
</TABLE>
RECOGNITION OF PROFITS ON ANNUITY CONTRACTS AND INSURANCE POLICIES
Profits on fixed deferred annuities are recognized by the Company over the lives
of the contracts, using primarily the interest method. Profits represent the
excess of investment income earned from investment of contract considerations
over interest credited to contract owners and other expenses.
The retrospective deposit method is used in accounting for universal life-type
insurance. Under this method, profits are recognized over the lives of the
policies in proportion to the estimated gross profits expected to be realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and expenses
are associated with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees from underlying proprietary mutual funds and mortality and
expense risk fees received from the variable annuity and variable life insurance
separate accounts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities and installment annuities are amortized using
primarily the interest method. The costs for universal life-type insurance and
certain installment annuities are amortized as a percentage of the estimated
gross profits expected to be realized on the policies. For traditional life,
disability income and long-term care insurance policies, the costs are amortized
over an appropriate period in proportion to premium revenue.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency rates,
maintenance expense levels and, for variable products, separate account
performance. For universal life-type insurance and deferred annuities, actual
experience is reflected in the Company's amortization models monthly. As actual
experience differs from the current assumptions, management considers the need
to change key assumptions underlying the amortization models prospectively. The
impact of changing prospective assumptions is reflected in the period that such
changes are made and is generally referred to as an unlocking adjustment. During
1999, unlocking adjustments resulted in a net decrease in amortization of $56.8
million. Net unlocking adjustments in 1998 and 1997 were not significant.
LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal-life type insurance and fixed and variable deferred
annuities are accumulation values.
- --------------------------------------------------------------------------------
F-8 IDS LIFE INSURANCE COMPANY
<PAGE>
Liabilities for equity indexed deferred annuities are determined as the present
value of guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for fixed annuities in a benefit status are based on established
industry mortality tables and interest rates ranging from 5% to 9.5%, depending
on year of issue.
Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.
Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 5 to 10
years.
Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 5% to 8%.
REINSURANCE
The maximum amount of life insurance risk retained by the Company is $750 on any
policy insuring a single life and $1,500 on any policy insuring a joint-life
combination. Beginning in 1999, the Company retains only 20% of the mortality
risk on new variable universal life insurance policies. Risk not retained is
reinsured with other life insurance companies, primarily on a yearly renewable
term basis. Long-term care policies are primarily reinsured on a coinsurance
basis. The Company retains all disability income and waiver of premium risk.
Beginning in 2000, the Company will retain all accidental death benefit risk.
FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $852 receivable
from and $26,291 payable to, respectively, AEFC for federal income taxes.
SEPARATE ACCOUNT BUSINESS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance contract
owners. The Company receives investment management fees from the proprietary
mutual funds used as investment options for variable annuities and variable life
insurance. The Company receives mortality and expense risk fees from the
separate accounts.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-9
<PAGE>
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
ACCOUNTING CHANGES
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use" became effective January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption to develop
or obtain software for internal use. Software utilized by the Company is owned
by AEFC and capitalized by AEFC. As a result, the new rule did not have a
material impact on the Company's results of operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," providing
guidance for the timing of recognition of liabilities related to guaranty fund
assessments. The Company had historically carried a liability for estimated
guaranty fund assessment exposure. Adoption of the SOP did not have a material
impact on the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires the recognition of all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. The ultimate
financial effect of adoption of the new rule will depend on the derivatives in
place at adoption and cannot be estimated at this time.
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.
- --------------------------------------------------------------------------------
F-10 IDS LIFE INSURANCE COMPANY
<PAGE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1999 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 $ 37,613 $ 236 $ 2,158 $ 35,691
State and municipal
obligations 9,681 150 -- 9,831
Corporate bonds and
obligations 5,713,475 91,571 113,350 5,691,696
Mortgage-backed securities 1,395,523 4,953 31,951 1,368,525
- ------------------------------------------------------------------------------
$7,156,292 $96,910 $147,459 $7,105,743
- ------------------------------------------------------------------------------
</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 $ 46,325 $ 612 $ 2,231 $ 44,706
State and municipal
obligations 13,226 519 191 13,554
Corporate bonds and
obligations 7,960,352 60,120 560,450 7,460,022
Mortgage-backed securities 5,683,234 9,692 161,659 5,531,267
- --------------------------------------------------------------------------------
Total fixed maturities 13,703,137 70,943 724,531 13,049,549
Equity securities 3,000 16 -- 3,016
- --------------------------------------------------------------------------------
$13,706,137 $70,959 $724,531 $13,052,565
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 39,888 $ 4,460 $ -- $ 44,348
State and municipal
obligations 9,683 490 -- 10,173
Corporate bonds and
obligations 6,305,476 447,752 27,087 6,726,141
Mortgage-backed securities 1,609,067 30,458 152 1,639,373
- -------------------------------------------------------------------------------
$7,964,114 $483,160 $27,239 $8,420,035
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-11
<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 $ 52,043 $ 3,324 $ -- $ 55,367
State and municipal
obligations 11,060 1,231 -- 12,291
Corporate bonds and
obligations 7,332,344 271,174 155,181 7,448,337
Mortgage-backed securities 5,949,502 151,511 3,869 6,097,144
- --------------------------------------------------------------------------------
Total fixed maturities 13,344,949 427,240 159,050 13,613,139
Equity securities 3,000 158 -- 3,158
- --------------------------------------------------------------------------------
$13,347,949 $427,398 $159,050 $13,616,297
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- ----------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 238,740 $ 239,747
Due from one to five years 2,996,713 3,012,721
Due from five to ten years 1,922,199 1,893,918
Due in more than ten years 603,117 590,832
Mortgage-backed securities 1,395,523 1,368,525
- ----------------------------------------------------------------
$7,156,292 $7,105,743
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
- ------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 271,381 $ 274,415
Due from one to five years 595,747 592,533
Due from five to ten years 4,936,041 4,669,573
Due in more than ten years 2,216,734 1,981,761
Mortgage-backed securities 5,683,234 5,531,267
- ------------------------------------------------------------------
$13,703,137 $13,049,549
- ------------------------------------------------------------------
</TABLE>
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $68,470,
$230,036 and $229,848, 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 1999 with proceeds of
$1,691,389 and gross realized gains and losses of $36,568 and $14,255,
respectively. Fixed maturities available for sale were sold during 1998 with
proceeds of $278,955 and gross realized gains and losses of $15,658 and $22,102,
respectively. Fixed maturities available for sale were sold during 1997 with
proceeds of $457,585 and gross realized gains and losses of $6,639 and $7,518,
respectively.
At December 31, 1999, bonds carried at $14,559 were on deposit with various
states as required by law.
- --------------------------------------------------------------------------------
F-12 IDS LIFE INSURANCE COMPANY
<PAGE>
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $3.7
billion which are rated by AEFC's internal analysts using criteria similar to
Moody's and S&P. A summary of investments in fixed maturities, at amortized
cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Aaa/AAA $ 7,144,280 $ 7,629,628
Aaa/AA 1,920 2,277
Aa/AA 301,728 308,053
Aa/A 314,168 301,325
A/A 2,598,300 2,525,283
A/BBB 1,014,566 1,148,736
Baa/BBB 6,319,549 6,237,014
Baa/BB 348,849 492,696
Below investment grade 2,816,069 2,664,051
- ------------------------------------------------------------------
$20,859,429 $21,309,063
- ------------------------------------------------------------------
</TABLE>
At December 31, 1999, 90 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, 1999, 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:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
REGION SHEET TO PURCHASE SHEET TO PURCHASE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
East North Central $ 715,998 $ 10,380 $ 750,705 $ 16,393
West North Central 555,635 42,961 491,006 81,648
South Atlantic 867,838 23,317 839,233 21,020
Middle Atlantic 428,051 1,806 476,448 6,169
New England 259,243 4,415 263,761 2,824
Pacific 238,299 3,466 195,851 16,946
West South Central 144,607 4,516 136,841 1,412
East South Central 43,841 -- 46,029 --
Mountain 381,148 9,380 345,379 8,473
- ----------------------------------------------------------------------------------
3,634,660 100,241 3,545,253 154,885
Less allowance for losses 28,283 -- 39,795 --
- ----------------------------------------------------------------------------------
$3,606,377 $100,241 $3,505,458 $154,885
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
PROPERTY TYPE SHEET TO PURCHASE SHEET TO PURCHASE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Department/retail stores $1,158,712 $ 33,829 $1,139,349 $ 59,305
Apartments 887,538 11,343 960,808 9,272
Office buildings 931,234 26,062 783,576 50,450
Industrial buildings 309,845 5,525 298,549 13,263
Hotels/motels 103,625 -- 109,185 14,122
Medical buildings 114,045 -- 124,369 --
Nursing/retirement homes 45,935 -- 46,696 --
Mixed use 66,893 -- 65,151 --
Other 16,833 23,482 17,570 8,473
- ----------------------------------------------------------------------------------
3,634,660 100,241 3,545,253 154,885
Less allowance for losses 28,283 -- 39,795 --
- ----------------------------------------------------------------------------------
$3,606,377 $100,241 $3,505,458 $154,885
- ----------------------------------------------------------------------------------
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives it
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. Commitments to purchase mortgages are
made in the ordinary course of business. The fair value of the mortgage
commitments is $nil.
At December 31, 1999 and 1998, the Company's recorded investment in impaired
loans was $21,375 and $24,941, respectively, with allowances of $5,750 and
$6,662, respectively. During 1999 and 1998, the average recorded investment in
impaired loans was $23,815 and $37,873, respectively.
The Company recognized $1,190, $1,809 and $2,981 of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997
respectively.
The following table presents changes in the allowance for losses related to all
loans:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $39,795 $38,645 $37,495
Provision (reduction) for
investment losses (9,512) 7,582 8,801
Loan payoffs (500) (800) (3,851)
Foreclosures and writeoffs (1,500) (5,632) (3,800)
- --------------------------------------------------------------
Balance, December 31 $28,283 $39,795 $38,645
- --------------------------------------------------------------
</TABLE>
At December 31, 1999, the Company had no commitments to purchase investments
other than mortgage loans.
- --------------------------------------------------------------------------------
F-14 IDS LIFE INSURANCE COMPANY
<PAGE>
Net investment income for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $1,598,059 $1,676,984 $1,692,481
Interest on mortgage loans 285,921 301,253 305,742
Other investment income 70,892 43,518 25,089
Interest on cash equivalents 5,871 5,486 5,914
- -----------------------------------------------------------------------
1,960,743 2,027,241 2,029,226
Less investment expenses 41,170 40,756 40,837
- -----------------------------------------------------------------------
$1,919,573 $1,986,485 $1,988,389
- -----------------------------------------------------------------------
</TABLE>
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $22,387 $12,084 $16,115
Mortgage loans 10,211 (5,933) (6,424)
Other investments (5,990) 751 (8,831)
- --------------------------------------------------------------
$26,608 $ 6,902 $ 860
- --------------------------------------------------------------
</TABLE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $(921,778) $(93,474) $223,441
Equity securities (142) (203) 53
</TABLE>
3. INCOME TAXES
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31 consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $178,444 $244,946 $176,879
Deferred 79,796 (16,602) 19,982
- -----------------------------------------------------------------
258,240 228,344 196,861
State income taxes-current 9,624 7,337 9,803
- -----------------------------------------------------------------
Income tax expense $267,864 $235,681 $206,664
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-15
<PAGE>
Increases (decreases) to the income tax provision applicable to pretax income
based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
PROVISION RATE PROVISION RATE PROVISION RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
based on the statutory
rate $316,511 35.0% $271,527 35.0% $238,319 35.0%
Tax-excluded interest and
dividend income (9,626) (1.1) (12,289) (1.6) (10,294) (1.5)
State taxes, net of
federal benefit 6,256 0.7 4,769 0.6 6,372 0.9
Affordable housing
credits (31,000) (3.4) (19,688) (2.5) (20,705) (3.0)
Other, net (14,277) (1.6) (8,638) (1.1) (7,028) (1.0)
- -------------------------------------------------------------------------------
Total income taxes $267,864 29.6% $235,681 30.4% $206,664 30.4%
- -------------------------------------------------------------------------------
</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, 1999, the Company had a policyholders' surplus
account balance of $20,114. The policyholders' surplus account is only taxable
if dividends to the stockholder exceed the stockholder's surplus account or if
the Company is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy reserves $733,647 $756,769
Unrealized loss on available for sale
investments 221,431 --
Investments, other 1,873 --
Life insurance guaranty fund assessment
reserve 4,789 15,289
Other -- 4,253
- ------------------------------------------------------------
Total deferred tax assets 961,740 776,311
- ------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 740,837 698,471
Unrealized gain on available for sale
investments -- 91,315
Investments, other -- 3,455
Other 4,883 --
- ------------------------------------------------------------
Total deferred tax liabilities 745,720 793,241
- ------------------------------------------------------------
Net deferred tax assets (liabilities) $216,020 $(16,930)
- ------------------------------------------------------------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax assets that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets and, therefore, no such valuation
allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by state insurance regulatory authorities. Statutory
unassigned surplus
- --------------------------------------------------------------------------------
F-16 IDS LIFE INSURANCE COMPANY
<PAGE>
aggregated $1,693,356 as of December 31, 1999 and $1,598,203 as of December 31,
1998 (see Note 3 with respect to the income tax effect of certain
distributions). In addition, any dividend distributions in 2000 in excess of
approximately $418,845 would require approval of the Department of Commerce of
the State of Minnesota.
Statutory net income for the years ended December 31 and capital and surplus as
of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 478,173 $ 429,903 $ 379,615
Statutory capital and surplus 1,978,406 1,883,405 1,765,290
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company loans funds to AEFC under a collateral loan agreement. The balance
of the loan was $nil at December 31, 1999 and 1998. This loan can be increased
to a maximum of $75,000 and pays interest at a rate equal to the preceding
month's effective new money rate for the Company's permanent investments.
Interest income on related party loans totaled $nil, $nil and $103 in 1999, 1998
and 1997, 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 $223, $211 and $201 in 1999, 1998 and 1997, 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 1999, 1998 and 1997 were $1,906, $1,503 and $1,245,
respectively.
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees are considered
to have been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. The Company's share of postretirement benefits in
1999, 1998 and 1997 was $1,147, $1,352 and $1,330, respectively.
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $485,177, $411,337 and $414,155 for 1999,
1998 and 1997, respectively. Certain of these costs are included in deferred
policy acquisition costs.
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, 1998 and 1997, traditional life insurance and universal
life-type insurance in force aggregated $89,271,957, $81,074,928 and $74,730,720
respectively, of which $8,281,576, $4,912,313 and $4,351,904 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 $76,970,
$66,378 and $60,495 and reinsurance recovered from reinsurers amounted to
$27,816, $20,982, and $19,042 for the years ended December 31, 1999, 1998 and
1997, respectively. Reinsurance contracts do not relieve the Company from its
primary obligation to policyholders.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-17
<PAGE>
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in all three
lawsuits. It is expected the settlement will provide $215 million of benefits to
more than 2 million class participants. The agreement in principle to settle
also provides for release by class members of all insurance and annuity market
conduct claims dating back to 1985 and is subject to a number of contingencies
including a definitive agreement and court approval. The settlement costs
allocated to the Company are included in the accompanying 1999 statement of
income and did not have a material impact on the Company's consolidated
financial position or results from operations.
The Company is named as a defendant in various other lawsuits. The outcome of
any litigation cannot be predicted with certainty. In the opinion of management,
however, the ultimate resolution of these lawsuits, taken in aggregate should
not have a material adverse effect on the Company's consolidated financial
position.
The IRS routinely examines the Company's federal income tax returns and is
currently completing the audit for the 1990 through 1992 tax years. Management
does not believe there will be a material adverse effect on the Company's
consolidated financial position as a result of this audit.
7. LINES OF CREDIT
The Company has available lines of credit with its parent aggregating $200,000
($100,000 committed and $100,000 uncommitted). The interest rate for any
borrowings is established by reference to various indices plus 20 to 45 basis
points, depending on the term. Borrowings outstanding under this agreement were
$50,000 uncommitted at December 31, 1999 and $nil at December 31, 1998.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into transactions involving derivative financial instruments
to manage its exposure to interest rate risk and equity market risk, including
hedging specific transactions. The Company does not hold derivative instruments
for trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate or equity market index.
The Company is not impacted by market risk related to derivatives held for
non-trading purposes beyond that inherent in cash market transactions.
Derivatives held for purposes other than trading are largely used to manage risk
and, therefore, the cash flow and income effects of the derivatives are inverse
to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty, and requiring collateral, where
appropriate. A vast majority of the Company's counterparties are rated A or
better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors and index options is
measured by the replacement cost of the contracts. The replacement cost
represents the fair value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance sheet.
Notional amounts far exceed the related credit risk.
- --------------------------------------------------------------------------------
F-18 IDS LIFE INSURANCE COMPANY
<PAGE>
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1999 AMOUNT AMOUNT VALUE EXPOSURE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $2,500,000 $ 9,685 $ 12,773 $12,773
Interest rate floors 1,000,000 602 319 319
Options purchased 180,897 49,789 61,745 61,745
Liabilities:
Options written 43,262 (1,677) (2,402) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (17,582) --
------- -------- -------
$58,399 $ 54,853 $74,837
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1998 AMOUNT AMOUNT VALUE EXPOSURE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $3,400,000 $ 15,985 $ 4,256 $ 4,256
Interest rate floors 1,000,000 1,082 13,971 13,971
Options purchased 110,912 24,094 29,453 29,453
Liabilities:
Options purchased/written 265,454 (10,526) (11,062) --
Off balance sheet:
Interest rate swaps 1,667,000 -- (73,477) --
-------- -------- -------
$ 30,635 $(36,859) $47,680
======== ======== =======
</TABLE>
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps, floors and swaps expire
on various dates from 2000 to 2003. The purchased and written options expire on
various dates from 2000 to 2006.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the margin
between interest rates earned on investments and the interest rates credited to
related annuity contract holders.
The Company also uses interest rate swaps to manage interest rate risk related
to the level of fee income earned on the management of fixed income securities
in separate accounts and the underlying mutual funds. The amount of fee income
received is based upon the daily market value of the separate account and mutual
fund assets. As a result, changing interest rate conditions could impact the
Company's fee income significantly. The Company entered into interest rate swaps
to hedge anticipated fee income for 1999 related to separate accounts and mutual
funds which invest in fixed income securities. Interest was reported in
management and other fees.
The Company offers an annuity product that pays interest based upon the relative
change in a major stock market index between the beginning and end of the
product's term. As a means of hedging its obligation under the provisions of
this product, the Company purchases and writes options on the major stock market
index.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-19
<PAGE>
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 fluctuations in the
equity market. The Company entered into index option collars (combination of
puts and calls) to hedge anticipated fee income for 1999 and 1998 related to
separate accounts and mutual funds which invest in equity securities. Testing
demonstrated the impact of these instruments on the income statement closely
correlates with the amount of fee income the Company realizes. At December 31,
1999 deferred losses on purchased put and written call index options were $nil.
At December 31, 1998 deferred losses on purchased put and written call index
options were $2,933 and deferred gains on written call index options were
$7,435, respectively.
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>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $ 7,156,292 $ 7,105,743 $ 7,964,114 $ 8,420,035
Available for sale 13,049,549 13,049,549 13,613,139 13,613,139
Mortgage loans on real
estate (Note 2) 3,606,377 3,541,958 3,505,458 3,745,617
Other:
Equity securities (Note 2) 3,016 3,016 3,158 3,158
Derivative financial
Instruments (Note 8) 60,076 74,837 41,161 47,680
Other 2,258 2,258 28,872 28,872
Cash and cash equivalents
(Note 1) 32,333 32,333 22,453 22,453
Separate account assets (Note
1) 35,894,732 35,894,732 27,349,401 27,349,401
</TABLE>
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL LIABILITIES VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Future policy benefits for
fixed annuities $19,189,170 $18,591,859 $19,855,203 $19,144,838
Derivative financial
instruments (Note 8) 1,677 19,984 10,526 84,539
Separate account liabilities 31,869,184 31,016,081 25,005,732 24,179,115
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,270,094 and $1,226,985, respectively, and policy loans of $92,895
and $90,115, respectively. The fair value of these benefits is based on the
status of the annuities at December 31, 1999 and 1998. The fair value of
deferred
- --------------------------------------------------------------------------------
F-20 IDS LIFE INSURANCE COMPANY
<PAGE>
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 1999 and 1998.
At December 31, 1999 and 1998, 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 $4,025,548 and
$2,343,669, respectively.
10. YEAR 2000 (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
major systems used by the Company are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. The Company's businesses are
heavily dependent upon AEFC's computer systems and have significant interaction
with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps were taken to
resolve potential problems including modification to existing software and the
purchase of new software. As of December 31, 1999, AEFC had completed its
program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. As of December 31, 1999, AEFC had also
completed an evaluation of the Year 2000 readiness of other third parties whose
system failures could have an impact on the Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. At December 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on the Company's business, results
of operations, or financial condition as a result of the Year 2000 issue.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-21
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
Performance Information.......... ........... 3
Calculating Annuity Payouts.................. 6
Rating Agencies.............................. 6
Principal Underwriter........................ 7
Independent Auditors......................... 7
Financial Statements
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 35
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
/ / IDS Life Group Variable Annuity Contract
/ / American Express Variable Portfolio Funds
MAIL YOUR REQUEST TO:
IDS LIFE INSURANCE COMPANY
200 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
WE WILL MAIL YOUR REQUEST TO:
Your name _____________________________________________________________________
Address _______________________________________________________________________
City __________________ State __________________ Zip ________________________
<PAGE>
<PAGE>
IDS LIFE INSURANCE COMPANY
FINANCIAL INFORMATION
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, 1999 and 1998, 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, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDS Life Insurance
Company at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
February 3, 2000
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-1
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, ($ THOUSANDS) 1999 1998
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value:
1999, $7,105,743; 1998, $8,420,035) $ 7,156,292 $ 7,964,114
Available for sale, at fair value
(amortized cost:
1999, $13,703,137; 1998,
$13,344,949) 13,049,549 13,613,139
- ------------------------------------------------------------------
20,205,841 21,577,253
Mortgage loans on real estate 3,606,377 3,505,458
Policy loans 561,834 525,431
Other investments 506,797 366,604
- ------------------------------------------------------------------
Total investments 24,880,849 25,974,746
Cash and cash equivalents 32,333 22,453
Amounts recoverable from reinsurers 327,168 262,260
Amounts due from brokers 145 327
Other accounts receivable 48,578 47,963
Accrued investment income 343,449 366,574
Deferred policy acquisition costs 2,665,175 2,496,352
Deferred income taxes, net 216,020 --
Other assets 33,089 30,487
Separate account assets 35,894,732 27,349,401
- ------------------------------------------------------------------
Total assets $64,441,538 $56,550,563
- ------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities $20,552,159 $21,172,303
Universal life-type insurance 3,391,203 3,343,671
Traditional life insurance 226,842 225,306
Disability income and long-term care
insurance 811,941 660,320
Policy claims and other policyholders'
funds 24,600 70,309
Deferred income taxes, net -- 16,930
Amounts due to brokers 148,112 195,406
Other liabilities 579,678 410,285
Separate account liabilities 35,894,732 27,349,401
- ------------------------------------------------------------------
Total liabilities 61,629,267 53,443,931
- ------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Capital stock, $30 par value per
share;
100,000 shares authorized, issued and
outstanding 3,000 3,000
Additional paid-in capital 288,327 288,327
Accumulated other comprehensive (loss)
income, net of tax:
Net unrealized securities (losses) gains (411,230) 169,584
- ------------------------------------------------------------------
Retained earnings 2,932,174 2,645,721
- ------------------------------------------------------------------
Total stockholder's equity 2,812,271 3,106,632
- ------------------------------------------------------------------
Total liabilities and stockholder's
equity $64,441,538 $56,550,563
==================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-2 IDS LIFE INSURANCE COMPANY
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
REVENUES:
- -----------------------------------------------------------------------------
Premiums:
Traditional life insurance $ 53,790 $ 53,132 $ 52,473
Disability income and long-term care
insurance 201,637 176,298 154,021
- -----------------------------------------------------------------------------
Total premiums 255,427 229,430 206,494
Policyholder and contractholder charges 411,994 383,965 341,726
Management and other fees 473,108 401,057 340,892
Net investment income 1,919,573 1,986,485 1,988,389
Net realized gain on investments 26,608 6,902 860
- -----------------------------------------------------------------------------
Total revenues 3,086,710 3,007,839 2,878,361
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
- -----------------------------------------------------------------------------
Death and other benefits:
Traditional life insurance 29,819 29,835 28,951
Universal life-type insurance and
investment contracts 118,561 108,349 92,814
Disability income and long-term care
insurance 30,622 27,414 22,333
Increase in liabilities for future
policy benefits:
Traditional life insurance 7,311 6,052 3,946
Disability income and long-term care
insurance 87,620 73,305 63,631
Interest credited on universal life-type
insurance and investment contracts 1,240,575 1,317,124 1,386,448
Amortization of deferred policy
acquisition costs 332,705 382,642 322,731
Other insurance and operating expenses 335,180 287,326 276,596
- -----------------------------------------------------------------------------
Total benefits and expenses 2,182,393 2,232,047 2,197,450
- -----------------------------------------------------------------------------
Income before income taxes 904,317 775,792 680,911
Income taxes 267,864 235,681 206,664
- -----------------------------------------------------------------------------
Net income $ 636,453 $ 540,111 $ 474,247
=============================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-3
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TOTAL ADDITIONAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL PAID-IN (LOSS) INCOME, RETAINED
THREE YEARS ENDED DECEMBER 31, 1999 ($ THOUSANDS) EQUITY STOCK CAPITAL NET OF TAX EARNINGS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $2,444,080 $3,000 $283,615 $ 86,102 $2,071,363
Comprehensive income:
Net income 474,247 -- -- -- 474,247
Unrealized holding gains arising during the year,
net of deferred policy acquisition costs of
($7,714) and taxes of ($75,215) 139,686 -- -- 139,686 --
Reclassification adjustment for losses included in
net income, net of tax of ($308) 571 -- -- 571 --
Other comprehensive income 140,257 -- -- 140,257 --
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income 614,504 -- -- -- --
Capital contribution from parent 7,232 -- 7,232 -- --
Cash dividends to parent (200,000) -- -- -- (200,000)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,865,816 3,000 290,847 226,359 2,345,610
Comprehensive income:
Net income 540,111 -- -- -- 540,111
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of
$6,333 and taxes of $32,826 (60,964) -- -- (60,964) --
Reclassification adjustment for losses included in
net income, net of tax of ($2,254) 4,189 -- -- 4,189 --
Other comprehensive loss (56,775) -- -- (56,775) --
Comprehensive income 483,336 -- -- -- --
Other changes (2,520) -- (2,520) -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (240,000) -- -- -- (240,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,106,632 3,000 288,327 169,584 2,645,721
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $3,106,632 $3,000 $288,327 $ 169,584 $2,645,721
Comprehensive income:
Net income 636,453 -- -- -- 636,453
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of
$28,444 and taxes of $304,936 (566,311) -- -- (566,311) --
Reclassification adjustment for gains included in
net income, net of tax of $7,810 (14,503) -- -- (14,503) --
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (580,814) -- -- (580,814) --
Comprehensive income 55,639 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (350,000) -- -- -- (350,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $2,812,271 $3,000 $288,327 $(411,230) $2,932,174
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-4 IDS LIFE INSURANCE COMPANY
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------
Net income $ 636,453 $ 540,111 $ 474,247
Adjustments to reconcile net income to
net cash provided by operating
activities: Policy loans, excluding
universal life-type insurance:
Issuance (56,153) (53,883) (54,665)
Repayment 54,105 57,902 46,015
Change in amounts recoverable from
reinsurers (64,908) (56,544) (47,994)
Change in other accounts receivable (615) (10,068) 6,194
Change in accrued investment income 23,125 (9,184) (14,077)
Change in deferred policy acquisition
costs, net (140,379) (10,443) (156,486)
Change in liabilities for future policy
benefits for traditional life,
disability income and long-term care
insurance 153,157 138,826 112,915
Change in policy claims and other
policyholders' funds (45,709) 1,964 (15,289)
Deferred income tax provision (benefit) 79,796 (19,122) 19,982
Change in other liabilities 169,395 64,902 13,305
(Accretion of discount), amortization of
premium, net (17,907) 9,170 (5,649)
Net realized gain on investments (26,608) (6,902) (860)
Policyholder and contractholder charges,
non-cash (175,059) (172,396) (160,885)
Other, net (5,324) 10,786 7,161
- -------------------------------------------------------------------------------
Net cash provided by operating
activities $ 583,369 $ 485,119 $ 223,914
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------------------------------------------------
Fixed maturities held to maturity:
Purchases $ (3,030) $ (1,020) $ (1,996)
Maturities, sinking fund payments and
calls 741,949 1,162,731 686,503
Sales 66,547 236,963 236,761
Fixed maturities available for sale:
Purchases (3,433,128) (4,100,238) (3,160,133)
Maturities, sinking fund payments and
calls 1,442,507 2,967,311 1,206,213
Sales 1,691,389 278,955 457,585
Other investments, excluding policy
loans:
Purchases (657,383) (555,647) (524,521)
Sales 406,684 579,038 335,765
Change in amounts due from brokers 182 8,073 2,647
Change in amounts due to brokers (47,294) (186,052) 119,471
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 208,423 390,114 (641,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------------------------------------------------
Activity related to universal life-type
insurance and investment contracts:
Considerations received 2,031,630 1,873,624 2,785,758
Surrenders and other benefits (3,669,759) (3,792,612) (3,736,242)
Interest credited to account balances 1,240,575 1,317,124 1,386,448
Universal life-type insurance policy
loans:
Issuance (102,239) (97,602) (84,835)
Repayment 67,881 67,000 54,513
Capital transaction with parent -- -- 7,232
Dividends paid (350,000) (240,000) (200,000)
- -------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (781,912) (872,466) 212,874
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 9,880 2,767 (204,917)
Cash and cash equivalents at beginning
of year 22,453 19,686 224,603
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 32,333 $ 22,453 $ 19,686
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a
wholly-owned subsidiary of American Express Financial Corporation (AEFC), which
is a wholly owned subsidiary of American Express Company. The Company serves
residents of all states except New York. IDS Life Insurance Company of New York
is a wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company, American Partners Life Insurance
Company and American Express Corporation.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single premium
and flexible premium deferred annuities on both a fixed and variable dollar
basis. Immediate annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single premium life and
term products (including waiver of premium and accidental death benefits). The
Company also markets disability income and long-term care insurance.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
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 accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized gains and
losses on securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of the related
deferred policy acquisition costs effect and deferred taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.
- --------------------------------------------------------------------------------
F-6 IDS LIFE INSURANCE COMPANY
<PAGE>
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of a loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for mortgage
loan losses. The reserve for mortgage loan losses is maintained at a level that
management believes is adequate to absorb estimated losses in the portfolio. The
level of the reserve account is determined based on several factors, including
historical experience, expected future principal and interest payments,
estimated collateral values, and current economic and political conditions.
Management regularly evaluates the adequacy of the reserve for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
The cost of interest rate caps and floors is amortized to investment income over
the life of the contracts and payments received as a result of these agreements
are recorded as investment income when realized. The amortized cost of interest
rate caps and floors is included in other investments. Amounts paid or received
under interest rate swap agreements are recognized as an adjustment to
investment income.
The Company may purchase and write index options to hedge the fee income earned
on the management of equity securities in separate accounts and the underlying
mutual funds. These index options are carried at market value and are included
in other investments or other liabilities, as appropriate. Gains or losses on
index options that qualify as hedges are deferred and recognized in management
and other fees in the same period as the hedged fee income.
The Company also uses index options to manage the risks related to a certain
annuity product that pay interest based upon the relative change in a major
stock market index between the beginning and end of the product's term.
Purchased options used in conjunction with this product are reported in other
investments and written options are included in other liabilities. The
amortization of the cost of purchased options, the proceeds of written options
and the changes in intrinsic value of the contracts are included in net
investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost, which approximates fair value.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-7
<PAGE>
Supplementary information to the consolidated statements of cash flows for the
years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $214,940 $215,003 $174,472
Interest on borrowings 4,521 14,529 8,213
</TABLE>
RECOGNITION OF PROFITS ON ANNUITY CONTRACTS AND INSURANCE POLICIES
Profits on fixed deferred annuities are recognized by the Company over the lives
of the contracts, using primarily the interest method. Profits represent the
excess of investment income earned from investment of contract considerations
over interest credited to contract owners and other expenses.
The retrospective deposit method is used in accounting for universal life-type
insurance. Under this method, profits are recognized over the lives of the
policies in proportion to the estimated gross profits expected to be realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and expenses
are associated with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees from underlying proprietary mutual funds and mortality and
expense risk fees received from the variable annuity and variable life insurance
separate accounts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities and installment annuities are amortized using
primarily the interest method. The costs for universal life-type insurance and
certain installment annuities are amortized as a percentage of the estimated
gross profits expected to be realized on the policies. For traditional life,
disability income and long-term care insurance policies, the costs are amortized
over an appropriate period in proportion to premium revenue.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency rates,
maintenance expense levels and, for variable products, separate account
performance. For universal life-type insurance and deferred annuities, actual
experience is reflected in the Company's amortization models monthly. As actual
experience differs from the current assumptions, management considers the need
to change key assumptions underlying the amortization models prospectively. The
impact of changing prospective assumptions is reflected in the period that such
changes are made and is generally referred to as an unlocking adjustment. During
1999, unlocking adjustments resulted in a net decrease in amortization of $56.8
million. Net unlocking adjustments in 1998 and 1997 were not significant.
LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal-life type insurance and fixed and variable deferred
annuities are accumulation values.
- --------------------------------------------------------------------------------
F-8 IDS LIFE INSURANCE COMPANY
<PAGE>
Liabilities for equity indexed deferred annuities are determined as the present
value of guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for fixed annuities in a benefit status are based on established
industry mortality tables and interest rates ranging from 5% to 9.5%, depending
on year of issue.
Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.
Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 5 to 10
years.
Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 5% to 8%.
REINSURANCE
The maximum amount of life insurance risk retained by the Company is $750 on any
policy insuring a single life and $1,500 on any policy insuring a joint-life
combination. Beginning in 1999, the Company retains only 20% of the mortality
risk on new variable universal life insurance policies. Risk not retained is
reinsured with other life insurance companies, primarily on a yearly renewable
term basis. Long-term care policies are primarily reinsured on a coinsurance
basis. The Company retains all disability income and waiver of premium risk.
Beginning in 2000, the Company will retain all accidental death benefit risk.
FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $852 receivable
from and $26,291 payable to, respectively, AEFC for federal income taxes.
SEPARATE ACCOUNT BUSINESS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance contract
owners. The Company receives investment management fees from the proprietary
mutual funds used as investment options for variable annuities and variable life
insurance. The Company receives mortality and expense risk fees from the
separate accounts.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-9
<PAGE>
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
ACCOUNTING CHANGES
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use" became effective January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption to develop
or obtain software for internal use. Software utilized by the Company is owned
by AEFC and capitalized by AEFC. As a result, the new rule did not have a
material impact on the Company's results of operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," providing
guidance for the timing of recognition of liabilities related to guaranty fund
assessments. The Company had historically carried a liability for estimated
guaranty fund assessment exposure. Adoption of the SOP did not have a material
impact on the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires the recognition of all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. The ultimate
financial effect of adoption of the new rule will depend on the derivatives in
place at adoption and cannot be estimated at this time.
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.
- --------------------------------------------------------------------------------
F-10 IDS LIFE INSURANCE COMPANY
<PAGE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1999 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 $ 37,613 $ 236 $ 2,158 $ 35,691
State and municipal
obligations 9,681 150 -- 9,831
Corporate bonds and
obligations 5,713,475 91,571 113,350 5,691,696
Mortgage-backed securities 1,395,523 4,953 31,951 1,368,525
- ------------------------------------------------------------------------------
$7,156,292 $96,910 $147,459 $7,105,743
- ------------------------------------------------------------------------------
</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 $ 46,325 $ 612 $ 2,231 $ 44,706
State and municipal
obligations 13,226 519 191 13,554
Corporate bonds and
obligations 7,960,352 60,120 560,450 7,460,022
Mortgage-backed securities 5,683,234 9,692 161,659 5,531,267
- --------------------------------------------------------------------------------
Total fixed maturities 13,703,137 70,943 724,531 13,049,549
Equity securities 3,000 16 -- 3,016
- --------------------------------------------------------------------------------
$13,706,137 $70,959 $724,531 $13,052,565
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 39,888 $ 4,460 $ -- $ 44,348
State and municipal
obligations 9,683 490 -- 10,173
Corporate bonds and
obligations 6,305,476 447,752 27,087 6,726,141
Mortgage-backed securities 1,609,067 30,458 152 1,639,373
- -------------------------------------------------------------------------------
$7,964,114 $483,160 $27,239 $8,420,035
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-11
<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 $ 52,043 $ 3,324 $ -- $ 55,367
State and municipal
obligations 11,060 1,231 -- 12,291
Corporate bonds and
obligations 7,332,344 271,174 155,181 7,448,337
Mortgage-backed securities 5,949,502 151,511 3,869 6,097,144
- --------------------------------------------------------------------------------
Total fixed maturities 13,344,949 427,240 159,050 13,613,139
Equity securities 3,000 158 -- 3,158
- --------------------------------------------------------------------------------
$13,347,949 $427,398 $159,050 $13,616,297
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- ----------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 238,740 $ 239,747
Due from one to five years 2,996,713 3,012,721
Due from five to ten years 1,922,199 1,893,918
Due in more than ten years 603,117 590,832
Mortgage-backed securities 1,395,523 1,368,525
- ----------------------------------------------------------------
$7,156,292 $7,105,743
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
- ------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 271,381 $ 274,415
Due from one to five years 595,747 592,533
Due from five to ten years 4,936,041 4,669,573
Due in more than ten years 2,216,734 1,981,761
Mortgage-backed securities 5,683,234 5,531,267
- ------------------------------------------------------------------
$13,703,137 $13,049,549
- ------------------------------------------------------------------
</TABLE>
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $68,470,
$230,036 and $229,848, 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 1999 with proceeds of
$1,691,389 and gross realized gains and losses of $36,568 and $14,255,
respectively. Fixed maturities available for sale were sold during 1998 with
proceeds of $278,955 and gross realized gains and losses of $15,658 and $22,102,
respectively. Fixed maturities available for sale were sold during 1997 with
proceeds of $457,585 and gross realized gains and losses of $6,639 and $7,518,
respectively.
At December 31, 1999, bonds carried at $14,559 were on deposit with various
states as required by law.
- --------------------------------------------------------------------------------
F-12 IDS LIFE INSURANCE COMPANY
<PAGE>
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $3.7
billion which are rated by AEFC's internal analysts using criteria similar to
Moody's and S&P. A summary of investments in fixed maturities, at amortized
cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Aaa/AAA $ 7,144,280 $ 7,629,628
Aaa/AA 1,920 2,277
Aa/AA 301,728 308,053
Aa/A 314,168 301,325
A/A 2,598,300 2,525,283
A/BBB 1,014,566 1,148,736
Baa/BBB 6,319,549 6,237,014
Baa/BB 348,849 492,696
Below investment grade 2,816,069 2,664,051
- ------------------------------------------------------------------
$20,859,429 $21,309,063
- ------------------------------------------------------------------
</TABLE>
At December 31, 1999, 90 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, 1999, 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:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
REGION SHEET TO PURCHASE SHEET TO PURCHASE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
East North Central $ 715,998 $ 10,380 $ 750,705 $ 16,393
West North Central 555,635 42,961 491,006 81,648
South Atlantic 867,838 23,317 839,233 21,020
Middle Atlantic 428,051 1,806 476,448 6,169
New England 259,243 4,415 263,761 2,824
Pacific 238,299 3,466 195,851 16,946
West South Central 144,607 4,516 136,841 1,412
East South Central 43,841 -- 46,029 --
Mountain 381,148 9,380 345,379 8,473
- ----------------------------------------------------------------------------------
3,634,660 100,241 3,545,253 154,885
Less allowance for losses 28,283 -- 39,795 --
- ----------------------------------------------------------------------------------
$3,606,377 $100,241 $3,505,458 $154,885
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
PROPERTY TYPE SHEET TO PURCHASE SHEET TO PURCHASE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Department/retail stores $1,158,712 $ 33,829 $1,139,349 $ 59,305
Apartments 887,538 11,343 960,808 9,272
Office buildings 931,234 26,062 783,576 50,450
Industrial buildings 309,845 5,525 298,549 13,263
Hotels/motels 103,625 -- 109,185 14,122
Medical buildings 114,045 -- 124,369 --
Nursing/retirement homes 45,935 -- 46,696 --
Mixed use 66,893 -- 65,151 --
Other 16,833 23,482 17,570 8,473
- ----------------------------------------------------------------------------------
3,634,660 100,241 3,545,253 154,885
Less allowance for losses 28,283 -- 39,795 --
- ----------------------------------------------------------------------------------
$3,606,377 $100,241 $3,505,458 $154,885
- ----------------------------------------------------------------------------------
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives it
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. Commitments to purchase mortgages are
made in the ordinary course of business. The fair value of the mortgage
commitments is $nil.
At December 31, 1999 and 1998, the Company's recorded investment in impaired
loans was $21,375 and $24,941, respectively, with allowances of $5,750 and
$6,662, respectively. During 1999 and 1998, the average recorded investment in
impaired loans was $23,815 and $37,873, respectively.
The Company recognized $1,190, $1,809 and $2,981 of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997
respectively.
The following table presents changes in the allowance for losses related to all
loans:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $39,795 $38,645 $37,495
Provision (reduction) for
investment losses (9,512) 7,582 8,801
Loan payoffs (500) (800) (3,851)
Foreclosures and writeoffs (1,500) (5,632) (3,800)
- --------------------------------------------------------------
Balance, December 31 $28,283 $39,795 $38,645
- --------------------------------------------------------------
</TABLE>
At December 31, 1999, the Company had no commitments to purchase investments
other than mortgage loans.
- --------------------------------------------------------------------------------
F-14 IDS LIFE INSURANCE COMPANY
<PAGE>
Net investment income for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $1,598,059 $1,676,984 $1,692,481
Interest on mortgage loans 285,921 301,253 305,742
Other investment income 70,892 43,518 25,089
Interest on cash equivalents 5,871 5,486 5,914
- -----------------------------------------------------------------------
1,960,743 2,027,241 2,029,226
Less investment expenses 41,170 40,756 40,837
- -----------------------------------------------------------------------
$1,919,573 $1,986,485 $1,988,389
- -----------------------------------------------------------------------
</TABLE>
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $22,387 $12,084 $16,115
Mortgage loans 10,211 (5,933) (6,424)
Other investments (5,990) 751 (8,831)
- --------------------------------------------------------------
$26,608 $ 6,902 $ 860
- --------------------------------------------------------------
</TABLE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $(921,778) $(93,474) $223,441
Equity securities (142) (203) 53
</TABLE>
3. INCOME TAXES
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31 consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $178,444 $244,946 $176,879
Deferred 79,796 (16,602) 19,982
- -----------------------------------------------------------------
258,240 228,344 196,861
State income taxes-current 9,624 7,337 9,803
- -----------------------------------------------------------------
Income tax expense $267,864 $235,681 $206,664
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-15
<PAGE>
Increases (decreases) to the income tax provision applicable to pretax income
based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
PROVISION RATE PROVISION RATE PROVISION RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
based on the statutory
rate $316,511 35.0% $271,527 35.0% $238,319 35.0%
Tax-excluded interest and
dividend income (9,626) (1.1) (12,289) (1.6) (10,294) (1.5)
State taxes, net of
federal benefit 6,256 0.7 4,769 0.6 6,372 0.9
Affordable housing
credits (31,000) (3.4) (19,688) (2.5) (20,705) (3.0)
Other, net (14,277) (1.6) (8,638) (1.1) (7,028) (1.0)
- -------------------------------------------------------------------------------
Total income taxes $267,864 29.6% $235,681 30.4% $206,664 30.4%
- -------------------------------------------------------------------------------
</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, 1999, the Company had a policyholders' surplus
account balance of $20,114. The policyholders' surplus account is only taxable
if dividends to the stockholder exceed the stockholder's surplus account or if
the Company is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy reserves $733,647 $756,769
Unrealized loss on available for sale
investments 221,431 --
Investments, other 1,873 --
Life insurance guaranty fund assessment
reserve 4,789 15,289
Other -- 4,253
- ------------------------------------------------------------
Total deferred tax assets 961,740 776,311
- ------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 740,837 698,471
Unrealized gain on available for sale
investments -- 91,315
Investments, other -- 3,455
Other 4,883 --
- ------------------------------------------------------------
Total deferred tax liabilities 745,720 793,241
- ------------------------------------------------------------
Net deferred tax assets (liabilities) $216,020 $(16,930)
- ------------------------------------------------------------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax assets that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets and, therefore, no such valuation
allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by state insurance regulatory authorities. Statutory
unassigned surplus
- --------------------------------------------------------------------------------
F-16 IDS LIFE INSURANCE COMPANY
<PAGE>
aggregated $1,693,356 as of December 31, 1999 and $1,598,203 as of December 31,
1998 (see Note 3 with respect to the income tax effect of certain
distributions). In addition, any dividend distributions in 2000 in excess of
approximately $418,845 would require approval of the Department of Commerce of
the State of Minnesota.
Statutory net income for the years ended December 31 and capital and surplus as
of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 478,173 $ 429,903 $ 379,615
Statutory capital and surplus 1,978,406 1,883,405 1,765,290
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company loans funds to AEFC under a collateral loan agreement. The balance
of the loan was $nil at December 31, 1999 and 1998. This loan can be increased
to a maximum of $75,000 and pays interest at a rate equal to the preceding
month's effective new money rate for the Company's permanent investments.
Interest income on related party loans totaled $nil, $nil and $103 in 1999, 1998
and 1997, 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 $223, $211 and $201 in 1999, 1998 and 1997, 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 1999, 1998 and 1997 were $1,906, $1,503 and $1,245,
respectively.
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees are considered
to have been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. The Company's share of postretirement benefits in
1999, 1998 and 1997 was $1,147, $1,352 and $1,330, respectively.
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $485,177, $411,337 and $414,155 for 1999,
1998 and 1997, respectively. Certain of these costs are included in deferred
policy acquisition costs.
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, 1998 and 1997, traditional life insurance and universal
life-type insurance in force aggregated $89,271,957, $81,074,928 and $74,730,720
respectively, of which $8,281,576, $4,912,313 and $4,351,904 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 $76,970,
$66,378 and $60,495 and reinsurance recovered from reinsurers amounted to
$27,816, $20,982, and $19,042 for the years ended December 31, 1999, 1998 and
1997, respectively. Reinsurance contracts do not relieve the Company from its
primary obligation to policyholders.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-17
<PAGE>
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in all three
lawsuits. It is expected the settlement will provide $215 million of benefits to
more than 2 million class participants. The agreement in principle to settle
also provides for release by class members of all insurance and annuity market
conduct claims dating back to 1985 and is subject to a number of contingencies
including a definitive agreement and court approval. The settlement costs
allocated to the Company are included in the accompanying 1999 statement of
income and did not have a material impact on the Company's consolidated
financial position or results from operations.
The Company is named as a defendant in various other lawsuits. The outcome of
any litigation cannot be predicted with certainty. In the opinion of management,
however, the ultimate resolution of these lawsuits, taken in aggregate should
not have a material adverse effect on the Company's consolidated financial
position.
The IRS routinely examines the Company's federal income tax returns and is
currently completing the audit for the 1990 through 1992 tax years. Management
does not believe there will be a material adverse effect on the Company's
consolidated financial position as a result of this audit.
7. LINES OF CREDIT
The Company has available lines of credit with its parent aggregating $200,000
($100,000 committed and $100,000 uncommitted). The interest rate for any
borrowings is established by reference to various indices plus 20 to 45 basis
points, depending on the term. Borrowings outstanding under this agreement were
$50,000 uncommitted at December 31, 1999 and $nil at December 31, 1998.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into transactions involving derivative financial instruments
to manage its exposure to interest rate risk and equity market risk, including
hedging specific transactions. The Company does not hold derivative instruments
for trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate or equity market index.
The Company is not impacted by market risk related to derivatives held for
non-trading purposes beyond that inherent in cash market transactions.
Derivatives held for purposes other than trading are largely used to manage risk
and, therefore, the cash flow and income effects of the derivatives are inverse
to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty, and requiring collateral, where
appropriate. A vast majority of the Company's counterparties are rated A or
better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors and index options is
measured by the replacement cost of the contracts. The replacement cost
represents the fair value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance sheet.
Notional amounts far exceed the related credit risk.
- --------------------------------------------------------------------------------
F-18 IDS LIFE INSURANCE COMPANY
<PAGE>
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1999 AMOUNT AMOUNT VALUE EXPOSURE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $2,500,000 $ 9,685 $ 12,773 $12,773
Interest rate floors 1,000,000 602 319 319
Options purchased 180,897 49,789 61,745 61,745
Liabilities:
Options written 43,262 (1,677) (2,402) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (17,582) --
------- -------- -------
$58,399 $ 54,853 $74,837
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1998 AMOUNT AMOUNT VALUE EXPOSURE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $3,400,000 $ 15,985 $ 4,256 $ 4,256
Interest rate floors 1,000,000 1,082 13,971 13,971
Options purchased 110,912 24,094 29,453 29,453
Liabilities:
Options purchased/written 265,454 (10,526) (11,062) --
Off balance sheet:
Interest rate swaps 1,667,000 -- (73,477) --
-------- -------- -------
$ 30,635 $(36,859) $47,680
======== ======== =======
</TABLE>
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps, floors and swaps expire
on various dates from 2000 to 2003. The purchased and written options expire on
various dates from 2000 to 2006.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the margin
between interest rates earned on investments and the interest rates credited to
related annuity contract holders.
The Company also uses interest rate swaps to manage interest rate risk related
to the level of fee income earned on the management of fixed income securities
in separate accounts and the underlying mutual funds. The amount of fee income
received is based upon the daily market value of the separate account and mutual
fund assets. As a result, changing interest rate conditions could impact the
Company's fee income significantly. The Company entered into interest rate swaps
to hedge anticipated fee income for 1999 related to separate accounts and mutual
funds which invest in fixed income securities. Interest was reported in
management and other fees.
The Company offers an annuity product that pays interest based upon the relative
change in a major stock market index between the beginning and end of the
product's term. As a means of hedging its obligation under the provisions of
this product, the Company purchases and writes options on the major stock market
index.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-19
<PAGE>
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 fluctuations in the
equity market. The Company entered into index option collars (combination of
puts and calls) to hedge anticipated fee income for 1999 and 1998 related to
separate accounts and mutual funds which invest in equity securities. Testing
demonstrated the impact of these instruments on the income statement closely
correlates with the amount of fee income the Company realizes. At December 31,
1999 deferred losses on purchased put and written call index options were $nil.
At December 31, 1998 deferred losses on purchased put and written call index
options were $2,933 and deferred gains on written call index options were
$7,435, respectively.
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>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $ 7,156,292 $ 7,105,743 $ 7,964,114 $ 8,420,035
Available for sale 13,049,549 13,049,549 13,613,139 13,613,139
Mortgage loans on real
estate (Note 2) 3,606,377 3,541,958 3,505,458 3,745,617
Other:
Equity securities (Note 2) 3,016 3,016 3,158 3,158
Derivative financial
Instruments (Note 8) 60,076 74,837 41,161 47,680
Other 2,258 2,258 28,872 28,872
Cash and cash equivalents
(Note 1) 32,333 32,333 22,453 22,453
Separate account assets (Note
1) 35,894,732 35,894,732 27,349,401 27,349,401
</TABLE>
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL LIABILITIES VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Future policy benefits for
fixed annuities $19,189,170 $18,591,859 $19,855,203 $19,144,838
Derivative financial
instruments (Note 8) 1,677 19,984 10,526 84,539
Separate account liabilities 31,869,184 31,016,081 25,005,732 24,179,115
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,270,094 and $1,226,985, respectively, and policy loans of $92,895
and $90,115, respectively. The fair value of these benefits is based on the
status of the annuities at December 31, 1999 and 1998. The fair value of
deferred
- --------------------------------------------------------------------------------
F-20 IDS LIFE INSURANCE COMPANY
<PAGE>
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 1999 and 1998.
At December 31, 1999 and 1998, 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 $4,025,548 and
$2,343,669, respectively.
10. YEAR 2000 (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
major systems used by the Company are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. The Company's businesses are
heavily dependent upon AEFC's computer systems and have significant interaction
with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps were taken to
resolve potential problems including modification to existing software and the
purchase of new software. As of December 31, 1999, AEFC had completed its
program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. As of December 31, 1999, AEFC had also
completed an evaluation of the Year 2000 readiness of other third parties whose
system failures could have an impact on the Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. At December 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on the Company's business, results
of operations, or financial condition as a result of the Year 2000 issue.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-21
<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
Fixed Account of the Contract 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, as
well as to reasonable expenses, including attorneys' fees and disbursements. In
a civil proceeding, there can be no indemnification under the statute, unless it
appears that the person seeking indemnification has acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation and its shareholders and unless such person has received no
improper personal benefit; in a criminal proceeding, the person seeking
indemnification must also have no reasonable cause to believe his conduct was
unlawful.
Article IX of the By-laws of the IDS Life Insurance Company requires
the IDS Life Insurance Company to indemnify directors and officers to the extent
indemnification is permitted as stated by the preceding paragraph, and contains
substantially the same language as the above-mentioned Section 300.083.
Article IX, paragraph (2), of the By-laws of the IDS Life Insurance
Company provides as follows:
"Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party, by reason of the fact that he is or
was a director, officer, employee or agent of this Corporation, or is or was
serving at the direction of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to any threatened, pending or completed action, suit or proceeding,
wherever brought, to the fullest extent permitted by the laws of the State of
Minnesota, as now existing or hereafter amended, provided that this Article
shall not indemnify or protect any such director, officer, employee or agent
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of his duties or by reason of his reckless
disregard of his obligations and duties."
The parent company of IDS Life Insurance Company maintains an insurance
policy which affords liability coverage to directors and officers of the IDS
Life Insurance Company while acting in that capacity. IDS Life Insurance Company
pays its proportionate share of the premiums for the policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
Item 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1. Not applicable.
2. Not applicable.
3.1 Copy of Certificate of Incorporation of IDS Life Insurance Company dated
July 23, 1957, filed electronically as Exhibit 3.1 to Post-Effective
Amendment No. 2 to Registration Statement No. 33-48701 is incorporated by
reference.
3.2 Copy of By-laws of IDS Life Insurance Company, filed electronically as
Exhibit 3.2 to Post-Effective Amendment No. 2 to Registration Statement No.
33-48701 is incorporated by reference.
4.1 Form of Group Deferred Variable Annuity Contract, Form 34660, filed
electronically as Exhibit 4.1 to Post-Effective Amendment No. 2 to
Registration Statement No. 33-48701 is incorporated by reference.
5. Opinion of Counsel regarding legality of Contracts dated April 24, 2000,
filed electronically herewith.
8. Not applicable.
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
15. Not applicable.
16. Not applicable.
21. Not applicable.
22. List of Subsidiaries, filed electronically as Exhibit 22 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-48701 is incorporated by
reference.
23. Consent of Independent Auditors dated April 24, 2000, filed electronically
herewith.
24. Power of Attorney dated April 20, 2000, filed electronically herewith.
25. Not applicable.
26. Not applicable.
27. Not applicable.
<PAGE>
Item 17. Undertakings
Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IDS Life Insurance
Company has duly caused this Registration Statement to be signed on behalf of
the Registrant by the undersigned, duly authorized in this City of Minneapolis,
and State of Minnesota on the 24th day of April, 2000.
IDS Life Insurance Company
(Registrant)
By IDS Life Insurance Company
By /s/ Richard W. Kling*
Richard W. Kling
President
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 24th day of April, 2000.
Signature Title
/s/ James A. Mitchell* Director and Chairman of the Board
James A. Mitchell
/s/ Richard W. Kling* Director, President and Chief Executive Officer
Richard W. Kling
/s/ Jeffrey S. Horton* Vice President, Treasurer and Assistant Secretary
Jeffrey S. Horton
/s/ Timothy V. Bechtold* Executive Vice President, Risk Management
Timothy V. Bechtold Products
/s/ David R. Hubers* Director
David R. Hubers
/s/ Paul F. Kolkman* Director and Executive Vice President
Paul F. Kolkman
/s/ Paula R. Meyer* Director and Executive Vice President,
Paula R. Meyer Assured Assets
/s/ Pamela J. Moret* Director and Executive Vice President,
Pamela J. Moret Variable Assets
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
/s/ Stuart A. Sedlacek* Director and Executive Vice President
Stuart A. Sedlacek
/s/ Philip C. Wentzel* Vice President and Controller
Philip C. Wentzel
<PAGE>
*Signed pursuant to Power of Attorney dated April 20, 2000, filed electronically
herewith.
By:/s/ William A. Stoltzmann
William A. Stoltzmann
Vice President, General Counsel and Secretary
IDS LIFE INSURANCE COMPANY (GVAC)
File Number 33-48701
EXHIBIT INDEX
Exhibit 5: Opinion of Counsel
Exhibit 23: Independent Auditors Consent
Exhibit 24: Power of Attorney
April 24, 2000
IDS Life Insurance Company
200 AXP Financial Center
Minneapolis, MN 55474
RE: IDS Life Insurance Company
Post-Effective Amendment No. 9 on Form S-1
File No.: 33-48701
Ladies and Gentlemen:
I am familiar with the establishment of IDS Life Account MGA ("Account"), which
is a separate account of IDS Life Insurance Company ("Company") established by
the Company's Board of Directors according to applicable insurance law. I also
am familiar with the above-referenced Registration Statement filed by the
Company on behalf of the Account with the Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in accordance
with the prospectus contained in the Registration Statement and in
compliance with applicable law, will be legally issued and represent
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
By:/s/ William A. Stoltzmann
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 report dated February 3, 2000 on the consolidated financial
statements of IDS Life Insurance Company in Post-Effective Amendment No. 9 to
the Registration Statement (Form S-1, No. 33-48701) for the registration of the
Group Variable Annuity Contracts to be offered by IDS Life Insurance Company.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 24, 2000
IDS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers and/or directors, 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 (FPA) 33-62407 811-07355
American Express Retirement
Advisor Variable AnnuitySM (RAVA) 333-79311 811-07355
American Express Retirement
Advisor Variable AnnuitySM (RAVA-B3) 333-79311 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 Variable Retirement and Combination
Retirement Annuities (CRA) 2-73114 811-3217
IDS Life Employee Benefit Annuity (EBA) 33-52518 811-3217
IDS Life Group Variable Annuity Contract (GVAC) 33-47302 811-3217
IDS Life Group Variable Annuity Contract
(GVAC Fixed Account) 33-48701 N/A
IDS Life Insurance Company
IDS Life Flexible Payment Market Value Annuity (FP-MVA) 33-50968 N/A
IDS Life Guaranteed Term Annuity (GTA) 33-28976 N/A
Portfolio Guaranteed Term Annuity (PGTA) 333-42793 N/A
IDS Life Variable Life Separate Account
Flexible Premium Variable Life Insurance Policy (VUL) 33-11165 811-4298
Flexible Premium Survivorship Variable Life
Insurance Policy (V2D) 33-62457 811-4298
Flexible Premium Variable Life Insurance Policy (VUL-3) 333-69777 811-4298
Single Premium Variable Life Insurance Policy (SPVL) 2-97637 811-4298
<PAGE>
IDS Life Variable Account for Smith Barney
Single Premium Variable Life Insurance Policy 33-5210 811-4652
(SBS-SPVL)
IDS Life Account SBS
Symphony Annuity (SYMPHONY) 33-40779 811-06315
IDS Life Account RE
Real Estate Variable Annuity (REVA) 33-13375 N/A
</TABLE>
hereby constitutes and appoints William A. Stoltzmann, Mary Ellyn Minenko,
Eileen J. Newhouse, Bruce Kohn and Timothy S. Meehan or any one of them, as his
or her attorney-in-fact and agent, to sign for him or her 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 (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 jurisdictions, and grants to any or all of them the full power
and authority to do and perform each and every act required, necessary or
appropriate in connection therewith.
Dated the 20th day of April, 2000.
<PAGE>
/s/ Timothy V. Bechtold
Timothy V. Bechtold
Executive Vice President,
Risk Management Products
/s/ Jeffrey S. Horton
Jeffrey S. Horton
Vice President, Treasurer
and Assistant Secretary
/s/ David R. Hubers
David R. Hubers
Director
/s/ Richard W. Kling
Richard W. Kling
Director, President
and Chief Executive Officer
/s/ Paul F. Kolkman
Paul F. Kolkman
Director and Executive Vice President
/s/ Paula R. Meyer
Paula R. Meyer
Director and Executive Vice President, Assured Assets
/s/ James A. Mitchell
James A. Mitchell
Director and Chairman of the Board
/s/ Pamela J. Moret
Pamela J. Moret
Director and Executive Vice President, Variable Assets
/s/ Barry J. Murphy
Barry J. Murphy
Director and Executive Vice President, Client Service
/s/ Stuart A. Sedlacek
Stuart A. Sedlacek
Director and Executive Vice President
/s/ Philip C. Wentzel
Philip C. Wentzel
Vice President and Controller
