<PAGE>
PAGE 1
1997 ANNUAL REPORT
IDS Life Single Premium Variable Life Insurance Policy
Offers an opportunity for growth with life insurance protection
Issued by IDS Life Insurance Company
AMERICAN
EXPRESS
FINANCIAL
ADVISORS
<PAGE>
PAGE 2
IDS Life Variable Life Separate Account
Single Premium Variable Life Subaccounts
Message from the President
Lessening one's tax burden is always important, especially if you're among the
highest income earners. But no matter what bracket you're in, you can help meet
both your life insurance and investment needs on a tax-favored basis with just
one product-- Single Premium Variable Life.
Taxes may change, but one thing hasn't changed at all. That's the need for
insurance protection and sound investment choices. At IDS Life Insurance Company
(IDS Life), we've been providing that for nearly four decades. American Express
Financial Advisors has been helping people reach their financial goals for more
than 100 years, and the strength and stability of IDS Life has been enhanced by
being part of the American Express Financial Corporation family of companies.
Diversification and balance continue to be critical elements in a financial
strategy. IDS Life's Single Premium Variable Life Insurance Policy provides
those elements by combining a variety of investment options with life insurance
protection.
You can allocate your policy value among five of the investment portfolios of
IDS Life Series Fund, or you may choose to invest in units of the Zero Coupon
U.S. Treasury Securities Trust. Investing in any of these options allows you to
accumulate money on a tax-deferred basis while also meeting your protection
objectives.
IDS Life is among the largest life insurance companies in the country and
provides a wide range of insurance and annuity products that help meet the needs
of a changing society. We do not view our products as separate investments but
as integral parts of the total financial planning service offered by your
financial advisor. All of us have the same goal--to turn your financial
objectives into reality through a prudent, sound investment program.
Sincerely,
Richard W. Kling
President
IDS Life Insurance Company
<PAGE>
Annual Financial Information
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of the segregated asset subaccounts of IDS Life Variable Life Separate
Account for Single Premium Variable Life Insurance as of December 31, 1996, and
the related statements of operations and changes in net assets for each of the
three years in the period then ended, except for the 1995 subaccount which is
for the year ended December 31, 1994 and the period January 1, 1995 to
November 15, 1995 (date of maturity of securities in the trust). These financial
statements are the responsibility of the management of IDS Life Insurance
Company. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996 with the affiliated mutual
fund manager and the unit investment trust sponsor. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of IDS Life Variable Life Separate Account for
Single Premium Variable Life Insurance at December 31, 1996 and the individual
and combined results of their operations and the changes in their net assets for
the periods described above, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account-Single Premium Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------
Statements of Net Assets Dec. 31, 1996
Segregated Asset Subaccounts
--------------------------------------------------------------------------
Assets P Q R S T
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in shares of mutual fund portfolios and
units of the trust, at market value:
IDS Life Series Fund Equity Portfolio -
337,932 shares at net asset value
of $25.65 per share (cost $5,586,734) $ 8,669,408 $ -- $ -- $ -- $ --
IDS Life Series Fund Income Portfolio -
401,336 shares at net asset value
of $10.17 per share (cost $3,872,066) -- 4,080,239 -- -- --
IDS Life Series Fund Money Market Portfolio -
1,892,529 shares at net asset value
of $1 per share (cost $1,892,410) -- -- 1,892,350 -- --
IDS Life Series Fund Managed Portfolio -
1,459,529 shares at net asset value
of $17.06 per share (cost $18,653,308) -- -- -- 24,897,413 --
IDS Life Series Fund Government Securities Portfolio -
256,706 shares at net asset value
of $10.03 per share (cost $2,474,936) -- -- -- -- 2,574,452
Smith Barney Inc. Stripped ("Zero Coupon")
U. S. Treasury Securities Fund, Series A 2004 Trust -
2,437,746 units at net asset value
of $0.61 per unit (cost $726,994) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
8,669,408 4,080,239 1,892,350 24,897,413 2,574,452
- -----------------------------------------------------------------------------------------------------------------------------
Dividends receivable -- 23,157 7,864 -- 12,660
Receivable from IDS Life for contract
purchase payments 1,698 2,452 -- 6,271 --
Receivable from mutual fund portfolios and the trust
for share redemptions 20,138 -- 100 -- 23
- -----------------------------------------------------------------------------------------------------------------------------
Total assets 8,691,244 4,105,848 1,900,314 24,903,684 2,587,135
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Payable to IDS Life for:
Mortality and expense risk fee 7,276 1,789 818 20,826 1,133
Minimum death benefit guarantee risk charge 2,184 537 246 6,251 340
Contract terminations 21,836 -- 100 -- 23
Transaction charge -- -- -- -- --
Payable to mutual fund portfolios
for investments purchased -- 23,283 6,800 6,271 2,646
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 31,296 25,609 7,964 33,348 4,142
- -----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Variable Life
contracts in accumulation period $ 8,659,948 $ 4,080,239 $ 1,892,350 $24,870,336 $ 2,582,993
- -----------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 1,965,179 1,875,734 1,137,105 6,472,563 1,290,739
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 4.41 $ 2.18 $ 1.66 $ 3.84 $ 2.00
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account-Single Premium Variable Life Subaccounts
- -------------------------------------------------------------------------------------
Statements of Net Assets Dec. 31, 1996
---------------------- Combined
Assets 2004 Variable
Account
- -------------------------------------------------------------------------------------
<S> <C> <C>
Investments in shares of mutual fund portfolios and units of
the trust, at market value:
IDS Life Series Fund Equity Portfolio -
337,932 shares at net asset value
of $25.65 per share (cost $5,586,734) $ -- $ 8,669,408
IDS Life Series Fund Income Portfolio -
401,336 shares at net asset value
of $10.17 per share (cost $3,872,066) -- 4,080,239
IDS Life Series Fund Money Market Portfolio -
1,892,529 shares at net asset value
of $1 per share (cost $1,892,410) -- 1,892,350
IDS Life Series Fund Managed Portfolio -
1,459,529 shares at net asset value
of $17.06 per share (cost $18,653,308) -- 24,897,413
IDS Life Series Fund Government Securities Portfolio -
256,706 shares at net asset value
of $10.03 per share (cost $2,474,936) -- 2,574,452
Smith Barney Inc. Stripped ("Zero Coupon")
U. S. Treasury Securities Fund, Series A 2004 Trust -
2,437,746 units at net asset value
of $0.61 per unit (cost $726,994) 1,485,940 1,485,940
- -------------------------------------------------------------------------------------
1,485,940 43,599,802
- -------------------------------------------------------------------------------------
Dividends receivable -- 43,681
Receivable from IDS Life for contract
purchase payments -- 10,421
Receivable from mutual fund portfolios and the trust
for share redemptions -- 20,261
- -------------------------------------------------------------------------------------
Total assets 1,485,940 43,674,165
- -------------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------------
Payable to IDS Life for:
Mortality and expense risk fee 649 32,491
Minimum death benefit guarantee risk charge 195 9,753
Contract terminations -- 21,959
Transaction charge 325 325
Payable to mutual fund portfolios
for investments purchased -- 39,000
- -------------------------------------------------------------------------------------
Total liabilities 1,169 103,528
- -------------------------------------------------------------------------------------
Net assets applicable to Variable Life
contracts in accumulation period $ 1,484,771 $ 43,570,637
- -------------------------------------------------------------------------------------
Accumulation units outstanding 589,227
- -------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 2.52
- -------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account-Single Premium Variable Life Subaccounts
- ---------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1996
Segregated Asset Subaccounts
----------------------------------------------------------------------------
P Q R S T
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from mutual fund portfolios $ 1,302,115 $ 274,564 $ 99,278 $ 1,818,663 $ 178,514
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 41,475 20,641 10,368 123,717 13,341
Minimum death benefit guarantee risk charge 12,449 6,194 3,112 37,133 4,004
Transaction charge -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 53,924 26,835 13,480 160,850 17,345
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net 1,248,191 247,729 85,798 1,657,813 161,169
- ---------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments - Net
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in
mutual fund portfolios and in the trusts:
Proceeds from sales 1,029,303 632,209 1,098,262 3,438,322 324,814
Cost of investments sold 608,085 605,074 1,098,299 2,639,668 311,240
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain(loss) on investments 421,218 27,135 (37) 798,654 13,574
Net change in unrealized appreciation or
depreciation of investments (256,986) (167,669) 24 692,490 (158,222)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 164,232 (140,534) (13) 1,491,144 (144,648)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 1,412,423 $ 107,195 $ 85,785 $ 3,148,957 $ 16,521
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account-Single Premium Variable Life Subaccounts
- -------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1996
---------------Combined
2004 Variable
Account
- -------------------------------------------------------------------------------------
<S> <C> <C>
Investment income (loss):
Dividend income from mutual fund portfolios $ -- $ 3,673,134
- -------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 7,968 217,510
Minimum death benefit guarantee risk charge 2,391 65,283
Transaction charge 3,984 3,984
- -------------------------------------------------------------------------------------
Total expenses 14,343 286,777
- -------------------------------------------------------------------------------------
Investment income (loss) - net (14,343) 3,386,357
- -------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments - Net
- -------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in
mutual fund portfolios and in the trusts:
Proceeds from sales 271,600 6,794,510
Cost of investments sold 140,918 5,403,284
- -------------------------------------------------------------------------------------
Net realized gain(loss) on investments 130,682 1,391,226
Net change in unrealized appreciation or
depreciation of investments (156,453) (46,816)
- -------------------------------------------------------------------------------------
Net gain (loss) on investments (25,771) 1,347,410
- -------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ (40,114) $ 4,730,767
- -------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Single Premium Variable Life Subaccounts
- ------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1995
Segregated Asset Subaccounts Combined
--------------------------------------------------------------------------------------- Variable
P Q R S T 1995* 2004 Account
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from mutual
fund portfolios....... $ 160,522 $ 269,157 $ 111,166 $1,128,774 $ 165,389 $ -- $ -- $1,835,008
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense
risk fee ............. 34,593 19,889 10,706 117,401 13,449 6,541 7,594 210,173
Minimum death benefit
guarantee risk
charge ............... 10,378 5,967 3,212 35,220 4,035 1,962 2,278 63,052
Transaction charge ... -- -- -- -- -- 3,270 3,797 7,067
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses........ 44,971 25,856 13,918 152,621 17,484 11,773 13,669 280,292
- -----------------------------------------------------------------------------------------------------------------------------
Investment income
(loss) -- net......... 115,551 243,301 97,248 976,153 147,905 (11,773) (13,669) 1,554,716
- -----------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments -- net
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales... 811,403 671,494 834,746 3,442,279 304,725 1,632,504 162,191 7,859,342
Cost of investments
sold.................. 537,380 650,279 834,791 2,906,894 289,936 960,852 81,496 6,261,628
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments........ 274,023 21,215 (45) 535,385 14,789 671,652 80,695 1,597,714
Net change in unrealized
appreciation or depreciation
of investments........ 1,736,471 458,571 41 2,411,680 262,826 (607,620) 320,181 4,582,150
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on
investments........... 2,010,494 479,786 (4) 2,947,065 277,615 64,032 400,876 6,179,864
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations............ $2,126,045 $ 723,087 $ 97,244 $ 3,923,218 $ 425,520 $ 52,259 $ 387,207 $ 7,734,580
- -----------------------------------------------------------------------------------------------------------------------------
* For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Single Premium Variable Life Subaccounts
- ---------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1994
Segregated Asset Subaccounts Combined
-------------------------------------------------------------------------- Variable
P Q R S T 1995 2004 Account
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income from mutual
fund portfolios..... $627,103 $ 267,549 $ 81,645 $2,742,805 $ 177,864 $ -- $ -- $ 3,896,966
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk
fee ................ 29,690 18,748 11,316 119,238 13,189 8,052 7,077 207,310
Minimum death benefit
guarantee risk
charge ............. 8,907 5,624 3,395 35,771 3,957 2,416 2,123 62,193
Transaction charge.. -- -- -- -- -- 4,026 3,538 7,564
- --------------------------------------------------------------------------------------------------------------------
Total expenses...... 38,597 24,372 14,711 155,009 17,146 14,494 12,738 277,067
- --------------------------------------------------------------------------------------------------------------------
Investment income
(loss) -- net....... 588,506 243,177 66,934 2,587,796 160,718 (14,494) (12,738) 3,619,899
- --------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments -- net
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales.. 670,491 471,513 603,907 2,128,160 249,067 236,726 135,297 4,495,161
Cost of investments
sold................. 488,958 458,189 603,927 1,765,687 239,439 147,144 73,744 3,777,088
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments....... 181,533 13,324 (20) 362,473 9,628 89,582 61,553 718,073
Net change in unrealized
appreciation or depreciation
of investments....... (657,895) (457,742) (103) (2,968,938) (324,515) (62,637) (208,561) (4,680,391)
- ---------------------------------------------------------------------------------------------------------------------
Net gain (loss) on
investments......... (476,362) (444,418) (123) (2,606,465) (314,887) 26,945 (147,008) (3,962,318)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations..... $112,144 $(201,241) $ 66,811 $ (18,669) $(154,169) $ 12,451 $(159,746) $ (342,419)
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account-Single Premium Variable Life Subaccounts
- ------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1996
Segregated Asset Subaccounts
------------------------------------------------------------------------------------
Operations P Q R S T
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 1,248,191 $ 247,729 $ 85,798 $ 1,657,813 $ 161,169
Net realized gain (loss) on investments 421,218 27,135 (37) 798,654 13,574
Net change in unrealized appreciation or
depreciation of investments (256,986) (167,669) 24 692,490 (158,222)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1,412,423 107,195 85,785 3,148,957 16,521
- ------------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net transfers* 566,270 55,477 (130,763) (445,985) (48,328)
Transfers for policy loans (172,770) (88,520) (65,299) (220,076) (25,011)
Policy charges (144,815) (95,469) (49,366) (426,537) (57,839)
Contract terminations:
Surrender benefits (480,855) (207,625) (240,286) (1,035,403) (45,636)
Death benefits (97,964) (36,579) (368,159) (687,979) (85,162)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions (330,134) (372,716) (853,873) (2,815,980) (261,976)
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 7,577,659 4,345,760 2,660,438 24,537,359 2,828,448
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 8,659,948 $ 4,080,239 $ 1,892,350 $ 24,870,336 $ 2,582,993
- ------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 2,052,489 2,054,522 1,666,697 7,266,276 1,425,106
Net transfers* 137,391 26,004 (82,210) (125,102) (24,424)
Transfers for policy loans (41,998) (42,365) (40,723) (63,350) (12,862)
Deductions for policy charges (35,560) (45,597) (30,287) (119,543) (29,683)
Contract terminations:
Surrender benefits (123,358) (99,305) (148,981) (292,418) (23,536)
Death benefits (23,785) (17,525) (227,391) (193,300) (43,862)
- ------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 1,965,179 1,875,734 1,137,105 6,472,563 1,290,739
- ------------------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account-Single Premium Variable Life Subaccounts
- ------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1996
-----------------Combined
Operations 2004 Variable
Account
- ------------------------------------------------------------------------------
<S> <C> <C>
Investment income (loss) - net $ (14,343) $ 3,386,357
Net realized gain (loss) on investments 130,682 1,391,226
Net change in unrealized appreciation or
depreciation of investments (156,453) (46,816)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (40,114) 4,730,767
- ------------------------------------------------------------------------------
Contract Transactions
- ------------------------------------------------------------------------------
Net transfers* 1,622 (1,707)
Transfers for policy loans (26,115) (597,791)
Policy charges (31,725) (805,751)
Contract terminations:
Surrender benefits (148,400) (2,158,205)
Death benefits (50,454) (1,326,297)
- ------------------------------------------------------------------------------
Increase (decrease) from contract transactions (255,072) (4,889,751)
- ------------------------------------------------------------------------------
Net assets at beginning of year 1,779,957 43,729,621
- ------------------------------------------------------------------------------
Net assets at end of year $ 1,484,771 $ 43,570,637
- ------------------------------------------------------------------------------
Accumulation Unit Activity
- ------------------------------------------------------------------------------
Units outstanding at beginning of year 696,387
Net transfers* 656
Transfers for policy loans (10,949)
Deductions for policy charges (12,981)
Contract terminations:
Surrender benefits (63,592)
Death benefits (20,294)
- ------------------------------------------------------------------------------
Units outstanding at end of year 589,227
- ------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Single Premium Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1995
Segregated Asset Subaccounts Combined
--------------------------------------------------------------------------------------- Variable
Operations P Q R S T 1995** 2004 Account
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss) -- net........ $ 115,551 $ 243,301 $ 97,248 $ 976,153 $ 147,905 $ (11,773) $ (13,669) $ 1,554,716
Net realized gain (loss)
on investments....... 274,023 21,215 (45) 535,385 14,789 671,652 80,695 1,597,714
Net change in unrealized
appreciation or depreciation
of investments....... 1,736,471 458,571 41 2,411,680 262,826 (607,620) 320,181 4,582,150
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations........... 2,126,045 723,087 97,244 3,923,218 425,520 52,259 387,207 7,734,580
- -----------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net transfers*....... 110,514 503,830 549,435 (1,028) 148,424 (1,478,541) 190,011 22,645
Transfers for policy
loans................ (137,150) (63,272) 10,452 (230,071) (45,190) (25,312) (4,066) (494,609)
Policy charges....... (116,627) (86,977) (43,436) (390,178) (55,235) (27,529) (30,313) (750,295)
Contract terminations:
Surrender benefits... (391,604) (285,347) (165,647) (1,725,911) (133,595) (83,799) (91,235) (2,877,138)
Death benefits....... (25,388) (13,415) (30,276) (173,010) (15,146) -- -- (257,235)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
from contract
transactions......... (560,255) 54,819 320,528 (2,520,198) (100,742) (1,615,181) 64,397 (4,356,632)
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning
of year.............. 6,011,869 3,567,854 2,242,666 23,134,339 2,503,670 1,562,922 1,328,353 $40,351,673
Net assets at end
of year.............. $7,577,659 $4,345,760 $2,660,438 $24,537,359 $2,828,448 $ -- $1,779,957 $43,729,621
- -----------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- -----------------------------------------------------------------------------------------------------------------------------
Units outstanding at
beginning of year.... 2,238,766 2,027,601 1,470,233 8,103,458 1,479,207 877,482 673,287
Net transfers*....... 31,860 257,982 342,675 (6,086) 81,465 (803,259) 78,752
Transfers for policy
loans................ (43,100) (32,514) 6,616 (78,625) (24,490) (13,740) (1,746)
Deductions for policy
charges.............. (36,917) (44,875) (27,822) (128,887) (29,967) (15,004) (13,345)
Contract terminations:
Surrender benefits... (129,714) (146,267) (105,684) (568,555) (72,724) (45,479) (40,561)
Death benefits....... (8,406) (7,405) (19,321) (55,029) (8,385) -- --
- ----------------------------------------------------------------------------------------------------------------
Units outstanding at
end of year.......... 2,052,489 2,054,522 1,666,697 7,266,276 1,425,106 -- 696,387
- ----------------------------------------------------------------------------------------------------------------
* Includes transfer activity from (to) other subaccounts.
** For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Single Premium Variable Life Subaccounts
- ---------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1994
Segregated Asset Subaccounts Combined
----------------------------------------------------------------------------- Variable
Operations P Q R S T 1995 2004 Account
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss) -- net....... $ 588,506 $ 243,177 $ 66,934 $2,587,796 $ 160,718 $ (14,494) $ (12,738) $ 3,619,899
Net realized gain (loss)
on investments...... 181,533 13,324 (20) 362,473 9,628 89,582 61,553 718,073
Net change in unrealized
appreciation or depreciation
of investments...... (657,895) (457,742) (103) (2,968,938) (324,515) (62,637) (208,561) (4,680,391)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations..... 112,144 (201,241) 66,811 (18,669) (154,169) 12,451 (159,746) (342,419)
- ----------------------------------------------------------------------------------------------------------------------
Contract Transactions
- ----------------------------------------------------------------------------------------------------------------------
Net transfers*...... 41,778 (6,373) 290,520 (210,317) (36,694) (634) (78,690) (410)
Transfers for policy
loans............... 55,175 19,560 (84,405) (182,794) (21,026) (27,577) 7,219 (233,848)
Policy charges ..... (102,540) (83,309) (43,938) (388,306) (52,296) (31,198) (28,675) (730,262)
Contract terminations:
Surrender benefits.. (264,497) (153,588) (131,093) (564,474) (89,368) (166,473) (13,309) (1,382,802)
Death benefits...... (75,282) (41,772) (84,484) (346,458) (13,381) -- (5,134) (566,511)
- ----------------------------------------------------------------------------------------------------------------------
Decrease from contract
transactions........ (345,366) (265,482) (53,400) (1,692,349) (212,765) (225,882) (118,589) (2,913,833)
- ----------------------------------------------------------------------------------------------------------------------
Net assets at beginning
of year............. 6,245,091 4,034,577 2,229,255 24,845,357 2,870,604 1,776,353 1,606,688 43,607,925
Net assets at end
of year............. $6,011,869 $3,567,854 $2,242,666 $23,134,339 $2,503,670 $1,562,922 $1,328,353 $40,351,673
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ----------------------------------------------------------------------------------------------------------------------
Units outstanding at
beginning of year... 2,374,388 2,178,301 1,504,967 8,702,667 1,603,034 1,004,986 732,324
Net transfers*...... 15,483 (5,937) 195,169 (73,680) (21,594) (273) (39,201)
Transfers for
policy loans........ 20,905 10,750 (57,505) (65,370) (12,633) (15,584) 3,770
Deductions for policy
charges............. (39,977) (46,735) (29,296) (137,088) (30,482) (17,623) (14,207)
Contract terminations:
Surrender benefits.. (101,940) (85,179) (87,051) (198,970) (51,238) (94,024) (6,705)
Death benefits...... (30,093) (23,599) (56,051) (124,101 (7,880) -- (2,694)
- ----------------------------------------------------------------------------------------------------------------------
Units outstanding at
end of year......... 2,238,766 2,027,601 1,470,233 8,103,458 1,479,207 877,482 673,287
- ----------------------------------------------------------------------------------------------------------------------
* Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
IDS Life Variable Life Separate Account
Notes to Financial Statements
- -----------------------------------------------------------
1. Organization
IDS Life Variable Life Separate Account (the Variable Account) was established
on Oct. 16, 1985 as a segregated asset account of IDS Life Insurance Company
(IDS Life) under Minnesota law and is registered as a single unit investment
trust under the Investment Company Act of 1940. Operations of the Variable
Account commenced on Jan. 20, 1986.
The Variable Account is comprised of various subaccounts. The assets of each
subaccount of the Variable Account are not chargeable with liabilities arising
out of the business conducted by any other Subaccount, Account or by IDS Life.
The assets of the Variable Account shall be available, however, to cover the
liabilities of IDS Life to the extent the assets of the Variable Account exceed
its liabilities arising under the policies supported by it. Single Premium
Variable Life policy owners allocate their premium payment to one or more of the
six subaccounts which are currently used in connection with these policies.
Prior to Nov. 15, 1995, the date of maturity of securities in the 1995 Trust,
there were seven subaccounts available for investment. Such funds are then
invested in shares of five portfolios of IDS Life Series Fund, Inc. (the mutual
fund) or in units of one Trust of Smith Barney Inc. Stripped ("Zero Coupon")
U.S. Treasury Securities Fund, Series A (the Trust). The 1995 Trust matured on
Nov. 15, 1995 and is no longer available for investment.
The mutual fund, which commenced operations Jan. 20, 1986, is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. Funds are allocated to the subaccounts which are used in
connection with the Single Premium Variable Life policies: Subaccount P invests
in the shares of the Equity Portfolio; Subaccount Q invests in the shares of the
Income Portfolio; Subaccount R invests in the shares of the Money Market
Portfolio; Subaccount S invests in the shares of the Managed Portfolio; and
Subaccount T invests in the shares of the Government Securities Portfolio. The
Trust, which commenced operations Aug. 4, 1986, is registered under the
Investment Company Act of 1940 as a unit investment trust. Funds allocated to
Subaccount 2004 invest in units of the 2004 Trust and Subaccount 1995 funds were
invested in units of the 1995 Trust.
IDS Life acts as the investment manager and American Express Financial
Corporation acts as the investment advisor of the IDS Life Series Fund, Inc. IDS
Life serves as distributor for the Variable Account and the underlying mutual
fund. Smith Barney Inc. serves as sponsor for the Trust.
- -----------------------------------------------------------
2. Summary of Significant Accounting Policies
Investments in Mutual Fund
Investments in shares of the mutual fund portfolios are stated at market value
which is the net asset value per share as determined by the respective
portfolios. Investment transactions are accounted for on the date the shares are
purchased and sold. The cost of investments sold and redeemed is determined on
the average cost method. Dividend distributions received from the portfolios are
reinvested, net of any expenses payable to IDS Life, in additional shares of the
portfolios and are recorded as income by the subaccounts on the ex-dividend
date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the portfolios'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Investments in the Trust
Investments in units of the Trust are stated at market value which is the net
asset value per unit as determined by the respective trust. Investment
transactions are accounted for on the date the units are purchased and sold. The
cost of investments sold and redeemed is determined on the average cost method.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Trust's
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Federal Income Taxes
IDS Life is taxed as a life insurance company. The Variable Account is treated
as part of IDS Life for federal income tax purposes. Under existing federal
income tax law, no income taxes are payable with respect to any investment
income of the Variable Account.
<PAGE>
- -----------------------------------------------------------
3. Mortality and Expense Risk Fee and Policy Charges
IDS Life makes contractual assurances to the Variable Account that possible
future adverse changes in administrative expenses and mortality experience of
the policy owners and beneficiaries will not affect the Variable Account. The
mortality and expense risk fee paid to IDS Life is computed daily and is equal,
on an annual basis, to 0.5 percent of the daily net asset value of the Variable
Account. A monthly deduction is made for the cost of insurance for the policy
month. The cost of insurance for the policy month is determined on the monthly
date by determining the net amount at risk, as of that day, and by then applying
the cost of insurance rates to the net amount at risk which IDS Life is assuming
for the succeeding month. The monthly deduction will be taken from the
subaccounts as specified in the application for the policy.
- -----------------------------------------------------------
4. Minimum Death Benefit Guarantee Risk Charge
IDS Life deducts a minimum death benefit guarantee risk charge equal, on an
annual basis, to 0.15 percent of the daily net asset value of the Variable
Account. This deduction is made to compensate IDS Life for the risk it assumes
by providing a guaranteed minimum death benefit. The deduction will be made from
the Variable Account and computed on a daily basis. This charge is guaranteed
for the life of the contract and may not be increased.
- -----------------------------------------------------------
5. Issue and Administrative Expense Charge
The policy provides for a one-time $150 issue and administrative expense charge
which will be deducted directly from the premium paid by the owner. This charge
is to reimburse IDS Life for expenses incurred in processing the premium payment
and establishing and maintaining the records relating to the owner and
participation in the subaccounts for the duration of the policy.
- -----------------------------------------------------------
6. State Premium Tax Charge
The policy provides that a charge of 2.5 percent of the single premium will be
deducted from the single premium to cover the premium taxes assessed by the
various states. Premium taxes vary from state to state. This charge is the
average rate which IDS Life expects to pay on premiums from all states.
- -----------------------------------------------------------
7. Transaction Charge
IDS Life makes a daily charge against the assets of the subaccount investing in
the Trust. This charge is intended to reimburse IDS Life for the transaction
charge paid directly by IDS Life to Smith Barney Inc. on the sale of the Trust
units to the Variable Account. IDS Life pays these amounts from its general
account assets. The amount of the asset charge is equivalent to an effective
annual rate of 0.25 percent of the account value invested in the Trust. This
amount may be increased in the future but in no event will it exceed an
effective annual rate of 0.5 percent of the account value. The charge will be
cost-based (taking into account a loss of interest) with no anticipated element
of profit for IDS Life.
- -----------------------------------------------------------
8. Surrender Charges
IDS Life will use a surrender charge to help it recover certain expenses
relating to the sale of the policy. The surrender charge will be deducted during
the first eight policy years. IDS Life will never deduct more than 9 percent of
the single premium as a surrender charge. Charges by IDS Life for surrenders are
not available on an individual segregated asset account basis. Charges for all
segregated asset accounts amounted to $11,956,753 in 1996, $10,125,762 in 1995
and $6,969,493 in 1994. Such charges are not an expense of the subaccounts or
Variable Account. They are deducted from contract surrender benefits paid by IDS
Life.
<PAGE>
- -----------------------------------------------------------
9. Investment Transactions
The subaccounts' purchases of portfolio shares or trust units (net of charges),
including reinvestment of dividend distributions, were as follows:
<TABLE>
<CAPTION>
Year ended Dec. 31,
------------------------------------
Subaccount Investment 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
P Equity Portfolio............... $1,948,845 $ 368,227 $ 913,119
Q Income Portfolio............... 507,222 969,615 449,208
R Money Market Portfolio......... 330,187 1,252,522 617,441
S Managed Portfolio.............. 2,281,172 1,903,053 3,016,860
T Government Securities Portfolio 215,464 351,890 197,020
1995 1995 Trust..................... -- 4,389* (3,865)
2004 2004 Trust..................... 2,082 213,190 3,684
- -----------------------------------------------------------------------------------
$5,284,972 $5,062,886 $5,193,467
- -----------------------------------------------------------------------------------
*For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the
1995 Trust.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Financial Information (unaudited)
Year Ended Dec. 31, _
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subaccount P (invests in Equity Portfolio)
Accumulation unit value at beginning of
period.................................. $3.69 $2.69 $2.63 $2.34 $2.23 $1.35 $1.43 $1.17 $1.07 $0.99
Accumulation unit value at end of period $4.41 $3.69 $2.69 $2.63 $2.34 $2.23 $1.35 $1.43 $1.17 $1.07
Number of accumulation units outstanding
at end of period (000 omitted).......... 1,965 2,052 2,239 2,374 2,493 2,575 2,893 3,286 3,887 3,887
- --------------------------------------------------------------------------------------------------------------------------------
Subaccount Q (invests in Income Portfolio)
Accumulation unit value at beginning of
period.................................. $2.12 $1.76 $1.85 $1.62 $1.49 $1.30 $1.23 $1.11 $1.04 $1.10
Accumulation unit value at end of period $2.18 $2.12 $1.76 $1.85 $1.62 $1.49 $1.30 $1.23 $1.11 $1.04
Number of accumulation units outstanding
at end of period (000 omitted).......... 1,876 2,055 2,028 2,178 2,378 2,647 3,289 3,778 3,478 3,252
- --------------------------------------------------------------------------------------------------------------------------------
Subaccount R (invests in Money Market Portfolio)
Accumulation unit value at beginning of
period.................................. $1.60 $1.53 $1.48 $1.45 $1.41 $1.35 $1.26 $1.16 $1.10 $1.05
Accumulation unit value at end of period $1.66 $1.60 $1.53 $1.48 $1.45 $1.41 $1.35 $1.26 $1.16 $1.10
Number of accumulation units outstanding
at end of period (000 omitted).......... 1,137 1,667 1,470 1,505 2,046 2,751 3,172 3,146 3,210 1,629
- --------------------------------------------------------------------------------------------------------------------------------
Subaccount S (invests in Managed Portfolio)
Accumulation unit value at beginning of
period.................................. $3.38 $2.85 $2.85 $2.40 $2.19 $1.67 $1.56 $1.20 $1.11 $1.07
Accumulation unit value at end of period $3.84 $3.38 $2.85 $2.85 $2.40 $2.19 $1.67 $1.56 $1.20 $1.11
Number of accumulation units outstanding
at end of period (000 omitted).......... 6,473 7,266 8,103 8,703 9,123 9,735 10,289 11,099 12,793 14,419
- --------------------------------------------------------------------------------------------------------------------------------
Subaccount T (invests in Government Securities Portfolio)
Accumulation unit value at beginning of
period.................................. $1.98 $1.69 $1.79 $1.61 $1.52 $1.31 $1.24 $1.09 $1.03 $1.08
Accumulation unit value at end of period $2.00 $1.98 $1.69 $1.79 $1.61 $1.52 $1.31 $1.24 $1.09 $1.03
Number of accumulation units outstanding
at end of period (000 omitted).......... 1,290 1,425 1,479 1,603 1,671 1,826 1,937 2,168 2,234 1,666
- --------------------------------------------------------------------------------------------------------------------------------
Subaccount 1995 (invests in 1995 Trust)*
Accumulation unit value at beginning of
period.................................. $ -- $1.78 $1.77 $1.67 $1.56 $1.36 $1.24 $1.08 $1.02 $1.06
Accumulation unit value at end of period $ -- $ -- $1.78 $1.77 $1.67 $1.56 $1.36 $1.24 $1.08 $1.02
Number of accumulation units outstanding
at end of period (000 omitted).......... -- -- 877 1,005 1,090 1,033 1,012 1,075 979 219
- --------------------------------------------------------------------------------------------------------------------------------
Subaccount 2004 (invests in 2004 Trust)
Accumulation unit value at beginning of
period.................................. $2.56 $1.97 $2.19 $1.82 $1.68 $1.40 $1.36 $1.11 $0.98 $1.09
Accumulation unit value at end of period $2.52 $2.56 $1.97 $2.19 $1.82 $1.68 $1.40 $1.36 $1.11 $0.98
Number of accumulation units outstanding
at end of period (000 omitted).......... 589 696 673 732 792 800 731 930 901 654
- --------------------------------------------------------------------------------------------------------------------------------
*For the period Jan. 1, 1987 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
</TABLE>
<PAGE>
<PAGE>
IDS Life Financial Information
The financial statements shown below are those of the insurance company and not
those of any other entity. They are included for the purpose of informing the
investor as to the financial condition of the insurance company and its ability
to carry out its obligations under its variable contracts.
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1996 1995
- ------ ---- ---------
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1996, $10,521,650; 1995, $11,878,377) .............. $10,236,379 $11,257,591
Available for sale, at fair value (Amortized cost:
1996, $11,008,622; 1995, $10,146,136) .............. 11,146,845 10,516,212
Mortgage loans on real estate ...................... 3,493,364 2,945,495
Policy loans ....................................... 459,902 424,019
Other investments .................................. 251,465 146,894
Total investments .................................. 25,587,955 25,290,211
Cash and cash equivalents .......................... 224,603 72,147
Amounts recoverable from reinsurers ................ 157,722 114,387
Amounts due from brokers ........................... 11,047 --
Other accounts receivable .......................... 44,089 39,108
Accrued investment income .......................... 343,313 348,008
Deferred policy acquisition costs .................. 2,330,805 2,025,725
Deferred income taxes .............................. 33,923 --
Other assets ....................................... 37,364 36,410
Separate account assets ............................ 18,535,160 14,974,082
Total assets ....................................... $47,305,981 $42,900,078
=========== ===========
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
- ------------------------------------ ---- ----
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities .................................... $21,838,008 $21,404,836
Universal life-type insurance ...................... 3,177,149 3,076,847
Traditional life insurance ......................... 209,685 209,249
Disability income and long-term care insurance ..... 424,200 327,157
Policy claims and other
policyholders' funds ............................... 83,634 56,323
Deferred income taxes .............................. -- 112,904
Amounts due to brokers ............................. 261,987 121,618
Other liabilities .................................. 332,078 285,354
Separate account liabilities ....................... 18,535,160 14,974,082
Total liabilities .................................. 44,861,901 40,568,370
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding .. 3,000 3,000
Additional paid-in capital ......................... 283,615 278,814
Net unrealized gain on investments ................. 86,102 230,129
Retained earnings .................................. 2,071,363 1,819,765
Total stockholder's equity ......................... 2,444,080 2,331,708
Total liabilities and stockholder's equity ......... $47,305,981 $42,900,078
=========== ===========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended Dec. 31,
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Traditional life insurance $ 51,403 $ 50,193 $ 48,184
Disability income and long-term care insurance 131,518 111,337 96,456
Total premiums 182,921 161,530 144,640
Policyholder and contractholder charges 302,999 256,454 219,936
Management and other fees 271,342 215,581 164,169
Net investment income 1,965,362 1,907,309 1,781,873
Net realized loss on investments (159) (4,898) (4,282)
Total revenues 2,722,465 2,535,976 2,306,336
Benefits and expenses:
Death and other benefits:
Traditional life insurance 26,919 29,528 28,263
Universal life-type insurance
and investment contracts 85,017 71,691 52,027
Disability income and
long-term care insurance 19,185 16,259 13,393
Increase (decrease) in liabilities for future policy benefits:
Traditional life insurance 1,859 (1,315) (3,229)
Disability income and
long-term care insurance 57,230 51,279 37,912
Interest credited on universal life-type
insurance and investment contracts 1,370,468 1,315,989 1,174,985
Amortization of deferred policy acquisition costs 278,605 280,121 280,372
Other insurance and operating expenses 261,468 211,642 210,101
Total benefits and expenses 2,100,751 1,975,194 1,793,824
Income before income taxes 621,714 560,782 512,512
Income taxes 207,138 195,842 176,343
Net income $ 414,576 $ 364,940 $ 336,169
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended Dec. 31, 1996
(thousands)
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital Investments Earnings Total
----- ------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1993 $3,000 $ 222,000 $ 114 $1,468,230 $1,693,344
Initial adoption of SFAS No. 115 -- -- 181,269 -- 181,269
Net income -- -- -- 336,169 336,169
Change in net unrealized
gain (loss) on investments -- -- (457,091) -- (457,091)
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1994 3,000 222,000 (275,708) 1,639,399 1,588,691
Net income -- -- -- 364,940 364,940
Change in net unrealized
gain (loss) on investments -- -- 505,837 -- 505,837
Capital contribution from parent -- 56,814 -- -- 56,814
Loss on reinsurance transaction
with affiliate -- -- -- (4,574) (4,574)
Cash dividends -- -- -- (180,000) (180,000)
Balance, Dec. 31, 1995 3,000 278,814 230,129 1,819,765 2,331,708
Net income -- -- -- 414,576 414,576
Change in net unrealized
gain (loss) on investments -- -- (144,027) -- (144,027)
Capital contribution from parent -- 4,801 -- -- 4,801
Other changes -- -- -- 2,022 2,022
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1996 $3,000 $283,615 $ 86,102 $2,071,363 $2,444,080
===== ======= ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 414,576 $ 364,940 $ 336,169
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Policy loan issuance, excluding universal
life-type insurance (49,314) (46,011) (37,110)
Policy loan repayment, excluding universal
life-type insurance 41,179 36,416 33,384
Change in amounts recoverable from reinsurers (43,335) (34,083) (25,006)
Change in other accounts receivable (4,981) 12,231 (28,551)
Change in accrued investment income 4,695 (30,498) (10,333)
Change in deferred policy acquisition
costs, net (294,755) (196,963) (192,768)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance 97,479 85,575 55,354
Change in policy claims and other
policyholders' funds 27,311 6,255 5,552
Change in deferred income taxes (65,609) (33,810) (19,176)
Change in other liabilities 46,724 (6,548) (122)
(Accretion of discount)
amortization of premium, net (23,032) (22,528) 30,921
Net realized loss on investments 159 4,898 4,282
Policyholder and contractholder
charges, non-cash (154,286) (140,506) (126,918)
Other, net (10,816) 3,849 (8,709)
Net cash (used in) provided by operating
activities $ (14,005) $ 3,217 $ 16,969
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (43,751) $ (1,007,208) $ (879,740)
Maturities, sinking fund payments and calls 759,248 538,219 1,651,762
Sales 279,506 332,154 58,001
Fixed maturities available for sale:
Purchases (2,299,198) (2,452,181) (2,763,278)
Maturities, sinking fund payments and calls 1,270,240 861,545 1,234,401
Sales 238,905 136,825 374,564
Other investments, excluding policy loans:
Purchases (904,536) (823,131) (634,807)
Sales 236,912 160,521 243,862
Change in amounts due from brokers (11,047) 7,933 (2,214)
Change in amounts due to brokers 140,369 (105,119) (124,749)
Net cash used in investing activities (333,352) (2,350,442) (842,198)
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 3,567,586 4,189,525 3,566,814
Surrenders and death benefits (4,250,294) (3,141,404) (3,602,392)
Interest credited to account balances 1,370,468 1,315,989 1,174,985
Universal life-type insurance policy loans:
Issuance (86,501) (84,700) (78,239)
Repayment 58,753 52,188 50,554
Capital contribution from parent 4,801 -- --
Cash dividends to parent (165,000) (180,000) (165,000)
Net cash provided by financing activities 499,813 2,151,598 946,722
Net increase (decrease) in cash and
cash equivalents 152,456 (195,627) 121,493
Cash and cash equivalents at
beginning of year 72,147 267,774 146,281
Cash and cash equivalents at
end of year $ 224,603 $ 72,147 $ 267,774
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a wholly
owned subsidiary of American Express Financial Corporation, which is a wholly
owned subsidiary of American Express Company. The Company serves residents of
all states except New York. IDS Life Insurance Company of New York is a
wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company (ACLAC) and American Partners Life
Insurance Company.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single
premium and flexible premium deferred annuities on both a fixed and variable
dollar basis. Immediate annuities are offered as well. The Company's
insurance products include universal life (fixed and variable), whole life,
single premium life and term products (including waiver of premium and
accidental death benefits). The Company also markets disability income and
long-term care insurance.
Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which vary in
certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried at
amortized cost. All other fixed maturities and all marketable equity
securities are classified as available for sale and carried at fair value.
Unrealized gains and losses on securities classified as available for sale
are carried as a separate component of stockholder's equity, net of deferred
taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received from
brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of the loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for
mortgage loan losses. The reserve for mortgage loans losses is maintained at
a level that management believes is adequate to absorb estimated losses in
the portfolio. The level of the reserve account is determined based on
several factors, including historical experience, expected future principal
and interest payments, estimated collateral values, and current and
anticipated economic and political conditions. Management regularly evaluates
the adequacy of the reserve for mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgement as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to the
recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
Amounts paid or received under interest rate swap agreements are recognized
as an adjustment to investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which
do not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities
are carried principally at amortized cost which approximates fair value.
Supplementary information to the consolidated statements of cash flows
for the years ended Dec. 31 is summarized as follows:
1996 1995 1994
--------- -------- -----
Cash paid during the year for:
Income taxes $317,283 $191,011 $226,365
Interest on borrowings 4,119 5,524 1,553
Recognition of profits on annuity contracts and insurance policies
Profits on fixed deferred annuities are recognized by the Company over the
lives of the contracts, using primarily the interest method. Profits
represent the excess of investment income earned from investment of contract
considerations over interest credited to contract owners and other expenses.
The retrospective deposit method is used in accounting for universal
life-type insurance. This method recognizes profits over the lives of the
policies in proportion to the estimated gross profits expected to be
realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and
expenses are associated with premium revenue in a manner that results in
recognition of profits over the lives of the insurance policies. This
association is accomplished by means of the provision for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges and issue and administrative fees. These charges also include the
minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees and mortality and expense risk fees from the variable annuity
and variable life insurance separate accounts and underlying funds.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most
single premium deferred annuities and installment annuities are amortized in
relation to surrender charge revenue and a portion of the excess of
investment income earned from investment of the contract considerations over
the interest credited to contract owners. The costs for universal life-type
insurance and certain installment annuities are amortized as a percentage of
the estimated gross profits expected to be realized on the policies. For
traditional life, disability income and long-term care insurance policies,
the costs are amortized over an appropriate period in proportion to premium
revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance, single premium deferred
annuities and installment annuities are accumulation values.
Liabilities for fixed annuities in a benefit status are based on the
Progressive Annuity Table with interest at 5 percent, the 1971 Individual
Annuity Table with interest at 7 percent or 8.25 percent, or the 1983a Table
with various interest rates ranging from 5.5 percent to 9.5 percent,
depending on year of issue.
Liabilities for future benefits on traditional life insurance are based on
the net level premium method and anticipated rates of mortality, policy
persistency and interest earnings. Anticipated mortality rates generally
approximate the 1955-1960 Select and Ultimate Basic Table for policies issued
prior to 1980, the 1965-1970 Select and Ultimate Basic Table for policies
issued from 1981-1984 and the 1975-1980 Select and Ultimate Basic Table for
policies issued after 1984. Anticipated policy persistency rates vary by
policy form, issue age and policy duration with persistency on cash value
plans generally anticipated to be better than persistency on term insurance
plans. Anticipated interest rates are 4% for policies issued before 1974,
5.25% for policies issued from 1974-1980, and range from 10% to 6% depending
on policy form, issue year and policy duration for policies issued after
1980.
Liabilities for future disability income policy benefits include both policy
reserves and claim reserves. Policy reserves are based on the net level
premium method and anticipated rates of morbidity, mortality, policy
persistency and interest earnings. Anticipated morbidity rates are based on
the 1964 Commissioners Disability Table for policies issued before 1996 and
the 1985 CIDA table for policies issued in 1996. Anticipated mortality rates
are based on the 1958 Commissioners Standard Ordinary Table for policies
issued before 1996 and the 1975-1980 Basic Table for policies issued in 1996.
Anticipated policy persistency rates vary by policy form, occupation class,
issue age and policy duration. Anticipated interest rates are 3% for policies
issued before 1996 and grade from 7.5% to 5% over five years for policies
issued in 1996. Claim reserves are calculated on the basis of anticipated
rates of claim continuance and interest earnings. Anticipated claim
continuance rates are based on the 1964 Commissioners Disability Table for
claims incurred before 1993 and the 1985 CIDA Table for claims incurred after
1992. Anticipated interest rates are 8% for claims incurred prior to 1992, 7%
for claims incurred in 1992 and 6% for claims incurred after 1992.
Liabilities for future long-term care policy benefits include both policy
reserves and claim reserves. Policy reserves are based on the net level
premium method and anticipated rates of morbidity, mortality, policy
persistency and interest earnings. Anticipated morbidity rates are based on
the 1985 National Nursing Home Survey. Anticipated mortality rates are based
on the 1983a Table. Anticipated policy persistency rates vary by policy form,
issue age and policy duration. Anticipated interest rates are 9.5% grading to
7% over 10 years for policies issued from 1989-1992 and 7.75% grading to 7%
over 4 years for policies issued after 1992. Claim reserves are calculated on
the basis of anticipated rates of claim continuance and interest earnings.
Anticipated claim continuance rates are based on the 1985 National Nursing
Home Survey. Anticipated interest rates are 8% for claims incurred prior to
1992, 7% claims incurred in 1992 and 6% for claims incurred after 1992.
Reinsurance
The maximum amount of life insurance risk retained by the Company on any one
life is $750 of life and waiver of premium benefits plus $50 of accidental
death benefits. The maximum amount of disability income risk retained by the
Company on any one life is $6 of monthly benefit for benefit periods longer
than three years. The excesses are reinsured with other life insurance
companies on a yearly renewable term basis. Graded premium whole life and
long-term care policies are primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income taxes
on a separate return basis, except that, under an agreement between American
Express Financial Corporation and American Express Company, tax benefit is
recognized for losses to the extent they can be used on the consolidated tax
return. It is the policy of American Express Financial Corporation to
reimburse subsidiaries for all tax benefits.
Included in other liabilities at Dec. 31, 1996 and 1995 are $33,358 and
($13,415), respectively, receivable from/(payable to) American Express
Financial Corporation for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance
contract owners.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and the beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate accounts for such actuarial adjustments for
variable annuities that are in the benefit payment period. For variable life
insurance, the Company guarantees that the rates at which insurance charges
and administrative fees are deducted from contract funds will not exceed
contractual maximums. The Company also guarantees that the death benefit will
continue payable at the initial level regardless of investment performance so
long as minimum premium payments are made.
Accounting changes
The Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was effective
Jan. 1, 1996. The new rule did not have a material impact on the Company's
results of operations or financial condition. The Company adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." The
effect of adopting the new rule was to increase stockholder's equity by
$181,269, net of tax, as of Jan. 1, 1994, but the adoption had no impact on
the Company's net income.
Reclassification
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
2. Investments
Fair values of investments in fixed maturities represent quoted market prices
and estimated values when quoted prices are not available. Estimated values
are determined by established procedures involving, among other things,
review of market indices, price levels of current offerings of comparable
issues, price estimates and market data from independent brokers and
financial files.
Net realized gain (loss) on investments for the years ended Dec. 31 is
summarized as follows:
1996 1995 1994
-------- -------- --------
Fixed maturities ............ $ 8,736 $ 9,973 $ (1,575)
Mortgage loans .............. (8,745) (13,259) (3,013)
Other investments ........... (150) (1,612) 306
-------- -------- --------
$ (159) $ (4,898) $ (4,282)
======== ======== ========
<PAGE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended Dec. 31 are summarized as follows:
1996 1995 1994
---------- ------------ -----------
Fixed maturities:
Held to maturity ....... $ (335,515) $ 1,195,847 $(1,329,740)
Available for sale ..... (231,853) 811,649 (720,449)
Equity securities ......... (52) 3,118 (2,917)
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at Dec. 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 44,002 $ 933 $ 1,276 $ 43,659
State and municipal obligations 9,685 412 -- 10,097
Corporate bonds and obligations 8,057,997 356,687 47,639 8,367,045
Mortgage-backed securities 2,124,695 21,577 45,423 2,100,849
------------ --------- ------- ------------
$10,236,379 $379,609 $94,338 $10,521,650
=========== ======== ======= ===========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---- ----- ------ -----
U.S. Government agency obligations $ 77,944 $ 2,607 $ 96 $ 80,455
State and municipal obligations 11,032 1,336 -- 12,368
Corporate bonds and obligations 3,701,604 122,559 24,788 3,799,375
Mortgage-backed securities 7,218,042 104,808 68,203 7,254,647
---------- -------- ------ -----------
Total fixed maturities 11,008,622 231,310 93,087 11,146,845
Equity securities 3,000 308 -- 3,308
----------- -------- ------- -----------
$11,011,622 $231,618 $93,087 $11,150,153
=========== ======== ======= ===========
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at Dec. 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 64,523 $ 3,919 $ -- $ 68,442
State and municipal obligations 11,936 362 32 12,266
Corporate bonds and obligations 8,921,431 620,327 36,786 9,504,972
Mortgage-backed securities 2,259,701 42,684 9,688 2,292,697
----------- --------- ------- -----------
$11,257,591 $667,292 $46,506 $11,878,377
=========== ======== ======= ===========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency obligations $ 84,082 $ 3,248 $ 50 $ 87,280
State and municipal obligations 11,020 1,476 -- 12,496
Corporate bonds and obligations 2,514,308 186,596 3,451 2,697,453
Mortgage-backed securities 7,536,726 206,288 24,031 7,718,983
---------- -------- ------- ----------
Total fixed maturities 10,146,136 397,608 27,532 10,516,212
Equity securities 3,156 361 -- 3,517
---------- -------- ------- ----------
$10,149,292 $397,969 $27,532 $10,519,729
=========== ======== ======= ===========
</TABLE>
<PAGE>
The amortized cost and fair value of investments in fixed maturities at Dec.
31, 1996 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 197,711 $ 200,134
Due from one to five years 2,183,374 2,294,335
Due from five to ten years 4,606,775 4,779,690
Due in more than ten years 1,123,824 1,146,642
Mortgage-backed securities 2,124,695 2,100,849
------------ ------------
$10,236,379 $10,521,650
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 227,051 $ 229,650
Due from one to five years 851,428 899,098
Due from five to ten years 2,140,579 2,182,079
Due in more than ten years 571,522 581,371
Mortgage-backed securities 7,218,042 7,254,647
------------ ------------
$11,008,622 $11,146,845
During the years ended Dec. 31, 1996, 1995 and 1994, fixed maturities
classified as held to maturity were sold with amortized cost of $277,527,
$333,508 and $61,290, respectively. Net gains and losses on these sales were
not significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' creditworthiness.
As a result of adopting the FASB Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," the Company reclassified securities with a book value of $91,760
and net unrealized gains of $881 from held to maturity to available for sale
in December 1995.
In addition, fixed maturities available for sale were sold during 1996 with
proceeds of $238,905 and gross realized gains and losses of $571 and $16,084,
respectively. Fixed maturities available for sale were sold during 1995 with
proceeds of $136,825 and gross realized gains and losses of $nil and $5,781,
respectively. Fixed maturities available for sale were sold during 1994 with
proceeds of $374,564 and gross realized gains and losses of $1,861 and
$7,602, respectively.
At Dec. 31, 1996, bonds carried at $13,571 were on deposit with various
states as required by law.
<PAGE>
Net investment income for the years ended Dec. 31 is summarized as follows:
1996 1995 1994
--------- ------- -----
Interest on fixed maturities $1,666,929 $1,656,136 $1,556,756
Interest on mortgage loans 283,830 232,827 196,521
Other investment income 43,283 35,936 38,366
Interest on cash equivalents 5,754 5,363 6,872
------------- ------- -----------
1,999,796 1,930,262 1,798,515
Less investment expenses 34,434 22,953 16,642
------------ --------- ----------
$1,965,362 $1,907,309 $1,781,873
========== ========== ==========
At Dec. 31, 1996, investments in fixed maturities comprised 84 percent of the
Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $1.9
billion which are rated by American Express Financial Corporation internal
analysts using criteria similar to Moody's and S&P. A summary of investments
in fixed maturities, at amortized cost, by rating on Dec. 31 is as follows:
Rating 1996 1995
------ ----------- -----------
Aaa/AAA ....................... $ 9,460,134 $ 9,907,664
Aaa/AA ........................ 2,870 3,112
Aa/AA ......................... 241,914 279,403
Aa/A .......................... 192,631 154,846
A/A ........................... 2,949,895 3,104,122
A/BBB ......................... 1,034,661 871,782
Baa/BBB ....................... 4,531,515 4,417,654
Baa/BB ........................ 768,285 657,633
Below investment grade ........ 2,063,096 2,007,511
----------- -----------
$21,245,001 $21,403,727
At Dec. 31, 1996, 95 percent of the securities rated Aaa/AAA are GNMA, FNMA
and FHLMC mortgage-backed securities. No holdings of any other issuer are
greater than 1 percent of the Company's total investments in fixed
maturities.
<PAGE>
At Dec. 31, 1996, approximately 13.7 percent of the Company's invested assets
were mortgage loans on real estate. Summaries of mortgage loans by region of
the United States and by type of real estate are as follows:
Dec. 31, 1996 Dec. 31, 1995
------------------------- ------------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------------ ----------- ----------- ----------- ----------
East North Central $ 777,960 $ 19,358 $ 720,185 $ 67,206
West North Central 389,285 29,620 303,113 34,411
South Atlantic 891,852 35,007 732,529 111,967
Middle Atlantic 553,869 17,959 508,634 37,079
New England 310,177 14,042 244,816 40,452
Pacific 190,770 4,997 168,272 23,161
West South Central 105,173 11,246 61,860 27,978
East South Central 75,176 -- 58,462 10,122
Mountain 236,597 11,401 184,964 16,774
---------- -------- -------- ------
3,530,859 143,630 2,982,835 369,150
Less allowance for losses 37,495 -- 37,340 --
---------- -------- ------- ---
$3,493,364 $143,630 $2,945,495 $369,150
========== ======== ========== ========
Dec. 31, 1996 Dec. 31, 1995
------------------------- ------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
- ----------------------- --------- --------- ----------- -----------
Department/retail stores $1,154,179 $ 68,032 $ 985,660 $ 134,538
Apartments 1,119,352 23,246 1,038,446 84,978
Office buildings 611,395 27,653 464,381 62,664
Industrial buildings 296,944 6,716 255,469 22,721
Hotels/motels 97,870 6,257 31,335 48,816
Nursing/retirement homes 88,226 1,877 80,864 4,378
Mixed Use 73,120 -- 53,169 --
Medical buildings 67,178 8,289 57,772 2,495
Other 22,595 1,560 15,739 8,560
------------ ---------- --------- --------
3,530,859 143,630 2,982,835 369,150
Less allowance for losses 37,495 -- 37,340 --
------------ ------ --------- ------
$3,493,364 $143,630 $2,945,495 $369,150
========== ======== ========== ========
<PAGE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. The fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities. Commitments to purchase
mortgages are made in the ordinary course of business. The fair value of the
mortgage commitments is $nil.
At Dec. 31, 1996 and 1995, the Company's recorded investment in impaired loans
was $79,441 and $83,874 with a reserve of $16,162 and $19,307, respectively.
During 1996 and 1995, the average recorded investment in impaired loans was
$74,338 and $74,567, respectively.
The Company recognized $4,889 and $5,014 of interest income related to impaired
loans for the year ended Dec. 31, 1996 and 1995, respectively.
The following table presents changes in the reserve for investment losses
related to all loans:
1996 1995
--------- --------
Balance, Jan. 1 .................... $ 37,340 $ 35,252
Provision for investment losses .... 10,005 15,900
Loan payoffs ....................... (4,700) (11,900)
Foreclosures ....................... (5,150) (1,350)
Other .............................. -- (562)
-------- --------
Balance, Dec. 31 ................... $ 37,495 $ 37,340
======== ========
At Dec. 31, 1996, the Company had commitments to purchase affordable housing
limited partnership investments of $28,476, which is recorded as a liability in
the accompanying balance sheets. The total amounts committed in 1997 and 1998
are $25,234 and $3,242, respectively. The Company also had commitments to
purchase real estate investments for $35,425. Commitments to purchase real
estate investments are made in the ordinary course of business. The fair value
of these commitments is $nil.
<PAGE>
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
Income tax expense consists of the following:
1996 1995 1994
------ -------- -------
Federal income taxes:
Current $260,357 $218,040 $186,508
Deferred (65,609) (33,810) (19,175)
-------- -------- --------
194,748 184,230 167,333
State income taxes-current 12,390 11,612 9,010
--------- ------- ------
Income tax expense $207,138 $195,842 $176,343
======== ======== ========
Increases (decreases) to the federal tax provision applicable to pretax
income based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
Provision Rate Provision Rate Provision Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income
taxes based on
the statutory rate $217,600 35.0% $196,274 35.0% $179,379 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (9,636) (1.6) (8,524) (1.5) (9,939) (2.0)
Other, net (13,216) (2.1) (3,520) (0.6) (2,107) (0.4)
--------- ----- -------- ---- -------- ----
Federal income taxes $194,748 31.3% $184,230 32.9% $167,333 32.6%
======== ===== ======== ==== ======== ====
</TABLE>
A portion of life insurance company income earned prior to 1984 was not
subject to current taxation but was accumulated, for tax purposes, in a
policyholders' surplus account. At Dec. 31, 1996, the Company had a
policyholders' surplus account balance of $20,114. The policyholders' surplus
account is only taxable if dividends to the stockholder exceed the
stockholder's surplus account or if the Company is liquidated. Deferred
income taxes of $7,040 have not been established because no distributions of
such amounts are contemplated.
<PAGE>
Significant components of the Company's deferred tax assets and liabilities
as of Dec. 31 are as follows:
1996 1995
------- -----
Deferred tax assets:
Policy reserves $724,412 $600,176
Life insurance guarantee
fund assessment reserve 29,854 26,785
Other 2,763 --
--------- -------
Total deferred tax assets 757,029 626,961
--------- -------
Deferred tax liabilities:
Deferred policy acquisition costs 665,685 590,762
Unrealized gain on investments 48,486 129,653
Investments, other 8,935 17,152
Other -- 2,298
-------- -------
Total deferred tax liabilities 723,106 739,865
-------- -------
Net deferred tax assets (liabilities)$ 33,923 $(112,904)
========= =========
The Company is required to establish a "valuation allowance" for any portion
of the deferred tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets and, therefore, no such
valuation allowance has been established.
4. Stockholder's equity
During 1996, the Company received a $4,801 capital contribution from its
parent, American Express Financial Corporation. During 1995, the Company
received a $39,700 capital contribution from its parent in the form of
investments in fixed maturities and mortgage loans. In addition, effective
Jan. 1, 1995, the Company began consolidating the financial results of ACLAC.
This change reflected the transfer of ownership of ACLAC from Amex Life
Assurance Company (Amex Life), a former affiliate, to the Company prior to
the sale of Amex Life to an unaffiliated third party on Oct. 2, 1995. This
transfer of ownership to the Company has been reflected as a capital
contribution of $17,114 in the accompanying financial statements. The effect
of this change in reporting entity was not significant and prior periods have
not been restated.
As discussed in Note 5, the Company entered into a reinsurance agreement with
Amex Life during 1995. As a result of this transaction, a loss of $4,574 was
realized and reported as a direct charge to retained earnings.
Other changes in the statements of stockholder's equity are primarily related
to reinsurance transactions with affiliates.
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by state insurance regulatory authorities. Statutory
unassigned surplus aggregated $1,261,592 as of Dec. 31, 1996 and $1,103,993
as of Dec. 31, 1995 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in 1997 in
excess of approximately $351,306 would require approval of the Department of
Commerce of the State of Minnesota.
Statutory net income for the years ended Dec. 31 and capital and surplus as
of Dec. 31 are summarized as follows:
1996 1995 1994
------ ------ ------
Statutory net income $ 365,585 $ 326,799 $ 294,699
Statutory capital and surplus 1,565,082 1,398,649 1,261,958
Dividends paid to American Express Financial Corporation were $165,000 in
1996, $180,000 in 1995, and $165,000 in 1994.
5. Related party transactions
The Company has loaned funds to American Express Financial Corporation under
a collateral loan agreement. The balance of the loan was $11,800 and $25,800
at Dec. 31, 1996 and 1995, respectively. This loan can be increased to a
maximum of $75,000 and pays interest at a rate equal to the preceding month's
effective new money rate for the Company's permanent investments. It is
collateralized by equity securities valued at $116,543 at Dec. 31, 1996.
Interest income on related party loans totaled $780, $1,371 and $2,894 in
1996, 1995 and 1994, respectively.
The Company purchased a five year secured note from an affiliated company
which had an outstanding balance of $nil and $19,444 at Dec. 31, 1996 and
1995, respectively. The note bears a fixed rate of 8.42 percent. Interest
income on the above note totaled $1,637, $1,937 and $2,278 in 1996, 1995 and
1994, respectively.
The Company has a reinsurance agreement whereby it assumed 100 percent of a
block of single premium life insurance business from Amex Life Assurance
Company (Amex Life), a former affiliate. The accompanying consolidated
balance sheets at Dec. 31, 1996 and 1995 include $758,812 and $764,663,
respectively, of future policy benefits related to this agreement.
The Company has a reinsurance agreement to cede 50 percent of its long-term
care insurance business to Amex Life. The accompanying consolidated balance
sheets at Dec. 31, 1996 and 1995 include $134,121 and $95,484, respectively,
of reinsurance receivables related to this agreement. Premiums ceded amounted
to $32,917, $25,553 and $20,360 and reinsurance recovered from reinsurers
amounted to $5,135, $4,998 and $3,022 for the years ended Dec. 31, 1996, 1995
and 1994, respectively.
The Company has a reinsurance agreement to assume deferred annuity contracts
from Amex Life. At Oct. 1, 1995, a $803,618 block of deferred annuities and
$28,327 of deferred policy acquisition costs were transferred to the Company.
The accompanying consolidated balance sheet at Dec. 31, 1996 includes
$828,298 of future policy benefits related to this agreement. Contracts with
future policy benefits totaling $50,400 were still reinsured with the former
affiliate at Dec. 31, 1996. The remaining contracts had been novated to
Company contracts.
Until July 1, 1995, the Company participated in the IDS Retirement Plan of
American Express Financial Corporation which covered all permanent employees
age 21 and over who had met certain employment requirements. Effective July
1, 1995, the IDS Retirement Plan was merged with American Express Company's
American Express Retirement Plan, which simultaneously was amended to include
a cash balance formula and a lump sum distribution option. Employer
contributions to the plan are based on participants' age, years of service
and total compensation for the year. Funding of retirement costs for this
plan complies with the applicable minimum funding requirements specified by
ERISA. The Company's share of the total net periodic pension cost was $174,
$155 and $156 in 1996, 1995 and 1994, respectively.
The Company also participates in defined contribution pension plans of
American Express Company which cover all employees who have met certain
employment requirements. Company contributions to the plans are a percent of
either each employee's eligible compensation or basic contributions. Costs of
these plans charged to operations in 1996, 1995 and 1994 were $990, $815 and
$957, respectively.
The Company participates in defined benefit health care plans of American
Express Financial Corporation that provide health care and life insurance
benefits to retired employees and retired financial advisors. The plans
include participant contributions and service related eligibility
requirements. Upon retirement, such employees are considered to have been
employees of American Express Financial Corporation. American Express
Financial Corporation expenses these benefits and allocates the expenses to
its subsidiaries. Accordingly, costs of such benefits to the Company are
included in employee compensation and benefits and cannot be identified on a
separate company basis.
Charges by American Express Financial Corporation for use of joint
facilities, marketing services and other services aggregated $397,362,
$377,139, and $335,183 for 1996, 1995 and 1994, respectively. Certain of
these costs are included in deferred policy acquisition costs. In addition,
the Company rents its home office space from American Express Financial
Corporation on an annual renewable basis.
6. Commitments and contingencies
At Dec. 31, 1996 and 1995, traditional life insurance and universal life-type
insurance in force aggregated $67,274,354 and $59,683,532, respectively, of
which $3,875,921 and $3,771,204 were reinsured at the respective year ends.
The Company also reinsures a portion of the risks assumed under disability
income and long-term care policies. Under all reinsurance agreements,
premiums ceded to reinsurers amounted to $48,250, $39,399 and $31,016 and
reinsurance recovered from reinsurers amounted to $15,612, $14,088, and
$10,778 for the years ended Dec. 31, 1996, 1995 and 1994. Reinsurance
contracts do not relieve the Company from its primary obligation to
policyholders.
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company and its subsidiaries do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. In December 1996, an action of this type
was brought against the Company and its parent, American Express Financial
Corporation. The plaintiffs purport to represent a class consisting of all
persons who replaced existing Company policies with new Company policies from
and after Jan. 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties and
alleged violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and seek to establish a claims resolution facility for the
determination of individual issues. The Company and its parent believe they
have meritorious defenses to the claims raised in the lawsuit. The outcome of
any litigation cannot be predicted with certainty, particularly in the early
stages of an action. In the opinion of management, however, the ultimate
resolution of the above lawsuit and others filed against the Company should
not have a material adverse effect on the Company's consolidated financial
position.
During 1996, the Company settled the federal tax audit for 1987 through 1989
tax years. There was no material impact as a result of that audit. Also, the
IRS is currently auditing the Company's 1990 through 1992 tax years.
Management does not believe there will be a material impact as a result of
this audit.
7. Lines of credit
The Company has available lines of credit with two banks and its parent
aggregating $175,000, of which $100,000 is with its parent. The lines of
credit are at 40 to 80 basis points over the lenders' cost of funds or equal
to the prime rate, depending on which line of credit agreement is used. The
$25,000 line of credit with one bank expired on Dec. 31, 1996 and the Company
did not seek renewal. The $50,000 line of credit with the other bank expires
on June 30, 1997 and the Company expects to seek renewal. Borrowings
outstanding under these agreements were $nil at Dec. 31, 1996 and 1995.
8. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these instruments
as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is not
impacted by market risk related to derivatives held for non-trading purposes
beyond that inherent in cash market transactions. Derivatives held for
purposes other than trading are largely used to manage risk and, therefore,
the cash flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit exposure related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty and industry, and
requiring collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit exposure related to interest rate caps and floors is measured by the
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
<PAGE>
The Company's holdings of derivative financial instruments are as follows:
Notional Carrying Fair Total Credit
Dec. 31, 1996 Amount Value Value Exposure
------------- --------- ------- -------- ------------
Assets:
Interest rate caps $ 4,000,000 $16,227 $ 7,439 $ 7,439
Interest rate floors 1,000,000 2,041 4,341 4,341
Interest rate swaps 1,000,000 -- (24,715) --
---------- ------- -------- -------
$6,000,000 $18,268 $(12,935) $11,780
========== ======= ======== =======
Dec. 31, 1995
Assets:
Interest rate caps $5,100,000 $26,680 $ 8,366 $ 8,366
========== ======= ======== =======
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps and floors
expire on various dates from 1996 to 2001. The interest rate swaps are in
effect through 2001.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the
margin between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
9. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair values of life insurance obligations and all non-financial
instruments, such as deferred acquisition costs are excluded. Off-balance
sheet intangible assets, such as the value of the field force, are also
excluded. Management believes the value of excluded assets is significant.
The fair value of the Company, therefore, cannot be estimated by aggregating
the amounts presented.
1996 1995
------ -----
<TABLE>
<CAPTION>
Carrying Fair Carrying Fair
Financial Assets Value Value Value Value
---------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $10,236,379 $10,521,650 $11,257,591 $11,878,377
Available for sale 11,146,845 11,146,845 10,516,212 10,516,212
Mortgage loans on
real estate (Note 2) 3,493,364 3,606,077 2,945,495 3,184,666
Other:
Equity securities (Note 2) 3,308 3,308 3,517 3,517
Derivative financial
instruments (Note 8) 18,268 (12,935) 26,680 8,366
Other 63,993 66,242 52,182 52,182
Cash and
cash equivalents (Note 1) 224,603 224,603 72,147 72,147
Separate account assets
(Note 1) 18,535,160 18,535,160 14,974,082 14,974,082
Financial Liabilities
Future policy benefits
for fixed annuities 20,641,986 19,721,968 20,259,265 19,603,114
Separate account
liabilities 17,358,087 16,688,519 14,208,619 13,665,636
</TABLE>
<PAGE>
At Dec. 31, 1996 and 1995, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,112,155 and $1,070,598, respectively, and policy loans of
$83,867 and $74,973, respectively. The fair value of these benefits is based
on the status of the annuities at Dec. 31, 1996 and 1995. The fair value of
deferred annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. The fair value for annuities in non-life
contingent payout status is estimated as the present value of projected
benefit payments at rates appropriate for contracts issued in 1996 and 1995.
At Dec. 31, 1996 and 1995, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less any applicable surrender
charges and less variable insurance contracts carried at $1,177,073 and
$765,463, respectively.
10.Segment information
The Company's operations consist of two business segments; first, individual
and group life insurance, disability income and long-term care insurance, and
second, annuity products designed for individuals, pension plans, small
businesses and employer-sponsored groups. The consolidated condensed
statements of income for the years ended Dec. 31, 1996, 1995 and 1994 and
total assets at Dec. 31, 1996, 1995 and 1994 by segment are summarized as
follows:
1996 1995 1994
------ ------ -----
Net investment income:
Life, disability income
and long-term care insurance $ 262,998 $ 256,242 $ 247,047
Annuities 1,702,364 1,651,067 1,534,826
----------- ----------- ------------
$ 1,965,362 $ 1,907,309 $ 1,781,873
=========== =========== ============
Premiums, charges and fees:
Life, disability income
and long-term care insurance $ 448,389 $ 384,008 $ 335,375
Annuities 308,873 249,557 193,370
------------ ------------ -------------
$ 757,262 $ 633,565 $ 528,745
============ ============ =============
Income before income taxes:
Life, disability income
and long-term care insurance $ 161,115 $ 125,402 $ 122,677
Annuities 460,758 440,278 394,117
Net loss on investments (159) (4,898) (4,282)
------------- ------------- --------------
$ 621,714 $ 560,782 $ 512,512
============ ============ =============
Total assets:
Life, disability income
and long-term care insurance $ 7,028,906 $ 6,195,870 $ 5,269,188
Annuities 40,277,075 36,704,208 30,478,355
----------- ----------- -----------
$47,305,981 $42,900,078 $35,747,543
=========== =========== ===========
Allocations of net investment income and certain general expenses are based
on various assumptions and estimates.
Assets are not individually identifiable by segment and have been allocated
principally based on the amount of future policy benefits by segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying consolidated balance sheets of IDS Life
Insurance Company (a wholly owned subsidiary of American Express Financial
Corporation) as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDS Life Insurance
Company at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1994.
Ernst & Young LLP
February 7, 1997
Minneapolis, Minnesota
<TABLE> <S> <C>
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<S> <C>
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<NUMBER-OF-SHARES-SOLD> 164051
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<AVERAGE-NET-ASSETS> 43650129
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
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<TABLE> <S> <C>
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-TYPE> YEAR
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<DEBT-CARRYING-VALUE> 10236379
<DEBT-MARKET-VALUE> 10521650
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<MORTGAGE> 3493364
<REAL-ESTATE> 70290
<TOTAL-INVEST> 25587955
<CASH> 224603
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<POLICY-LOSSES> 25649042
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<POLICY-HOLDER-FUNDS> 83634
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<COMMON> 3000
0
0
<OTHER-SE> 2144080
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182921
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 414576
<EPS-PRIMARY> 0
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<RESERVE-OPEN> 24192
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<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 86354
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 26387
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</TABLE>
