SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
File No. 33-62457
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
A. Exact name of trust: IDS Life Variable Life Separate Account
B. Name of depositor: IDS LIFE INSURANCE COMPANY
C. Complete address of depositor's principal executive offices:
IDS Tower 10, Minneapolis, Minnesota 55440-0010
D. Name and complete address of agent for service:
Mary Ellyn Minenko, Esq.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, Minnesota 55440-0010
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of rule (485)
[ ] this post-effective amendment designates a new effective
date for a previously filed post effective amendment.
E. Title of securities being registered:
Flexible Premium Survivorship Variable Life Insurance Policy
F. Approximate date of proposed public offering:
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1 Cover Page; The variable account
2 IDS Life
3 Not applicable
4 Distribution of the policy
5 The variable account
6 The variable account
7 Not applicable
8 Annual financial information
9 Legal proceedings
10 Surrender charge; Total surrenders; Partial
surrenders; Taxation of policy proceeds;
Reinstatement; Transfers between the fixed
account and the subaccounts; Keeping the
policy in force; Grace period; Voting
rights; Substitution of investments; Payment
of premiums; The fixed account; Allocation
of premiums; Transfers between the fixed
account and the subaccounts; Right to
examine policy
11 The fund
12 The fund; Cover page
13 Loads, fees, and charges; Keeping the policy
in force
14 Purchasing your policy; Application
15 Premiums; Payment of premiums; Transfers
between the fixed account and the
subaccounts; The fund
16 Premiums; Payment of premiums; Transfers
between the fixed account and the
subaccounts; The fund
17 Two ways to request a transfer, loan or
surrender; Policy surrenders
18 The fund
19 Reports
20 Not applicable
21 Policy loans; fixed account and subaccounts;
Two ways to request a transfer, loan or
surrender
22 Not applicable
23 Management of IDS Life
24 Policy value; Proceeds payable upon death;
Payment of policy proceeds
25 IDS Life
26 Annual financial information
27 IDS Life
28 Management of IDS Life
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29 Ownership
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
35 IDS Life
36 Not applicable
37 Not applicable
38 Distribution of the policy
39 IDS Life; Distribution of the policy
40 Annual financial information
41 Distribution of the policy; IDS Life
42 Management of IDS Life
43 Not applicable
44 Premiums; Transfers between the fixed
account and subaccounts; Subaccount values
45 Not applicable
46 Subaccount values
47 Relationship between portfolios and
subaccounts
48 IDS Life
49 Not applicable
50 Not applicable
51 The variable account
52 Substitution of investments
53 IDS Life's tax status
54 Not applicable
55 Policy illustrations
56 Not applicable
57 Not applicable
58 Not applicable
59 Annual financial information
<PAGE>
Flexible Premium Survivorship Variable Life Insurance Policy
Prospectus May 1, 1998
The Flexible Premium Survivorship Variable Life Insurance Policy described in
this prospectus is designed to provide life insurance coverage on two insureds,
with a death benefit payable when the last surviving insured dies while the
policy is in force. The policy is intended to qualify as a life insurance policy
under Sections 72, 101 and 7702 of the Internal Revenue Code.
You may allocate policy value to one or more of eight subaccounts of IDS Life
Variable Life Separate Account. The subaccounts invest in the portfolios of IDS
Life Series Fund: Equity, Income, Money Market, Managed, Government Securities
and International Equity. One subaccount invests in the AIM V.I. Growth and
Income Fund. One subaccount invests in Putnam VT New Opportunities Fund. Policy
values increase and decrease with investment experience and reflect certain
deductions and charges. There is no guaranteed minimum policy value with respect
to the subaccounts and you bear the entire investment risk. You may also
allocate policy value to the fixed account which earns at least a guaranteed
minimum interest rate. The fixed account is the general investment account of
IDS Life Insurance Company (IDS Life).
You may withdraw a portion of the policy's cash surrender value after the first
policy year or surrender it in full at any time for its cash surrender value.
Surrender charges are described under "Loads, fees and charges." You may also
take out policy loans.
The frequency and amount of premium payments are flexible, subject to certain
restrictions and conditions. Payment of the scheduled premium will not
necessarily keep a policy from lapsing if the cash surrender value is less than
the amount needed to pay the monthly deduction. (See "Loads, fees and charges.")
However, a policy will not lapse if the premiums needed to keep either the death
benefit guarantee to age 85 (DBG-85) or the death benefit guarantee to age 100
(DBG-100) or the minimum initial premium period in effect, are paid.
This prospectus contains detailed information about these and other policy
features, including certain restrictions and limitations that apply. As in the
case of other life insurance policies, it may not be advantageous to purchase
flexible premium survivorship variable life insurance as a replacement for, or
in addition to an existing flexible premium variable or other life insurance
policy.
<PAGE>
IDS Life Variable Life Separate Account
Flexible Premium Survivorship Variable Life Insurance Policy
Issued and sold by: IDS Life Insurance Company, IDS Tower 10,
Minneapolis, MN 55440 Telephone: (612) 671-3131; (800) 437-0602
This prospectus is valid only when accompanied or preceded by the prospectuses
of the IDS Life Series Fund, Inc., AIM Variable Insurance Funds, Inc. and the
Putnam Variable Trust. All prospectuses should be retained for future reference.
These securities have not been approved or disapproved by the securities and
exchange commission or any state securities commission, nor has the securities
and exchange or any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
IDS Life is not a bank or a financial institution and the securities it offers
are not deposits or obligations of, backed or guaranteed or endorsed by any bank
or financial institution nor are they insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investments in this
policy involve investment risk including the possible loss of principal.
web site address: http:\\www.americanexpress.com\advisors
<PAGE>
Table of contents
Key terms
The policy in brief
The variable account
The funds
IDS Life Series Fund - Equity Portfolio
IDS Life Series Fund - Income Portfolio
IDS Life Series Fund - Money Market Portfolio
IDS Life Series Fund - Managed Portfolio
IDS Life Series Fund - Government Securities Portfolio
IDS Life Series Fund - International Equity Portfolio
AIM V.I. Growth and Income Fund
Putnam VT New Opportunities Fund
Fund objectives
Relationship between funds and subaccounts
Rates of return of the funds and subaccounts
The fixed account
Purchasing your policy
Application
Right to examine policy
Premiums
Keeping the policy in force
Death benefit guarantee to age 85
Death benefit guarantee to age 100
Minimum initial premium period
Grace period
Reinstatement
Loads, fees and charges
Premium expense charge
Monthly deduction
Surrender charge
Partial surrender fee
Mortality and expense risk charge
Fund expenses
Policy value
Fixed account value
Subaccount values
Proceeds payable upon death
Change in death benefit option
Changes in specified amount
Misstatement of age or sex
Suicide Beneficiary
Transfers between the fixed account and subaccounts
Fixed account transfer policies
Minimum transfer amounts
Maximum transfer amounts
Maximum number of transfers per year
Two ways to request a transfer, loan or surrender
Automated transfers
Automated dollar-cost averaging
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Policy loans
Policy surrenders
Total surrenders
Partial surrenders
Allocation of partial surrenders
Effects of partial surrenders
Taxes
Optional insurance benefits
Four-Year Term Insurance Rider
Policy Split Option Rider
Payment of policy proceeds
Federal taxes
IDS Life's tax status
Taxation of policy proceeds
Modified endowment contracts
Other tax considerations
IDS Life
Ownership
State regulation
Distribution of the policy
Legal proceedings
Experts
Management of IDS Life
A I M Advisors, Inc. and Putnam Investment Management, Inc.
Other information
Substitution of investments
Voting rights
Reports
Policy illustrations
<PAGE>
Key terms
These terms can help you understand details about your policy.
Accumulation unit: An accounting unit used to calculate the policy value of the
subaccounts. It is a measure of the net investment results of each of the
subaccounts.
Attained insurance age: Each insured's insurance age plus the number of policy
anniversaries since the policy date. Attained insurance age changes only on a
policy anniversary.
Cash surrender value: Proceeds received if the policy is surrendered in full, or
the amount payable if the last surviving insured's death occurs on or after the
youngest insured's attained insurance age 100. The cash surrender value equals
the policy value minus indebtedness, minus any applicable surrender charges.
Code: The Internal Revenue Code of 1986, as amended.
Close of business: Closing time of the New York Stock Exchange, normally 3 p.m.,
Central time.
Death benefit guarantee to age 85 (DBG-85): A feature of the policy guaranteeing
that the policy will not lapse before the youngest insured's attained insurance
age 85 (or 15 policy years, if later). This feature is in effect if you meet
certain premium payment requirements.
Death benefit guarantee to age 85 (DBG-85) premium: The premium required to keep
the DBG-85 in effect. The DBG-85 premium is shown in your policy. It depends on
each insured's sex, insurance age, risk classification, optional insurance
benefits added by rider and the initial specified amount.
Death benefit guarantee to age 100 (DBG-100): A feature of the policy
guaranteeing that the policy will not lapse before the youngest insured's
attained insurance age 100. This feature is in effect if you meet certain
premium payment requirements.
Death benefit guarantee to age 100 (DBG-100) premium: The premium required to
keep the DBG-100 in effect. The DBG-100 premium is shown in your policy. It
depends on each insured's sex, insurance age, risk classification, optional
insurance benefits added by rider and the initial specified amount.
Fixed account: The general investment account of IDS Life. The fixed account is
made up of all of IDS Life's assets other than those held in any separate
account.
Fixed account value: The portion of the policy value that is allocated to the
fixed account, including indebtedness.
<PAGE>
Funds: Mutual funds or portfolios, each with a different investment objective.
You may allocate your premiums into variable subaccounts investing in shares of
any or all of these funds. The following funds are available:
o Under the IDS Life Series Fund, Inc. - Equity Portfolio, Income Portfolio,
Money Market Portfolio, Managed Portfolio, Government Securities Portfolio
and International Equity Portfolio;
o Under the AIM Variable Insurance Funds, Inc. - AIM V.I. Growth and Income
Fund;
o Under the Putnam Variable Trust - Putnam VT New Opportunities Fund.
IDS Life: In this prospectus, "we," "us," "our" and "IDS Life" refer to IDS Life
Insurance Company.
Indebtedness: All existing loans on the policy plus interest that has either
been accrued or added to the policy loan.
Insurance age: Each insured's age based upon his or her last birthday on the
date of the application.
Insureds: The persons whose lives are insured by the policy.
Minimum initial premium period: A period of time during the early years of the
policy when the policy will not lapse even if the cash surrender value is less
than the amount needed to pay the monthly deduction. This feature is in effect
if you meet certain premium payment requirements.
Monthly date: The same day each month as the policy date. If there is no monthly
date in a calendar month, the monthly date is the first day of the next calendar
month.
Net amount at risk: A portion of the death benefit, equal to the total current
death benefit minus the policy value. This is the amount to which cost of
insurance rates are applied in determining the monthly cost of insurance.
Net premium: The premium paid minus the premium expense charge.
Owner: The entity(ies) to which, or individual(s) to whom, the policy is issued,
or to whom ownership is subsequently transferred. In the prospectus "you" and
"your" refer to the owner.
Policy anniversary: The same day and month as the policy date each year the
policy remains in force.
Policy date: The date the policy is issued and from which policy anniversaries,
policy years and policy months are determined.
<PAGE>
Policy value: The sum of the fixed account value plus the variable account
value.
Proceeds: The amount payable under the policy as follows:
o Upon death of the last surviving insured prior to the youngest insured's
attained insurance age 100, proceeds will be the death benefit in effect as
of the date of that insured's death, minus any indebtedness.
o Upon the death of the last surviving insured on or after the youngest
insured's attained insurance age 100, proceeds will be the cash surrender
value.
o On surrender of the policy the proceeds will be the cash surrender value.
Risk classification: A group of insureds that IDS Life expects will have similar
mortality experience.
Scheduled premium: A premium, selected by the owner at the time of application,
of a level amount, at a fixed interval of time.
Specified amount: An amount used to determine the death benefit and the proceeds
payable upon death of the last surviving insured prior to the youngest insured's
attained insurance age 100. The initial specified amount is shown in your
policy.
Subaccount(s): One or more of the investment divisions of the variable account,
each of which invests in a particular fund.
Surrender charge: A contingent deferred issue and administration expense charge
assessed against the policy value at the time of surrender during the first 15
years of the policy.
Valuation date: A normal business day, Monday through Friday, on which the New
York Stock Exchange is open.
Valuation period: The interval commencing at the close of business on each
valuation date and ending at the close of business on the next valuation date.
Variable account: IDS Life Variable Life Separate Account consisting of
subaccounts, each of which invests in a particular fund. The policy value in
each subaccount depends on the performance of the particular fund.
Variable account value: The sum of the values that are allocated to the
subaccounts of the variable account.
<PAGE>
The policy in brief
The Flexible Premium Survivorship Variable Life Insurance Policy (the policy) is
designed to provide insurance protection on two insureds and to build policy
value. The policy provides a death benefit that is payable to the beneficiary
upon the last surviving insured's death. The policy allows you, as the owner, to
allocate your net premiums or transfer policy value, to:
The variable account, consisting of subaccounts, each of which invests in a
fund with a particular investment objective. You may direct premiums to any
or all of eight of these subaccounts. Your policy's value may increase or
decrease daily, depending on the investment return. No minimum amount is
guaranteed. (p. )
The fixed account, which earns interest at rates that are adjusted
periodically by IDS Life. This rate will never be lower than 4%. (p. )
The funds: Six subaccounts of the variable account invest in IDS Life Series
Fund, Inc. which includes Equity, Income, Money Market, Managed, Government
Securities and International Equity Portfolios. One subaccount invests in AIM
Variable Insurance Funds, Inc. - AIM V.I. Growth and Income Fund. One subaccount
invests in Putnam Variable Trust - Putnam VT New Opportunities Fund.(p. )
Purchasing your policy: To apply, send a completed application and premium
payment to IDS Life's home office. For your application to be accepted, you will
need to provide medical and other evidence that the persons you propose to
insure meet the requirements of our underwriting rules. (p. )
Right to examine policy: You may return your policy for any reason and receive a
full refund of your premiums by mailing us the policy and a written request for
cancellation within a specified period. (p. )
Premiums: In applying for your policy, you state how much you intend to pay and
whether you will pay quarterly, semiannually or annually. You may make
additional unscheduled premium payments subject to certain limits. No premium
payments can be made on or after the youngest insured's attained insurance age
100. We may refuse premiums in order to comply with the Code. (p. )
DBG-85: A feature of the policy guaranteeing that the policy will not lapse
before the youngest insured's attained insurance age 85 (or 15 policy years, if
later). This feature is in effect if you meet certain premium payment
requirements. (p. )
<PAGE>
DBG-100: A feature of the policy guaranteeing that the policy will not lapse
before the youngest insured's attained insurance age 100. This feature is in
effect if you meet certain premium payment requirements. (p. )
Minimum initial premium period: A period of time during the early years of the
policy when the policy will not lapse even if the cash surrender value is less
than the amount needed to pay the monthly deduction. This feature is in effect
if you meet certain premium payment requirements. (p. )
Grace period: If the cash surrender value of your policy becomes less than the
amount needed to pay the monthly deduction, and neither of the death benefit
guarantees nor the minimum initial premium period is in effect, you will have 61
days to pay the premium needed so that the next three monthly deductions can be
paid. If you don't, the policy will lapse. (p. )
Reinstatement: If your policy lapses, it can be reinstated within five years.
The reinstatement is subject to certain conditions including evidence of
insurability satisfactory to IDS Life and the payment of a sufficient premium.
Neither the DBG-85 nor DBG-100 can be reinstated. (p. )
Loads, fees and charges: Your policy is subject to the following charges, which
compensate IDS Life for administering and distributing the policy as well as
paying policy benefits and assuming related risks:
o Premium expense charge -- charge deducted from each premium payment to
cover some distribution expenses, state and local premium taxes and federal
taxes. (p. )
o Monthly deduction -- charged against the value of your policy each month
(prior to the youngest insured's attained insurance age 100), covering the
cost of insurance, cost of issuing the policy, certain administrative
expenses and optional insurance benefits. (p. )
o Surrender charge -- applies if you surrender your policy for its full cash
surrender value, or the policy lapses, during the first 15 years. The
surrender charge is a deferred charge for costs of issuing the policy. It
is based on the initial specified amount. (p. )
o Partial surrender fee -- applies if you surrender part of the value of your
policy; equals $25 or 2% of the amount surrendered, whichever is less. (p.
)
o Mortality and expense risk charge -- applies only to the subaccounts;
equals, on an annual basis, 0.9% of the average daily net asset value of
the subaccounts. (p. )
<PAGE>
o Fund expenses -- applies only to the funds. As of Dec. 31, 1997, the
investment management fee was as follows: 0.5% of the average daily net
assets of the IDS Life Series Fund - Money Market Portfolio; 0.95% of IDS
Life Series Fund - International Equity Portfolio; 0.58% of the daily net
assets of Putnam VT New Opportunities Fund; 0.63% of the daily net assets
of the AIM V.I. Growth and Income Fund, and 0.7% of the average daily net
assets of the IDS Life Series Fund - Equity, Income, Managed and Government
Securities Portfolio. Each fund also pays taxes, brokerage commissions and
nonadvisory expenses. IDS Life has agreed to a voluntary limit of 0.1%, on
an annual basis, of the average daily net assets of each IDS Life Series
Fund Portfolio for these nonadvisory expenses. (p. )
Proceeds payable upon death: Prior to the youngest insured's attained insurance
age 100, your policy's death benefit can never be less than the specified
amount, less outstanding indebtedness. The relationship between the policy value
and the death benefit depends on which of two options you choose:
o Option 1 level amount: The death benefit is the greater of the specified
amount or a percentage of policy value.
o Option 2 variable amount: The death benefit is the greater of the specified
amount plus the policy value or a percentage of policy value.
You may change the death benefit option or specified amount within certain
limits; doing so will generally affect policy charges.
On or after the youngest insured's attained insurance age 100, the proceeds
payable upon the death of the last surviving insured will be the cash surrender
value. (p. )
Transfers between the fixed account and subaccounts: You may, at no charge,
transfer policy value from one subaccount to another or between subaccounts and
the fixed account. (Certain restrictions apply to transfers involving the fixed
account.) We reserve the right to limit transfers to no more than five transfers
per year by phone or mail. You can also arrange for automated transfers on a
monthly, quarterly, semiannual or annual basis. (p. )
Policy loans: You may borrow against your policy's cash surrender value. A
policy loan, even if repaid, can have a permanent effect on the death benefit
and policy value. A loan may also have tax consequences if your policy lapses or
you surrender it. (p. )
Policy surrenders: You may cancel this policy while it is in force and receive
its cash surrender value. The cash surrender value is the policy value minus
indebtedness, minus any applicable surrender charges. (p. )
<PAGE>
Exchange right: For two years after the policy is issued, you can exchange it
for one that provides benefits that do not vary with the investment return of
the subaccounts. Because the policy itself offers a fixed return option, all you
need to do is transfer all of the policy value in the subaccounts to the fixed
account. (p. )
Payment of policy proceeds: Proceeds will be paid when you surrender the policy
or the last surviving insured dies. You or the beneficiary may choose whether
payment is to be made in a lump sum or under one or more of certain options. (p.
)
Federal taxes: The death benefit is not considered part of the beneficiary's
income and thus is not subject to federal income taxes. When the proceeds are
paid after the youngest insured's attained insurance age 100, if the amount
received plus any indebtedness exceeds your investment in the policy, the excess
may be taxable as ordinary income. Part or all of any proceeds received through
full or partial surrender, lapse, policy loan or assignment of policy value may
be subject to federal income tax as ordinary income. Proceeds other than death
benefits from certain policies, classified as "modified endowments," are taxed
differently from proceeds of conventional life insurance contracts and may also
be subject to an additional 10% IRS penalty tax if you are younger than 59 1/2.
A policy is considered to be a modified endowment if it was applied for or
materially changed after June 21, 1988, and premiums paid in the early years
exceed certain modified endowment limits. (p. )
The variable account
You can direct your premiums to any or all of eight subaccounts of the variable
account. These subaccounts invest in the following funds:
Subaccount invests exclusively in shares of
U IDS Life Series Fund - Equity Portfolio
V IDS Life Series Fund - Income Portfolio
W IDS Life Series Fund - Money Market Portfolio
X IDS Life Series Fund - Managed Portfolio
Y IDS Life Series Fund - Government Securities Portfolio
I IDS Life Series Fund - International Equity Portfolio
FGI AIM V.I. Growth and Income Fund
FNO Putnam VT New Opportunities Fund
The variable account was established on Oct. 16, 1985, under Minnesota law and
is registered as a single unit investment trust under the Investment Company Act
of 1940. Such registration does not involve any SEC supervision of the account's
management or investment practices or policies. Subaccount IL was added to the
variable account on Oct. 28, 1994. Subaccounts FGI and FNO were added to the
variable account on Nov. 22, 1996.
<PAGE>
The variable account meets the definition of a "separate account" under federal
securities laws. Income, capital gains or capital losses of each subaccount are
credited to or charged against the assets of that subaccount alone. No
subaccount will be charged with liabilities of any other subaccount or of any
other business conducted by IDS Life. The variable account's net assets are held
in relation to the policies described in this prospectus as well as other
variable life insurance policies that we issue that are not described in this
prospectus.
At all times, IDS Life will maintain assets in the subaccounts with total market
value at least equal to the reserves and other liabilities required to cover
insurance benefits under all contracts participating in the subaccount.
The funds
IDS Life Series Fund, Inc., a Minnesota corporation, is a diversified, open-end
management investment company incorporated on May 8, 1985. The International
Equity portfolio was added to the fund on October 28, 1994. IDS Life Series Fund
currently consists of six portfolios:
IDS Life Series Fund - Equity Portfolio
Objective: capital appreciation. Invests primarily in common stocks and other
securities convertible into common stock.
IDS Life Series Fund - Income Portfolio
Objective: to maximize current income while attempting to conserve the value of
the investment and to continue the high level of income for the longest period
of time. At least 50% of net assets will normally be invested in high-quality,
lower-risk corporate bonds, unrated corporate bonds believed to have the same
investment qualities and government bonds. Other investments may include
lower-rated corporate bonds, bonds and common stocks sold together as a unit,
preferred stock and foreign securities.
IDS Life Series Fund - Money Market Portfolio
Objective: to provide maximum current income consistent with liquidity and
conservation of capital. Invests in relatively short-term money market
securities, such as marketable debt securities issued or guaranteed as to
principal and interest by the U.S. government or its agencies or
instrumentalities, bank certificates of deposit, bankers' acceptances, letters
of credit and high-grade commercial paper.
<PAGE>
IDS Life Series Fund - Managed Portfolio
Objective: to maximize total investment return through a combination of capital
appreciation and current income. If the investment manager believes the stock
market will be moving higher, it can emphasize stocks that offer potential for
appreciation. At other times, the manager may increase the portfolio's holdings
in bonds and money-market securities providing high current income.
IDS Life Series Fund - Government Securities Portfolio
Objective: to provide a high current return and safety of principal. Invests
primarily in debt obligations issued or guaranteed as to principal and interest
by the U.S. government, its agencies and instrumentalities.
IDS Life Series Fund - International Equity Portfolio
Objective: capital appreciation. Invests primarily in common stocks of foreign
issuers and foreign securities convertible into common stock. Other investments
may include certain international bonds if the portfolio manager believes they
have greater potential for capital appreciation than equities.
AIM Variable Insurance Funds, Inc., a Maryland corporation, is an open-end,
series, management investment company incorporated on January 22, 1993. The
variable account invests in the following fund:
AIM V.I. Growth and Income Fund
Objective: to seek growth of capital, with current income as a secondary
objective. The Fund seeks to achieve its objective by generally investing at
least 65% of its net assets in stocks of companies believed by management to
have the potential for above average growth in revenues and earnings.
Putnam Variable Trust is a Massachusetts business trust organized on September
24, 1987. The variable account invests in the following fund:
Putnam VT New Opportunities Fund
Objective: seeks long-term capital appreciation by investing principally in
common stocks of companies in sectors of the economy Putnam Investment
Management, Inc. ("Putnam Management") believes possess above-average long-term
growth potential.
<PAGE>
Fund objectives
Fund objectives for all funds except Putnam VT New Opportunities Fund can be
changed only if holders of a majority of outstanding shares agree. The objective
of Putnam VT New Opportunities Fund may be changed by the Trustees without a
vote of the shareholders, but as a matter of policy, the Trustees would not
materially change the fund's objective without shareholder approval. Because
fund investments are subject to the risk of changing economic conditions and the
ability of the investment manager to anticipate such changes, there can be no
guarantee that the investment objectives of a fund will be achieved.
Relationship between funds and subaccounts
Shares of each fund are sold to the appropriate subaccount at net asset value
without a sales charge. Dividends and capital gain distributions from a fund are
reinvested at net asset value without a sales charge and retained as an asset of
the appropriate subaccount. Fund shares will be redeemed by the appropriate
subaccount, without fee to the subaccount, to the extent necessary to make death
benefit or other payments under the policy.
Currently, shares of the IDS Life Series Fund Portfolios are available to serve
as the underlying investment for variable life insurance. Shares of the AIM V.I.
Growth and Income Fund and Putnam VT New Opportunities Fund are available to
serve as the underlying investment for variable life insurance contracts,
variable annuities and qualified plans. In the future, shares of the IDS Life
Series Fund Portfolios may be available to serve as the underlying investment
for variable life insurance contracts, variable annuities and qualified plans.
It is conceivable that in the future it may be disadvantageous for variable life
insurance separate accounts, variable annuity separate accounts and/or qualified
plans to invest in the available funds simultaneously. Although IDS Life and the
funds do not currently foresee any such disadvantages, the boards of directors
or trustees of the appropriate funds will monitor events in order to identify
any material conflicts between such policy owners, contract owners and qualified
plans to determine what action, if any, should be taken in response to a
conflict. If a board were to conclude that separate funds should be established
for variable life insurance, variable annuity and qualified plan separate
accounts, the variable life insurance policyholders would not bear any expenses
associated with establishing separate accounts. Please refer to the fund
prospectuses for risk disclosure regarding mixed and shared funding.
IDS Life acts as the investment manager and American Express Financial
Corporation acts as the investment advisor for IDS Life Series, Inc. American
Express Trust Company acts as custodian of the IDS Life Series Fund, Inc.'s
investments.
A I M Advisors, Inc. acts as the investment advisor for AIM V.I. Growth and
Income Fund. Putnam Management acts as the investment manager for Putnam VT New
Opportunities Fund.
<PAGE>
The investment managers or advisors receive fees for their services as described
under "Loads, fees and charges."
Detailed information about the funds, their investment objectives, policies and
risks, may be found in the fund prospectuses.
Diversification: The Internal Revenue Service (IRS) has issued final regulations
relating to the diversification requirements under Section 817(h) of the Code.
Each fund intends to comply with these requirements.
Ownership rules: The U.S. Treasury and the IRS have indicated they may provide
additional guidance concerning how many subaccounts may be offered and how many
exchanges among subaccounts may be allowed before the owner is considered to
have investment control and thus is currently taxed on income earned within
subaccount assets. We do not know at this time what the additional guidance will
be or when action will be taken. We reserve the right to modify the policy, as
necessary, to ensure that the owner will not be subject to current taxation as
the owner of the subaccount assets.
Rates of return of the funds and subaccounts
This section presents rates of return, first for the funds and then for the
corresponding subaccounts. Rates of return are different in the two cases
because those of the subaccounts reflect additional charges. All charges and
expenses mentioned in the section are explained fully under "Loads, fees and
charges."
Rates of return of funds
In the following table are average annual rates of return based on the actual
investment performance of the funds after deduction of applicable portfolio
expenses (including the investment management fees and nonadvisory expenses) for
the periods indicated. These rates do not reflect charges that apply to the
subaccounts or the policy and therefore do not illustrate how actual investment
performance will affect policy benefits. Moreover, these rates of return are not
an estimate or guarantee of future performance.
<PAGE>
<TABLE>
<CAPTION>
Period ending 12/31/97
10 years or
Fund 1 year 3 years 5 years Since
commencement*
- --------------------------------------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
IDS Life Series Fund - Equity (Beta 0.86**) 21.03% 26.21% 18.55% 18.08%
IDS Life Series Fund - Income 8.03 10.60 8.25 9.14
IDS Life Series Fund - Money Market 5.03 5.02 4.27 5.35
IDS Life Series Fund - Managed (Beta 0.62**) 17.91 17.14 14.17 15.75
IDS Life Series Fund - Government Securities 8.60 9.15 6.77 8.42
IDS Life Series Fund - International Equity 6.20 21.47 -- 20.39
AIM V.I. Growth and Income Fund 25.72 -- -- 21.11
Putnam VT New Opportunities Fund 23.29 -- -- 22.86
</TABLE>
*IDS Life Series Fund International Equity Portfolio commenced operations on
October 28, 1994. AIM V.I. Growth and Income Fund and Putnam VT New
Opportunities Fund each commenced operations on May 2, 1994. **Beta is a
volatility measure based on calculations of the funds monthly returns compared
to the S&P 500 Index. A beta less than one indicates performance that is less
volatile than the market. A beta more than one indicates performance that is
more volatile than the market.
Rates of return of subaccounts
Average annual rates of return in the following table reflect all charges
incurred by the funds and charges against the subaccounts (including the
mortality and expense risk charge). The rates do not reflect the premium expense
charge, surrender charge or monthly deduction. For all subaccounts, we show
actual performance from the date the subaccounts began investing in the funds.
We also show performance from the commencement date of the funds.*
<TABLE>
<CAPTION>
Period Ending 12/31/97
Since Commencement of the subaccounts Since commencement of the Funds
10 years or 10 years or
Subaccount Investment 1 year 3 years 5 years Since 1 year 3 years 5 years Since
commencement commencement*
- ------------ ----------------------- ------- --------- --------- -------------- -------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U Equity 20.05% 25.07% 17.49% 16.97% 20.05% 25.07% 17.49% 16.97%
V Income 7.04 9.62 7.30 8.14 7.04 9.62 7.30 8.14
W Money Market 4.15 4.17 3.39 4.44 4.15 4.17 3.39 4.44
X Managed 16.88 16.08 13.14 14.66 16.88 16.08 13.14 14.66
Y Government Securities 7.66 8.19 5.83 7.40 7.66 8.19 5.83 7.40
IL** International Equity 5.25 21.28 -- 19.41 5.25 21.28 -- 19.41
FGI** Growth and Income Fund 24.59 -- -- 22.15 24.59 25.23 -- 20.00
FNO** New Opportunities Fund 22.18 -- -- 17.34 22.18 24.19 -- 21.76
</TABLE>
* In most cases, the subaccounts and the funds commenced operations at the same
time, so the performance for both is the same. However, the AIM V.I. Growth and
Income Fund and the Putnam VT New Opportunities Fund commenced operations before
the subaccounts that invest in those funds, so the subaccount and fund
performance is different. We show performance from commencement of these two
funds as if the subaccounts had invested in the funds at that time.
**Subaccount IL investing in International Equity portfolio commenced operations
on Oct. 28, 1994. FGI and FNO subaccounts each commenced operations on Nov. 22,
1996.
<PAGE>
The fixed account
You can allocate premiums to the fixed account or transfer policy value from the
subaccounts to the fixed account (with certain restrictions, explained in
"Transfers between the fixed account and subaccounts").
The fixed account is the general investment account of IDS Life. It includes all
assets owned by IDS Life other than those in the variable account and other
separate accounts. Subject to applicable law, IDS Life has sole discretion to
decide how assets of the fixed account will be invested.
Placing policy value in the fixed account does not entitle you to share in the
fixed account's investment experience, nor does it expose you to the account's
investment risk. Instead, IDS Life guarantees that the policy value you place in
the fixed account will accrue interest at an effective annual rate of at least
4%, independent of the actual investment experience of the account. IDS Life
bears the full investment risk for amounts allocated to the fixed account.
IDS Life is not obligated to credit interest at any rate higher than 4%,
although we may do so at our sole discretion. Interest in excess of 4% will not
be credited on any portion of policy value in the fixed account against which
you have a policy loan outstanding.
Because of exemptive and exclusionary provisions, interests in the fixed account
have not been registered under the Securities Act of 1933 and the fixed account
has not been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the fixed account nor any interests in it are
subject to the provisions of these Acts and the staff of the SEC has not
reviewed the disclosures in this prospectus relating to the fixed account.
Disclosures regarding the fixed account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
Purchasing your policy
Application
To apply for coverage, complete an application and send it with your premium
payment to IDS Life's home office. In your application, you:
o select a specified amount of insurance;
o select a death benefit option;
o designate a beneficiary; and
o state how premiums are to be allocated among the fixed account and/or the
subaccounts.
Insurability: Before issuing your policy, IDS Life requires satisfactory
evidence of the insurability of the persons whose lives you propose to insure.
Our underwriting department will review your application and any medical
information or other data
<PAGE>
required to determine whether the proposed individuals are insurable under our
underwriting rules. Your application may be declined if a person fails to meet
the underwriting requirements and any premiums you have paid will be returned.
Age limit: IDS Life generally will not issue a policy to persons over the
insurance age of 85. It may, however, do so at its sole discretion.
Risk classification: The risk classification for each insured is based on that
insured's health, occupation or other relevant underwriting standards. This
classification will affect the monthly deduction. (See "Loads, fees and charges"
and "Optional insurance benefits.")
Other conditions: In addition to proving insurability, you and the insureds must
also meet certain conditions, stated in the application form, before coverage
will become effective and your policy is issued to you. The lives insured may be
covered under the terms of a conditional insurance agreement prior to a policy
being issued.
Incontestability: IDS Life will have two years from the effective date of your
policy to contest the truth of statements or representations in your
application. After the policy has been in force during the lifetime of both
insureds for two years from the policy date, IDS Life cannot contest the policy.
Right to examine policy
You may return your policy for any reason and receive a full refund of all
premiums paid. To do so, you must mail or deliver the policy to IDS Life or your
financial advisor, with a written request for cancellation, by the latest of:
o the 10th day after you receive it (15th day in Colorado, 20th day in North
Dakota);
o the 10th day after IDS Life mails or personally delivers a written notice
of withdrawal right (15th day in Colorado, 20th day in North Dakota); or
o the 45th day after you sign your application.
On the date your request is postmarked or received, the policy will immediately
be considered void from the start.
Premiums
Payment of premiums:
In applying for your policy, you decide how much you intend to pay and how often
you will make payments. During the early policy years until the policy value is
sufficient to cover the surrender charge, IDS Life requires that you pay the
minimum initial premiums.
<PAGE>
You may schedule payments annually, semiannually or quarterly. (Payment at any
other interval must be approved by IDS Life.) This premium schedule is shown in
your policy.
The scheduled premium serves only as an indication of your intent as to the
frequency and amount of future premium payments. You may skip scheduled premium
payments at any time if your cash surrender value is sufficient to pay the
monthly deduction, or if you have paid sufficient premium to keep the DBG-85,
the DBG-100 or the minimum initial premium period in effect.
You may also change the amount and frequency of scheduled premium payments by
written request. IDS Life reserves the right to limit the amount of such
changes. Any change in the premium amount is subject to applicable tax laws and
regulations.
Although you have flexibility in paying premiums, the amount and frequency of
your payments will affect the policy value, cash surrender value and length of
time your policy will remain in force, as well as affect whether the DBG-85,
DBG-100 or the minimum initial premium period remain in effect.
Premium limitations:
You may make unscheduled premium payments at any time and in an amount of at
least $50. IDS Life reserves the right to limit the number and amount of
unscheduled premium payments.
No premium payments, scheduled or unscheduled, are allowed on or after the
youngest insured's attained insurance age 100.
Also, in order to receive favorable tax treatment under the Code, premiums paid
during the life of the policy must not exceed certain limitations. To comply
with the Code, IDS Life can either refuse excess premiums as they are paid, or
refund excess premiums with interest no later than 60 days after the end of the
policy year in which they were paid.
Allocation of premiums:
Until the policy date, we hold all premiums in the fixed account, and we credit
interest on the net premiums (gross premiums minus premium expense charge) at
the current fixed account rate. As of the policy date, we will allocate the net
premiums plus accrued interest to the account(s) you have selected in your
application. At that time, we will begin to assess the various loads, fees and
charges.
Any amount allocated to a subaccount is converted into accumulation units of
that subaccount, as explained under "Policy value." Similarly, when transferring
value between subaccounts, accumulation units in one subaccount are converted
into a cash value, which is then converted into accumulation units of the second
subaccount.
<PAGE>
Keeping the policy in force
This section includes a description of the policy provisions that determine if
the policy will remain in force or lapse (terminate). It is important that you
understand them so the appropriate premium payments are made to ensure that
insurance coverage meets your objectives.
If you wish to have a guarantee that the policy will remain in force until the
youngest insured's attained insurance age 100 regardless of investment
performance, you should pay at least the DBG-100 premiums.
If you wish to pay a lower premium and are satisfied to have a guarantee that
the policy will remain in force until the youngest insured's attained insurance
age 85 (or 15 policy years, if later) regardless of investment performance, you
should pay at least the DBG-85 premiums.
If you wish to pay yet a lower premium and are not concerned with a long-term
guarantee that the policy will remain in force regardless of investment
performance, you can pay premiums so that the cash surrender value on each
monthly date is sufficient to pay the monthly deduction. However, during the
minimum initial premium period, you must pay at least the minimum initial
premium until the policy value is greater than the surrender charge and the cash
surrender value is sufficient to pay the monthly deduction.
Death benefit guarantee to age 85
The DBG-85 provides that your policy will remain in force until the youngest
insured reaches attained insurance age 85 (or 15 policy years, if later) even if
the cash surrender value is insufficient to pay the monthly deduction. The
DBG-85 will remain in effect, as long as:
the sum of premiums paid minus partial surrenders minus outstanding
indebtedness equals or exceeds the DBG-85 premiums due since the policy
date.
The DBG-85 premium is shown in the policy.
If, on a monthly date, you have not paid enough premiums to keep the DBG-85 in
effect, an additional period of 61 days will be allowed for you to pay a premium
sufficient to bring your total up to the required minimum. If you do not pay
this amount within 61 days, the DBG-85 will terminate. Your policy will also
lapse (terminate) if the cash surrender value is less than the amount needed to
pay the monthly deduction and the minimum initial premium period is not in
effect. Although the policy can be reinstated as explained below, the DBG-85
cannot be reinstated.
<PAGE>
Death benefit guarantee to age 100
The DBG-100 provides that your policy will remain in force until the youngest
insured's attained insurance age 100 even if the cash surrender value is
insufficient to pay the monthly deduction. The DBG-100 will remain in effect, as
long as:
the sum of premiums paid minus partial surrenders minus outstanding
indebtedness
equals or exceeds the DBG-100 premiums due since the policy date.
The DBG-100 premium is shown in the policy.
If, on a monthly date, you have not paid enough premiums to keep the DBG-100 in
effect, an additional period of 61 days will be allowed for you to pay a premium
sufficient to bring your total up to the required minimum. If you do not pay
this amount within 61 days, the DBG-100 will terminate. If you have paid
sufficient premiums, the DBG-85 will be in effect. If the DBG-85 and DBG-100 are
not in effect, your policy will lapse (terminate) if the cash surrender value is
less than the amount needed to pay the monthly deduction and the minimum initial
premium period is not in effect. Although the policy can be reinstated as
explained below, the DBG-100 cannot be reinstated.
Minimum initial premium period
To allow you to purchase this policy for the lowest premium possible, you may
choose to pay only the minimum initial premium during the minimum initial
premium period as long as the policy value minus indebtedness equals or exceeds
the monthly deduction. The policy will not enter the grace period during the
minimum initial premium period as shown in your policy under "Policy Data," if:
1. on a monthly date, the policy value minus indebtedness equals or exceeds
the monthly deduction for the policy month following such monthly date; and
2. the sum of all premiums paid, minus any partial surrenders, and minus any
indebtedness equals or exceeds the minimum initial premium, as shown in
your policy under "Policy Data," times the number of months since the
policy date, including the current month.
The minimum initial period is
4 years if the youngest insured's insurance age is 20-29 3 years if the
youngest insured's insurance age is 30-39 2 years if the youngest insured's
insurance age is 40-49 1 year if the youngest insured's insurance age is 50
and over
<PAGE>
Grace period
If the cash surrender value of the policy becomes less than that needed to pay
the monthly deduction and neither of the death benefit guarantees nor the
minimum initial premium period is in effect, you will have 61 days to pay the
required premium amount. If the required premium is not paid, the policy will
lapse.
IDS Life will mail a notice to your last known address, requesting payment of
the premium needed so that the next three monthly deductions can be made. If we
receive this premium before the end of the 61-day grace period, we will use the
payment to pay all monthly deductions and any other charges then due. Any
balance will be added to the policy value and allocated in the same manner as
other premium payments.
If a policy lapses with outstanding indebtedness, any excess of the outstanding
indebtedness over the premium paid generally will be taxable to the owner. (See
"Federal taxes.") If the last surviving insured dies during the grace period,
any overdue monthly deductions will be deducted from the death benefit.
Reinstatement
Your policy may be reinstated within five years after it lapses, unless you
surrendered it for cash. To reinstate, IDS Life will require:
o a written request;
o evidence satisfactory to IDS Life that both insureds remain insurable or
evidence for the last surviving insured and due proof that the first death
occurred before the date of lapse;
o payment of a premium that will keep the policy in force for at least three
months (one month in Virginia);
o payment of the monthly deductions that were not collected during the grace
period; and
o payment or reinstatement of any indebtedness.
The effective date of a reinstated policy will be the monthly date on or next
following the day IDS Life accepts your application for reinstatement. The
suicide period (see "Proceeds payable upon death") will apply from the effective
date of reinstatement (except in Georgia, Oklahoma, Tennessee, Utah and
Virginia). Surrender charges will also be reinstated.
IDS Life will have two years from the effective date of reinstatement (except in
Virginia) to contest the truth of statements or representations in the
reinstatement application.
<PAGE>
Loads, fees and charges
Policy charges compensate IDS Life for:
o providing the insurance benefits of the policy;
o issuing the policy;
o administering the policy;
o assuming certain risks in connection with the policy; and
o distributing the policy.
Some of these charges are deducted from your premium payments. Others are
deducted periodically from your policy value in the fixed account and/or
subaccounts. You may also be assessed a charge if you surrender your policy or
the policy lapses.
Premium expense charge
We deduct this charge from each premium payment. The amount remaining after the
deduction, called the net premium, is credited to the account(s) you have
selected. The premium expense charge has three parts:
Sales charge: 7.25% of all premiums paid. Partially compensates IDS Life for
expenses in distributing the policy, including agents' commissions, advertising
and printing of prospectuses and sales literature.
Premium tax charge: 2.5% of each premium payment. Compensates IDS Life for
paying taxes imposed by certain states and governmental subdivisions on premiums
received by insurance companies. All policies in all states are charged the
average rate of 2.5% even though state premium taxes vary from 2.0% to 3.5%.
This 2.5% rate may be different than the actual premium tax IDS Life expects to
pay in your state.
Federal tax charge: 1.25% of each premium payment. Compensates IDS Life for
paying Federal taxes resulting from the sale of the policy and is a reasonable
charge in relation to IDS Life's federal tax burden. IDS Life reserves the right
to change the amount of this charge (except in Oregon) if applicable federal law
changes IDS Life's federal tax burden.
Monthly deduction
On each monthly date we deduct from the value of your policy in the fixed
account and/or subaccounts an amount equal to the sum of:
1. the cost of insurance for the policy month;
2. the policy fee shown in your policy; and
3. charges for any optional insurance benefits provided by rider for the
policy month.
<PAGE>
Each of the three components is explained below.
You specify, in your policy application, what percentage of the monthly
deduction from 0% to 100% will be taken from the fixed account and from each of
the subaccounts. You may change these percentages for future monthly deductions
by written request.
Monthly deductions will be taken from the fixed account and the subaccounts on a
pro rata basis if:
o you do not specify the accounts from which the monthly deduction is to be
taken;
o the value in the fixed account or any subaccount is insufficient to pay the
portion of the monthly deduction you have specified; or
o you purchased the policy in Texas.
If the cash surrender value of your policy is not enough to pay the monthly
deduction on a monthly anniversary, the policy may lapse. However, the policy
will not lapse if the DBG-85, DBG-100 or the minimum initial premium period is
in effect. (See "Death benefit guarantee to age 85, Death benefit guarantee to
age 100, Minimum initial premium period;" also "Grace period" and
"Reinstatement.")
Components of the monthly deduction:
1. Cost of insurance: the cost providing the death benefit under your policy.
The cost of insurance for a policy month is calculated as:
[a x (b - c)] + d
where:
(a) is the monthly cost of insurance rate based on each insureds insurance age,
duration of coverage, sex (unless unisex rates are required by law) and risk
classification. Generally, the cost of insurance rate will increase as the
attained insurance age of each insured increases.
Rates are set by IDS Life, based on its expectations as to future mortality
experience. We may change the rates from time to time; any change will apply to
all individuals of the same risk classification. However, rates will not exceed
the Guaranteed Maximum Cost of Insurance Rates shown in your policy, which are
based on the 1980 Commissioners Standard Ordinary Smoker or Nonsmoker Mortality
Tables, Age Last Birthday.
(b) is the death benefit on the monthly date divided by 1.0032737 (which reduces
IDS Life's net amount at risk, solely for computing the cost of insurance, by
taking into account assumed monthly earnings at an annual rate of 4%);
<PAGE>
(c) is the policy value on the monthly date. At this point, the policy value has
been reduced by the policy fee and any charges for optional riders;
(d) is any flat extra insurance charges assessed as a result of special
underwriting considerations.
2. Policy fee: $30 per month for the first 15 policy years. This charge
reimburses IDS Life for expenses of issuing the policy, such as processing the
application (primarily underwriting) and setting up computer records; and of
administering the policy, such as processing claims, maintaining records, making
policy changes and communicating with owners. IDS Life does not expect to make
any profit on this charge. We reserve the right to change the charge in the
future, but guarantee that it will never exceed $30 per month.
3. Optional insurance benefit charges: charges for any optional benefits added
to the policy by rider. See "Optional insurance benefits."
Surrender charge
If you surrender your policy or the policy lapses during the first 15 policy
years, a surrender charge will be assessed. The surrender charge is a contingent
deferred issue and administration expense charge. It reimburses IDS Life for
costs of issuing the policy, such as processing the application (primarily
underwriting) and setting up computer records. IDS Life does not expect to make
a profit on this charge. This charge is $4 per thousand dollars of initial
specified amount. It remains level during the first five policy years and then
decreases monthly until it is zero at the end of 15 policy years.
Partial surrender fee
If you surrender part of the value of your policy, you will be charged $25 (or
2% of the amount surrendered, if less). This fee is guaranteed not to increase
for the duration of your policy.
Mortality and expense risk charge
This charge applies only to the subaccounts and not to the fixed account. It is
equal, on an annual basis, to 0.9% of the daily net asset value of the
subaccounts -- a level guaranteed for the life of the policy. Computed daily,
the charge compensates IDS Life for:
o Mortality risk -- the risk that the cost of insurance charge will be
insufficient to meet actual claims.
<PAGE>
o Expense risk -- the risk that the policy fee and the contingent deferred
issue and administration expense charge (described above) may be
insufficient to cover the cost of administering the policy.
Any profit from the mortality and expense risk charge would be available to IDS
Life for any proper corporate purpose including, among others, payment of sales
and distribution expenses, which we do not expect to be covered by the sales
charge discussed earlier. Any further deficit will have to be made up from IDS
Life's general assets.
Fund expenses
The investment managers receive fees for their services to the funds. The funds
also pay taxes, brokerage commissions and nonadvisory expenses. IDS Life has
agreed to a voluntary limit of 0.1%, on an annual basis, of the average daily
net assets of each of the IDS Life Series Fund Portfolios for these nonadvisory
expenses, such as custodian and trustee fees, registration fees for shares,
postage, fidelity and security bond costs, legal fees and other miscellaneous
fees and charges, even though actual expenses on IDS Life Series Fund-Government
Securities Portfolio ranged up to .15%, IDS Life Series Fund-Money Market
Portfolio ranged up to .14% and IDS Life Series Fund-International Equity
Portfolio ranged up to .27%. IDS Life reserves the right to discontinue limiting
these nonadvisory expenses at .1%. However, its present intention is to continue
the limit until the time that actual expenses are less than the limit. Other
expenses for the year ended Dec. 31, 1997 were 0.05% for Putnam VT New
Opportunities Fund. For AIM V.I. Growth and Income Fund other expenses were
0.06% for the period ended Dec. 31, 1997.
The investment management fee is deducted from the IDS Life Series Fund -
Equity, Income, Money Market, Managed, Government Securities, International
Equity Portfolios and the Putnam VT New Opportunities Fund and AIM V.I. Growth
and Income Fund daily.
As of Dec. 31, 1997, the investment management fee was as follows:
o IDS Life Series Fund - Money Market Portfolio -- 0.5% of average daily net
assets
o Putnam VT New Opportunities Fund -- 0.58% of average daily net assets
o AIM V.I. Growth and Income Fund -- 0.63% of average daily net assets
o IDS Life Series Fund - Equity, Income, Managed and Government Securities
Portfolios -- 0.7% of average daily net assets
o IDS Life Series Fund - International Equity Portfolio -- 0.95% of average
daily net assets
<PAGE>
IDS Life has entered into certain agreements under which it is compensated by
the advisors and/or distributors of the AIM V.I. Growth and Income Fund and
Putnam VT New Opportunities Fund for the administrative services it provides to
these funds.
Other information on charges:
IDS Life may reduce or eliminate various fees and charges when we incur lower
sales costs and/or perform fewer administrative services than usual.
Policy value
The value of your policy is the sum of values in the fixed account and each
subaccount of the variable account.
Fixed account value
The value in the fixed account on the policy date (when the policy is issued)
equals the portion of your initial net premium that you have allocated to the
fixed account, plus interest accrued before the policy date, minus the portion
of the monthly deduction for the first policy month that you have allocated to
the fixed account.
On any later date, the value in the fixed account equals:
o the value on the previous monthly date; plus
o net premiums allocated to the fixed account since the last monthly date;
plus
o any transfers to the fixed account from the subaccounts, including loan
transfers, since the last monthly date; plus
o accrued interest on all of the above; minus
o any transfers from the fixed account to the subaccounts, including loan
repayment transfers, since the last monthly date; minus
o any partial surrenders or partial surrender fees allocated to the fixed
account since the last monthly date; minus
o interest on any transfers or partial surrenders, from the date of the
transfer or surrender to the date of calculation; minus
o any portion of the monthly deduction for the coming month that is allocated
to the fixed account if the date of calculation is a monthly date.
Subaccount values
The value in each subaccount changes daily, depending on the investment
performance of the fund in which that subaccount invests and on other factors
detailed below. There is no guaranteed minimum subaccount value. You, as owner,
bear the entire investment risk.
<PAGE>
Calculation of subaccount value: The value in each subaccount on the policy date
equals the portion of your initial net premium allocated to that subaccount plus
interest accrued before the policy date, minus the portion of the monthly
deduction for the first policy month that you have allocated to that subaccount.
The value of each subaccount on each subsequent valuation date equals:
o the value of the subaccount on the preceding valuation date, multiplied by
the net investment factor for the current valuation period (explained
below); plus
o net premiums received and allocated to the subaccount during the current
valuation period; plus
o any transfers to the subaccount (from the fixed account or other
subaccounts, including loan repayment transfers) during the period; minus
o any transfers from the subaccount including loan transfers during the
current valuation period; minus
o any partial surrenders and partial surrender fees allocated to the
subaccount during the period; minus
o any portion of the monthly deduction allocated to the subaccount during the
period.
The net investment factor measures the investment performance of a subaccount
from one valuation period to the next. Because performance may fluctuate, the
value of a subaccount may increase or decrease from day to day.
Accumulation units: The policy value allocated to each subaccount is converted
into accumulation units. Each time you direct a premium payment or transfer
policy value into one of the subaccounts, a certain number of accumulation units
are credited to your policy for that subaccount. Conversely, each time you take
a partial surrender or transfer value out of a subaccount, a certain number of
accumulation units are subtracted.
Accumulation units are the true measure of investment value in each subaccount.
For subaccounts investing in the funds, they're related to, but not the same as,
the net asset value of the corresponding fund. The dollar value of each
accumulation unit can rise or fall daily, depending on the investment
performance of the underlying fund and on certain charges. Here's how unit
values are calculated:
Number of units: To calculate the number of units for a particular subaccount,
we divide your investment (net premium or transfer amount) by the current
accumulation unit value.
Accumulation unit value: The current value for each subaccount equals the last
value times the current net investment factor.
<PAGE>
Net investment factor: Determined at the end of each valuation period, this
factor equals (a divided by b) - c, where:
(a) equals:
o net asset value per share of the fund; plus
o per-share amount of any dividend or capital gain distribution made by the
relevant fund to the subaccount; plus
o any credit or minus any charge for reserves to cover any tax liability
resulting from the investment operations of the subaccount.
(b) equals:
o net asset value per share of the fund at the end of the preceding valuation
period; plus
o any credit or minus any charge for reserves to cover any tax liability in
the preceding valuation period.
(c) is a percentage factor representing the mortality and expense risk charge,
as described in "Loads, fees and charges," above.
Factors that affect subaccount accumulation units:
Accumulation units may change in two ways; in number and in value. Here are the
factors that influence those changes:
The number of accumulation units you own may fluctuate due to:
o additional purchase payments allocated to the subaccounts;
o transfers into or out of the subaccount(s);
o partial surrenders and partial surrender fees;
o surrender charges; and/or
o monthly deductions
Accumulation unit values will fluctuate due to:
o changes in underlying funds(s) net asset value;
o dividends distributed to the subaccount(s);
o capital gains or losses of underlying funds;
o fund operating expenses; and/or
o mortality and expense risk charges.
Proceeds payable upon death
We will pay a benefit to the beneficiary of the policy when the last surviving
insured dies.
<PAGE>
If that death is prior to the youngest insured's attained insurance age 100, the
amount payable is based on the specified amount and death benefit option you
have selected, as described below, less any indebtedness.
If the last surviving insured's death is on or after the youngest insured's
attained insurance age 100, the amount payable is the cash surrender value.
Option 1 (level amount): Under this option, the policy's value is part of the
specified amount. The Option 1 death benefit is the greater of:
o the specified amount on the date of the last surviving insured's death; or
o the applicable percentage of the policy value on the date of the last
surviving insured's death, if that death occurs on a valuation date, or on
the next valuation date following the date of death. (See table below.)
Youngest insured's attained insurance age in the table below refers to the
youngest life insured or the age such person would have reached.
<TABLE>
<CAPTION>
Applicable percentage table
<S> <C> <C> <C>
Youngest Insured's Applicable percentage of Youngest Insured's Applicable percentage of
attained insurance age policy value attained insurance age policy value
40 or younger 250% 61 128%
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 - 95 105
55 150 96 104
56 146 97 103
57 142 98 102
58 138 99 101
59 134 100 100
60 130
</TABLE>
<PAGE>
The percentage is designed to ensure that the policy meets the provisions of
Federal tax law, which require a minimum death benefit in relation to policy
value for your policy to qualify as life insurance.
Option 2 (variable amount): Under this option, the policy value is added to the
specified amount. The Option 2 death benefit is the greater of:
o the policy value plus the specified amount; or
o the applicable percentage of policy value on the date of the last
surviving insured's death, if that death occurs on a valuation date, or
on the next valuation date following the date of death. (See table
above.)
Examples: Option 1 Option 2
- --------- -------- --------
specified amount $1,000,000 $1,000,000
policy value $50,000 $50,000
death benefit $1,000,000 $1,050,000
policy value increases to $80,000 $80,000
death benefit $1,000,000 $1,080,000
policy value decreases to $30,000 $30,000
death benefit $1,000,000 $1,030,000
If you want to have premium payments and favorable investment performance
reflected partly in the form of an increasing death benefit, you should consider
Option 2. If you are satisfied with the specified amount of insurance protection
and prefer to have premium payments and favorable investment performance
reflected to the maximum extent in the policy value, you should consider Option
1. Under Option 1, the cost of insurance is lower because IDS Life's net amount
at risk is generally lower; for this reason, the monthly deduction is less, and
a larger portion of your premiums and investment returns is retained in the
policy value.
Change in death benefit option
You may make a written request to change the death benefit option once per
policy year. A change in the death benefit option also will change the specified
amount. You do not need to provide additional evidence of insurability.
If you change from Option 1 to Option 2: The specified amount will decrease by
an amount equal to the policy value on the effective date of the change. You
cannot change from Option 1 to Option 2 if the resulting specified amount would
fall below the minimum specified amount shown in policy.
<PAGE>
If you change from Option 2 to Option 1: The specified amount will increase by
an amount equal to the policy value on the effective date of the change.
An increase or decrease in specified amount resulting from a change in the death
benefit option will affect the monthly deduction because the cost of insurance
charge depends on the specified amount. The charge for certain optional
insurance benefits may also change. The surrender charge, however, will not be
affected.
Changes in specified amount
Subject to certain limitations, you may make a written request to decrease the
specified amount once each policy year after the first. Decreases in specified
amount may have tax implications, discussed in the section "Modified endowment
contracts" under "Federal taxes."
Decreases: Any decrease in specified amount will take effect on the monthly
anniversary on or next following our receipt of your written request. The
specified amount remaining after the decrease may not be less than the minimum
specified amount shown in the policy. If, following a decrease in specified
amount, the policy would no longer qualify as life insurance under federal tax
law, the decrease may be limited to the extent necessary to meet these
requirements.
A decrease in specified amount will affect your costs as follows:
o Your monthly deduction will decrease because the cost of insurance
charge depends on the specified amount.
o Charges for certain optional insurance benefits may decrease.
o The surrender charge will not change.
No surrender charge is imposed when you request a decrease in the specified
amount.
Increases: Increases in specified amount are not permitted. If you wish to
purchase additional insurance, you should purchase an additional policy.
Currently, we do not charge the policy fee for the additional policy.
<PAGE>
Misstatement of age or sex
If an insured's age or sex has been misstated, the proceeds payable upon the
last surviving insured's death will be:
o the policy value on the date of death; plus
o the amount of insurance that would have been purchased by the cost of
insurance deducted for the policy month during which death occurred, if
that cost had been calculated using rates for the correct age and sex;
minus
o the amount of any outstanding indebtedness on the date of death.
Suicide
If either of the insureds dies by suicide while sane or insane within two years
from the policy date, the only amount payable will be the premiums paid, minus
the amount of any outstanding indebtedness. The policy will terminate as of the
date of the first death by suicide.
In Colorado and North Dakota, the suicide period is shortened to one year. In
Missouri, IDS Life must prove that the insured intended to commit suicide at the
time he or she applied for coverage.
Beneficiary
Initially, the beneficiary will be the person you designate in your application
for the policy. You may change the beneficiary by giving written notice to IDS
Life, subject to requirements and restrictions stated in the policy. If you do
not designate a beneficiary, or if the designated beneficiary dies before the
last surviving insured, the beneficiary will be you or your estate.
Transfers between the fixed account and subaccounts
You may transfer policy values from one subaccount to another or between
subaccounts and the fixed account. For most transfers, we will process your
transfer request at the end of the valuation period during which your request is
received. There is no charge for transfers. Before transferring policy value,
you should consider the risks involved in switching investments.
We may suspend or modify the transfer privilege at any time. Transfers involving
the fixed account are subject to the restrictions below.
<PAGE>
Fixed account transfer policies
o Transfers from the fixed account must be made during a 30-day period
starting on a policy anniversary, except for automated transfers, which can
be set up for monthly, quarterly or semiannual transfer periods.
o If we receive your request to transfer amounts from the fixed account
within 30 days before the policy anniversary, the transfer will become
effective on the anniversary.
o If we receive your request on or within 30 days after the policy
anniversary, the transfer will be effective on the day we receive it.
o We will not accept requests for transfers from the fixed account at any
other time.
o If you have made a transfer from the fixed account to one or more
subaccounts, you may not make a transfer from any subaccount back to the
fixed account until the next policy anniversary. We will waive this
limitation once during the first two policy years if you exercise the
policy's right to exchange provision. (See "Exchange right.")
Minimum transfer amounts
From a subaccount to another subaccount or the fixed account:
For mail and phone transfers, $250 or the entire subaccount balance, whichever
is less.
For automated transfers, $50.
From the fixed account to a subaccount: $250 or the entire fixed account balance
minus any outstanding indebtedness, whichever is less.
For automated transfers, $50.
Maximum transfer amounts
From a subaccount to another subaccount or the fixed account: None.
From the fixed account to a subaccount: Entire fixed account balance minus any
outstanding indebtedness.
Maximum number of transfers per year
We reserve the right to limit mail and telephone transfers to five per policy
year. Twelve automated transfers per policy year are allowed.
<PAGE>
Two ways to request a transfer, loan or surrender
Provide your name, policy number, Social Security Number or Taxpayer
Identification Number when you request a transfer, loan or partial surrender.
1 By letter
Regular mail:
IDS Life Insurance Company
P.O. Box 499
Minneapolis, MN 55440-0499
Express mail:
IDS Life Insurance Company
733 Marquette Ave.
Minneapolis, MN 55402
2 By phone
Call between 7 a.m. and 6 p.m. Central Time:
1-800-437-0602 (toll free) or
(612) 671-4738 (Minneapolis/St. Paul area)
TTY service for the hearing impaired:
1-800-285-8846 (toll free)
o We answer phone requests promptly, but you may experience delays when call
volume is unusually high. If you are unable to get through, use mail
procedure as an alternative.
o We will honor any telephone transfer, loan or partial surrender requests
believed to be authentic and will use reasonable procedures to confirm that
they are. These include asking identifying questions and tape recording
calls. As long as these procedures are followed, neither IDS Life nor its
affiliates will be liable for any loss resulting from fraudulent requests.
o Telephone transfers, loans and partial surrenders are automatically
available. You may request that telephone transfers, loans and partial
surrenders not be authorized from your account by writing IDS Life.
Automated transfers
In addition to written and phone requests, you can arrange to have policy value
transferred from one account to another automatically. Your financial advisor
can help you set up an automated transfer.
<PAGE>
Automated transfer policies:
o Minimum automated transfer: $50
o Frequency: monthly, quarterly, semiannually or annually
o Only one automated transfer arrangement can be in effect at any time.
Policy values may be transferred to one or more subaccounts and the fixed
account, but can be transferred from only one account.
o You can start or stop this service by written request. You must allow seven
days for us to change any instructions that are currently in place.
o Automated transfers from the fixed account may not exceed an amount that,
if continued, would deplete the fixed account within 12 months.
o If you have made a transfer from the fixed account to one or more
subaccounts, you may not make a transfer from any subaccount back to the
fixed account until the next policy anniversary.
o If your request is submitted with an application for a policy, it will not
take effect until the policy is issued.
o If the value of the account from which policy value is being transferred is
less than the $50 minimum, the transfer arrangement will automatically be
stopped.
o Automated transfers are subject to all other policy provisions and terms
including provisions relating to the transfer of money between the fixed
account and the subaccounts.
Automated dollar-cost averaging
You can use automated transfers to take advantage of dollar-cost averaging --
investing a fixed amount at regular intervals. For example, you might have a set
amount transferred monthly from a relatively conservative subaccount to a more
aggressive one, or to several others.
This systematic approach can help you benefit from fluctuations in accumulation
unit value, caused by fluctuations in the market value(s) of the underlying
fund. Since you invest the same amount each period, you automatically acquire
more units when the market value falls, fewer units when it rises. The potential
effect is to lower your average cost per unit. There is no charge for
dollar-cost averaging.
<PAGE>
How dollar-cost averaging works
Accumulation Number of units
Month Amount invested unit value purchased
Jan $100 $20 5.00
Feb 100 16 6.25
Mar 100 9 11.11
Apr 100 5 20.00
May 100 7 14.29
June 100 10 10.00
July 100 15 6.67
Aug 100 20 5.00
Sept 100 17 5.88
Oct 100 12 8.33
(footnotes to table) By investing an equal number of dollars each month...
(arrow in table pointing to April) you automatically buy more units when the per
unit market price is low.
(arrow in table pointing to August) and fewer units when the per unit market
price is high.
You have paid an average price of only $10.81 per unit over the 10 months, while
the average market price actually was $13.10.
Dollar-cost averaging does not guarantee that any variable subaccount will gain
in value, nor will it protect against a decline in value if market prices fall.
Because this strategy involves continuous investing, your success with
dollar-cost averaging will depend upon your willingness to continue to invest
regularly through periods of low price levels. Dollar-cost averaging can be an
effective way to help meet your long-term goals.
Policy loans
You may borrow against your policy by written or telephone request. (See chart
under "Transfers between the fixed account and subaccounts" for address and
phone numbers for your requests.) We will process your loan request at the end
of the valuation period during which your request is received. (Loans by
telephone are limited to $50,000.)
Interest rate: The interest rate for policy loans is 6% per year. After the
policy's 10th anniversary we expect to reduce the loan interest rate to 4% per
year. Interest is charged daily and due at the end of the policy year.
<PAGE>
Minimum loan: $500 ($200 for Connecticut residents) or the remaining loan value,
whichever is less.
Maximum loan:
o In Texas, 100% of the policy value in the fixed account, minus a pro rata
portion of surrender charges.
o In Virginia, 90% of the policy value minus surrender charges.
o In Alabama, 100% of the policy value minus surrender charges.
o In all other states, 85% of the policy value minus surrender charges.
We will compute the maximum loan value as of the end of the valuation period
during which we receive your loan request. The amount available at any time for
a new loan is the maximum loan value less any existing indebtedness. In doing
so, we reserve the right to deduct from the loan value interest for the period
until the next policy anniversary and monthly deductions that will be taken
until the next policy anniversary.
Payment of loaned funds: Generally, we will pay loans within seven days after we
receive your request (with certain exceptions - see "Deferral of payments,"
under "Payment of policy proceeds").
Allocation of loans to accounts: If you do not specify whether the loan is to
come from the fixed account or the subaccounts, it will be made from the
subaccounts and the fixed account in proportion to their values, minus
indebtedness. When a loan is made from a subaccount, accumulation units are
redeemed and the proceeds transferred into the fixed account. We will credit the
policy value loaned with 4% annual interest.
Repayments: Loan repayments will be allocated to subaccounts and/or the fixed
account using the premium allocation percentages in effect unless you tell us
otherwise. Repayments must be in amounts of at least $50.
Overdue interest: If accrued interest is not paid when due, we will increase the
amount of indebtedness in the fixed account to cover the amount due. Interest
added to a policy loan will be charged the same interest rate as the loan
itself. We will take such interest from the fixed account and/or subaccounts,
using the monthly deduction allocation percentages. If the value in the fixed
account or any subaccount is not enough to pay the interest so allocated, all of
the interest will be taken from all of the accounts in proportion to their
value, minus indebtedness.
<PAGE>
Effects of policy loans: If you do not repay your loan, it will reduce the death
benefit and policy value. Even if you do repay it, your loan can have a
permanent effect on death benefits and policy values, because money borrowed
against the subaccounts will not share in the investment results of the relevant
portfolio(s).
A loan may terminate the DBG-85, the DBG-100 or the minimum initial premium
period. The loan amount is deducted from total premiums paid, which may reduce
the total below the level required to keep the DBG-85, the DBG-100 or the
minimum initial premium period in effect.
Taxes: If your policy lapses or you surrender it with an outstanding
indebtedness, and the amount of outstanding indebtedness plus the cash surrender
value is more than the sum of premiums you paid, you will generally be liable
for taxes on the excess. (See "Federal taxes.")
Policy surrenders
You may surrender your policy in full or in part by written or telephone
request. (See chart under "Transfers between the fixed account and
subaccounts.") We will process your surrender request at the end of the
valuation period during which your request is received. We may require that you
return your policy.
We will normally process your payment within seven days; however, we reserve the
right to defer payment. (See "Deferral of payments," under "Payment of policy
proceeds.")
Total surrenders If you surrender your policy totally, you receive its cash
surrender value - the policy value minus outstanding indebtedness and applicable
surrender charges. (See "Loads, fees and charges.") We will compute the value of
each subaccount as of the end of the valuation period during which your request
is received.
Partial surrenders After the first policy year, you may surrender any amount
from $500 up to 85% of the policy's cash surrender value. (Partial surrenders by
telephone are limited to $50,000.) You will be charged a partial surrender fee,
described under "Loads, fees and charges."
Allocation of partial surrenders Unless you specify otherwise, IDS Life will
make partial surrenders from the fixed account and subaccounts in proportion to
their values at the end of the valuation period during which your request is
received. In determining these proportions, we first subtract the amount of any
outstanding indebtedness from the fixed account value.
<PAGE>
Effects of partial surrenders
o The policy value will be reduced by the amount of the partial surrender and
fee.
o The death benefit will be reduced by the amount of the partial surrender
and fee, or, if the death benefit is based on the applicable percentage of
policy value, by an amount equal to the applicable percentage times the
amount of the partial surrender.
o A partial surrender may terminate the DBG-85, the DBG-100 or the minimum
initial premium period. The surrender amount is deducted from total
premiums paid, which may reduce the total below the level required to keep
the DBG-85, the DBG-100 or the minimum initial premium period in effect.
o If Option 1 is in effect, the specified amount will be reduced by the
amount of the partial surrender and fee.
Because they reduce the specified amount, partial surrenders may affect the cost
of insurance. IDS Life will not allow a partial surrender if it would reduce the
specified amount below the required minimum.
(See "Decreases" under "Proceeds payable upon death.")
o If Option 2 is in effect, a partial surrender does not affect the specified
amount.
Taxes Upon surrender, you will generally be liable for taxes on any excess of
the cash surrender value plus outstanding indebtedness over the premium paid.
(See "Federal taxes.")
Exchange right
For two years after the policy is issued, you can exchange it for one that
provides benefits that do not vary with the investment return of the
subaccounts. Because the policy itself offers a fixed return option, all you
need to do is transfer all of the policy value in the subaccounts to the fixed
account. We will automatically credit all future premium payments to the fixed
account unless you request a different allocation.
Such transfer will not count against the five-transfers-per-year limit. Also,
any restrictions on transfers into the fixed account will be waived.
There will be no effect on the policy's death benefit, specified amount, net
amount at risk, risk classification(s) or issue age. Only the method of funding
the policy value will be affected.
<PAGE>
Optional insurance benefits
You may choose to add the following benefits to your policy at an additional
cost, in the form of riders (if certain requirements are met). More detailed
information on these benefits are in your policy.
Four-Year Term Insurance Rider (FYT) FYT provides four-year term insurance. An
additional death benefit is paid if both insureds die during the first four
years of the policy.
Policy Split Option Rider (PSO) PSO permits a policy to be split into two
individual permanent plans of life insurance then offered by IDS Life for
exchange, one on the life of each insured, upon the occurrence of a divorce of
the insureds or certain changes in federal estate tax law. (See "Federal
taxes.")
Payment of policy proceeds
Proceeds will be paid when:
o you surrender the policy; or
o the last surviving insured dies.
All proceeds will be paid by check. We will compute the amount of the death
benefit and pay it in a single sum unless you select one of the payment options
below. We will pay interest at a rate not less than 4% per year (8% in Arkansas,
11% in Florida) on single sum death proceeds, from the date of the last
surviving insured's death to the settlement date (the date on which proceeds are
paid in a lump sum or first placed under a payment option). You will be charged
a fee if you request express mail delivery.
Payment options:
During an insured's lifetime, you may request in writing that we pay policy
proceeds under one or more of the three payment options below. (The beneficiary
may also select a payment option, unless you say that he or she can't.) You
decide how much of the proceeds will be placed under each option (minimum:
$5,000). Any such amount will be transferred to IDS Life's general account.
Unless we agree otherwise, payments under all options must be made to a natural
person.
You may also, by written request, change a prior choice of payment option or
elect a payment option other than the three below, if we agree.
<PAGE>
If you elect a payment option for pre-death proceeds, payments under this option
may be subject to federal income tax as ordinary income. If you elect Option A,
the full pre-death proceeds will be taxed as a full surrender as described in
"Taxation of policy proceeds" and may also be subject to an additional 10%
penalty tax if the policy is a modified endowment. The interest paid under
Option A will be ordinary income subject to income tax in the year earned. The
interest payments will not be subject to the 10% penalty tax.
If you elect Option B or Option C for payment of pre-death proceeds, any
indebtedness at the time of election will be taxed as a partial surrender as
described in "Taxation of policy proceeds" and may also be subject to an
additional 10% penalty tax if the policy is a modified endowment. The remainder
of the proceeds will be used to make payments under the option elected. A
portion of each payment will be taxed as ordinary income and a portion of each
payment will be considered a return of the investment in the policy and will not
be taxed. An owner's investment in the policy is described in "Taxation of
policy proceeds." All payments made after the investment in the policy is fully
recovered will be subject to tax. Amounts paid under Option B or Option C that
are subject to tax may also be subject to an additional 10% penalty tax. (See
"Penalty tax.")
Death benefit proceeds applied to any payment option are not considered part of
the beneficiary's income and thus are not subject to federal income tax.
Payments of interest under Option A will be ordinary income subject to tax.
Under Option B or Option C, a portion of each payment will be ordinary income
subject to tax, and a portion of each payment will be considered a return of the
beneficiary's investment in the policy. The beneficiary's investment in the
policy is the death benefit proceeds applied to the payment option. All payments
made after the investment in the policy is fully recovered will be subject to
tax.
Option A -- Interest payments We will pay interest on any proceeds placed under
this option at a rate of 3% per year compounded annually, at regular intervals
and for a period that is agreeable to both you and us. At the end of any payment
interval, you may withdraw proceeds in amounts of at least $100. At any time,
you may withdraw all of the proceeds that remain, or you may place them under a
different payment option approved by us.
<PAGE>
Option B -- Payments for a specified period: We will make fixed monthly payments
for any number of years you specify. Here are examples of monthly payments for
each $1,000 placed under this option:
Payment period Monthly payment per $1,000
(years) placed under Option B
10 $9.61
15 6.87
20 5.51
25 4.71
30 4.18
Monthly amounts for other payment periods will be furnished at your request,
free of charge.
Option C -- Lifetime income: We will make monthly payments for the life of the
person (payee) who is to receive the income. Payment will be guaranteed for 10,
15 or 20 years. The amount of each monthly payment per $1,000 placed under this
option will be based on the table of settlement rates in effect at the time of
the first payment. The amount depends on the sex and adjusted age of the payee
on that date. Adjusted age means the age of the payee (on the payee's last
birthday) minus an adjustment as follows:
<TABLE>
<CAPTION>
Calendar year of payee's Adjustment Calendar year of payee's Adjustment
birth birth
<S> <C> <C> <C>
Before 1920 0 1945 - 1949 6
1920 - 1924 1 1950 - 1959 7
1925 - 1929 2 1960 - 1969 8
1930 - 1934 3 1970 - 1979 9
1935 - 1939 4 1980 - 1989 10
1940 - 1944 5 After 1989 11
</TABLE>
The amount of each monthly payment per $1,000 placed under this option will not
be less than amounts shown in the next table.
Monthly amounts for any adjusted age not shown will be furnished at your
request, without charge.
<TABLE>
<CAPTION>
Adjusted age payee Life income per $1,000 with payments guaranteed for
- --------------------------- --------------------------------------------------------------------------------
10 years 15 years 20 years
Male Female Male Female Male Female
- --------------------------- ------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.22 $3.89 $4.17 $3.86 $4.08 $3.82
55 4.62 4.22 4.53 4.18 4.39 4.11
60 5.14 4.66 4.96 4.57 4.71 4.44
65 5.81 5.22 5.46 5.05 5.02 4.79
70 6.61 5.96 5.96 5.60 5.27 5.12
75 7.49 6.89 6.38 6.14 5.42 5.35
</TABLE>
<PAGE>
Deferral of payments:
We reserve the right to defer payments of cash surrender value, policy loans or
variable death benefits in excess of the specified amount if:
o the payments derive from a premium payment made by a check that has not
cleared the banking system (good payment has not been collected);
o the NYSE is closed (other than customary weekend and holiday closings);
o in accordance with SEC rules, trading on the NYSE is restricted or,
because of an emergency, it is not practical to dispose of securities
held in the subaccount or determine the value of the subaccount's net
assets.
Any loans or surrenders from the fixed account may be delayed up to six months
from the date we receive the request. If we postpone the payment of surrender
proceeds more than 30 days, we will pay you interest on the amount surrendered
at an annual rate of 3% for the period of postponement.
Federal taxes
The following is a general discussion of the policy's federal income tax
implications. It is not intended as tax advice. Because the effect of taxes on
the value and benefits of your policy depends on your individual situation as
well as IDS Life's tax status, YOU SHOULD CONSULT A TAX ADVISOR TO FIND OUT HOW
THESE GENERAL CONSIDERATIONS APPLY TO YOU. The discussion is based on our
understanding of federal income tax laws as currently interpreted by the
Internal Revenue Service (IRS); both the laws and their interpretation may
change.
The policy is intended to qualify as a life insurance policy for federal income
tax purposes. To that end, the provisions of the policy are to be interpreted to
ensure or maintain this tax qualification. IDS Life reserves the right to change
the policy in order to ensure that it will continue to qualify as life insurance
for tax purposes. We will send you a copy of any changes.
IDS Life's tax status
IDS Life is taxed as a life insurance company under the Code. For federal income
tax purposes, the subaccounts are considered a part of IDS Life, although their
operations are treated separately in accounting and financial statements.
Investment income from the subaccounts is reinvested and becomes part of the
subaccounts' value. This investment income, including realized capital gains, is
not taxed to IDS Life, and therefore no charge is made against the subaccounts
for federal income taxes. IDS Life reserves the right to make such a charge in
the future if there is a change in the tax treatment of variable life insurance
contracts or in IDS Life's tax status as we currently understand it.
<PAGE>
Taxation of policy proceeds
The death benefit is not considered part of the beneficiary's income and thus is
not subject to federal income taxes. When the proceeds are paid after the
youngest insured's attained insurance age 100, if the amount received plus any
indebtedness exceeds your investment in the policy, the excess may be taxable as
ordinary income. Part or all of any pre-death proceeds received through full
surrender, lapse, partial surrender, policy loan or assignment of policy value,
or payment options may be subject to federal income tax as ordinary income. (See
the following table.) In some cases, the tax liability depends on whether the
policy is a modified endowment (explained following the table). The taxable
amount may also be subject to an additional 10% penalty tax if the policy is a
modified endowment.
<TABLE>
<CAPTION>
<S> <C>
Source of proceeds Taxable portion of pre-death proceeds
Full surrender: Amount received plus any indebtedness, minus your investment
in the policy.*
Lapse: Any outstanding indebtedness minus your investment in the
policy.*
Partial surrenders Lesser of:
(modified endowments): the amount received or policy value minus your investment in
the policy.*
Policy loans and assignments Lesser of:
(modified endowments): the amount of the loan / assignment or policy value minus
your investment in the policy.*
Partial surrenders Generally, if the amount received is greater than your
(other policies): investment in the policy,* the amount in excess of your
investment is taxable. However,
during the first 15 policy years,
a different amount may be taxable
if the partial surrender results
in or is necessitated by a
reduction in benefits.
Policy loans and assignments None
(other policies)
Payment options: If proceeds of the policy
will be paid under one of the
payment options, see the "Payment
option" section for tax
information.
</TABLE>
<PAGE>
* The owner's investment is equal to premiums paid, minus the nontaxable portion
of any previous partial surrenders, plus the taxable portion of any previous
policy loans.
Modified endowment contracts
In 1988, Congress created a new class of life insurance policies called
"Modified Endowment Contracts," which are taxed differently from conventional
life insurance contracts. Policies applied for, or materially changed, on or
after June 21, 1988, are considered to be modified endowments if premiums paid
in the first seven years of the policy, or the first seven years following a
material change, exceed certain limits. (Also, any life insurance policy
received in exchange for a modified endowment is itself a modified endowment.)
We have established procedures for monitoring whether a contract may become a
modified endowment contract.
Modified endowment limits are calculated when the policy is issued, and are
based on the benefits provided and on the risk classification of the insureds.
They are later recalculated if certain reductions in benefits occur.
Reductions in benefits: When benefits are reduced, the limits are recalculated
as if the reduced level of benefits had always been in effect. In most cases,
this recalculation will further restrict the amount of premium that can be paid
without exceeding modified endowment limits. If premiums already paid exceed the
recalculated limits, the policy becomes a modified endowment even if no further
premiums are paid.
Distributions affected: Modified endowment rules apply to distributions in the
year the policy becomes a modified endowment and in all subsequent years. In
addition, the rules apply to distributions taken two years before the policy
becomes a modified endowment, which are presumed to be taken in anticipation of
that event.
Serial purchase of modified endowments: All modified endowments issued by the
same insurer (or affiliated companies of the insurer) to the same owner during
any calendar year are treated as one policy in determining the amount of any
loan or distribution that is taxable.
<PAGE>
Penalty tax: If a policy is a modified endowment, the taxable portion of
pre-death proceeds from a full surrender, lapse, partial surrender, policy loan
or assignment of policy value, or certain payment options may be subject to a
10% penalty tax unless:
o the distribution occurs after the owner attains age 59-1/2;
o the distribution is attributable to the owner becoming disabled (within the
meaning of Code Section 72(m)(7); or
o the distribution is part of a series of substantially equal periodic
payments made at least once a year over the life (or life expectancy) of
the owner or over the joint lives (or life expectancies) of the owner and
the owner's beneficiary.
Other tax considerations
Policy Split Option Rider: The Policy Split Option Rider permits a policy to be
split into two individual permanent plans of insurance then offered by IDS Life
for exchange, one on the life of each insured, upon the occurrence of a divorce
of the insureds or certain changes in federal estate tax law. A policy split
could have adverse tax consequences; for example, it is not clear whether a
policy split will be treated as a nontaxable exchange under Sections 1031
through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the policy at the time of the split. In addition, it is not
clear whether, in all circumstances, the individual contracts that result from a
policy split would be treated as life insurance contracts for federal income tax
purposes and, if so treated, whether the individual contracts would be
classified as modified endowment contracts. Before you exercise rights provided
by the policy split option, it is important that you consult with a competent
tax advisor regarding the possible consequences of a policy split.
Interest paid on policy loans: If the loan is used for personal purposes, such
interest is not tax-deductible. Other rules apply if the loan is used for trade
or business or investment purposes, or if the policy is owned by a business or a
corporation.
Policy changes: Changing ownership, exchanging or assigning the policy may have
tax consequences, depending on the circumstances.
Other taxes: Federal estate tax, state and local estate tax, inheritance tax,
gift tax and other tax consequences of ownership or receipt of policy proceeds
will also depend on the circumstances.
<PAGE>
Qualified retirement plans: The policy may be used in conjunction with certain
qualified plans. Since the rules governing such use are complex, a purchaser
should consult a competent pension consultant.
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v. Norris
that optional annuity benefits provided under an employee's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. Since the policy's cost of
insurance rates and purchase rates for certain settlement options distinguish
between men and women, employers and employee organizations should consult with
legal counsel before purchasing the policy for any employment-related insurance
or benefit program.
IDS Life
IDS Life is a stock life insurance company organized under the laws of the State
of Minnesota in 1957. Our address is IDS Tower 10, Minneapolis, MN 55440.
IDS Life conducts a conventional life insurance business in the District of
Columbia and all states except New York. A wholly owned subsidiary of IDS Life,
IDS Life Insurance Company of New York, conducts a substantially identical
business in New York. IDS Life has been in the variable annuity business since
1968 and has sold a number of different variable annuity contracts and variable
life insurance policies, utilizing other separate accounts, unit investment
trusts and mutual funds.
Ownership
IDS Life is a wholly-owned subsidiary of American Express Financial Corporation
(AEFC); AEFC, a Delaware corporation, is a wholly-owned subsidiary of American
Express Company.
State regulation
IDS Life is subject to the laws of Minnesota governing insurance companies and
to regulation by the Minnesota Department of Commerce. In addition, IDS Life is
subject to regulation under the insurance laws of other jurisdictions in which
it may operate. An annual statement in a prescribed form is filed with
Minnesota's Department of Commerce and in each state in which IDS Life does
business. IDS Life's books and accounts are subject to review by the Minnesota
Department of Commerce at all times and a full examination of its operations is
conducted periodically. Such regulation does not, however, involve any
supervision of management or investment practices or policies.
<PAGE>
Distribution of the policy
IDS Life is the sole distributor of the policy. IDS Life is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. (NASD). Representatives of IDS
Life are licensed insurance and annuity agents, and are registered with the NASD
as representatives of IDS Life.
IDS Life pays its representatives a commission of up to 50% of the initial
target premium (annualized) when the policy is sold, plus 2% of all premiums in
excess of the target premium. Each year, IDS Life pays a service fee not greater
than 0.3% of the policy value, net of indebtedness. IDS Life also pays
approximately 27% of the total representative's commission to the field vice
presidents and district sales managers of the selling representative.
Legal proceedings
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life and its subsidiaries do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. In December 1996, an action of this type
was brought against IDS Life and its parent, AEFC. A second action was filed in
March, 1997. The plaintiffs purport to represent a class consisting of all
persons who replaced existing IDS Life policies with new IDS Life policies from
and after January 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties and
alleged violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and seek to establish a claims resolution facility for the
determination of individual issues.
IDS Life believes it has meritorious defenses to these and other actions arising
in connection with the conduct of its business activities and intends to defend
them vigorously. IDS Life believes that it is not a party to, nor are any of its
properties the subject of, any pending legal proceedings which would have a
material adverse effect on its consolidated financial condition.
Experts
The consolidated financial statements of IDS Life Insurance Company at Dec. 31,
1997 and 1996, and for each of the three years in the period ended Dec. 31,
1997, and the individual and combined financial statements of the segregated
asset subaccounts of the IDS Life Variable Life Separate Account for Flexible
Premium Survivorship Variable Life Insurance (comprised of subaccounts U, V, W,
X, Y, IL, FGI and FNO) at Dec. 31, 1997, and for each of the three years in the
period ended Dec. 31, 1997 except for the following subaccounts: FGI and FNO
subaccounts which are for the year ended Dec. 31, 1997 and the period Nov. 22,
1996 (commencement of operation) to Dec. 31, 1996, appearing in this prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
Actuarial matters included in the prospectus have been examined by James M.
Jensen, F.S.A., M.A.A.A., Vice President, Insurance Product Development, as
stated in his opinion filed as an exhibit to the Registration Statement.
<PAGE>
Management of IDS Life
Directors
David R. Hubers
Director since September 1989; president and chief executive officer, AEFC,
since August 1993, and director, AEFC, since January 1984; senior vice
president, finance and chief financial officer, AEFC, from January 1984 to
August 1993.
Richard W. Kling
Director since February 1984; president since March 1994. Executive vice
president, Marketing and Products, from January 1988 to March 1994. Vice
President, AEFC, since January 1988; director of IDS Life Series Fund, Inc. and
chairman of the board of managers of IDS Life Variable Annuity Funds A & B.
Paul F. Kolkman
Director since May 1984; executive vice president since March 1994; vice
president, Finance, from May 1984 to March 1994; vice president, AEFC, since
January 1987.
James A. Mitchell
Chairman of the board since March 1994; director since July 1984; chief
executive officer since November 1986; president from July 1984 to March 1994;
executive vice president, AEFC, since March 1994; director, AEFC, since July
1984; senior vice president, AEFC, from July 1984 to March 1994.
Barry J. Murphy
Director and executive vice president, Client Service since March 1994; senior
vice president, Operations, Travel Related Services (TRS), a subsidiary of
American Express Company, since July 1992; vice president, TRS, from November
1989 to July 1992; chief operating officer, TRS, from March 1988 to November
1989.
Stuart A. Sedlacek
Director and executive vice president, Assured Assets, since March 1994; vice
president, AEFC, since September 1988.
Officers Other Than Directors
Jeffrey S. Horton
Vice president and treasurer since December 1997; vice president and corporate
treasurer, AEFC, since December 1997; controller, American Express Technologies
- - Financial Services, AEFC, from July 1997 to December 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
<PAGE>
William A. Stoltzmann
Vice president, general counsel and secretary since 1985; vice president and
assistant general counsel, AEFC, since November 1985.
The address for all of the directors and principal officers is: IDS Tower 10,
Minneapolis, MN 55440.
The officers, employees and sales force of IDS Life are bonded, in the amount of
$100 million, by virtue of a blanket fidelity bond issued to American Express
Company by Saint Paul Fire and Marine, the lead underwriter.
AIM Advisors, Inc. and Putnam Investment Management, Inc.
AIM Advisors, Inc.
A I M Advisors, Inc. ("AIM") was organized in 1976 and is headquartered in
Houston, Texas. AIM is a wholly owned subsidiary of A I M Management Group Inc.,
a holding company engaged in the financial services business and an indirect
wholly owned subsidiary of AMVESCAP PLC.
Putnam Management
Putnam Management has been managing mutual funds since 1937. Today, the firm
serves as the investment manager for the funds in the Putnam Family, with nearly
$182 billion in assets under management in over 9 million shareholder accounts
at December 31, 1997.
Other information
A registration statement has been filed with the Securities and Exchange
Commission (SEC) under the Securities Act of 1933, as amended. For further
information concerning the policy, its separate account (the variable account)
and IDS Life, please refer to the registration statement, as amended, with
exhibits.
Substitution of investments
If shares of any fund are unavailable for purchase by the appropriate subaccount
or if, in the judgment of IDS Life's management, further investment in such
shares is no longer appropriate, shares of another registered, open-end
management investment company may be substituted or the investments of the
subaccounts may be changed.
<PAGE>
In the event of any such substitution or change, IDS Life may, without the
consent or approval of owners, amend the policy and take whatever action is
necessary and appropriate. However, no such substitution or change will be made
without any necessary approval of the SEC or state insurance departments. IDS
Life will notify owners within five days of any substitution or change.
Voting rights
All shares issued by the fund are the same class (kind) -- capital stock. They
are fully paid and nonassessable and can be redeemed or transferred. They can be
issued as full shares or fractions. All shares have equal voting rights; a
fraction of a share has the same kind of rights and privileges as a full share.
Each of the funds issues its own series of common stock. The shares of each fund
represent an interest only in that fund's assets (and profits or losses) and in
the event of liquidation, each share of a fund would have the same rights to
dividends and assets as every other share of that fund.
Each share of a fund has one vote. On some issues, such as election of directors
of IDS Life Series Fund, all shares of the IDS Life Series Fund Portfolios vote
together as one series. When electing directors, all shares of IDS Life Series
Fund Portfolios have cumulative voting rights. Cumulative voting means that
shareholders are entitled to a number of votes equal to the number of shares
they hold multiplied by the number of directors to be elected and they have the
right to divide votes among candidates.
On an issue affecting only one fund -- for example, a fundamental investment
restriction pertaining only to that fund -- its shares vote as a separate
series. If shareholders of a particular fund vote approval of an agreement, the
agreement becomes effective with respect to that fund, whether or not it is
approved by shareholders of the other funds.
IDS Life is the owner of all fund shares and as such holds all voting rights.
However, IDS Life will vote the shares of each fund in accordance with
instructions received from owners. If we do not receive timely instructions from
you, we will vote your shares in the same proportion as the shares for which
instructions are received. Fund shares that are not otherwise attributable to
owners will also be voted by IDS Life in the same proportion as those shares in
that subaccount for which instructions are received.
We determine the number of fund shares in each subaccount for which you may give
instructions by applying your percentage interest in the subaccount to the total
number of votes attributable to the subaccount. The number will be determined as
of a date chosen by IDS Life, but not more than 60 days before the meeting of
the fund.
Fractional votes are counted. You will receive notice of each shareholder
meeting, together with any proxy solicitation materials and a statement of the
number of votes for which you are entitled to give instructions.
<PAGE>
If required by state insurance officials, IDS Life may disregard voting
instructions that would change the goals of one or more of the funds or would
result in approval or disapproval of an investment advisory contract. In
addition, IDS Life itself may disregard voting instructions that would require
changes in the investment policy or investment advisor of one or more of the
funds, if IDS Life reasonably disapproves such changes in accordance with
applicable federal regulations. If IDS Life does disregard voting instructions,
it will, in its next report to owners, advise them of that action and the
reasons for it.
Reports
At least once a year IDS Life will mail to you, at your last known address of
record, a report containing all information required by law or regulation,
including a statement showing the current policy value.
Policy illustrations
The following tables illustrate how policy values, cash surrender values and
death benefits may change with the investment experience of the subaccount. The
tables show how these amounts might vary, for a male insurance age 55 and a
female insurance age 55, both nonsmokers, if:
o the annual rate of return of the fund is 0%, 6% or 12%.
o the cost of insurance rates are current rates or guaranteed rates.
Any such illustration involves a number of detailed assumptions. (See chart,
"Understanding the illustrations.") To the extent that your own circumstances
differ from those assumed in the illustrations, your expected results would also
differ.
Upon request, you will be furnished with comparable tables illustrating death
benefits, policy values and cash surrender values based on the actual ages of
the persons you propose to insure and on an initial specified amount and premium
payment schedule. In addition, after you have purchased a policy, you may
request illustrations based on policy values at the time of request.
Understanding the illustrations:
Rates of return: assumed to be uniform, gross, after-tax, annual rates of 0%,
6%, or 12% for the fund. Results would differ depending on allocations among the
subaccounts, if returns averaged 0%, 6% and 12% for the funds as a whole, but
differed across individual funds.
Insureds: assumed to be a male insurance age 55 and a female insurance age 55,
in a standard risk classification, qualifying for the nonsmoker rate. Results
would be lower if one or both of the insureds were in a substandard risk
classification or did not qualify for the non-smoker rate.
<PAGE>
Premiums: A $15,000 premium is assumed to be paid in full at the beginning of
each policy year. Results would differ if premiums were paid on a different
schedule.
Policy loans and partial withdrawals: It is assumed that none have been made.
(Since indebtedness is assumed to be zero, the cash surrender value in all cases
equals the policy value minus the surrender charge.)
Effect of expenses and charges: The net investment return of the subaccounts,
shown in the tables, is lower than the gross, after-tax return of the fund
because expenses paid by the fund and charges made against the subaccounts have
been deducted. These include:
o the daily investment management fee paid by the funds, assumed to be
equivalent to an annual rate of 0.7% of the fund's aggregate average daily
net assets;
o the daily mortality and expense risk charge, equivalent to 0.9% of the
daily net asset value of the subaccounts annually; and
o a nonadvisory expense charge paid by the funds, assumed to be equivalent to
an annual rate of 0.1% of each funds aggregate average daily net assets for
direct expenses incurred by the fund.
The nonadvisory expense charge for the IDS Life Series Fund is capped by IDS
Life at 0.1%, even though actual expenses on IDS Life Series Fund-Government
Securities Portfolio ranged up to .15%, IDS Life Series-Money Market Portfolio
ranged up to .14% and IDS Life Series Fund-International Equity Portfolio ranged
up to .27%. Although IDS Life reserves the right to discontinue capping these
expenses, our present intent is to continue the cap indefinitely until actual
expenses are less than the cap. Should IDS Life discontinue the cap prior to
that time, the policy values and death benefits in the tables generally would be
less. Other expenses for the year ended Dec. 31, 1997 were 0.05% for Putnam VT
New Opportunities Fund. For AIM V.I. Growth and Income Fund other expenses were
0.06% for the period ended Dec. 31, 1997.
(After deduction of the above expenses and charges, the illustrated gross annual
investment rates of return of 0%, 6% and 12% correspond to approximate net
annual rates of -1.69%%, 4.21% and 10.11%, respectively.)
Taxes: Results shown in the tables reflect the fact that IDS Life does not
currently charge the subaccounts for federal income tax. If such a charge is
taken in the future, the funds will have to earn more than they do now in order
to produce the death benefits and policy values illustrated.
<PAGE>
<TABLE>
<CAPTION>
Illustration
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Initial specified amount $1,000,000 Male - Insurance age 55 - Nonsmoker Current costs assumed
Death benefit Option 1 Female - Insurance age 55 - Nonsmoker annual premium $15,000
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Premium Death benefit (1)(2) Policy value (1)(2) Cash surrender value (1)(2)
accumulated assuming hypothetical gross assuming hypothetical gross assuming hypothetical gross
End of with annual annual investment return of annual investment return of annual investment return of
policy interest
year at 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $1,000,000 $1,000,000 $1,000,000 $ 12,651 $ 13,424 $ 14,196 $ 8,651 $ 9,424 $ 10,196
2 32,288 1,000,000 1,000,000 1,000,000 25,091 27,415 29,830 21,091 23,415 25,830
3 49,652 1,000,000 1,000,000 1,000,000 37,208 41,880 46,926 33,208 37,880 42,926
4 67,884 1,000,000 1,000,000 1,000,000 48,899 56,727 65,520 44,899 52,727 61,520
5 87,029 1,000,000 1,000,000 1,000,000 60,287 72,093 85,888 56,287 68,093 81,888
6 107,130 1,000,000 1,000,000 1,000,000 71,159 87,781 107,990 67,559 84,181 104,390
7 128,237 1,000,000 1,000,000 1,000,000 81,642 103,927 132,130 78,442 100,727 128,930
8 150,398 1,000,000 1,000,000 1,000,000 91,530 120,341 158,315 88,730 117,541 155,515
9 173,668 1,000,000 1,000,000 1,000,000 100,843 137,053 186,782 98,443 134,653 184,382
10 198,102 1,000,000 1,000,000 1,000,000 109,597 154,091 217,796 107,597 152,091 215,796
11 223,757 1,000,000 1,000,000 1,000,000 117,705 171,386 251,558 116,105 169,786 249,958
12 250,695 1,000,000 1,000,000 1,000,000 125,288 189,070 288,490 124,088 187,870 287,290
13 278,979 1,000,000 1,000,000 1,000,000 132,259 207,081 328,874 131,459 206,281 328,074
14 308,678 1,000,000 1,000,000 1,000,000 138,531 225,360 373,048 138,131 224,960 372,648
15 339,862 1,000,000 1,000,000 1,000,000 144,222 244,042 421,558 144,222 224,042 421,558
20 520,789 1,000,000 1,000,000 1,000,000 164,007 345,156 751,285 164,007 345,156 751,285
25 751,702 1,000,000 1,000,000 1,362,530 151,963 449,820 1,297,647 151,963 449,820 1,297,647
30 1,046,412 1,000,000 1,000,000 2,280,735 46,519 529,397 2,172,129 46,519 529,397 2,172,129
35 1,422,545 0 1,000,000 3,716,419 0 526,059 3,539,447 0 526,059 3,539,447
40 1,902,596 0 1,000,000 5,931,791 0 341,804 5,649,324 0 341,804 5,649,324
45 2,515,277 0 0 9,069,560 0 0 8,979,762 0 0 8,979,762
(1) Assumes no policy loans or partial withdrawals have been made.
(2) Assumes a $15,000 premium is paid at the beginning of each policy year. Values will be different if premiums are paid in
different amounts or with a different frequency.
The above hypothetical investment results are illustrative only and should not
be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown. The death benefit,
policy value and cash surrender value would be different from those shown if
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual policy years. No representation can be made
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
<PAGE>
Illustration
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Initial specified amount $1,000,000 Male - Insurance age 55 - Nonsmoker Guaranteed costs assumed
Death benefit Option 1 Female - Insurance age 55 - Nonsmoker annual premium $15,000
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Premium Death benefit (1)(2) Policy value (1)(2) Cash surrender value (1)(2)
accumulated assuming hypothetical gross assuming hypothetical gross assuming hypothetical gross
End of with annual annual investment return of annual investment return of annual investment return of
policy interest
year at 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ---------
1 $ 15,750 $1,000,000 $1,000,000 $1,000,000 $ 12,651 $ 13,424 $ 14,196 $ 8,651 $ 9,424 $ 10,196
2 32,288 1,000,000 1,000,000 1,000,000 25,091 27,415 29,830 21,091 23,415 25,830
3 49,652 1,000,000 1,000,000 1,000,000 37,208 41,880 46,926 33,208 37,880 42,926
4 67,884 1,000,000 1,000,000 1,000,000 48,899 56,727 65,520 44,899 52,727 61,520
5 87,029 1,000,000 1,000,000 1,000,000 60,287 72,093 85,888 56,287 68,093 81,888
6 107,130 1,000,000 1,000,000 1,000,000 71,159 87,781 107,990 67,559 84,181 104,390
7 128,237 1,000,000 1,000,000 1,000,000 81,642 103,927 132,130 78,442 100,727 128,930
8 150,398 1,000,000 1,000,000 1,000,000 91,530 120,341 158,315 88,730 117,541 155,515
9 173,668 1,000,000 1,000,000 1,000,000 100,843 137,053 186,782 98,443 134,653 184,382
10 198,102 1,000,000 1,000,000 1,000,000 109,492 153,988 217,697 107,192 151,988 215,697
11 223,757 1,000,000 1,000,000 1,000,000 117,288 170,973 251,160 115,688 169,373 249,560
12 250,695 1,000,000 1,000,000 1,000,000 124,256 188,039 287,501 123,056 186,839 286,301
13 278,979 1,000,000 1,000,000 1,000,000 130,212 205,026 326,914 129,412 204,226 326,114
14 308,678 1,000,000 1,000,000 1,000,000 135,078 221,870 369,736 134,678 221,470 369,336
15 339,862 1,000,000 1,000,000 1,000,000 138,775 238,514 416,371 138,75 238,514 416,371
20 520,789 1,000,000 1,000,000 1,000,000 129,561 310,821 724,728 129,561 310,821 724,728
25 751,702 1,000,000 1,000,000 1,302,265 23,194 325,124 1,240,252 23,194 325,124 1,240,252
30 1,046,412 0 1,000,000 2,163,670 0 167,003 2,060,638 0 167,003 2,060,638
35 1,422,545 0 0 3,476,899 0 0 3,311,332 0 0 3,311,332
40 1,902,596 0 0 5,409,153 0 0 5,151,574 0 0 5,151,574
45 2,515,277 0 0 7,983,928 0 0 7,904,880 0 0 7,904,880
(1) Assumes no policy loans or partial withdrawals have been made.
(2) Assumes a $15,000 premium is paid at the beginning of each policy year. Values will be different if premiums are paid in
different amounts or with a different frequency.
The above hypothetical investment results are illustrative only and should not
be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown. The death benefit,
policy value and cash surrender value would be different from those shown if
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual policy years. No representation can be made
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
<PAGE>
Illustration
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Initial specified amount $1,000,000 Male - Insurance age 55 - Nonsmoker Current costs assumed
Death benefit Option 2 Female - Insurance age 55 - Nonsmoker annual premium $15,000
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Premium Death benefit (1)(2) Policy value (1)(2) Cash surrender value (1)(2)
accumulated assuming hypothetical gross assuming hypothetical gross assuming hypothetical gross
End of with annual annual investment return of annual investment return of annual investment return of
policy interest
year at 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ---------
1 $ 15,750 $1,012,650 $1,013,422 $1,014,195 $ 12,650 $ 13,422 $ 14,195 $ 8,650 $ 9,422 $ 10,195
2 32,288 1,025,086 1,027,410 1,029,825 25,086 27,410 29,825 21,086 23,410 25,825
3 49,652 1,037,195 1,041,864 1,046,909 37,195 41,864 46,909 33,195 37,864 42,909
4 67,884 1,048,862 1,056,683 1,065,469 48,862 56,683 65,469 44,862 52,683 61,469
5 87,029 1,060,214 1,072,004 1,085,780 60,214 72,004 85,780 56,214 68,004 81,780
6 107,130 1,071,019 1,087,604 1,107,768 71,019 87,604 107,768 67,419 84,004 104,168
7 128,237 1,081,406 1,103,617 1,131,726 81,406 103,617 131,726 78,206 100,417 128,526
8 150,398 1,091,143 1,119,816 1,157,604 91,143 119,816 157,604 88,343 117,016 154,804
9 173,668 1,100,242 1,136,207 1,185,594 100,242 136,207 185,594 97,842 133,807 183,194
10 198,102 1,108,715 1,152,801 1,215,912 108,715 152,801 215,912 106,715 150,801 213,912
11 223,757 1,116,452 1,169,483 1,248,666 116,452 169,483 248,666 114,852 167,883 247,066
12 250,695 1,123,585 1,186,379 1,284,229 123,585 186,379 284,229 122,385 185,179 283,029
13 278,979 1,130,005 1,203,375 1,322,758 130,005 203,375 322,758 129,205 202,575 321,958
14 308,678 1,135,607 1,220,355 1,364,430 135,607 220,355 364,430 135,207 219,955 364,030
15 339,862 1,140,521 1,237,439 1,409,686 140,521 237,439 409,686 140,521 237,439 409,686
20 520,789 1,154,361 1,323,780 1,703,041 154,361 323,780 703,041 154,361 323,780 703,041
25 751,702 1,130,471 1,388,619 2,131,448 130,471 388,619 1,131,448 130,471 388,619 1,131,448
30 1,046,412 1,007,126 1,352,982 2,694,292 7,126 352,982 1,694,292 7,126 352,982 1,694,292
35 1,422,545 0 1,067,303 3,330,814 0 67,303 2,330,814 0 67,303 2,330,814
40 1,902,596 0 0 4,052,478 0 0 3,052,478 0 0 3,052,478
45 2,515,277 0 0 4,424,523 0 0 3,424,523 0 0 3,424,523
(1) Assumes no policy loans or partial withdrawals have been made.
(2) Assumes a $15,000 premium is paid at the beginning of each policy year. Values will be different if premiums are paid in
different amounts or with a different frequency.
The above hypothetical investment results are illustrative only and should not
be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown. The death benefit,
policy value and cash surrender value would be different from those shown if
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual policy years. No representation can be made
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
<PAGE>
Illustration
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Initial specified amount $1,000,000 Male - Insurance age 55 - Nonsmoker Guaranteed costs assumed
Death benefit Option 2 Female - Insurance age 55 - Nonsmoker annual premium $15,000
- ------------------------------------- ------------------------------------------------------------ ---------------------------------
Premium Death benefit (1)(2) Policy value (1)(2) Cash surrender value (1)(2)
accumulated assuming hypothetical gross assuming hypothetical gross assuming hypothetical gross
End of with annual annual investment return of annual investment return of annual investment return of
policy interest
year at 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------ ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ---------
1 $ 15,750 $1,012,650 $1,013,422 $1,014,195 $ 12,650 $ 13,422 $ 14,195 $ 8,650 $ 9,422 $ 10,195
2 32,288 1,025,086 1,027,410 1,029,825 25,086 27,410 29,825 21,086 23,410 25,825
3 49,652 1,037,195 1,041,864 1,046,909 37,195 41,864 46,909 33,195 37,864 42,909
4 67,884 1,048,862 1,056,683 1,065,469 48,862 56,683 65,469 44,862 52,683 61,469
5 87,029 1,060,214 1,072,004 1,085,780 60,214 72,004 85,780 56,214 68,004 81,780
6 107,130 1,071,019 1,087,604 1,107,768 71,019 87,604 107,768 67,419 84,004 104,168
7 128,237 1,081,406 1,103,617 1,131,726 81,406 103,617 131,726 78,206 100,417 128,526
8 150,398 1,091,143 1,119,816 1,157,604 91,143 119,816 157,604 88,343 117,016 154,804
9 173,668 1,100,242 1,136,207 1,185,594 100,242 136,207 185,594 97,842 133,807 183,194
10 198,102 1,108,596 1,152,679 1,215,786 108,596 152,679 215,786 106,596 150,679 213,786
11 223,757 1,115,980 1,168,989 1,248,149 115,980 168,989 248,149 114,380 167,389 246,549
12 250,695 1,122,410 1,185,130 1,282,904 122,410 185,130 282,904 121,210 183,930 281,704
13 278,979 1,127,665 1,200,852 1,320,041 127,665 200,852 320,041 126,865 200,052 319,241
14 308,678 1,131,648 1,216,014 1,359,674 131,648 216,014 359,674 131,248 215,614 359,274
15 339,862 1,134,260 1,230,470 1,401,932 134,260 230,470 401,932 134,260 230,470 401,932
20 520,789 1,114,956 1,277,423 1,648,090 114,956 277,423 648,090 114,956 277,423 648,090
25 751,702 0 1,217,641 1,912,766 0 217,641 912,766 0 217,641 912,766
30 1,046,412 0 0 2,085,053 0 0 1,085,053 0 0 1,085,053
35 1,422,545 0 0 1,925,001 0 0 925,001 0 0 925,001
40 1,902,596 0 0 1,056,450 0 0 56,450 0 0 56,450
45 2,515,277 0 0 0 0 0 0 0 0 0
(1) Assumes no policy loans or partial withdrawals have been made.
(2) Assumes a $15,000 premium is paid at the beginning of each policy year. Values will be different if premiums are paid in
different amounts or with a different frequency.
The above hypothetical investment results are illustrative only and should not
be deemed a representation of past or future investment results. Actual
investment results may be more or less than those shown. The death benefit,
policy value and cash surrender value would be different from those shown if
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual policy years. No representation can be made
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
</TABLE>
<PAGE>
Flexible Premium Survivorship Variable
Life Insurance Policy
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 Flexible Premium Survivorship Variable Life Insurance (comprised of
subaccounts U, V, W, X, Y, IL, FGI and FNO) as of December 31, 1997, 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 FGI and FNO subaccounts which are
for the year ended December 31, 1997 and the period November 22, 1996
(commencement of operations) to December 31, 1996. 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, 1997 with the affiliated and
unaffiliated mutual fund portfolio managers. 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 IDS
Life Variable Life Separate Account for Flexible Premium Survivorship Variable
Life Insurance at December 31, 1997, 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 13, 1998
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Net Assets Dec. 31, 1997
Segregated Asset Subaccounts Combined
- --------------------------------------------------------------------------------------------------------------------- Variable
Assets U V W X Y IL FGI FNO Account
===================================================================================================================================
Investments in shares of mutual fund
portfolios and funds, at market value:
IDS Life Series Fund Equity Portfolio -
24,205,835 shares at net asset value of
$29.98 per share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(cost $535,186,815 ) $725,791,594 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 725,791,594
IDS Life Series Fund Income Portfolio -
6,510,243 shares at net asset value of
$10.23 per share
(cost $65,016,065 ) -- 66,597,027 -- -- -- -- -- -- 66,597,027
IDS Life Series Fund Money Market Portfolio - 28,273,005
shares at net asset value of $1.00 per share
(cost $28,270,454 ) -- -- 28,270,372 -- -- -- -- -- 28,270,372
IDS Life Series Fund Managed Portfolio - 24,463,632
shares at net asset value of $18.26 per share
(cost $377,162,481 ) -- -- -- 446,643,691 -- -- -- -- 446,643,691
IDS Life Series Fund Government Securities Portfolio - 992,175
shares at net asset value of $10.18 per share
(cost $9,981,846 ) -- -- -- -- 10,102,558 -- -- -- 10,102,558
IDS Life Series Fund International Equity Portfolio - 10,586,564
shares at net asset value of $15.54 per share
(cost $155,443,759 ) -- -- -- -- -- 164,486,913 -- -- 164,486,913
AIM V.I. Growth and Income Fund - 2,720,016
shares at net asset value of $18.87 per share
(cost $48,238,694 ) -- -- -- -- -- -- 51,326,704 -- 51,326,704
Putnam VT New Opportunites Fund - 2,339,051
shares at net asset value of $21.23 per share
(cost $44,528,718 ) -- -- -- -- -- -- -- 49,658,061 49,658,061
- -----------------------------------------------------------------------------------------------------------------------------------
725,791,594 66,597,027 28,270,372 446,643,691 10,102,558 164,486,913 51,326,704 49,658,061 1,542,876,920
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends receivable -- 397,125 133,603 -- 51,560 -- -- -- 582,288
Accounts receivable from IDS Life for contract
purchase payments 84,898 16,616 108,055 197,213 -- 142,927 -- -- 549,709
Receivable from mutual fund portfolios
for redemptions -- -- -- -- 15,580 -- -- -- 15,580
===================================================================================================================================
Total assets 725,876,492 67,010,768 28,512,030 446,840,904 10,169,698 164,629,840 51,326,704 49,658,061 1,544,024,497
===================================================================================================================================
Liabilities
===================================================================================================================================
Payable to IDS Life for:
Mortality and expense
risk fee 1,075,612 53,732 22,895 662,092 8,344 241,881 38,551 37,775 2,140,882
Contract terminations -- -- -- -- 15,580 -- -- -- 15,580
Payable to mutual fund portfolios and the trust
for investments
purchased 84,898 360,009 218,763 197,213 43,576 142,927 -- -- 1,047,386
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,160,510 413,741 241,658 859,305 67,500 384,808 38,551 37,775 3,203,848
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable
to Variable Life
contracts $724,715,982 $66,597,027$28,270,372 $445,981,599 $10,102,198$164,245,032 $51,288,153 $49,620,286$1,540,820,649
===================================================================================================================================
Accumulation units
outstanding 181,225,095 30,615,038 17,863,880 125,875,176 4,935,518 93,664,100 41,101,142 41,573,554
Net asset value per
accumulation unit $ 4.00 $ 2.18$ 1.58 $ 3.54 $ 2.05 $ 1.75 $ 1.25 $ 1.19
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1997
Segregated Asset Subaccounts Combined
- ---------------------------------------------------------------------------------------------------------------------- Variable
Investment Income U V W X Y IL FGI FNO Account
===================================================================================================================================
Dividend income from
mutual fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
portfolios and funds $23,181,667 $4,276,019 $1,234,742 $38,138,777 $636,103 $4,413,548 $ 62,316 $ -- $71,943,172
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and
expense risk fee 5,566,619 541,604 223,384 3,575,194 86,117 1,238,582 190,159 206,714 11,628,373
===================================================================================================================================
Investment income
(loss)--net 17,615,048 3,734,415 1,011,358 34,563,583 549,986 3,174,966 (127,843) (206,714) 60,314,799
===================================================================================================================================
Realized and unrealized gain (loss) on investments-- net
===================================================================================================================================
Realized gain (loss) on sales of investments in mutual fund portfolios and in
the funds:
Proceeds from sales 5,074,599 3,857,257 9,523,185 2,995,867 3,337,156 668,935 -- -- 25,456,999
Cost of
investments sold 4,025,924 3,771,946 9,523,329 2,544,758 3,359,081 630,427 -- -- 23,855,465
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain
(loss) on investments 1,048,675 85,311 (144) 451,109 (21,925) 38,508 -- -- 1,601,534
Net change in
unrealized
appreciation or
depreciation
of investments 96,070,257 286,967 141 24,614,820 182,848 2,355,317 3,092,969 5,147,244 131,750,563
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss)
on investments 97,118,932 372,278 (3) 25,065,929 160,923 2,393,825 3,092,969 5,147,244 133,352,097
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $114,733,980 $4,106,693 $1,011,355 $59,629,512 $ 710,909 $5,568,791 $2,965,126 $4,940,530 $193,666,896
===================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1996
Segregated Asset Subaccounts Combined
- ------------------------------------------------------------------------------------------------------------------------- Variable
Investment income U V W X Y IL FGI* FNO* Account
===================================================================================================================================
Dividend income from
mutual fund portfolios
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
and funds $66,883,373 $3,233,159 $ 611,169 $21,120,183 $532,217 $6,174,491 $8,263 $ -- $98,562,855
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and
expense risk fee 3,754,636 437,113 114,838 2,565,481 103,203 553,611 576 1,042 7,530,500
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income
(loss)-- net 63,128,737 2,796,046 496,331 18,554,702 429,014 5,620,880 7,687 (1,042) 91,032,355
===================================================================================================================================
Realized and unrealized gain (loss) on investments -- net
===================================================================================================================================
Realized gain (loss) on sales of investments in mutual fund portfolios and in
the funds:
Proceeds from sales 2,580,239 3,501,950 6,220,752 1,852,115 1,415,835 -- -- -- 15,570,891
Cost of investments sold 1,907,065 3,439,003 6,220,842 1,633,941 1,428,871 -- -- -- 14,629,722
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain
(loss) on investments 673,174 62,947 (90) 218,174 (13,036) -- -- -- 941,169
Net change in
unrealized appreciation or
depreciation
of investments 5,691,003 (1,319,174) (94) 17,604,775 (403,974) 2,374,285 (4,959) (17,901) 23,923,961
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss)
on investments 6,364,177 (1,256,227) (184) 17,822,949 (417,010) 2,374,285 (4,959) (17,901) 24,865,130
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $69,492,914 $1,539,819$ 496,147 $36,377,651 $ 12,004 $7,995,165 $2,728 $(18,943) $115,897,485
===================================================================================================================================
*For the period from Nov. 22, 1996 (commencement of operations) to Dec. 31, 1996.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1995
Segregated Asset Subaccounts
- ------------------------------------------------------------------------------------------------------------------- Combined
Variable
Investment income U V W X Y IL Account
==================================================================================================================================
Dividend income from
<S> <C> <C> <C> <C> <C> <C> <C>
mutual fund portfolios $ 5,405,186 $2,256,517 $ 369,544 $ 9,316,974 $ 425,859 $ 168,339 $ 17,942,419
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 2,240,441 298,775 64,375 1,761,361 62,389 112,228 4,539,569
==================================================================================================================================
Investment income-- net 3,164,745 1,957,742 305,169 7,555,613 363,470 56,111 13,402,850
==================================================================================================================================
Realized and unrealized gain (loss) on investments -- net
==================================================================================================================================
Realized gain (loss) on sales of investments in mutual fund portfolios:
Proceeds from sales 2,030,794 1,262,058 4,382,642 2,054,955 1,009,224 19,482 10,759,155
Cost of investments sold 1,586,450 1,260,160 4,382,780 1,946,416 1,005,908 17,414 10,199,128
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments 444,344 1,898 (138) 108,539 3,316 2,068 560,027
Net change in unrealized appreciation or
depreciation of investments 72,066,408 4,051,945 60 26,093,487 713,207 4,338,153 107,263,260
- ----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 72,510,752 4,053,843 (78) 26,202,026 716,523 4,340,221 107,823,287
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $75,675,497 $6,011,585 $ 305,091 $33,757,639 $1,079,993 $4,396,332 $121,226,137
==================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1997
Segregated Asset Subaccounts Combined
- ---------------------------------------------------------------------------------------------------------------------- Variable
Operations U V W X Y IL FGI FNO Account
===================================================================================================================================
Investment income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(loss)--net $ 17,615,048 $ 3,734,415 $1,011,358 $ 34,563,583 $ 549,986 $ 3,174,966 $(127,843) $ (206,714) $ 60,314,799
Net realized gain
(loss) on investments 1,048,675 85,311 (144) 451,109 (21,925) 38,508 -- -- 1,601,534
Net change in
unrealized appreciation or
depreciation
of investments 96,070,257 286,967 141 24,614,820 182,848 2,355,317 3,092,969 5,147,244 131,750,563
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 114,733,980 4,106,693 1,011,355 59,629,512 710,909 5,568,791 2,965,126 4,940,530 193,666,896
- -----------------------------------------------------------------------------------------------------------------------------------
Contract Transactions
===================================================================================================================================
Contract purchase
payments 123,570,339 15,053,091 17,423,616 72,845,044 2,402,678 42,899,371 13,841,301 13,991,080 302,026,520
Net transfers* 33,103,308 (239,083)(4,227,737) 21,193,067 (810,517) 27,901,000 34,880,409 30,282,735 142,083,182
Transfers for
policy loans (8,713,893) (546,324) (290,773) (5,307,297) (111,242) (1,682,789) (200,323) (223,063) (17,075,704)
Policy charges (29,122,591) (4,215,454)(2,208,148) (20,456,659) (809,036) (6,477,870)(1,233,735) (1,274,804) (65,798,297)
Contract terminations:
Surrender benefits (18,607,496) (1,766,331) (792,989) (11,491,981) (418,878) (2,719,919) (246,589) (436,800) (36,480,983)
Death benefits (1,276,530) (247,537) (55,408) (1,781,799) (63,523) (279,136) (8,789) (9,988) (3,722,710)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
from contract
transactions 98,953,137 8,038,362 9,848,561 55,000,375 189,482 59,640,657 47,032,274 42,329,160 321,032,008
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets
at beginning of year 511,028,865 54,451,972 17,410,456 331,351,712 9,201,807 99,035,584 1,290,753 2,350,596 1,026,121,745
===================================================================================================================================
Net assets at
end of year $724,715,982 $66,597,027$28,270,372 $445,981,599 $10,102,198$164,245,032$51,288,153 $49,620,286$1,540,820,649
===================================================================================================================================
Accumulation Unit Activity
===================================================================================================================================
Units outstanding
at beginning of year 153,373,376 26,774,670 11,458,041 109,309,116 4,856,455 59,452,809 1,288,668 2,406,142
Contract purchase
payments 34,678,477 7,178,911 11,237,391 22,016,619 1,231,725 24,446,022 11,617,761 12,833,138
Net transfers* 9,264,513 (114,293)(2,674,428) 6,349,838 (435,528) 16,110,287 29,596,543 28,094,106
Transfers for
policy loans (2,427,763) (259,393) (188,211) (1,607,411) (56,371) (959,477) (167,885) (203,109)
Policy charges (8,157,111) (2,008,118)(1,421,377) (6,182,237) (415,413) (3,690,168)(1,026,899) (1,156,378)
Contract terminations:
Surrender benefits (5,158,329) (837,375) (511,680) (3,467,220) (212,344) (1,538,186) (199,141) (390,852)
Death benefits (348,068) (119,364) (35,856) (543,529) (33,006) (157,187) (7,905) (9,493)
===================================================================================================================================
Units outstanding
at end of year 181,225,095 30,615,038 17,863,880 125,875,176 4,935,518 93,664,100 41,101,142 41,573,554
===================================================================================================================================
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1996
Segregated Asset Subaccounts Combined
- ----------------------------------------------------------------------------------------------------------------------- Variable
Operations U V W X Y IL FGI** FNO** Account
===================================================================================================================================
Investment income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(loss)-- net $ 63,128,737 $ 2,796,046 $ 496,331 $18,554,702 $ 429,014 $5,620,880 $ 7,687 $ (1,042) $91,032,355
Net realized gain (loss)
on investments 673,174 62,947 (90) 218,174 (13,036) -- -- -- 941,169
Net change in unrealized
appreciation or
depreciation of investments 5,691,003 (1,319,174) (94) 17,604,775 (403,974) 2,374,285 (4,959) (17,901) 23,923,961
===================================================================================================================================
Net increase (decrease) in
net assets resulting
from operations 69,492,914 1,539,819 496,147 36,377,651 12,004 7,995,165 2,728 (18,943) 115,897,485
===================================================================================================================================
Contract Transactions
===================================================================================================================================
Contract purchase
payments 105,961,565 13,310,365 9,046,621 66,518,941 2,145,072 28,312,012 143,703 362,548 225,800,827
Net transfers* 66,015,408 3,722,805 (1,205,578) 22,431,178 692,739 43,320,118 1,148,866 2,017,177 138,142,713
Transfers for
policy loans (6,244,169) (355,098) 27,139 (3,900,647) (80,185) (665,251) (596) (2,348) (11,221,155)
Policy charges (23,329,445) (3,771,136)(1,130,174) (17,570,432) (802,276)(3,387,753) (3,948) (7,838) (50,003,002)
Contract terminations:
Surrender benefits (14,981,757) (1,611,110) (450,677) (10,189,903) (266,418)(1,284,169) -- -- (28,784,034)
Death benefits (952,889) (205,738) (28,391) (652,571) (45,597) (77,361) -- -- (1,962,547)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)
from contract
transactions 126,468,713 11,090,088 6,258,940 56,636,566 1,643,335 66,217,596 1,288,025 2,369,539 271,972,802
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets
at beginning of year 315,067,238 41,822,065 10,655,369 238,337,495 7,546,468 24,822,823 -- -- 638,251,458
===================================================================================================================================
Net assets at
end of year $511,028,865 $54,451,972$17,410,456 $331,351,712 $9,201,807$99,035,584 $1,290,753 $2,350,596$1,026,121,745
===================================================================================================================================
Accumulation Unit Activity
===================================================================================================================================
Units outstanding at
beginning of year 112,397,698 21,093,984 7,292,031 89,225,571 3,992,247 18,302,995 -- --
Contract purchase
payments 34,307,830 6,801,860 6,064,251 23,599,318 1,157,301 17,547,447 143,378 369,756
Net transfers* 21,380,545 1,912,837 (839,017) 7,943,928 352,919 26,953,612 1,149,856 2,046,787
Transfers for
policy loans (2,016,634) (182,651) 18,550 (1,382,862) (43,801) (412,513) (611) (2,377)
Policy charges (7,542,639) (1,925,848) (757,352) (6,225,537) (432,937)(2,093,202) (3,955) (8,024)
Contract terminations:
Surrender benefits (4,851,362) (820,422) (301,100) (3,621,740) (144,876) (797,805) -- --
Death benefits (302,062) (105,090) (19,322) (229,562) (24,398) (47,725) -- --
===================================================================================================================================
Units outstanding
at end of year 153,373,376 26,774,670 11,458,041 109,309,116 4,856,455 59,452,809 1,288,668 2,406,142
===================================================================================================================================
* Includes transfer activity from (to) other subaccounts and transfers from (to) IDS Life's fixed account.
**For the period from Nov. 22, 1996 (commencement of operations) to Dec. 31, 1996.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life Variable Life Separate Account - Flexible Premium Survivorship Variable Life Subaccounts
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1995
Segregated Asset Subaccounts Combined
- -------------------------------------------------------------------------------------------------------------------- Variable
Operations U V W X Y IL Account
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income-- net $ 3,164,745 $ 1,957,742 $ 305,169 $ 7,555,613 $ 363,470 $ 56,111 $ 13,402,850
Net realized gain (loss)
on investments 444,344 1,898 (138) 108,539 3,316 2,068 560,027
Net change in unrealized
appreciation or
depreciation of investments 72,066,408 4,051,945 60 26,093,487 713,207 4,338,153 107,263,260
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 75,675,497 6,011,585 305,091 33,757,639 1,079,993 4,396,332 121,226,137
===================================================================================================================================
Contract Transactions
===================================================================================================================================
Contract purchase payments 65,899,530 8,927,561 3,827,646 53,655,655 1,708,490 8,359,743 142,378,625
Net transfers* 26,661,981 4,547,910 1,986,781 15,550,065 (413,095) 10,873,809 59,207,451
Transfers for policy loans (3,999,311) (424,646) (139,379) (2,605,848) (62,672) (159,345) (7,391,201)
Policy charges (17,285,517) (2,859,472) (698,384) (15,283,083) (785,784) (958,424) (37,870,664)
Contract terminations:
Surrender benefits (8,829,772) (1,144,868) (425,657) (7,032,033) (328,204) (231,490) (17,992,024)
Death benefits (245,450) (68,976) (8,227) (300,012) (35,240) (2,966) (660,871)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from
contract transactions 62,201,461 8,977,509 4,542,780 43,984,744 83,495 17,881,327 137,671,316
Net assets at
beginning of year 177,190,280 26,832,971 5,807,498 160,595,112 6,382,980 2,545,164 379,354,005
===================================================================================================================================
Net assets at end of year $315,067,238 $41,822,065 $10,655,369 $238,337,495 $7,546,468 $24,822,823 $638,251,458
===================================================================================================================================
Accumulation Unit Activity
===================================================================================================================================
Units outstanding at
beginning of year 86,671,509 16,248,127 4,147,565 70,902,569 3,949,666 2,581,651
Contract purchase payments 27,401,979 4,900,338 2,667,651 22,373,025 977,297 7,327,340
Net transfers* 10,887,309 2,417,994 1,361,557 6,465,711 (244,047) 9,554,177
Transfers for policy loans (1,647,099) (231,730) (95,887) (1,089,571) (35,608) (137,740)
Policy charges (7,207,668) (1,574,630) (487,738) (6,377,740) (448,607) (829,452)
Contract terminations:
Surrender benefits (3,608,606) (628,575) (295,330) (2,922,433) (186,158) (190,349)
Death benefits (99,726) (37,540) (5,787) (125,990) (20,296) (2,632)
===================================================================================================================================
Units outstanding
at end of year 112,397,698 21,093,984 7,292,031 89,225,571 3,992,247 18,302,995
===================================================================================================================================
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Flexible Premium Survivorship Variable
Life Subaccounts
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 segregated asset account or by IDS
Life. Flexible Premium Survivorship Variable Life policy owners allocate their
premium payment to one or more of the eight subaccounts which are used in
connection with those policies. Such funds are then invested in shares of six
portfolios of IDS Life Series Fund, Inc. (the Mutual Fund); or in the AIM V.I.
Growth and Income Fund or in the Putnam VT New Opportunities Fund.
The Mutual Fund, a Minnesota corporation, which commenced operations Jan. 20,
1986, was incorporated on May 8, 1985 and is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
AIM Variable Insurance Funds, Inc., a Maryland Corporation, which was
incorporated on Jan. 22, 1993 and Putnam Variable Trust, a Massachusetts
business trust, which was organized on Sept. 24, 1987 are diversified, open-end
management investment companies. AIM V.I. Growth and Income Fund and Putnam V.T.
New Opportunities Fund both commenced operations on May 2, 1994. Funds are
allocated to the subaccounts which are used in connection with Flexible Premium
Survivorship Variable Life policies; Subaccount U invests in the shares of the
Equity Portfolio; Subaccount V invests in the shares of the Income Portfolio;
Subaccount W invests in the shares of the Money Market Portfolio; Subaccount X
invests in the shares of the Managed Portfolio; Subaccount Y invests in the
shares of the Government Securities Portfolio; Subaccount IL invests in the
shares of the International Equity Portfolio (all Portfolios of the Mutual
Fund); Subaccount FGI invests in the AIM V.I. Growth and Income Fund and
Subaccount FNO invests in the Putnam VT New Opportunities Fund.
IDS Life acts as the investment manager and American Express Financial
Corporation acts as the investment advisor of the Mutual Fund. AIM Management
Group Inc. acts as the investment manager for AIM V.I. Growth and Income Fund.
Putnam Investments acts as the investment manager for Putnam VT New
Opportunities Fund. IDS Life serves as the distributor of the Flexible Premium
Survivorship Variable Life Policy.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
Investments in Mutual Funds
Investments in shares of the portfolios and funds are stated at market value
which is the net asset value per share as determined by the respective
portfolios and funds. 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 and funds are reinvested in additional shares of the portfolios and
funds 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' and
funds' undistributed net investment income, undistributed realized gain or loss
and the unrealized appreciation or depreciation on their investment securities.
Use of Estimates
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 increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
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.
- --------------------------------------------------------------------------------
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 0.9 percent of the daily net asset value of the Variable
Account. A monthly deduction is made for the cost of insurance and the policy
fee. 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.
IDS Life deducts a policy fee of $30 per month for the first 15 years. This
charge reimburses IDS Life for expenses incurred in administering the policy,
such as processing claims, maintaining records, making policy changes and
communicating with owners of policies. IDS Life does not anticipate that it will
make any profit on this charge. IDS Life reserves the right to change this
charge in the future, but guarantees that it will never exceed $30 per month.
- --------------------------------------------------------------------------------
4. Optional Insurance Benefit Charge
Each month IDS Life deducts charges for any optional insurance benefits added to
the policy by rider.
- --------------------------------------------------------------------------------
5. Premium Expense Charge
IDS Life deducts charges for three separate items from each premium payment. The
total of these charges is called the premium expense charge. Details regarding
these three charges follows. A sales charge of 7.25 percent of each premium
payment will be deducted to compensate IDS Life for expenses relating to the
distribution of the policy, including agents' commissions, advertising, and the
printing of the prospectuses and sales literature.
The policy provides that a charge of 2.5 percent of each premium payment will be
deducted to cover the premium taxes assesed by 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.
The policy provides that a charge of 1.25 percent of each premium payment will
be deducted to cover the federal taxes resulting from the sale of the policy.
IDS Life reserves the right to change this charge in the future if applicable
federal law changes.
- --------------------------------------------------------------------------------
6. Surrender Charge
There are surrender charges for full surrender in the first 15 years of the
policy. They are generally level for 5 years and decreasing the next 10 years.
The surrender charge is $4.00 per $1,000 of the amount used to determine the
death benefit (specified amount). This surrender charge reimburses IDS Life for
the cost of issuing the policy. Charges by IDS Life for surrenders are not
identified on an individual segregated asset account basis. Charges for all
segregated asset accounts amounted to $14,502,145 in 1997, $11,956,753 in 1996
and $10,125,762 in 1995. Such charges are not treated as a separate expense of
the subaccounts or Variable Account. They are ultimately deducted from contract
surrender benefits paid by IDS Life.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
7. Investment Transactions
The subaccounts' purchases of portfolio and fund shares, including reinvestment
of dividend distributions, were as follows:
Year Ended Dec. 31,
1997 1996 1995
Subaccount Investment
<S> <C> <C> <C>
U IDS Life Series Fund Equity Portfolio $121,966,988 $192,481,448 $ 67,589,599
V IDS Life Series Fund Income Portfolio 15,630,034 17,388,084 12,197,309
W IDS Life Series Fund Money Market Portfolio 20,383,104 12,976,023 9,230,592
X IDS Life Series Fund Managed Portfolio 92,732,258 77,193,596 53,726,907
Y IDS Life Series Fund Government Securities Portfolio 4,076,984 3,488,184 1,456,189
IL IDS Life Series Fund International Equity Portfolio 63,357,169 72,175,223 17,987,335
FGI AIM V.I. Growth and Income Fund 46,942,418 1,296,276* ---
FNO Putnam VT New Opportunities Fund. 42,159,212 2,369,506* ---
===========================================================================================================================
Combined Variable Account $407,248,167 $379,368,340 $162,187,931
===========================================================================================================================
*Commenced operations on Nov. 22, 1996.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
8. Year 2000 Issue (Unaudited)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Variable Account.
The Variable Account has no computer systems of its own but is dependent upon
the systems maintained by AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each system by the end of
1998 and to continue compliance efforts through 1999.
The Year 2000 readiness of unaffiliated investment managers and other third
parties whose system failures could have an impact on the Variable Account's
operations is currently being evaluated. The potential materiality of any such
impact is not known at this time.
<PAGE>
<TABLE>
<CAPTION>
Flexible Premium Survivorship Variable
Life Subaccounts
Condensed Financial Information (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
The following tables give per-unit information about the financial history of
each variable subaccount.
Year Ended Dec. 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
=================================================================================================================================
Subaccount U (IDSLife Series Fund Equity)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value at beginning of period $3.33 $2.80 $2.04 $2.01 $1.79 $1.71 $1.04 $1.10 $0.90 $0.83
Accumulation unit value at end of period. $4.00 $3.33 $2.80 $2.04 $2.01 $1.79 $1.71 $1.04 $1.10 $0.90
Number of accumulation units outstanding
at end of period (000 omitted) 181,225 153,373 112,398 86,672 54,422 35,765 20,713 13,993 9,013 5,110
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount V (IDSLife Series Fund Income)
Accumulation unit value at beginning of period $2.03 $1.98 $1.65 $1.74 $1.53 $1.41 $1.23 $1.17 $1.06 $0.99
Accumulation unit value at end of period. $2.18 $2.03 $1.98 $1.65 $1.74 $1.53 $1.41 $1.23 $1.17 $1.06
Number of accumulation units outstanding
at end of period (000 omitted) 30,615 26,775 21,094 16,248 13,255 8,848 6,088 4,646 3,207 1,423
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount W (IDSLife Series Fund Money Market)
Accumulation unit value at beginning of period $1.52 $1.46 $1.40 $1.36 $1.34 $1.31 $1.25 $1.17 $1.08 $1.03
Accumulation unit value at end of period $1.58 $1.52 $1.46 $1.40 $1.36 $1.34 $1.31 $1.25 $1.17 $1.08
Number of accumulation units outstanding
at end of period (000 omitted) 17,864 11,458 7,292 4,148 2,911 2,981 2,876 2,221 1,497 562
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount X (IDSLife Series Fund Managed)
Accumulation unit value at beginning of period $3.03 $2.67 $2.27 $2.27 $1.91 $1.75 $1.34 $1.25 $0.97 $0.90
Accumulation unit value at end of period. $3.54 $3.03 $2.67 $2.27 $2.27 $1.91 $1.75 $1.34 $1.25 $0.97
Number of accumulation units outstanding
at end of period (000 omitted) 125,875 109,309 89,226 70,903 45,870 30,475 21,753 15,649 10,49 68,247
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount Y (IDSLife Series Fund Government Securities)
Accumulation unit value at beginning of period $1.89 $1.89 $1.62 $1.71 $1.54 $1.46 $1.26 $1.20 $1.05 $1.00
Accumulation unit value at end of period. $2.05 $1.89 $1.89 $1.62 $1.71 $1.54 $1.46 $1.26 $1.20 $1.05
Number of accumulation units outstanding
at end of period (000 omitted) 4,936 4,856 3,992 3,949 3,444 2,556 1,504 1,096 491 271
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount IL1 (IDSLife Series Fund International Equity)
Accumulation unit value at beginning of period $1.67 $1.36 $0.99 $1.00 -- -- -- -- -- --
Accumulation unit value at end of period. $1.75 $1.67 $1.36 $0.99 -- -- -- -- -- --
Number of accumulation units outstanding
at end of period (000 omitted) 93,664 59,453 18,303 2,582 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount FGI2 (AIM V.I. Growth and Income)
Accumulation unit value at beginning of period $1.00 $1.00 -- -- -- -- -- -- -- --
Accumulation unit value at end of period. $1.25 $1.00 -- -- -- -- -- -- -- --
Number of accumulation units outstanding
at end of period (000 omitted) 41,101 1,289 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount FNO2 (Putnam VT New Opportunities)
Accumulation unit value at beginning of period $0.98 $1.00 -- -- -- -- -- -- -- --
Accumulation unit value at end of period. $1.19 $0.98 -- -- -- -- -- -- -- --
Number of accumulation units outstanding
at end of period (000 omitted) 41,574 2,406 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
1 Operations commenced on Oct. 28, 1994.
2 Operations commenced on Nov. 22, 1996.
</TABLE>
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the accompanying consolidated balance sheets of IDS Life
Insurance Company (a wholly owned subsidiary of American Express Financial
Corporation) as of December 31, 1997 and 1996 and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements
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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
February 5, 1998
<PAGE>
IDS Life Financial Information
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1997 1996
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1997, $9,743,410; 1996, $10,521,650) $9,315,450 $10,236,379
Available for sale, at fair value (Amortized cost:
1997, $12,515,030; 199, $11,008,622) 12,876,694 11,146,845
Mortgage loans on real estate 3,618,647 3,493,364
Policy loans 498,874 459,902
Other investments 318,591 251,465
Total investments 26,628,256 25,587,955
Cash and cash equivalents 19,686 224,603
Amounts recoverable from reinsurers 205,716 157,722
Amounts due from brokers 8,400 11,047
Other accounts receivable 37,895 44,089
Accrued investment income 357,390 343,313
Deferred policy acquisition costs 2,479,577 2,330,805
Deferred income taxes, net -- 33,923
Other assets 22,700 37,364
Separate account assets 23,214,504 18,535,160
Total assets $52,974,124 $47,305,981
========= =========
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities $22,009,747 $21,838,008
Universal life-type insurance 3,280,489 3,177,149
Traditional life insurance 213,676 209,685
Disability income and long-term care insurance 533,124 424,200
Policy claims and other policyholders' funds 68,345 83,634
Deferred income taxes, net 61,582 --
Amounts due to brokers 381,458 261,987
Other liabilities 345,383 332,078
Separate account liabilities 23,214,504 18,535,160
Total liabilities 50,108,308 44,861,901
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding 3,000 3,000
Additional paid-in capital 290,847 283,615
Net unrealized gain on investments 226,359 86,102
Retained earnings 2,345,610 2,071,363
Total stockholder's equity 2,865,816 2,444,080
Total liabilities and stockholder's equity $52,974,124 $47,305,981
========= =========
See accompanying notes.
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended Dec. 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Traditional life insurance $ 52,473 $ 51,403 $ 50,193
Disability income and long-term care insurance 154,021 131,518 111,337
Total premiums 206,494 182,921 161,530
Policyholder and contractholder charges 341,726 302,999 256,454
Management and other fees 340,892 271,342 215,581
Net investment income 1,988,389 1,965,362 1,907,309
Net realized gain (loss) on investments 860 (159) (4,898)
Total revenues 2,878,361 2,722,465 2,535,976
Benefits and expenses:
Death and other benefits:
Traditional life insurance 28,951 26,919 29,528
Universal life-type insurance
and investment contracts 92,814 85,017 71,691
Disability income and
long-term care insurance 22,333 19,185 16,259
Increase (decrease) in liabilities for
future policy benefits:
Traditional life insurance 3,946 1,859 (1,315)
Disability income and
long-term care insurance 63,631 57,230 51,279
Interest credited on universal life-type
insurance and investment contracts 1,386,448 1,370,468 1,315,989
Amortization of deferred policy acquisition costs 322,731 278,605 280,121
Other insurance and operating expenses 276,596 261,468 211,642
Total benefits and expenses 2,197,450 2,100,751 1,975,194
Income before income taxes 680,911 621,714 560,782
Income taxes 206,664 207,138 195,842
Net income $ 474,247 $ 414,576 $ 364,940
======== ======== =======
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended Dec. 31, 1997
(thousands)
<TABLE>
<CAPTION>
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital on Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1994 3,000 222,000 (275,708) 1,639,399 1,588,691
Net income -- -- -- 364,940 364,940
Change in net unrealized
gain (loss) on investments -- -- 505,837 -- 505,837
Capital contribution from parent -- 56,814 -- -- 56,814
Loss on reinsurance transaction
with affiliate -- -- -- (4,574) (4,574)
Cash dividends -- -- -- (180,000) (180,000)
Balance, Dec. 31, 1995 3,000 278,814 230,129 1,819,765 2,331,708
Net income -- -- -- 414,576 414,576
Change in net unrealized
gain (loss) on investments -- -- (144,027) -- (144,027)
Capital contribution from parent -- 4,801 -- -- 4,801
Other changes -- -- -- 2,022 2,022
Cash dividends -- -- -- (165,000) (165,000)
Balance, Dec. 31, 1996 $3,000 $283,615 $ 86,102 $2,071,363 $2,444,080
Net income -- -- -- 474,247 474,247
Change in net unrealized
gain (loss) on investments -- -- 140,257 -- 140,257
Capital contribution from parent -- 7,232 -- -- 7,232
Cash dividends -- -- -- (200,000) (200,000)
Balance, Dec. 31, 1997 $3,000 $290,847 $226,359 $2,345,610 $2,865,816
===== ======= ======= ========= ========
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended Dec. 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 474,247 $ 414,576 $ 364,940
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Policy loan issuance, excluding universal
life-type insurance (54,665) (49,314) (46,011)
Policy loan repayment, excluding universal
life-type insurance 46,015 41,179 36,416
Change in amounts recoverable from reinsurers (47,994) (43,335) (34,083)
Change in other accounts receivable 6,194 (4,981) 12,231
Change in accrued investment income (14,077) 4,695 (30,498)
Change in deferred policy acquisition
costs, net (156,486) (294,755) (196,963)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance 112,915 97,479 85,575
Change in policy claims and other
policyholders' funds (15,289) 27,311 6,255
Change in deferred income tax provision (benefit) 19,982 (65,609) (33,810)
Change in other liabilities 13,305 46,724 (6,548)
(Accretion of discount)
amortization of premium, net (5,649) (23,032) (22,528)
Net realized (gain) loss on investments (860) 159 4,898
Policyholder and contractholder
charges, non-cash (160,885) (154,286) (140,506)
Other, net 7,161 (10,816) 3,849
Net cash provided by (used in) operating
activities $ 223,914 $ (14,005) $ 3,217
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Years ended Dec. 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $ (1,996) $ (43,751) $ (1,007,208)
Maturities, sinking fund payments and calls 686,503 759,248 538,219
Sales 236,761 279,506 332,154
Fixed maturities available for sale:
Purchases (3,160,133) (2,299,198) (2,452,181)
Maturities, sinking fund payments and calls 1,206,213 1,270,240 861,545
Sales 457,585 238,905 136,825
Other investments, excluding policy loans:
Purchases (524,521) (904,536) (823,131)
Sales 335,765 236,912 160,521
Change in amounts due from brokers 2,647 (11,047) 7,933
Change in amounts due to brokers 119,471 140,369 (105,119)
Net cash used in investing activities (641,705) (333,352) (2,350,442)
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 2,785,758 3,567,586 4,189,525
Surrenders and death benefits (3,736,242) (4,250,294) (3,141,404)
Interest credited to account balances 1,386,448 1,370,468 1,315,989
Universal life-type insurance policy loans:
Issuance (84,835) (86,501) (84,700)
Repayment 54,513 58,753 52,188
Capital contribution from parent 7,232 4,801 --
Dividends paid (200,000) (165,000) (180,000)
Net cash provided by financing activities 212,874 499,813 2,151,598
Net (decrease) increase in cash and
cash equivalents (204,917) 152,456 (195,627)
Cash and cash equivalents at
beginning of year 224,603 72,147 267,774
Cash and cash equivalents at
end of year $ 19,686 $ 224,603 $ 72,147
======= ======== ========
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($ thousands)
1. Summary of significant accounting policies
------------------------------------------
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance
company organized under the laws of the State of Minnesota. The
Company is a wholly owned subsidiary of American Express Financial
Corporation (AEFC), which is a wholly owned subsidiary of American
Express Company. The Company serves residents of all states except New
York. IDS Life Insurance Company of New York is a wholly owned
subsidiary of the Company and serves New York State residents. The
Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company (ACLAC), American Partners
Life Insurance Company and American Express Corporation.
The Company's principal products are deferred annuities and universal
life insurance, which are issued primarily to individuals. It offers
single premium and flexible premium deferred annuities on both a fixed
and variable dollar basis. Immediate annuities are offered as well.
The Company's insurance products include universal life (fixed and
variable), whole life, single premium life and term products (including
waiver of premium and accidental death benefits). The Company also
markets disability income and long-term care insurance.
Basis of presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which vary
in certain respects from reporting practices prescribed or permitted by
state insurance regulatory authorities (see Note 4).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and
carried at amortized cost. All other fixed maturities and all
marketable equity securities are classified as available for sale and
carried at fair value. Unrealized gains and losses on securities
classified as available for sale are reported as a separate component
of stockholder's equity, net of deferred taxes.
<PAGE>
Realized investment gain or loss is determined on an identified cost
basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to
recognize interest income. Prepayment estimates are based on
information received from brokers who deal in mortgage-backed
securities.
Mortgage loans on real estate are carried at amortized cost less
reserves for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or
the fair value of collateral. The amount of the impairment is recorded
in a reserve for mortgage loan losses. The reserve for mortgage loans
losses is maintained at a level that management believes is adequate to
absorb estimated losses in the portfolio. The level of the reserve
account is determined based on several factors, including historical
experience, expected future principal and interest payments, estimated
collateral values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the reserve
for mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for
which interest payments are delinquent more than three months. Based
on management's judgment as to the ultimate collectibility of
principal, interest payments received are either recognized as income
or applied to the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment
income over the life of the contracts and payments received as a result
of these agreements are recorded as investment income when realized.
The amortized cost of interest rate caps and floors is included in
other investments. Amounts paid or received under interest rate swap
agreements are recognized as an adjustment to investment income.
During 1997, 1996 and 1995, the Company purchased and wrote index
options to protect against significant declines in fee income as a
result of a decrease in the market value of its managed assets. These
options were marked-to-market through the income statement.
During 1997, the Company purchased and wrote index options to hedge
1998 management fee and other income from separate accounts and the
underlying mutual funds. These index options are carried at market
value and are included in other investments. Gains or losses on these
instruments are deferred and recognized in management and other fees in
the same period as the hedged fee income.
Policy loans are carried at the aggregate of the unpaid loan balances
which do not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in
the underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost, which
approximates fair value.
<PAGE>
Supplementary information to the consolidated statements of cash flows
for the years ended December 31 is summarized as
follows:
1997 1996 1995
---- ---- ----
Cash paid during the year for:
Income taxes $174,472 $317,283 $191,011
Interest on borrowings 8,213 4,119 5,524
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
Recognition of profits on annuity contracts and insurance policies
Profits on fixed deferred annuities are recognized by the Company over
the lives of the contracts, using primarily the interest method.
Profits represent the excess of investment income earned from
investment of contract considerations over interest credited to
contract owners and other expenses.
The retrospective deposit method is used in accounting for universal
life-type insurance. Under this method, profits are recognized over
the lives of the policies in proportion to the estimated gross profits
expected to be realized.
Premiums on traditional life, disability income and long-term care
insurance policies are recognized as revenue when due, and related
benefits and expenses are associated with premium revenue in a manner
that results in recognition of profits over the lives of the insurance
policies. This association is accomplished by means of the provision
for future policy benefits and the deferral and subsequent amortization
of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of
insurance charges and issue and administrative fees. These charges
also include the minimum death benefit guarantee fees received from the
variable life insurance separate accounts. Management and other fees
include investment management fees and mortality and expense risk fees
received from the variable annuity and variable life insurance separate
accounts and underlying mutual funds.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation,
policy issue costs, underwriting and certain sales expenses, have been
deferred on insurance and annuity contracts.The deferred acquisition costs
for most single premium deferred annuities and installment annuities are
amortized in relation to accumulation values and surrender charge revenue.
The costs for universal life-type insurance and certain installment
annuities are amortized as a percentage of the estimated gross profits
expected to be realized on the policies. For traditional life, disability
income and long-term care insurance policies, the costs are amortized over
an appropriate period in proportion to premium revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance and deferred annuities
are accumulation values.
Liabilities for fixed annuities in a benefit status are based on
established industry mortality tables and interest rates ranging from
5% to 9.5%, depending on year of issue.
<PAGE>
Liabilities for future benefits on traditional life insurance are based
on the net level premium method, using anticipated mortality, policy
persistency and interest earning rates. Anticipated mortality rates
are based on established industry mortality tables. Anticipated policy
persistency rates vary by policy form, issue age and policy duration
with persistency on cash value plans generally anticipated to be better
than persistency on term insurance plans. Anticipated interest rates
range from 4% to 10%, depending on policy form, issue year and policy
duration.
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
Liabilities for future disability income and long-term care policy
benefits include both policy reserves and claim reserves. Policy
reserves are based on the net level premium method, using anticipated
morbidity, mortality, policy persistency and interest earning rates.
Anticipated morbidity and mortality rates are based on established
industry morbidity and mortality tables. Anticipated policy
persistency rates vary by policy form, issue age, policy duration and,
for disability income policies, occupation class. Anticipated interest
rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 10% over 5
to 10 years.
Claim reserves are calculated based on claim continuance tables and
anticipated interest earnings. Anticipated claim continuance rates are
based on a national survey. Anticipated interest rates for claim
reserves for both disability income and long-term care range from 6% to
8%.
Reinsurance
The maximum amount of life insurance risk retained by the Company on
any one life is $750 of life and waiver of premium benefits plus $50 of
accidental death benefits. The maximum amount of disability income
risk retained by the Company on any one life is $6 of monthly benefit
for benefit periods longer than three years. The excesses are
reinsured with other life insurance companies on a yearly renewable
term basis. Graded premium whole life and long-term care policies are
primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated federal
income tax return of American Express Company. The Company provides
for income taxes on a separate return basis, except that, under an
agreement between AEFC and American Express Company, tax benefit is
recognized for losses to the extent they can be used on the
consolidated tax return. It is the policy of AEFC and its subsidiaries
that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1997 and 1996 are $12,061
and $33,358, respectively, receivable from American Express Financial
Corporation for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for
the exclusive benefit of the variable annuity and variable life
insurance contract owners. The Company receives investment
management fees from the proprietary mutual funds used as investment
options for variable annuities and variable life insurance. The
Company receives mortality and expense risk fees from the separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
------------------------------------------
The Company makes contractual mortality assurances to the variable
annuity contract owners that the net assets of the separate accounts
will not be affected by future variations in the actual life expectancy
experience of the annuitants and the beneficiaries from the mortality
assumptions implicit in the annuity contracts. The Company makes
periodic fund transfers to, or withdrawals from, the separate accounts
for such actuarial adjustments for variable annuities that are in the
benefit payment period. For variable life insurance, the Company
guarantees that the rates at which insurance charges and administrative
fees are deducted from contract funds will not exceed contractual
maximums. The Company also guarantees that the death benefit will
continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform to the
1997 presentation.
2. Investments
-----------
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available.
Estimated values are determined by established procedures involving,
among other things, review of market indices, price levels of current
offerings of comparable issues, price estimates and market data from
independent brokers and financial files.
The amortized cost, gross unrealized gains and losses and fair values
of investments in fixed maturities and equity securities at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $41,932 $ 2,950 $ -- $ 44,881
State and municipal obligations 9,684 568 -- 10,252
Corporate bonds and obligations 7,280,646 415,700 9,322 7,687,024
Mortgage-backed securities 1,983,188 25,976 7,911 2,001,253
--------- ------ ----- ---------
$9,315,450 $445,194 $17,233 $9,743,410
========= ======= ====== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 65,291 $ 4,154 $ -- $69,445
State and municipal obligations 11,045 1,348 -- 12,393
Corporate bonds and obligations 5,308,129 232,761 30,198 5,510,692
Mortgage-backed securities 7,130,565 160,478 6,879 7,284,164
--------- ------- ----- ---------
Total fixed maturities 12,515,030 398,741 37,077 12,876,694
Equity securities 3,000 361 -- 3,361
---------- ------- ------ ----------
$12,518,030 $399,102 $37,077 $12,880,055
========== ======= ====== ==========
</TABLE>
<PAGE>
2. Investments (continued)
-----------
The amortized cost, gross unrealized gains and losses and fair values
of investments in fixed maturities and equity securities at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 44,002 $ 933 $ 1,276 $ 43,659
State and municipal obligations 9,685 412 -- 10,097
Corporate bonds and obligations 8,057,997 356,687 47,639 8,367,045
Mortgage-backed securities 2,124,695 21,577 45,423 2,100,849
---------- ------- ------ ----------
$10,236,379 $379,609 $94,338 $10,521,650
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 77,944 $ 2,607 $ 96 $ 80,455
State and municipal obligations 11,032 1,336 -- 12,368
Corporate bonds and obligations 3,701,604 122,559 24,788 3,799,375
Mortgage-backed securities 7,218,042 104,808 68,203 7,254,647
--------- ------- ------ ---------
Total fixed maturities 11,008,622 231,310 93,087 11,146,845
Equity securities 3,000 308 -- 3,308
---------- ------- ------ ----------
$11,011,622 $231,618 $93,087 $11,150,153
========== ======= ====== ==========
</TABLE>
The amortized cost and fair value of investments in fixed maturities at
December 31, 1997 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
<PAGE>
Amortized Fair
Held to maturity Cost Value
---------------- --------- --------
Due in one year or less $ 356,597 $360,956
Due from one to five years 1,536,239 1,619,875
Due from five to ten years 4,337,547 4,577,552
Due in more than ten years 1,101,879 1,183,774
Mortgage-backed securities 1,983,188 2,001,253
--------- ---------
$9,315,450 $9,743,410
========= =========
Amortized Fair
Available for sale Cost Value
--------- -----
Due in one year or less $ 162,663 $ 164,012
Due from one to five years 633,339 679,561
Due from five to ten years 2,418,162 2,517,098
Due in more than ten years 2,170,301 2,231,859
Mortgage-backed securities 7,130,565 7,284,164
---------- ----------
$12,515,030 $12,876,694
========== ==========
<PAGE>
2. Investments (continued)
-----------
During the years ended December 31, 1997, 1996 and 1995, fixed
maturities classified as held to maturity were sold with amortized cost
of $229,848, $277,527 and $333,508, respectively. Net gains and losses
on these sales were not significant. The sale of these fixed
maturities was due to significant deterioration in the issuers' credit
worthiness.
Fixed maturities available for sale were sold during 1997 with proceeds
of $457,585 and gross realized gains and losses of $6,639 and $7,518,
respectively. Fixed maturities available for sale were sold during
1996 with proceeds of $238,905 and gross realized gains and losses of
$571 and $16,084, respectively. Fixed maturities available for sale
were sold during 1995 with proceeds of $136,825 and gross realized
gains and losses of $nil and $5,781, respectively.
At December 31, 1997, bonds carried at $14,351 were on deposit with
various states as required by law.
At December 31, 1997, investments in fixed maturities comprised 83
percent of the Company's total invested assets. These securities are
rated by Moody's and Standard & Poor's (S&P), except for securities
carried at approximately $2.7 billion which are rated by American
Express Financial Corporation internal analysts using criteria similar
to Moody's and S&P. A summary of investments in fixed maturities, at
amortized cost, by rating on December 31 is as follows:
Rating 1997 1996
--------- --------- ---------
Aaa/AAA $ 9,195,619 $ 9,460,134
Aaa/AA -- 2,870
Aa/AA 232,451 241,914
Aa/A 246,792 192,631
A/A 2,787,936 2,949,895
A/BBB 1,200,345 1,034,661
Baa/BBB 5,226,616 4,531,515
Baa/BB 475,084 768,285
Below investment grade 2,465,637 2,063,096
--------- ---------
$21,830,480 $21,245,001
========== ==========
At December 31, 1997, 95 percent of the securities rated Aaa/AAA are
GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any
other issuer are greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1997, approximately 14 percent of the Company's
invested assets were mortgage loans on real estate. Summaries of
mortgage loans by region of the United States and by type of real
estate are as follows:
<PAGE>
December 31, 1997 December 31, 1996
------------------------ -----------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------- ---------- ------------ ---------- -----------
East North Central $ 748,372 $ 32,462 $ 777,960 $ 19,358
West North Central 456,934 14,340 389,285 29,620
South Atlantic 922,172 14,619 891,852 35,007
Middle Atlantic 545,601 15,507 553,869 17,959
New England 316,250 2,136 310,177 14,042
Pacific 184,917 3,204 190,770 4,997
West South Central 125,227 -- 105,173 11,246
East South Central 60,274 -- 75,176 --
Mountain 297,545 28,717 236,597 11,401
--------- ------- --------- -------
3,657,292 110,985 3,530,859 143,630
Less allowance for
losses 38,645 -- 37,495 --
--------- ------- --------- -------
$3,618,647 $110,985 $3,493,364 $143,630
========= ======= ========= =======
<PAGE>
2. Investments (continued)
-----------
December 31, 1997 December 31, 1996
------------------------ -------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
--------------- ---------- ----------- ---------- -----------
Department/retail
stores $1,189,203 $ 27,314 $1,154,179 $ 68,032
Apartments 1,089,127 16,576 1,119,352 23,246
Office buildings 716,729 34,546 611,395 27,653
Industrial buildings 295,889 21,200 296,944 6,716
Hotels/motels 101,052 -- 97,870 6,257
Medical buildings 99,979 9,748 67,178 8,289
Nursing/retirement
homes 72,359 -- 88,226 1,877
Mixed Use 71,007 -- 73,120 --
Other 21,947 1,601 22,595 1,560
--------- ------- --------- ------
3,657,292 110,985 3,530,859 143,630
Less allowance for
losses 38,645 -- 37,495 --
--------- ------- --------- -------
$3,618,647 $110,985 $3,493,364 $143,630
========= ======= ========= =======
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real
estate at the time of origination of the loan. The Company holds the
mortgage document, which gives it the right to take possession of the
property if the borrower fails to perform according to the terms of the
agreement. The fair value of the mortgage loans is determined by a
discounted cash flow analysis using mortgage interest rates currently
offered for mortgages of similar maturities. Commitments to purchase
mortgages are made in the ordinary course of business. The fair value
of the mortgage commitments is $nil.
At December 31, 1997 and 1996, the Company's recorded investment in
impaired loans was $45,714 and $79,441, respectively, with allowances
of $9,812 and $16,162, respectively. During 1997 and 1996, the average
recorded investment in impaired loans was $61,870 and $74,338,
respectively.
The Company recognized $2,981, $4,889 and $5,014 of interest income
related to impaired loans for the years ended December 31, 1997, 1996
and 1995 respectively.
<PAGE>
The following table presents changes in the allowance for investment
losses related to all loans:
1997 1996 1995
------ ------ ------
Balance, January 1 $37,495 $37,340 $35,252
Provision for investment losses 8,801 10,005 15,900
Loan payoffs (3,851) (4,700) (11,900)
Foreclosures (3,800) (5,150) (1,350)
Other -- -- (562)
------ ------ -------
Balance, December 31 $38,645 $37,495 $37,340
====== ====== ======
At December 31, 1997, the Company had commitments to purchase
investments other than mortgage loans for $234,485. Commitments to
purchase investments are made in the ordinary course of business. The
fair value of these commitments is $nil.
<PAGE>
2. Investments (continued)
-----------
Net investment income for the years ended December 31 is summarized as
follows:
1997 1996 1995
--------- --------- ---------
Interest on fixed maturities $1,692,481 $1,666,929 $1,656,136
Interest on mortgage loans 305,742 283,830 232,827
Other investment income 25,089 43,283 35,936
Interest on cash equivalents 5,914 5,754 5,363
--------- --------- ---------
2,029,226 1,999,796 1,930,262
Less investment expenses 40,837 34,434 22,953
--------- --------- ---------
$1,988,389 $1,965,362 $1,907,309
========= ========= =========
Net realized gain (loss) on investments for the years ended December 31
is summarized as follows:
1997 1996 1995
------ ----- -----
Fixed maturities $ 16,115 $ 8,736 $ 9,973
Mortgage loans (6,424) (8,745) (13,259)
Other investments (8,831) (150) (1,612)
------- ----- -------
$ 860 $ (159) $ (4,898)
======= ====== ======
Changes in net unrealized appreciation (depreciation) of investments
for the years ended December 31 are summarized as follows:
1997 1996 1995
------- ------- -------
Fixed maturities available
for sale $223,441 $(231,853) $811,649
Equity securities 53 (52) 3,118
3. Income taxes
------------
The Company qualifies as a life insurance company for federal income
tax purposes. As such, the Company is subject to the Internal Revenue
Code provisions applicable to life insurance companies.
The income tax expense consists of the following:
1997 1996 1995
Federal income taxes:
Current $176,879 $260,357 $218,040
Deferred 19,982 (65,609) (33,810)
------- -------- -------
196,861 194,748 184,230
State income taxes-current 9,803 12,390 11,612
------- ------- -------
Income tax expense $206,664 $207,138 $195,842
======= ======= =======
<PAGE>
3. Income taxes (continued)
------------
Increases (decreases) to the federal tax provision applicable to pretax
income based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ---------------
Provision Rate Provision Rate Provision Rate
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Federal income
taxes based on
the statutory rate $238,319 35.0% $217,600 35.0% $196,274 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (10,294) (1.5) (9,636) (1.5) (8,524) (1.5)
State Taxes, net of federal
benefit 6,372 0.9 8,053 1.3 7,548 1.3
Low income housing
credits (20,705) (3.0) (5,090) (0.8) (861) (0.2)
Other, net (7,028) (1.0) (3,789) (0.7) 1,405 0.3
------- ----- ------- ---- ------- ----
Federal income taxes $206,664 30.4% $207,138 33.3% $195,842 34.9%
======= ==== ======= ==== ======= ====
</TABLE>
A portion of life insurance company income earned prior to 1984 was not
subject to current taxation but was accumulated, for tax purposes, in a
policyholders' surplus account. At December 31, 1997, the Company had
a policyholders' surplus account balance of $20,114. The
policyholders' surplus account is only taxable if dividends to the
stockholder exceed the stockholder's surplus account or if the Company
is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and
liabilities as of December 31 are as follows:
1997 1996
---- ----
Deferred tax assets:
Policy reserves $748,204 $724,412
Life insurance guarantee
fund assessment reserve 20,101 29,854
Other 9,589 2,763
------- -------
Total deferred tax assets 777,894 757,029
------- -------
<PAGE>
Deferred tax
liabilities:
Deferred policy acquisition costs 700,032 665,685
Unrealized gain on investments 121,885 48,486
Investments, other 17,559 8,935
------- -------
Total deferred tax liabilities 839,476 723,106
------- -------
Net deferred tax (liabilities) assets $(61,582) $ 33,923
====== ======
The Company is required to establish a valuation allowance for any
portion of the deferred tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not
that the Company will realize the benefit of the deferred tax assets
and, therefore, no such valuation allowance has been established.
<PAGE>
4. Stockholder's equity
--------------------
Retained earnings available for distribution as dividends to the parent
are limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory
authorities. Statutory unassigned surplus aggregated $1,468,677 as of
December 31, 1997 and $1,261,592 as of December 31, 1996 (see Note 3
with respect to the income tax effect of certain distributions). In
addition, any dividend distributions in 1998 in excess of approximately
$331,480 would require approval of the Department of Commerce of the
State of Minnesota.
Statutory net income for the years ended December 31 and capital and
surplus as of December 31 are summarized as follows:
1997 1996 1995
---------- ---------- ----------
Statutory net income $ 379,615 $ 365,585 $ 326,799
Statutory capital and surplus 1,765,290 1,565,082 1,398,649
surplus
5. Related party transactions
--------------------------
The Company loans funds to American Express Financial Corporation under
a collateral loan agreement. The balance of the loan was $nil and
$11,800 at December 31, 1997 and 1996, respectively. This loan can be
increased to a maximum of $75,000 and pays interest at a rate equal to
the preceding month's effective new money rate for the Company's
permanent investments. Interest income on related party loans totaled
$103, $780 and $1,371 in 1997, 1996 and 1995, respectively.
The Company purchased a five year secured note from an affiliated
company which was redeemed in 1996. The interest rate on the note was
8.42 percent. Interest income on the above note totaled $1,637 and
$1,937 in 1996 and 1995, respectively.
The Company participates in the American Express Company Retirement
Plan which covers all permanent employees age 21 and over who have met
certain employment requirements. Employer contributions to the plan
are based on participants' age, years of service and total compensation
for the year. Funding of retirement costs for this plan complies with
the applicable minimum funding requirements specified by ERISA. The
Company's share of the total net periodic pension cost was $201, $174
and $155 in 1997, 1996 and 1995, respectively.
The Company also participates in defined contribution pension plans of
American Express Company which cover all employees who have met certain
employment requirements. Company contributions to the plans are a
percent of either each employee's eligible compensation or basic
contributions. Costs of these plans charged to operations in 1997,
1996 and 1995 were $1,245, $990 and $815, respectively.
<PAGE>
The Company participates in defined benefit health care plans of AEFC
that provide health care and life insurance benefits to retired
employees and retired financial advisors. The plans include
participant contributions and service related eligibility
requirements. Upon retirement, such employees are considered to have
been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. Accordingly, costs of such benefits to
the Company are included in employee compensation and benefits and
cannot be identified on a separate company basis.
<PAGE>
5. Related party transactions (continued)
--------------------------
Charges by AEFC for use of joint facilities, marketing services and
other services aggregated $414,155, $397,362 and $377,139 for 1997,
1996 and 1995, respectively. Certain of these costs are included in
deferred policy acquisition costs. In addition, the Company rents its
home office space from AEFC on an annual renewable basis.
6. Commitments and contingencies
-----------------------------
At December 31, 1997 and 1996, traditional life insurance and universal
life-type insurance in force aggregated $74,730,720 and $67,274,354,
respectively, of which $4,351,904 and $3,875,921 were reinsured at the
respective year ends. The Company also reinsures a portion of the
risks assumed under disability income and long-term care policies.
Under all reinsurance agreements, premiums ceded to reinsurers amounted
to $60,495, $48,250 and $39,399 and reinsurance recovered from
reinsurers amounted to $19,042, $15,612, and $14,088 for the years
ended December 31, 1997, 1996 and 1995, respectively. Reinsurance
contracts do not relieve the Company from its primary obligation to
policyholders.
A number of lawsuits have been filed against life and health insurers
in jurisdictions in which the Company and its subsidiaries do business
involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents, and other matters. In December 1996, an
action of this type was brought against the Company and its parent,
AEFC. A second action was filed in March, 1997. The plaintiffs
purport to represent a class consisting of all persons who replaced
existing Company policies with new Company policies from and after
January 1, 1985. The complaint puts at issue various alleged sales
practices and misrepresentations, alleged breaches of fiduciary duties
and alleged violations of consumer fraud statutes. Plaintiffs seek
damages in an unspecified amount and seek to establish a claims
resolution facility for the determination of individual issues. The
Company and its parent believe they have meritorious defenses to the
claims raised in the lawsuit. The outcome of any litigation cannot be
predicted with certainty. In the opinion of management, however, the
ultimate resolution of the above lawsuit and others filed against the
Company should not have a material adverse effect on the Company's
consolidated financial position.
The IRS routinely examines the Company's federal income tax returns,
and is currently auditing the Company's returns for the 1990 through
1992 tax years. Management does not believe there will be a material
adverse effect on the Company's consolidated financial position as a
result of this audit.
7. Lines of credit
---------------
The Company has an available line of credit with its parent aggregating
$100,000. The rate for the line of credit is the parent's cost of
funds, ranging from 20 to 45 basis points over the established index.
Borrowings outstanding under this agreement were $nil at
December 31, 1997 and 1996.
<PAGE>
8. Derivative financial instruments
--------------------------------
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk and equity
market risk, including hedging specific transactions. The Company does
not hold derivative instruments for trading purposes. The Company
manages risks associated with these instruments as described below.
<PAGE>
8. Derivative financial instruments (continued)
--------------------------------
Market risk is the possibility that the value of the derivative
financial instruments will change due to fluctuations in a factor from
which the instrument derives its value, primarily an interest rate or
equity market index. The Company is not impacted by market risk
related to derivatives held for non-trading purposes beyond that
inherent in cash market transactions. Derivatives held for purposes
other than trading are largely used to manage risk and, therefore, the
cash flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill
the terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval
procedures, including setting concentration limits by counterparty, and
requiring collateral, where appropriate. A vast majority of the
Company's counterparties are rated A or better by Moody's and Standard
& Poor's.
Credit risk related to interest rate caps and floors and index options
is measured by the replacement cost of the contracts. The replacement
cost represents the fair value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid
over the life of the agreement. Notional amounts are not recorded on
the balance sheet. Notional amounts far exceed the related credit risk.
The Company's holdings of derivative financial instruments are as
follows:
Notional Carrying Fair Total Credit
December 31, 1997 Amount Amount Value Exposure
----------------- -------- -------- ----- ------------
Assets:
Interest rate caps $ 4,600,000 $ 24,963 $ 15,665 $ 15,665
Interest rate floors 1,000,000 1,561 4,551 4,551
Put index options 221,984 11,120 11,120 11,120
Liabilities:
Call index options 221,984 (8,273) (8,273) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (45,799) --
--------- ------ ------ ------
$29,371 $(22,736) $31,336
====== ====== ======
Notional Carrying Fair Total Credit
December 31, 1996 Amount Amount Value Exposure
Assets:
Interest rate caps $4,000,000 $ 16,227 $ 7,439 $ 7,439
Interest rate floors 1,000,000 2,041 4,341 4,341
Off balance sheet:
Interest rate swaps 1,000,000 -- (24,715) --
--------- ------ -------- ------
$18,268 $(12,935) $11,780
====== ====== ======
<PAGE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps and
floors expire on various dates from 1998 to 2003. The interest rate
swaps expire on various dates from 2000 to 2003. All put and call
options expire in 1998.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect
the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
<PAGE>
8. Derivative financial instruments (continued)
--------------------------------
Index options are used to manage the equity market risk related to the
fee income that the Company receives from its separate accounts and the
underlying mutual funds. The amount of the fee income received is
based upon the daily market value of the separate account and mutual
fund assets. As a result, the Company's fee income could be impacted
significantly by changing economic conditions in the equity market.
The Company entered into index option collars (combination of puts and
calls) to hedge anticipated fee income for 1998 related to separate
accounts and mutual funds which invest in equity securities. Testing
has demonstrated the impact of these instruments on the income
statement closely correlates with the amount of fee income the Company
realizes. In the event that testing demonstrates that this correlation
no longer exists, or in the event the Company disposes of the index
options collars, the instruments will be marked-to-market through the
income statement. At December 31, 1997, deferred gains on purchased
put index options were $11,120 and deferred losses on written call
index options were $8,273.
9. Fair values of financial instruments
------------------------------------
The Company discloses fair value information for most on- and
off-balance sheet financial instruments for which it is practicable to
estimate that value. Fair values of life insurance obligations and all
non-financial instruments, such as deferred acquisition costs are
excluded. Off-balance sheet intangible assets, such as the value of
the field force, are also excluded. Management believes the value of
excluded assets and liabilities is significant. The fair value of the
Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
1997 1996
------------------ ---------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- -------- ------ ------- -----
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $9,315,450 $9,743,410 $10,236,379 $10,521,650
Available for sale 12,876,694 12,876,694 11,146,845 11,146,845
Mortgage loans on
real estate (Note 2) 3,618,647 3,808,570 3,493,364 3,606,077
Other:
Equity securities (Note 2) 3,361 3,361 3,308 3,308
Derivative financial
instruments (Note 8) 37,644 31,336 18,268 11,780
Other 82,347 85,383 63,993 66,242
Cash and
cash equivalents (Note 1) 19,686 19,686 224,603 224,603
Separate account assets
(Note 1) 23,214,504 23,214,504 18,535,160 18,535,160
<PAGE>
Financial Liabilities
Future policy benefits
for fixed annuities 20,731,052 19,882,302 20,641,986 19,721,968
Derivative financial
instruments (Note 8) (8,273) (54,072) -- (24,715)
Separate account liabilities 21,488,282 20,707,620 17,358,087 16,688,519
</TABLE>
<PAGE>
9. Fair values of financial instruments (continued)
------------------------------------
At December 31, 1997 and 1996, the carrying amount and fair value of
future policy benefits for fixed annuities exclude life
insurance-related contracts carried at $1,185,155 and $1,112,155,
respectively, and policy loans of $93,540 and $83,867, respectively.
The fair value of these benefits is based on the status of the
annuities at December 31, 1997 and 1996. The fair value of deferred
annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. The fair value for annuities in
non-life contingent payout status is estimated as the present value of
projected benefit payments at rates appropriate for contracts issued in
1997 and 1996.
At December 31, 1997 and 1996, the fair value of liabilities related to
separate accounts is estimated as the carrying amount less any
applicable surrender charges and less variable insurance contracts
carried at $1,726,222 and $1,177,073, respectively.
10. Segment information
-------------------
The Company's operations consist of two business segments; first,
individual and group life insurance, disability income and long-term
care insurance, and second, annuity products designed for individuals,
pension plans, small businesses and employer-sponsored groups. The
consolidated condensed statements of income for the years ended
December 31, 1997, 1996 and 1995 and total assets at December 31, 1997,
1996 and 1995 by segment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net investment income:
Life, disability income
and long-term care insurance $ 269,874 $ 262,998 $ 256,242
Annuities 1,718,515 1,702,364 1,651,067
--------- --------- ---------
$ 1,988,389 $ 1,965,362 $ 1,907,309
========= ========= =========
Premiums, charges and fees:
Life, disability income
and long-term care insurance $ 514,838 $ 448,389 $ 384,008
Annuities 374,274 308,873 249,557
------- ------- -------
$ 889,112 $ 757,262 $ 633,565
======= ======= =======
Income before income taxes:
Life, disability income
and long-term care insurance $ 178,717 $ 161,115 $ 125,402
Annuities 501,334 460,758 440,278
Net gain (loss) on investments 860 (159) (4,898)
------- ------- -------
$ 680,911 $ 621,714 $ 560,782
======= ======= =======
<PAGE>
Total assets:
Life, disability income
and long-term care insurance $ 8,193,796 $ 7,028,906 $ 6,195,870
Annuities 44,780,328 40,277,075 36,704,208
---------- ---------- ----------
$52,974,124 $47,305,981 $42,900,078
========== ========== ==========
</TABLE>
<PAGE>
Allocations of net investment income and certain general expenses are
based on various assumptions and estimates.
Assets are not individually identifiable by segment and have been
allocated principally based on the amount of future policy benefits by
segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
11. Year 2000 Issue (unaudited)
---------------
The Year 2000 issue is the result of computer programs having been
written using two digits rather than four to define a year. Any
programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than 2000. This could result in the failure of
major systems or miscalculations, which could have a material impact on
the operations of the Company. All of the systems used by the Company are
maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with
systems of third parties.
A comprehensive review of AEFC's computer systems and business
processes, including those specific to the Company, has been conducted to
identify the major systems that could be affected by the Year 2000
issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis.
AEFC's goal is to complete internal remediation and testing of each
system by the end of 1998 and to continue compliance efforts through
1999.
AEFC is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's
operations. The potential materiality of any such impact is not known at
this time.
<PAGE>
(REG2)
PART II
UNDERTAKINGS TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission hereto or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
The By-Laws of IDS Life Insurance Company provide that:
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that he is or was a Manager
of Variable Annuity Funds A and B, director, officer, employee or agent of this
Corporation, or is or was serving at the direction of the Corporation as a
Manager of Variable Annuity Funds A and B, director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
to any threatened, pending or completed action, suit or proceeding, wherever
brought, to the fullest extent permitted by the laws of the State of Minnesota,
as now existing or hereafter amended, provided that this Article shall not
indemnify or protect any such Manager of Variable Annuity Funds A and B,
director, officer, employee or agent against any liability to the Corporation or
its security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties or
by reason of his reckless disregard of his obligations and duties.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
The sponsoring insurance company represents that the fees and charges deducted
under the contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
insurance company.
<PAGE>
CONTENTS OF POST EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT NO.
33-62457
This Post-Effective Amendment No. 3 comprises the following papers and
documents:
The facing sheet.
The prospectus consisting of 89 pages.
The undertakings to file reports.
The signatures.
The following exhibits:
1. A. Copies of all exhibits required by paragraph A of instructions for
Exhibits in Form N-8B-2 to the Registration Statement.
(1) (a) Resolution of Board of Directors of IDS Life Insurance
Company establishing the Trust, adopted May 9, 1985.*
(b) Resolution of Board of Directors of IDS Life Insurance
Company reconstituting the Trust, adopted October 16, 1985.*
(c) Resolution of Board of Directors of IDS Life Insurance
Company reconstituting the Trust adopted August 5, 1994.**
(2) Not applicable.
(3) (a) Not applicable.
(b) (1) Form of Division Vice President's Employment Agreement
dated November 1991.*
(2) Form of District Manager's Rider to IDS Life Insurance
Company, Personal Financial Planner's Agreement dated
November 1986.*
(3) Form of Personal Financial Planner's Agreement dated
November 1986.*
(c) Schedules of Sales Commissions.**
(4) Not applicable.
(5) Flexible Premium Survivorship Variable Life Insurance Policy.**
(6) (a) Certificate of Incorporation of IDS Life Insurance Company,
dated July 23, 1957.*
<PAGE>
(b) Amended By-Laws of IDS Life Insurance Company.*
(7) Not applicable.
(8) (a) Form of Investment Management and Services Agreement dated
December 17, 1985, between IDS Life and IDS Life Series
Fund, Inc.*
(b) Form of Investment Advisory Agreement dated July 11, 1984,
between IDS Life and IDS Financial Services Inc. relating to
the Variable Account.*
(c) Addendum to Investment Management and Services Agreement.**
(d) Addendum to Investment Advisory Agreement.**
(9) None.
(10) Application form for the Flexible Premium Survivorship Variable
Life Insurance Policy.**
(11) IDS Life Insurance Company's Description of Transfer and
Redemption Procedures and Method of Conversion to Fixed Benefit
Policies.**
B. (1) Not applicable.
(2) Not applicable.
C. Not applicable.
2. Opinion of counsel and consent to its use as to the legality of the
securities being registered, filed electronically herewith.
3. Financial Statement Schedules, filed electronically herewith.
Schedule I - Consolidated Summary of Investments other than
Investments in Related Parties
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Report of Independent Auditors dated February 5, 1998.
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions
or are inapplicable and, therefore, have been omitted.
4. Not applicable.
<PAGE>
5. Financial Data Schedules, filed electronically herewith.
- IDS Life Variable Life Separate Account for Flexible Premium
Survivorship Life Insurance
- IDS Life Insurance Company
6. Opinion of James M. Jensen, F.S.A., M.A.A.A., filed electronically
herewith.
7. Written consent of James M. Jensen, F.S.A., M.A.A.A., filed electronically
herewith.
8. Written consent of Ernst & Young LLP, filed electronically herewith.
9. Power of Attorney dated August 19, 1997, filed electronically herewith.
10. Power of Attorney dated April 9, 1998, is filed electronically herewith.
*Filed as an Exhibit to the original Registration Statement to form S-6 and is
herein incorporated by reference.
**Filed as an Exhibit to Registrant's Form N-8B-2 with Pre-Effective Amendment
No. 1, File No. 33-62457 is incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, IDS Life Insurance Company, on behalf of the Registrant,
certifies that it meets requirements for-effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on behalf of the
Registrant by the undersigned, thereunto duly authorized, in this City of
Minneapolis, and State of Minnesota on the 28th day of April, 1998.
IDS Life Variable Separate Account
(Registrant)
By IDS Life Insurance Company
(Sponsor)
By /s/ Richard W. Kling*
Richard W. Kling
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following Officers and Directors of IDS Life
Insurance Company in the capacities indicated on the 28th day of April, 1998:
Signature Title
/s/ James A. Mitchell* Chairman of the Board
James A. Mitchell and Chief Executive Officer
/s/ Richard W. Kling* Director and President
Richard W. Kling and Chief Executive Officer
/s/ Jeffrey S. Horton** Vice President and Treasurer
Jeffrey S. Horton
/s/ David R. Hubers* Director
David R. Hubers
/s/ Paul F. Kolkman* Director and Executive Vice
Paul F. Kolkman President
/s/ Barry J. Murphy* Director and Executive Vice
Barry J. Murphy President, Client Service
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President, Assured Assets
/s/ Philip C. Wentzel** Vice President and Controller
Philip C. Wentzel
<PAGE>
*Signed pursuant to Power of Attorney dated August 19, 1997 and filed
electronically herewith.
**Signed pursuant to Power of Attorney dated April 9, 1998, filed electronically
herewith.
By:
______________________________
Mary Ellyn Minenko
IDS LIFE VARIABLE LIFE SEPARATE ACCOUNT
Registration Number 33-62457/811-4298
EXHIBIT INDEX
2. Opinion of Counsel
3. Financial Statement Schedules
5. Financial Data Schedules:
IDS Life Variable Life Separate Account for Flexible Premium Survivorship
Life Insurance
IDS Life Insurance Company
6. Opinion of James M. Jensen, F.S.A, M.A.A.A.
7 Written Consent of James M. Jensen, F.S.A, M.A.A.A.
8. Written Consent of Ernst & Young LLP
9. Power of Attorney, dated August 19, 1997
10. Power of Attorney, dated April 9, 1998
April 28, 1998
IDS Life Insurance Company
IDS Tower 10
Minneapolis, Minnesota 55440-0010
RE: IDS Life Variable Life Separate Account, Form S-6
Post-Effective Amendment No. 3
File No. 33-62457/811-4298
Ladies and Gentlemen:
I am familiar with the establishment of the IDS Life Variable Life Separate
Account ("Account"), which is a separate account of IDS Life Insurance Company
("Company") established by the Company's Board of Directors according to
applicable insurance law. I also am familiar with the above-referenced
Registration Statement filed by the Company on behalf of the Account with the
Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company during the past fiscal year, when
offered and sold in accordance with the prospectus contained in the
Registration Statement and in compliance with applicable law, were legally
issued and represent binding obligations of the Company in accordance with
their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely
Mary Ellyn Minenko
Senior Counsel
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company
We have audited the consolidated financial statements of IDS Life Insurance
Company as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, and have issued our report thereon dated
February 5, 1998 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in the index to financial
statement schedules of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Ernst & Young LLP
Minneapolis, Minnesota
February 5, 1998
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE I - CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ thousands)
AS OF DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
Type of Investment Cost Value Amount at which
shown in the
balance sheet
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity:
United States Government and
government agencies and
authorities (a) $ 1,829,112 $ 1,846,833 $ 1,829,112
States, municipalities and
political subdivisions 9,684 10,252 9,684
All other corporate bonds (b) 7,476,654 7,886,325 7,476,654
------------ ---------- ----------
Total held to maturity 9,315,450 9,743,410 9,315,450
Available for sale:
United States Government and
government agencies and
authorities (c) 6,798,425 6,944,942 6,944,942
States, municipalities and
political subdivisions 11,045 12,393 12,393
All other corporate bonds (d) 5,705,560 5,919,359 5,919,359
------------ ---------- ----------
Total available for sale 12,515,030 12,876,694 12,876,694
Mortgage loans on real estate 3,618,647 XXXXXXXXX 3,618,647
Policy loans 498,874 XXXXXXXXX 498,874
Other investments 318,591 XXXXXXXXX 318,591
------------ ----------
Total investments $ 26,266,592 $ XXXXXXXXX $ 26,628,256
============ ========== ==========
(a) - Includes mortgage-backed securities with a cost and market value of $1,787,180 and $1,801,952,
respectively.
(b) - Includes mortgage-backed securities with a cost and market value of $196,008 and $199,301,
respectively.
(c) - Includes mortgage-backed securities with a cost and market value of $6,733,134 and $6,875,498,
respectively.
(d) - Includes mortgage-backed securities with a cost and market value of $397,431 and $408,667,
respectively.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($
thousands)
FOR THE YEAR ENDED DECEMBER 31, 1997
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,453,441 $ 22,009,747 $ - $ 35,007 $ - $1,718,515 $ 1,720 $229,729 $262,680 N/A
Life, DI, and
Long-term Care
Insurance 1,026,136 4,027,289 - 33,338 206,494 269,874 209,955 93,002 13,916 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 2,479,577 $ 26,037,036 $ - $ 68,345 $ 206,494 $ 1,988,389 $ 211,675 $322,731 $276,596 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1996
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,398,025 $ 21,838,008 $ - $ 50,137 $ - $1,702,364 $ 2,724 $ 189,645 $ 180,942 N/A
Life, DI, and
Long-term
Care Insurance 932,780 3,811,034 - 33,497 182,921 262,998 187,486 88,960 80,526 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,330,805 $ 25,649,042 $ - $ 83,634 $ 182,921 $1,965,362 $ 190,210 $ 278,605 $ 261,468 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment Deferred Future Unearned Other policy Premium Net Benefits, Amortization Other Premiums
policy policy premiums claims and revenue investment claims, of deferred operating written
acquisition benefits, benefits income losses and policy expenses*
cost losses, payable settlement acquisition
claims and expenses costs
loss
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annuities $ 1,227,169 $ 21,404,836 $ - $ 28,191 $ - $1,651,067 $ 2,693 $ 189,626 $ 166,191 N/A
Life, DI,
and Long-term
Care Insurance 798,556 3,613,253 - 28,132 161,530 256,242 164,749 90,495 45,451 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,025,725 $ 25,018,089 $ - $ 56,323 $ 161,530 $1,907,309 $ 167,442 $ 280,121 $ 211,642 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
*Allocations of net investment income and other operating expenses are based on various assumptions and estimates.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Gross amount Ceded to other Assumed from Net % of amount
companies other companies Amount assumed to net
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Life insurance in force $ 73,119,122 $ 4,351,904 $ 1,611,596 $ 70,378,814 2.29%
- -------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 55,094 $ 3,124 $ 503 $ 52,473 0.96%
DI & LTC insurance 196,799 42,778 -- 154,021 0.00%
- -------------------------------------------------------------------------------------------
Total premiums $ 251,893 $ 45,902 $ 503 $ 206,494 0.24%
- -------------------------------------------------------------------------------------------
For the year ended
December 31, 1996
Life insurance in force $ 65,571,173 $ 3,875,921 $ 1,703,181 $ 63,398,433 2.69%
- -------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 54,111 $ 3,253 $ 545 $ 51,403 1.06%
DI & LTC insurance 164,561 33,043 -- 131,518 0.00%
- -------------------------------------------------------------------------------------------
Total premiums $ 218,672 $ 36,296 $ 545 $ 182,921 0.30%
- -------------------------------------------------------------------------------------------
For the year ended
December 31, 1995
Life insurance in force $ 57,895,180 $ 3,771,204 $ 1,788,352 $ 55,912,328 3.20%
- -------------------------------------------------------------------------------------------
Premiums:
Life insurance $ 53,089 $ 2,648 $ (248) $ 50,193 -0.49%
DI & LTC insurance 137,016 25,679 -- 111,337 0.00%
- -------------------------------------------------------------------------------------------
Total premiums $ 190,105 $ 28,327 $ (248) $ 161,530 -0.15%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
---------
Balance at Charged to
Description Beginning Charged to Other Accounts- Deductions- Balance at End
of Period Costs & Expenses Describe Describe * of Period
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
- ----------------------------
Reserve for Mortgage Loans $37,495 $8,801 $0 $7,651 $38,645
Reserve for Other Investments $3,963 $2,100 $0 $0 $6,063
For the year ended
December 31, 1996
- ----------------------------
Reserve for Mortgage Loans $37,340 $10,005 $0 $9,850 $37,495
Reserve for Other Investments $4,713 ($750) $0 $0 $3,963
For the year ended
December 31, 1995
- ----------------------------
Reserve for Mortgage Loans $35,252 $15,900 $0 $13,812 $37,340
Reserve for Other Investments $7,515 ($2,802) $0 $0 $4,713
* 1997, 1996 and 1995 amounts represent $7,651, $9,850, and $13,812, respectively, for loan
payoffs and foreclosures.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1263828832
<INVESTMENTS-AT-VALUE> 1542876920
<RECEIVABLES> 1147577
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1544024497
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (3203848)
<TOTAL-LIABILITIES> (3203848)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 536853503
<SHARES-COMMON-PRIOR> 368919277
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1540820649
<DIVIDEND-INCOME> 71943172
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (11628373)
<NET-INVESTMENT-INCOME> 60314799
<REALIZED-GAINS-CURRENT> 1601534
<APPREC-INCREASE-CURRENT> 131750563
<NET-CHANGE-FROM-OPS> 193666896
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 214655330
<NUMBER-OF-SHARES-REDEEMED> (46721103)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 514698904
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11628373)
<AVERAGE-NET-ASSETS> 1283471197
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 12876694
<DEBT-CARRYING-VALUE> 9315450
<DEBT-MARKET-VALUE> 9743410
<EQUITIES> 3361
<MORTGAGE> 3618647
<REAL-ESTATE> 102433
<TOTAL-INVEST> 26628256
<CASH> 19686
<RECOVER-REINSURE> 989
<DEFERRED-ACQUISITION> 2479577
<TOTAL-ASSETS> 52974124
<POLICY-LOSSES> 26037036
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 68345
<NOTES-PAYABLE> 0
<COMMON> 3000
0
0
<OTHER-SE> 2862816
<TOTAL-LIABILITY-AND-EQUITY> 52974124
206494
<INVESTMENT-INCOME> 1988389
<INVESTMENT-GAINS> 860
<OTHER-INCOME> 682618
<BENEFITS> 1598123
<UNDERWRITING-AMORTIZATION> 322731
<UNDERWRITING-OTHER> 276596
<INCOME-PRETAX> 680911
<INCOME-TAX> 206664
<INCOME-CONTINUING> 474247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 474247
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 26387
<PROVISION-CURRENT> 144098
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 143237
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 27248
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
April 27, 1998
IDS Life Insurance Company
IDS Tower 10
Minneapolis, Minnesota 55440
Gentlemen:
This opinion is furnished in connection with the Post-Effective Amendment No. 3
(Amendment) by IDS Life Insurance Company for the filing of the Flexible Premium
Survivorship Variable Life Insurance Policy ("the Policy") under the Securities
Act of 1933. The prospectus included on Form S-6 in the Amendment describes the
Policy. I am familiar with the Policy, the Amendment and the exhibits thereto.
In my opinion, the illustrations of Death Benefits, Policy Values, and Surrender
Values included in the section of the prospectus entitled "Illustrations", under
the assumptions stated in that section, are consistent with the provisions of
the Policy.
I hereby consent to the use of this opinion as an exhibit to the registration
statement and to the reference to my name under the heading "Experts" in this
prospectus.
Very Truly Yours,
James M. Jensen, F.S.A., M.A.A.A.
Vice President - Insurance Product Development
life\v2d\actuary.rtf
CONSENT OF ACTUARY
The Board of Directors
IDS Life Insurance Company
I consent to the reference to me under the caption "Experts" and to the use of
my opinion dated April 27, 1998 on the Illustrations used by IDS Life Insurance
Company in the Prospectus for the Flexible Premium Survivorship Variable Life
Insurance Policy offered by IDS Life Insurance Company as part of the
Post-Effective Amendment No.
3 being filed under the Securities Act of 1933.
James M. Jensen, F.S.A., M.A.A.A.
Vice President - Insurance Product Development
Minneapolis, Minnesota
April 27, 1998
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 5, 1998 on the consolidated financial
statements and schedules of IDS Life Insurance Company and our report dated
March 13, 1998 on the financial statements of IDS Life Variable Life Separate
Account for Flexible Premium Survivorship Variable Life Insurance in
Post-Effective Amendment No. 3 to the Registration Statement (Form S-6, No.
33-62457) and related Prospectus for the registration of the Flexible Premium
Survivorship Variable Life Insurance Policy offered by IDS Life Insurance
Company.
Ernst & Young LLP
Minneapolis, Minnesota
April 27, 1998
IDS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors of IDS Life Insurance Company on
behalf of the below listed registrants that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
<TABLE>
<CAPTION>
1933 Act 1940 Act
Reg. Number Reg. Number
<S> <C> <C>
IDS Life Variable Account 10
IDS Life Flexible Portfolio Annuity 33-62407 811-07355
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Flexible Annuity 33-4173 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Variable Retirement and Combination
Retirement Annuities 2-73114 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Employee Benefit Annuity 33-52518 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Group Variable Annuity Contract 33-47302 811-3217
IDS Life Insurance Company
IDS Life Group Variable Annuity Contract (Fixed Account) 33-48701 N/A
IDS Life Insurance Company
IDS Life Guaranteed Term Annuity 33-28976 N/A
IDS Life Insurance Company
IDS Life Flexible Payment Market Value Annuity 33-50968 N/A
IDS Life Variable Life Separate Account
Flexible Premium Variable Life Insurance Policy 33-11165 811-4298
IDS Life Variable Life Separate Account
Flexible Premium Survivorship Variable Life
Insurance Policy 33-62457 811-4298
IDS Life Variable Life Separate Account
Single Premium Variable Life Insurance Policy 2-97637 811-4298
IDS Life Variable Account for Smith Barney
Single Premium Variable Life Insurance Policy 33-5210 811-4652
IDS Life Account SBS
Symphony Annuity 33-40779 812-7731
IDS Life Account RE
Real Estate Variable Annuity 33-13375 N/A
IDS Life Variable Annuity Fund A 2-29081 811-1653
IDS Life Variable Annuity Fund B 2-47430 811-1674
</TABLE>
hereby constitutes and appoints William A. Stoltzmann, Mary Ellyn Minenko,
Eileen J. Newhouse, Sherilyn K. Beck, Colin Lancaster, Bruce Kohn and Timothy S.
Meehan or any one of them, as her or his attorney-in-fact and agent, to sign for
her or him in her or his name, place and stead any and all filings, applications
(including applications for exemptive relief), periodic reports, registration
statements for existing or future products of existing separate accounts (with
all exhibits and other documents required or desirable in connection therewith),
other
<PAGE>
documents, and amendments thereto and to file such filings, applications,
periodic reports, registration statements, other documents, and amendments
thereto with the Securities and Exchange Commission, and any necessary states,
and grants to any or all of them the full power and authority to do and perform
each and every act required or necessary in connection therewith.
Dated the 19th day of August, 1997.
/s/ David R. Hubers August 15, 1997
- ------------------------------------
David R. Hubers
Director
/s/ Richard W. Kling August 18, 1997
-----------------------------------
Richard W. Kling
Director and President
/s/ Paul F. Kolkman August 19, 1997
- ------------------------------------
Paul F. Kolkman
Director and Executive Vice
President
/s/ James A. Mitchell August 15, 1997
- ------------------------------------
James A. Mitchell
Director, Chairman of the
Board and Chief Executive Officer
/s/ Barry J. Murphy August 14, 1997
- ------------------------------------
Barry J. Murphy
Director and Executive Vice
President, Client Service
/s/ Stuart A. Sedlacek August 19, 1997
- ------------------------------------
Stuart A. Sedlacek
Director and Executive Vice
President, Assured Assets
/s/ Melinda S. Urion August 14, 1997
- ------------------------------------
Melinda S. Urion
Director, Executive Vice
President and Controller
IDS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as principal financial officer and controller,
respectively, of IDS Life Insurance Company on behalf of the below listed
registrants that previously have filed registration statements and amendments
thereto pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 with the Securities and Exchange Commission:
<TABLE>
<CAPTION>
1933 Act 1940 Act
Reg. Number Reg. Number
<S> <C> <C>
IDS Life Variable Account 10
IDS Life Flexible Portfolio Annuity 33-62407 811-07355
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Flexible Annuity 33-4173 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Variable Retirement and Combination
Retirement Annuities 2-73114 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Employee Benefit Annuity 33-52518 811-3217
IDS Life Accounts F, IZ, JZ, G, H, N, KZ, LZ and MZ
IDS Life Group Variable Annuity Contract 33-47302 811-3217
IDS Life Insurance Company
IDS Life Group Variable Annuity Contract (Fixed Account) 33-48701 N/A
IDS Life Insurance Company
IDS Life Guaranteed Term Annuity 33-28976 N/A
IDS Life Insurance Company
IDS Life Flexible Payment Market Value Annuity 33-50968 N/A
IDS Life Insurance Company
Portfolio Guaranteed Term Annuity 333-42793 N/A
IDS Life Variable Life Separate Account
Flexible Premium Variable Life Insurance Policy 33-11165 811-4298
IDS Life Variable Life Separate Account
Flexible Premium Survivorship Variable Life
Insurance Policy 33-62457 811-4298
IDS Life Variable Life Separate Account
Single Premium Variable Life Insurance Policy 2-97637 811-4298
IDS Life Variable Account for Smith Barney
Single Premium Variable Life Insurance Policy 33-5210 811-4652
IDS Life Account SBS
Symphony Annuity 33-40779 812-7731
IDS Life Account RE
Real Estate Variable Annuity 33-13375 N/A
IDS Life Variable Annuity Fund A 2-29081 811-1653
IDS Life Variable Annuity Fund B 2-47430 811-1674
</TABLE>
hereby constitutes and appoints William A. Stoltzmann, Mary Ellyn Minenko,
Eileen J. Newhouse, Sherilyn K. Beck, Colin Lancaster, Bruce Kohn and Timothy S.
Meehan or any one of them, as his attorney-in-fact and agent, to sign for him in
his name, place and stead any and all filings, applications (including
applications for exemptive relief), periodic reports, registration statements
for existing or future products of existing separate accounts (with all
<PAGE>
exhibits and other documents required or desirable in connection therewith),
other documents, and amendments thereto and to file such filings, applications,
periodic reports, registration statements, other documents, and amendments
thereto with the Securities and Exchange Commission, and any necessary states,
and grants to any or all of them the full power and authority to do and perform
each and every act required or necessary in connection therewith.
Dated the 9th day of April, 1998.
/s/ Jeffrey S. Horton April 8, 1998
- ------------------------------------
Jeffrey S. Horton
Vice President, Treasurer
and Assistant Secretary
/s/ Philip C. Wentzel April 9, 1998
- ------------------------------------
Philip C. Wentzel
Vice President and Controller
