<PAGE>
PAGE 1
(icon of) four squares with a circle in the middle.
Smith Barney LifeVest(sm)
Smith
Barney
<PAGE>
PAGE 2
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 Account for Smith Barney for Single Premium Variable Life
Insurance as of December 31, 1995, 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 S95 subaccount which is for
the period January 1, 1993 to November 15, 1995 (date of maturity
of the securities in the Trust). These financial statements are
the responsibility of the management of IDS Life Insurance Company.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December
31, 1995 with the affiliated mutual fund manager and the unit
investment trust sponsor. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the individual and combined
financial position of the segregated asset subaccounts of IDS Life
Variable Account for Smith Barney for Single Premium Variable Life
Insurance at December 31, 1995 and the individual and combined
results of its operations and the changes in its net assets for the
periods described above, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 15, 1996
<PAGE>
PAGE 3
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Net Assets Dec. 31, 1995
Combined
Segregated Asset Subaccounts Variable
Assets SAP SMM SHI STR SGO S04 Account
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of mutual
fund portfolios and units of the
trust, at market value:
IDS Life Series Fund Equity
Portfolio -- 482,246 shares at
net asset value of $25.70 per
share (cost $6,427,990).... $12,395,002 $ -- $ -- $ -- $ -- $ -- $12,395,002
IDS Life Series Fund Income
Portfolio -- 1,613,133 shares
at net asset value of
$1.00 per share
(cost $1,613,002)............ -- 1,612,990 -- -- -- -- 1,612,990
IDS Life Series Fund Money
Market Portfolio -- 135,142 shares
at net asset value of $10.50
per share (cost $1,496,753). -- -- 1,419,263 -- -- -- 1,419,263
IDS Life Series Fund Managed
Portfolio -- 379,973 shares
at net asset value of $16.10
per share (cost $5,098,927). -- -- -- 6,118,160 -- -- 6,118,160
IDS Life Series Fund
Government Securities
Portfolio -- 164,380 shares
at net asset value of $10.57
per share (cost $1,597,801). -- -- -- -- 1,737,945 -- 1,737,945
Smith Barney Inc. Stripped
("Zero Coupon") U.S. Treasury
Securities Fund, Series A
2004 Trust -- 364,385 units
at net asset value of $0.61
per unit (cost $141,643).... -- -- -- -- -- 223,247 223,247
12,395,002 1,612,990 1,419,263 6,118,160 1,737,945 223,247 23,506,607
Dividends receivable........ -- 6,187 7,404 -- 7,885 -- 21,476
Receivable from mutual fund
portfolios for share
redemptions................. 51,962 -- -- 11,856 -- -- 63,818
Total assets................ 12,446,964 1,619,177 1,426,667 6,130,016 1,745,830 223,247 23,591,901
<PAGE>
PAGE 4
Liabilities
Payable to IDS Life for:
Mortality and expense
risk charge................. 49,091 3,126 2,704 24,853 3,310 141 83,225
Minimum death benefit
guarantee risk charge....... -- -- -- -- -- 94 94
Issue and administrative
expense charge.............. -- -- -- -- -- 94 94
Distribution expense charge. -- -- -- -- -- 118 118
Mortality charge............ -- -- -- -- -- 71 71
Premium tax charge.......... -- -- -- -- -- 47 47
Transaction charge.......... -- -- -- -- -- 59 59
Contract terminations....... 51,962 -- -- 11,856 -- -- 63,818
Payable to mutual fund
portfolios for investments
purchased................... -- 3,061 4,700 -- 4,575 -- 12,336
Total liabilities........... 101,053 6,187 7,404 36,709 7,885 624 159,862
Net assets applicable
to Variable Life contracts
in accumulation period..... $12,345,911 $1,612,990 $1,419,263 $6,093,307 $1,737,945 $222,623 $23,432,039
Accumulation units
outstanding................ 3,739,368 1,249,006 1,030,438 2,652,684 1,068,232 112,267
Net asset value per
accumulation unit.......... $ 3.30 $ 1.29 $ 1.38 $ 2.30 $ 1.63 $ 1.98
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 5
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Operations Year ended Dec. 31, 1995
Combined
Segregated Asset Subaccounts Variable
SAP SMM SHI STR SGO S95* S04 Account
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from
mutual fund portfolios.....$ 268,604 $ 63,687 $ 88,953 $ 300,012 $ 97,485 $ -- $ -- $ 818,741
Expenses:
Mortality and expense
risk charge (Note 4)....... 69,242 7,380 7,802 44,426 12,045 4,122 1,646 146,663
Minimum death benefit
guarantee risk charge
(Note 5)................... 46,254 4,930 5,212 22,999 5,788 2,748 1,097 89,028
Issue and administrative
expense charge (Note 6).... 46,254 4,930 5,212 22,999 5,788 2,748 1,097 89,028
Distribution expense
charge (Note 8)............ 34,621 3,691 3,901 16,869 4,333 2,061 823 66,299
Mortality charge (Note 3).. 57,610 6,140 6,492 28,646 7,209 3,435 1,371 110,903
Premium tax charge
(Note 7)................... 22,988 2,450 2,590 11,776 2,877 1,374 548 44,603
Transaction charge (Note 9) -- -- -- -- -- 1,717 686 2,403
Total expenses............. 276,969 29,521 31,209 147,715 38,040 18,205 7,268 548,927
Investment income (loss) --
net....................... (8,365) 34,166 57,744 152,297 59,445 (18,205) (7,268) 269,814
Realized and Unrealized Gain (Loss) on Investments -- Net
Net realized gain (loss) on sales
of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales........ 1,847,284 860,714 159,993 1,331,998 146,245 824,274 133,665 5,304,173
Cost of investments sold... 1,081,307 860,734 184,473 1,182,522 141,246 683,352 87,161 4,220,795
Net realized gain (loss)
on investments............. 765,977 (20) (24,480) 149,476 4,999 140,922 46,504 1,083,378
Net change in unrealized
appreciation or depreciation
of investments............. 2,603,618 15 183,529 623,831 158,503 (98,959) 25,013 3,495,550
Net gain (loss) on
investments................ 3,369,595 (5) 159,049 773,307 163,502 41,963 71,517 4,578,928
Net increase in
net assets resulting from
operations ................$3,361,230 $ 34,161 $216,793 $ 925,604 $222,947 $ 23,758 $ 64,249 $4,848,742
* For the period Jan. 1, 1995, to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 6
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Operations Year ended Dec. 31, 1994
Combined
Segregated Asset Subaccounts Variable
SAP SMM SHI STR SGO S95 S04 Account
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from
mutual fund portfolios....$ 1,063,619 $ 38,282 $ 95,109 $ 758,258 $ 110,768 $ -- $ -- $ 2,066,036
Expenses:
Mortality and expense
risk charge (Note 4)....... 70,402 6,483 2,628 44,393 9,859 4,854 1,318 139,937
Minimum death benefit
guarantee risk charge
(Note 5)................... 37,747 4,330 6,513 25,122 6,586 3,236 879 84,413
Issue and administrative
expense charge (Note 6).... 37,747 4,330 6,513 25,122 6,586 3,236 879 84,413
Distribution expense
charge (Note 8)............ 28,254 3,241 4,875 18,804 4,929 2,427 659 63,189
Mortality charge (Note 3).. 47,015 5,394 8,112 31,289 8,203 4,045 1,095 105,153
Premium tax charge
(Note 7)................... 18,761 2,152 3,237 12,486 3,273 1,618 442 41,969
Transaction charge (Note 9) -- -- -- -- -- 2,022 549 2,571
Total expenses............. 239,926 25,930 31,878 157,216 39,436 21,438 5,821 521,645
Investment income (loss) --
net....................... 823,693 12,352 63,231 601,042 71,332 (21,438) (5,821) 1,544,391
Realized and Unrealized Gain (Loss) on Investments -- Net
Net realized gain (loss) on sales
of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales........ 1,122,644 1,238,579 202,700 953,599 481,242 358,380 13,821 4,370,965
Cost of investments sold... 737,207 1,238,587 235,785 849,236 462,641 312,437 9,126 3,845,019
Net realized gain (loss)
on investments............. 385,437 (8) (33,085) 104,363 18,601 45,943 4,695 525,946
Net change in unrealized
appreciation or depreciation
of investments.............(1,175,401) (28) (124,885) (817,558) (215,484) (34,087) (26,816) (2,394,259)
Net gain (loss) on
investments................ (789,964) (36) (157,970) (713,195) (196,883) 11,856 (22,121) (1,868,313)
Net increase (decrease) in
net assets resulting from
operations ...............$ 33,729 $ 12,316 $ (94,739) $(112,153) $(125,551) $ (9,582)$(27,942)$ (323,922)
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 7
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Operations Year ended Dec. 31, 1993
Combined
Segregated Asset Subaccounts Variable
SAP SMM SHI STR SGO S95 S04 Account
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from mutual
fund portfolios............ $ 307,339 $ 38,325 $ 95,105 $ 656,815 $137,778 $ -- $ -- $1,235,362
Expenses:
Mortality and expense risk
charge (Note 4)............ 58,631 8,761 8,064 38,803 12,653 5,012 1,733 133,657
Minimum death benefit
guarantee risk charge
(Note 5)................... 39,165 5,852 5,387 25,632 8,452 3,341 1,156 88,985
Issue and administrative
expense charge (Note 6).... 39,165 5,852 5,387 25,632 8,452 3,341 1,156 88,985
Distribution expense charge
(Note 8)................... 29,315 4,380 4,032 19,185 6,326 2,506 867 66,611
Mortality charge (Note 3).. 48,781 7,289 6,709 31,924 10,527 4,179 1,440 110,849
Premium tax charge
(Note 7)................... 19,465 2,909 2,677 12,739 4,201 1,668 583 44,242
Transaction charge
(Note 9)................... -- -- -- -- -- 2,088 722 2,810
Total expenses............. 234,522 35,043 32,256 153,915 50,611 22,135 7,657 536,139
Investment income
(loss) -- net.............. 72,817 3,282 62,849 502,900 87,167 (22,135) (7,657) 699,223
Realized and Unrealized Gain (Loss) on Investments -- Net
Net realized gain (loss) on sales
of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales........ 1,345,003 1,203,405 89,939 497,368 447,885 26,049 227,221 3,836,870
Cost of investments sold... 828,587 1,203,397 98,000 441,282 402,245 22,666 146,742 3,142,919
Net realized gain (loss)
on investments............. 516,416 8 (8,061) 56,086 45,640 3,383 80,479 693,951
Net change in unrealized
appreciation or depreciation
of investments............. 382,899 (12) 90,410 446,748 57,303 42,819 (14,049) 1,006,118
Net gain (loss) on
investments................ 899,315 (4) 82,349 502,834 102,943 46,202 66,430 1,700,069
Net increase in net assets
resulting from operations.. $ 972,132 $ 3,278 $145,198 $1,005,734 $190,110 $ 24,067 $ 58,773 $2,399,292
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 8
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Changes in Net Assets Year ended Dec. 31, 1995
Combined
Segregated Asset Subaccounts Variable
Operations SAP SMM SHI STR SGO S95** S04 Account
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss) -- net......... $ (8,365) $ 34,166 $ 57,744 $ 152,297 $ 59,445 $ (18,205) $ (7,268)$ 269,814
Net realized gain
(loss) on investments. 765,977 (20) (24,480) 149,476 4,999 140,922 46,504 1,083,378
Net change in unrealized
appreciation or depreciation
of investments........ 2,603,618 15 183,529 623,831 158,503 (98,959) 25,013 3,495,550
Net increase in
net assets resulting from
operations............ 3,361,230 34,161 216,793 925,604 222,947 23,758 64,249 4,848,742
Contract Transactions
Net transfers*........ (296,536) 715,785 37,201 41,957 230,395 (795,854) 67,927 875
Transfers for policy
loans................. (300,101) (17,359) (51,160) (230,174) (9,698) (502) (446) (609,440)
Policy charges (Note 3) (12) -- (8) -- -- -- -- (20)
Contract terminations:
Surrender benefits
(Note 10)............. (524,947) (92,138) (20,709) (854,418) (91,812) (8,017) (126,106) (1,718,147)
Death benefits........ (9,260) (13,995) (1,749) (3,892) (18,396) -- -- (47,292)
Increase (decrease) from
contract transactions. (1,130,856) 592,293 (36,425) (1,046,527) 110,489 (804,373) (58,625) (2,374,024)
Net assets at beginning
of year............... 10,115,537 986,536 1,238,895 6,214,230 1,404,509 780,615 216,999 20,957,321
Net assets at end
of year............... $12,345,911 $1,612,990 $1,419,263 $ 6,093,307 $1,737,945 $ -- $ 222,623 $23,432,039
Accumulation Unit Activity
Units outstanding at
beginning of year..... 4,142,587 786,564 1,064,043 3,145,108 994,719 544,506 139,733
Net transfers*........ (115,120) 558,464 29,935 13,084 151,909 (538,654) 39,068
Transfers for policy
loans................. (106,416) (13,520) (45,198) (107,778) (6,626) (347) (253)
Deductions for policy
charges............... (5) -- (7) -- -- -- --
Contract terminations:
Surrender benefits.... (178,399) (71,634) (16,837) (395,731) (59,983) (5,505) (66,281)
Death benefits........ (3,279) (10,868) (1,498) (1,999) (11,787) -- --
Units outstanding at
end of year........... 3,739,368 1,249,006 1,030,438 2,652,684 1,068,232 -- 112,267
* Includes transfer activity from (to) other subaccounts.
**For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 9
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Changes in Net Assets Year Ended Dec. 31, 1994
Combined
Segregated Asset Subaccounts Variable
Operations SAP SMM SHI STR SGO S95 S04 Account
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss) -- net......... $ 823,693 $ 12,352 $ 63,231 $ 601,042 $ 71,332 $ (21,438) $ (5,821) $ 1,544,391
Net realized gain
(loss) on investments. 385,437 (8) (33,085) 104,363 18,601 45,943 4,695 525,946
Net change in unrealized
appreciation or depreciation
of investments........ (1,175,401) (28) (124,885) (817,558) (215,484) (34,087) (26,816) (2,394,259)
Net increase (decrease) in
net assets resulting from
operations............ 33,729 12,316 (94,739) (112,153) (125,551) (9,582) (27,942) (323,922)
Contract Transactions
Net transfers*........ 204,398 28,171 56,429 17,261 (316,901) 9,618 1,580 556
Transfers for policy
loans................. (154,689) (17,876) (18,631) (122,120) (17,390) (11,647) (449) (342,802)
Contract terminations:
Surrender benefits
(Note 10)............. (252,988) (253,707) (109,500) (377,514) (53,297) (162,800) -- (1,209,806)
Death benefits........ (67,012) -- (21,013) (20,525) (3,470) -- -- (112,020)
Increase (decrease) from
contract transactions. (270,291) (243,412) (92,715) (502,898) (391,058) (164,829) 1,131 (1,664,072)
Net assets at beginning
of year............... 10,352,099 1,217,632 1,426,349 6,829,281 1,921,118 955,026 243,810 22,945,315
Net assets at end
of year............... $10,115,537 $ 986,536 $1,238,895 $6,214,230 $1,404,509 $ 780,615 $216,999 $20,957,321
Accumulation Unit Activity
Units outstanding at
beginning of year..... 4,254,205 981,708 1,143,994 3,397,116 1,264,164 660,189 138,773
Net transfers*........ 86,542 22,488 45,456 8,100 (218,043) 5,961 1,251
Transfers for policy
loans................. (64,791) (14,355) (15,372) (61,148) (11,674) (8,155) (291)
Contract terminations:
Surrender benefits.... (104,732) (203,277) (92,623) (187,978) (37,314) (113,489) --
Death benefits........ (28,637) -- (17,412) (10,982) (2,414) -- --
Units outstanding at
end of year........... 4,142,587 786,564 1,064,043 3,145,108 994,719 544,506 139,733
*Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 10
<TABLE>
<CAPTION>
IDS Life Variable Account for Smith Barney
Statements of Changes in Net Assets Year Ended Dec. 31, 1993
Combined
Segregated Asset Subaccounts Variable
Operations SAP SMM SHI STR SGO S95 S04 Account
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss) -- net......... $ 72,817 $ 3,282 $ 62,849 $ 502,900 $ 87,167 $(22,135) $ (7,657)$ 699,223
Net realized gain
(loss) on investments. 516,416 8 (8,061) 56,086 45,640 3,383 80,479 693,951
Net change in unrealized
appreciation or depreciation
of investments........ 382,899 (12) 90,410 446,748 57,303 42,819 (14,049) 1,006,118
Net increase in net assets
resulting from
operations............ 972,132 3,278 145,198 1,005,734 190,110 24,067 58,773 2,399,292
Contract Transactions
Net transfers*........ (103,927) (387,053) 287,269 164,627 (260,851) 521,208 (225,496) (4,223)
Transfers for policy
loans................. (308,346) (7,070) 28,406 (200,579) (51,754) (9,440) (1,725) (550,508)
Contract terminations:
Surrender benefits
(Note 10)............. (189,094) (190,667) (24,840) (140,531) (17,778) (16,527) -- (579,437)
Death benefits........ (111,939) -- (12,036) (37,784) -- -- -- (161,759)
Increase (decrease) from
contract transactions. (713,306) (584,790) 278,799 (214,267) (330,383) 495,241 (227,221) (1,295,927)
Net assets at beginning
of year............... 10,093,273 1,799,144 1,002,352 6,037,814 2,061,391 435,718 412,258 21,841,950
Net assets at end
of year............... $10,352,099 $1,217,632 $1,426,349 $6,829,281 $1,921,118 $955,026 $ 243,810 $22,945,315
Accumulation Unit Activity
Units outstanding at
beginning of year..... 4,592,261 1,452,324 901,445 3,515,251 1,485,851 313,484 279,808
Net transfers*........ (54,533) (311,599) 247,635 89,671 (174,974) 364,753 (140,041)
Transfers for policy
loans................. (142,193) (5,688) 24,763 (110,894) (35,008) (6,596) (994)
Contract terminations:
Surrender benefits.... (89,875) (153,329) (19,927) (76,282) (11,705) (11,452) --
Death benefits........ (51,455) -- (9,922) (20,630) -- -- --
Units outstanding at
end of year........... 4,254,205 981,708 1,143,994 3,397,116 1,264,164 660,189 138,773
*Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 11
IDS Life Variable Account for Smith Barney
Notes to Financial Statements
___________________________________________________________________
1. Organization
IDS Life Variable Account for Smith Barney (the Variable Account)
was established on April 23, 1986 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 Oct. 3, 1986.
The Variable Account is comprised of six subaccounts. Prior to
Nov. 15, 1995, the date of maturity of securities in the 1995
Trust, the Variable Account was comprised of seven subaccounts.
The assets of each subaccount of the Variable Account are not
chargeable with liabilities arising out of the business conducted
by any other subaccount, account or by IDS Life. The assets of the
Variable Account shall be available, however, to cover the
liabilities of IDS Life to the extent the assets of the Variable
Account exceed its liabilities arising under the policies supported
by it. Five of the Variable Account subaccounts invest in shares
of the corresponding portfolios of the IDS Life Series Fund, Inc.
(the mutual fund). The other subaccount invests in units of the
Smith Barney Inc. Stripped ("Zero Coupon") U.S. Treasury
Securities Fund (the Trust). Policy owners allocate their premium
payment to one or more of the six subaccounts. Such funds are then
invested in shares of five portfolios of IDS Life Series Fund, Inc.
or in units of one Trust of Smith Barney Inc. Stripped ("Zero
Coupon") U.S. Treasury Securities Fund, Series A. The 1995 Trust
matured on Nov. 15, 1995 and is no longer available for investment.
The mutual fund, which commenced operations Jan. 20, 1986, is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. Funds
allocated to Subaccount SAP are invested in the shares of the
Equity Portfolio; Subaccount SMM invests in the shares of the Money
Market Portfolio; Subaccount SHI invests in the shares of the
Income Portfolio; Subaccount STR invests in the shares of the
Managed Portfolio; and Subaccount SGO invests in the shares of the
Government Securities Portfolio.
The Trusts, which commenced operations Aug. 4, 1986, are registered
under the Investment Company Act of 1940 as a unit investment
trust. Funds allocated to the 1995 subaccount (S95) were invested
in units of the 1995 Trust, and the 2004 subaccount (S04) invests
in units of the 2004 Trust.
Prior to Dec. 28, 1990, the Subaccounts invested in the shares of
the Shearson Lehman Series Fund, which was formed on April 18,
1986. It is registered under the Investment Company Act of 1940 as
a diversified, open-end management investment company and commenced
operations on Nov. 3, 1986. Prior to Dec. 28, 1990, funds
allocated to Subaccount SAP were invested in the shares of the
Appreciation Portfolio; Subaccount SMM invested in the shares of
the Money Market Portfolio; Subaccount SHI invested in the shares
<PAGE>
PAGE 12
___________________________________________________________________
1. Organization (continued)
of the High Income Bond Portfolio; Subaccount STR invested in the
shares of the Total Return Portfolio; and Subaccount SGO invested
in the shares of the Government Securities Portfolio.
IDS Life serves as manager and investment adviser for the Variable
Account and the underlying series mutual fund. Smith Barney Inc.
serves as sponsor for the Trusts.
___________________________________________________________________
2. Summary of Significant Accounting Policies
Investments in Mutual Fund
Investments in shares of the mutual fund portfolios are stated at
market value which is the net asset value per share as determined
by the respective portfolios. Investment transactions are
accounted for on the date the shares are purchased and sold. The
cost of investments sold and redeemed is determined on the average
cost method. Dividend distributions received from the portfolios
are reinvested, net of any expenses payable to IDS Life, in
additional shares of the portfolios and recorded as income by the
subaccounts on the ex-dividend date.
Unrealized appreciation or depreciation of investments in the
accompanying financial statements represents the subaccounts' share
of the portfolios' undistributed net investment income,
undistributed realized gain or loss and the unrealized appreciation
or depreciation on their investment securities.
Investments in Trusts
Investments in units of the Trusts are stated at market value which
is the net asset value per unit as determined by the respective
trust. Investment transactions are accounted for on the date the
units are purchased and sold. The cost of investments sold and
redeemed is determined on the average cost method.
Unrealized appreciation or depreciation of investments in the
accompanying financial statements represents the subaccounts' share
of the Trusts' undistributed net investment income, undistributed
realized gain or loss and the unrealized appreciation or
depreciation on their investment securities.
Federal Income Taxes
IDS Life is taxed as a life insurance company. The Variable
Account is treated as part of IDS Life for federal income tax
purposes.
Under existing federal income tax law, no income taxes are payable
with respect to any investment income of the Variable Account.
<PAGE>
PAGE 13
___________________________________________________________________
3. Mortality Charge
IDS Life deducts a mortality charge equal (except as explained
below), on an annual basis, to 0.5 percent of the daily net asset
value of the Variable Account. Prior to the maturity date of the
policy, the death benefit will always be higher than the policy
value. This deduction will enable IDS Life to pay this additional
amount. Although IDS Life does not expect to charge more than the
rate mentioned above, its charge for providing life insurance
protection could be greater. If, at any time, IDS Life assesses a
charge higher than 0.5 percent for a policy, it will waive any
surrender charges which may exist on that policy. IDS Life
guarantees that its charge will never be greater than an amount
based upon the 1958 Commissioners' Standard Ordinary Mortality
Table.
___________________________________________________________________
4. Mortality and Expense Risk Charge
IDS Life makes contractual assurances to the Variable Account that
possible future adverse changes in administrative expense 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 0.6 percent of the daily net asset value of the Variable
Account.
___________________________________________________________________
5. Minimum Death Benefit Guarantee Risk Charge
IDS Life deducts a minimum death benefit guarantee risk charge
equal, on an annual basis, to 0.4 percent of the daily net asset
value of the Variable Account. This deduction is made to
compensate IDS Life for the risk it assumes by providing a
guaranteed minimum death benefit. The deduction will be made from
the Variable Account and computed on a daily basis. This charge is
guaranteed for the life of the contract and may not be increased.
___________________________________________________________________
6. Issue and Administrative Expense Charge
IDS Life deducts a charge to compensate it for expenses it incurs
in administering the policy, such as the costs of underwriting the
policy, conducting any medical examinations, establishing and
maintaining records, and providing reports to policy owners. This
charge is deducted daily and is equivalent, on an annual basis, to
0.4 percent of the daily net asset value of the Variable Account
during the first 10 years of the policy, and to 0.3 percent
thereafter. There is not necessarily a relationship between the
amount of the charge imposed on a particular policy and the amount
of administrative expenses that may be attributable to that policy.
<PAGE>
PAGE 14
___________________________________________________________________
7. Premium Tax Charge
To cover the premium taxes assessed by the various states and to
compensate IDS Life for the average premium tax expense it incurs
when issuing the policy, IDS Life deducts a charge equivalent, on
an annual basis, to 0.2 percent of the daily net asset value of
the Variable Account during the first 10 policy years, and 0
percent thereafter.
___________________________________________________________________
8. Distribution Expense Charge
IDS Life incurs certain sales and other distribution expenses at
the time the policies are issued. This charge is equal, on an
annual basis, to 0.3 percent of the daily average net asset value
of the Variable Account for the first 10 policy years and 0 percent
thereafter. IDS Life anticipates that this charge, together with
any applicable surrender charge, will cover the expected costs of
distributing the policies. In no event will the sum of the
surrender charge deducted on surrender and cumulative distribution
expense charges previously deducted exceed 9 percent of the single
premium paid.
___________________________________________________________________
9. Transaction Charge
IDS Life makes a daily charge against the assets of each subaccount
investing in the Trusts. This charge is intended to reimburse IDS
Life for the transaction charge paid directly by IDS Life to Smith
Barney Inc. on the sale of the Trust units to the Variable Account.
IDS Life pays these amounts from its general account assets. The
amount of the asset charge is equivalent to an effective annual
rate of 0.25 percent of the account value invested in the Trusts.
This amount may be increased in the future but in no event will it
exceed an effective annual rate of 0.5 percent of the Variable
Account value. The charge will be cost-based (taking into account
a loss of interest) with no anticipated element of profit for IDS
Life. This charge also varies directly with the size of the
account value.
___________________________________________________________________
10. Surrender Charge
IDS Life will use a surrender charge to help it recover certain
selling expenses. The surrender charge will be deducted during the
first eight policy years. Further, IDS Life guarantees that the
total cumulative distribution expense charges and the surrender
charge will never exceed 9 percent of the single premium. Charges
by IDS Life for surrenders are not available on an individual
segregated asset account basis. Charges for all segregated asset
accounts amounted to $10,125,762 in 1995, $6,969,493 in 1994 and
$4,408,562 in 1993. Such charges are not an expense of the
subaccounts or Variable Account. They are deducted from contract
surrender benefits paid by IDS Life.
<PAGE>
PAGE 15
___________________________________________________________________
11. Investment Transactions
The subaccounts' purchases of portfolio shares or trust units (net
of charges), including reinvestment of dividend distributions,
were as follows:
<TABLE>
<CAPTION>
Year Ended Dec. 31,
Subaccount Investment 1995 1994 1993
<S> <C> <C> <C> <C>
SAP Equity Portfolio.................. $ 717,367 $1,673,247 $ 706,537
SMM Money Market Portfolio............ 1,487,172 1,007,521 621,896
SHI Income Portfolio.................. 181,311 173,216 431,587
STR Managed Portfolio................. 438,831 1,047,157 789,666
SGO Government Securities Portfolio... 316,179 161,516 204,669
S95 1995 Trust........................ --* 171,662 500,326
S04 2004 Trust........................ 67,928 9,056 (8,389)
$3,208,788 $4,243,375 $3,246,292
* For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
</TABLE>
<PAGE>
PAGE 16
<TABLE>
<CAPTIION>
Condensed Financial Information (unaudited) Period from
Oct. 3, to
Year Ended Dec. 31, Dec. 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subaccount SAP (invests in Equity Portfolio)
Accumulation unit value at beginning of
period.................................... $2.44 $2.43 $2.20 $2.14 $1.32 $1.35 $1.05 $0.97 $1.01 $1.00
Accumulation unit value at end of period.. $3.30 $2.44 $2.43 $2.20 $2.14 $1.32 $1.35 $1.05 $0.97 $1.01
Number of accumulation units outstanding
at end of period (000 omitted)............ 3,739 4,143 4,254 4,592 4,902 5,464 5,590 6,111 7,324 1,048
Subaccount SMM (invests in Money Market Portfolio)
Accumulation unit value at beginning of
period.................................... $1.25 $1.24 $1.24 $1.23 $1.18 $1.13 $1.08 $1.04 $1.01 $1.00
Accumulation unit value at end of period.. $1.29 $1.25 $1.24 $1.24 $1.23 $1.18 $1.13 $1.08 $1.04 $1.01
Number of accumulation units outstanding
at end of period (000 omitted)............ 1,249 787 982 1,452 1,822 2,038 2,005 1,603 2,169 102
Subaccount SHI (invests in Income Portfolio)
Accumulation unit value at beginning of
period.................................... $1.16 $1.24 $1.11 $1.04 $0.92 $1.13 $1.18 $1.06 $1.01 $1.00
Accumulation unit value at end of period.. $1.38 $1.16 $1.24 $1.11 $1.04 $0.92 $1.13 $1.18 $1.06 $1.01
Number of accumulation units outstanding
at end of period (000 omitted)............ 1,030 1,064 1,144 901 947 1,310 2,331 3,401 2,666 541
Subaccount STR (invests in Managed Portfolio)
Accumulation unit value at beginning of
period.................................... $1.98 $2.01 $1.72 $1.59 $1.23 $1.25 $1.09 $0.95 $1.00 $1.00
Accumulation unit value at end of period.. $2.30 $1.98 $2.01 $1.72 $1.59 $1.23 $1.25 $1.09 $0.95 $1.00
Number of accumulation units outstanding
at end of period (000 omitted)............ 2,653 3,145 3,397 3,515 3,784 4,173 4,388 4,789 4,668 409
Subaccount SGO (invests in Government Securities Portfolio)
Accumulation unit value at beginning of
period.................................... $1.41 $1.52 $1.39 $1.33 $1.17 $1.12 $1.04 $1.00 $1.01 $1.00
Accumulation unit value at end of period.. $1.63 $1.41 $1.52 $1.39 $1.33 $1.17 $1.12 $1.04 $1.00 $1.01
Number of accumulation units outstanding
at end of period (000 omitted)............ 1,068 995 1,264 1,486 1,724 1,548 1,598 1,672 1,792 360
Subaccount S95 (invests in 1995 Trust)**
Accumulation unit value at beginning of
period.................................... $1.43 $1.44 $1.39 $1.32 $1.17 $1.09 $0.97 $0.92 $1.00 --
Accumulation unit value at end of period.. $ -- $1.43 $1.44 $1.39 $1.32 $1.17 $1.09 $0.97 $0.92 --
Number of accumulation units outstanding
at end of period (000 omitted)............ -- 545 660 313 585 811 499 467 176 --
Subaccount S04 (invests in 2004 Trust)
Accumulation unit value at beginning of
period.................................... $1.55 $1.74 $1.47 $1.38 $1.17 $1.16 $0.96 $0.86 $0.98 $1.00
Accumulation unit value at end of period.. $1.98 $1.55 $1.74 $1.47 $1.38 $1.17 $1.16 $0.96 $0.86 $0.98
Number of accumulation units outstanding
at end of period (000 omitted)............ 112 140 139 280 261 605 636 464 282 72
* Operations commenced on Oct. 3, 1986.
**For the period Jan. 6, 1987 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust. Subaccount S95 commenced
operations on Jan. 6, 1987.
</TABLE>
<PAGE>
PAGE 17
IDS Life Financial Information
The financial statements shown below are those of the insurance
company and not those of any other entity. They are included in
the prospectus for the purpose of informing investors as to the
financial condition of the insurance company and its ability to
carry out its obligations under its variable contracts.
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1995 1994
(thousands)
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1995, $11,878,377; 1994 $10,694,800) $11,257,591 $11,269,861
Available for sale, at fair value (Amortized cost:
1995, $10,146,136; 1994 $8,459,128) 10,516,212 8,017,555
Mortgage loans on real estate
(Fair value: 1995, $3,184,666; 1994, $2,342,520) 2,945,495 2,400,514
Policy loans 424,019 381,912
Other investments 146,894 51,795
Total investments 25,290,211 22,121,637
Cash and cash equivalents 72,147 267,774
Receivables:
Reinsurance 114,387 80,304
Amounts due from brokers - 7,933
Other accounts receivable 33,667 49,745
Premiums due 5,441 1,594
Total receivables 153,495 139,576
Accrued investment income 348,008 317,510
Deferred policy acquisition costs 2,025,725 1,865,324
Deferred income taxes - 124,061
Other assets 36,410 30,426
Separate account assets 14,974,082 10,881,235
Total assets $42,900,078 $35,747,543
========== ==========
<PAGE>
PAGE 18
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
Dec. 31, Dec. 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
(thousands)
Liabilities:
Fixed annuities--future policy benefits $21,404,836 $19,361,979
Universal life-type insurance--future policy benefits 3,076,847 2,896,100
Traditional life insurance--future policy benefits 209,249 206,754
Disability income, health and long-term care
insurance--future policy benefits 327,157 244,077
Policy claims and other policyholders' funds 56,323 50,068
Deferred income taxes 112,904 -
Amounts due to brokers 121,618 226,737
Other liabilities 285,354 291,902
Separate account liabilities 14,974,082 10,881,235
Total liabilities 40,568,370 34,158,852
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 278,814 222,000
Net unrealized gain (loss) on investments 230,129 (275,708)
Retained earnings 1,819,765 1,639,399
Total stockholder's equity 2,331,708 1,588,691
Total liabilities and stockholder's equity $42,900,078 $35,747,543
========== ==========
Commitments and contingencies (Note 6)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PAGE 19
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended Dec. 31,
1995 1994 1993
(thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Traditional life insurance $ 50,193 $ 48,184 $ 48,137
Disability income and long-term care insurance 111,337 96,456 79,108
Total premiums 161,530 144,640 127,245
Policyholder and contractholder charges 256,454 219,936 184,205
Management and other fees 215,581 164,169 120,139
Net investment income 1,907,309 1,781,873 1,783,219
Net realized loss on investments (4,898) (4,282) (6,737)
Total revenues 2,535,976 2,306,336 2,208,071
Benefits and expenses:
Death and other benefits - Traditional life
insurance 29,528 28,263 32,136
Death and other benefits - Universal life-type
insurance and investment contracts 71,691 52,027 49,692
Death and other benefits - Disability income,
health and long-term care insurance 16,259 13,393 13,148
Increase (decrease) in liabilities for future
policy benefits:
Traditional life insurance (1,315) (3,229) (4,513)
Disability income, health and
long-term care insurance 51,279 37,912 32,528
Interest credited on universal life-type
insurance and investment contracts 1,315,989 1,174,985 1,218,647
Amortization of deferred policy acquisition costs 280,121 280,372 211,733
Other insurance and operating expenses 211,642 210,101 241,974
Total benefits and expenses 1,975,194 1,793,824 1,795,345
Income before income taxes 560,782 512,512 412,726
Income taxes 195,842 176,343 142,647
Net income $ 364,940 $ 336,169 $ 270,079
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PAGE 20
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1995 (thousands)
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $3,000 $ 22,000 $ 214 $1,223,151 $1,248,365
Net income 270,079 270,079
Change in net unrealized
gain (loss) on investments - - (100) - (100)
Capital contribution from parent - 200,000 - - 200,000
Cash dividends - - - (25,000) (25,000)
Balance, December 31, 1993 3,000 222,000 114 1,468,230 1,693,344
Net income - - - 336,169 336,169
Change in net unrealized
gain (loss) on investments - - (275,822) - (275,822)
Cash dividends - - - (165,000) (165,000)
Balance, December 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, December 31, 1995 $3,000 $278,814 $230,129 $1,819,765 $2,331,708
====== ======== ======== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PAGE 21
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1995 1994 1993
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 364,940 $ 336,169 $ 270,079
Adjustments to reconcile net income to
net cash provided by operating activities:
Policy loan issuance, excluding universal
life-type insurance: (46,011) (37,110) (35,886)
Policy loan repayments, excluding universal
life-type insurance 36,416 33,384 29,557
Change in reinsurance receivable (34,083) (25,006) (55,298)
Change in other accounts receivable 16,078 (28,286) (1,364)
Change in accrued investment income (30,498) (10,333) (22,057)
Change in deferred policy acquisition costs, net (196,963) (192,768) (211,509)
Change in liabilities for future policy
benefits for traditional life, disability income,
health and long-term care insurance 85,575 55,354 79,695
Change in policy claims and other policyholders' funds 6,255 5,552 (5,383)
Change in deferred income taxes (33,810) (19,176) (44,237)
Change in other liabilities (6,548) (122) 56,515
Amortization of premium (accretion
of discount), net (22,528) 30,921 (27,438)
Net loss on investments 4,898 4,282 6,737
Premiums related to universal life--type insurance 465,631 409,035 397,883
Surrenders and death benefits related to
universal life--type insurance (306,600) (290,427) (255,133)
Interest credited to account balances related
to universal life--type insurance 162,222 150,955 156,885
Policyholder and contractholder charges, non-cash (140,506) (126,918) (115,140)
Other, net 2 (8,974) (1,907)
Net cash provided by operating activities $ 324,470 $ 286,532 $ 221,999
<PAGE>
PAGE 22
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended Dec. 31,
1995 1994 1993
(thousands)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases $(1,007,208) $ (879,740) $ -
Maturities, sinking fund payments and calls 538,219 1,651,762 -
Sales 332,154 58,001 -
Fixed maturities available for sale:
Purchases (2,452,181) (2,763,278) -
Maturities, sinking fund payments and calls 861,545 1,234,401 -
Sales 136,825 374,564 -
Fixed maturities:
Purchases - - (6,548,852)
Maturities, sinking fund payments and calls - - 3,934,055
Sales - - 487,983
Other investments, excluding policy loans:
Purchases (823,131) (634,807) (553,694)
Sales 160,521 243,862 123,352
Change in amounts due from brokers 7,933 (2,214) 14,483
Change in amounts due to brokers (105,119) (124,749) 92,832
Net cash used in investing activities (2,350,442) (842,198) (2,449,841)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 3,723,894 3,157,778 2,843,668
Surrenders and death benefits (2,834,804) (3,311,965) (1,765,869)
Interest credited to account balances 1,153,767 1,024,031 1,071,917
Policy loan issuances, universal
life-type insurance (84,700) (78,239) (70,304)
Policy loan repayments, universal
life-type insurance 52,188 50,554 46,148
Capital contribution from parent - - 200,000
Cash dividend to parent (180,000) (165,000) (25,000)
Net cash provided by financing activities 1,830,345 677,159 2,300,560
Net (decrease) increase in cash and
cash equivalents (195,627) 121,493 72,718
Cash and cash equivalents at
beginning of year 267,774 146,281 73,563
Cash and cash equivalents at
end of year $ 72,147 $ 267,774 $ 146,281
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PAGE 23
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance
company organized under the laws of the State of Minnesota. The
Company is a wholly owned subsidiary of American Express Financial
Corporation, which is a wholly owned subsidiary of American Express
Company. The Company serves residents of all states except New
York. IDS Life Insurance Company of New York is a wholly owned
subsidiary of the Company and serves New York State residents. The
Company also wholly owns American Enterprise Life Insurance
Company, American Centurion Life Assurance Company (ACLAC), and
American Partners Life Insurance Company.
The Company's principal products are deferred annuities and
universal life insurance, which are issued primarily to
individuals. It offers single premium and annual 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.
The Company's principal annuity product in terms of amount in force
is the fixed deferred annuity. The annuity contract guarantees a
minimum interest rate during the accumulation period (the time
before annuity payments begin), although the Company normally pays
a higher rate reflective of current market rates. The fixed
annuity provides for a surrender charge during the first seven to
ten years after a purchase payment is made. The Company has also
adopted a practice whereby the higher current rate is guaranteed
for a specified period. The Company also offers a variable annuity
product under the name Flexible Annuity. This is a fixed/variable
annuity offering the purchasers a choice among mutual funds with
portfolios of equities, bonds, managed assets and/or short-term
securities, and the Company's general account, as the underlying
investment vehicles. With respect to funds applied to the variable
portion of the annuity, the purchaser, rather than the Company,
assumes the investment risks and receives the rewards inherent in
the ownership of the underlying investment. The Flexible Annuity
provides for a surrender charge during the first six years after a
purchase payment is made.
The Company's principal insurance product is the flexible-premium,
adjustable-benefit universal life insurance policy. In this type
of insurance policy, each premium payment accumulates interest in
a cash value account. The policyholder has access to the cash
surrender value in whole or in part after the first year. The size
of the cash value of the fund can also be controlled by the
policyholder by increasing or decreasing premiums, subject only to
<PAGE>
PAGE 24
1. Summary of significant accounting policies (continued)
maintaining a required minimum to keep the policy in force.
Monthly deductions from the cash value of the policy are made for
the cost of insurance, expense charges and any policy riders.
Basis of presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, IDS Life
Insurance Company of New York, American Enterprise Life Insurance
Company, American Centurion Life Assurance Company and American
Partners Life Insurance Company. All material intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles which vary in certain respects from reporting practices
prescribed or permitted by state insurance regulatory authorities.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Investments
Fixed maturities that the Company has both the positive intent and
the ability to hold to maturity are classified as held to maturity
and carried at amortized cost. All other fixed maturities and all
marketable equity securities are classified as available for sale
and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are carried as a
separate component of stockholder's equity.
Management determines the appropriate classification of fixed
maturities at the time of purchase and reevaluates the
classification at each balance sheet date.
Mortgage loans on real estate are carried principally at the unpaid
principal balances of the related loans. Policy loans are carried
at the aggregate of the unpaid loan balances which do not exceed
the cash surrender values of the related policies. Other
investments include interest rate caps, equity securities and real
estate investments. 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. Equity securities are carried
at market value and the related net unrealized appreciation or
depreciation is reported as a credit or charge to stockholder's
equity.
Realized investment gain or loss is determined on an identified
cost basis.<PAGE>
PAGE 25
1. Summary of significant accounting policies (continued)
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.
Statements of cash flows
The Company considers investments with a maturity at the date of
their acquisition of three months or less to be cash equivalents.
These securities are carried principally at amortized cost which
approximates fair value.
Supplementary information to the consolidated statement of cash
flows for the years ended Dec. 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $191,011 $226,365 $188,204
Interest on borrowings 5,524 1,553 2,661
</TABLE>
Recognition of profits on fixed annuity contracts and insurance
policies
The Company issues single premium deferred annuity contracts that
provide for a service fee (surrender charge) at annually decreasing
rates upon withdrawal of the annuity accumulation value by the
contract owner. No sales fee is deducted from the contract
considerations received on these contracts ("no load" annuities).
All of the Company's single premium deferred annuity contracts
provide for crediting the contract owners' accumulations at
specified rates of interest. Such rates are revised by the Company
from time to time based on changes in the market investment yield
rates for fixed-income securities.
Profits on single premium deferred annuities and installment
annuities are recognized by the Company over the lives of the
contracts and represent the excess of investment income earned from
investment of contract considerations over interest credited to
contract owners and other expenses.
The retrospective deposit method is used in accounting for
universal life-type insurance. This method recognizes profits over
the lives of the policies in proportion to the estimated gross
profits expected to be realized.
Premiums on traditional life, disability income, health and long-
term care insurance policies are recognized as revenue when
collected or 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.<PAGE>
PAGE 26
1. Summary of significant accounting policies (continued)
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 single premium deferred
annuities and installment annuities are amortized based upon
surrender charge revenue and a portion of the excess of investment
income earned from investment of the contract considerations over
the interest credited to contract owners. The costs for universal
life-type insurance are amortized over the lives of the policies as
a percentage of the estimated gross profits expected to be realized
on the policies. For traditional life, disability income, health
and long-term care insurance policies, the costs are amortized over
an appropriate period in proportion to premium revenue.
Liabilities for future policy benefits
Liabilities for universal life-type insurance, single premium
deferred annuities and installment annuities are accumulation
values.
Liabilities for fixed annuities in a benefit status are based on
the Progressive Annuity Table with interest at 5 percent, the 1971
Individual Annuity Table with interest at 7 percent or 8.25
percent, or the 1983a Table with various interest rates ranging
from 5.5 percent to 9.5 percent, depending on year of issue.
Liabilities for future benefits on traditional life insurance have
been computed principally by the net level premium method, based on
anticipated rates of mortality (approximating the 1965-1970 Select
and Ultimate Basic Table for policies issued after 1980 and the
1955-1960 Select and Ultimate Basic Table for policies issued prior
to 1981 and the 1975-1980 Select and Ultimate Basic Table for term
insurance policies issued after 1984), policy persistency derived
from Company experience data (first year rates ranging from
approximately 70 percent to 90 percent and increasing rates
thereafter), and estimated future investment yields of 4 percent
for policies issued before 1974 and 5.25 percent for policies
issued from 1974 to 1980. Cash value plans issued in 1980 and
later assume future investment rates that grade from 9.5 percent to
5 percent over 20 years. Term insurance issued from 1981 to 1984
assumes an 8 percent level investment rate, term insurance issued
from 1985-1993 assumes investment rates that grade from 10 percent
to 6 percent over 20 years and term insurance issued after 1993
assumes investment rates that grade from 8 percent to 6.5 percent
over 7 years.
Liabilities for future disability income policy benefits have been
computed principally by the net level premium method, based on the
1964 Commissioners Disability Table with the 1958 Commissioners
Standard Ordinary Mortality Table at 3 percent interest for persons
disabled in 1980 and prior, 8 percent interest for persons disabled
from 1981 to 1991, 7 percent interest for persons disabled in 1992
and 6 percent interest for persons disabled after 1992.<PAGE>
PAGE 27
1. Summary of significant accounting policies (continued)
Liabilities for future benefits on long-term care insurance have
been computed principally by the net level premium method, using
morbidity rates based on the 1985 National Nursing Home Survey and
mortality rates based on the 1983a Table. The interest rate basis
is 9.5 percent grading to 7 percent over ten years for policies
issued from 1989 to 1992, 7.75 percent grading to 7 percent over
four years for policies issued after 1992, 8 percent for claims
incurred in 1989 to 1991, 7 percent for claims incurred in 1992 and
6 percent for claims incurred after 1992.
Reinsurance
The maximum amount of life insurance risk retained by the Company
on any one life is $750 of life and waiver of premium benefits plus
$50 of accidental death benefits. The maximum amount of disability
income risk retained by the Company on any one life is $6 of
monthly benefit for benefit periods longer than three years. The
excesses are reinsured with other life insurance companies on a
yearly renewable term basis. Graded premium whole life and long-
term care policies are primarily reinsured on a coinsurance basis.
Federal income taxes
The Company's taxable income is included in the consolidated
federal income tax return of American Express Company. The Company
provides for income taxes on a separate return basis, except that,
under an agreement between American Express Financial Corporation
and American Express Company, tax benefit is recognized for losses
to the extent they can be used on the consolidated tax return. It
is the policy of American Express Financial Corporation to
reimburse a subsidiary for any tax benefit.
Included in other liabilities at Dec. 31, 1995 is $13,415 payable
to American Express Financial Corporation for federal income taxes.
Included in other receivables at Dec. 31, 1994 is $22,034
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 and mortality and expense assurance fees from the
variable annuity and variable life insurance mutual funds and
separate accounts. The Company also deducts a monthly cost of
insurance charge and receives a minimum death benefit guarantee fee
and issue and administrative fee from the variable life insurance
separate accounts.
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. <PAGE>
PAGE 28
1. Summary of significant accounting policies (continued)
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. The Company
guarantees, for the variable life insurance policyholders, the
contractual insurance rate and that the death benefit will never be
less than the death benefit at the date of issuance.
Accounting changes
The Financial Accounting Standards Board's (FASB) SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," is effective January 1, 1996. The
new rule is not expected to have a material impact on the Company's
results of operations or financial condition.
The Company's adoption of SFAS No. 114 as of January 1, 1995 is
discussed in Note 2.
The Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The effect of adopting
the new rule was to increase stockholder's equity by approximately
$181 million, net of tax, as of January 1, 1994, but the adoption
had no impact on the Company's net income.
Reclassification
Certain 1994 and 1993 amounts have been reclassified to conform to
the 1995 presentation.
2. Investments
Fair values of investments in fixed maturities represent quoted
market prices and estimated values when quoted prices are not
available. Estimated values are determined by established
procedures involving, among other things, review of market indices,
price levels of current offerings of comparable issues, price
estimates and market data from independent brokers and financial
files.
Net realized gain (loss) on investments for the years ended Dec. 31
is summarized as follows:
1995 1994 1993
Fixed maturities $ 9,973 $(1,575) $ 20,583
Mortgage loans (13,259) (3,013) (25,056)
Other investments (1,612) 306 (2,264)
$ (4,898) $(4,282) $ (6,737)
<PAGE>
PAGE 29
2. Investments (continued)
Changes in net unrealized appreciation (depreciation) of
investments for the years ended Dec. 31 are summarized as follows:
1995 1994 1993
Fixed maturities:
Held to maturity $1,195,847 $(1,329,740) $ --
Available for sale 811,649 (720,449) --
Investment securities -- -- 323,060
Equity securities 3,118 (2,917) (156)
The amortized cost, gross unrealized gains and losses and fair
values of investments in fixed maturities and equity securities at
Dec. 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 64,523 $ 3,919 $ -- $ 68,442
State and municipal obligations 11,936 362 32 12,266
Corporate bonds and obligations 8,921,431 620,327 36,786 9,504,972
Mortgage-backed securities 2,259,701 42,684 9,688 2,292,697
$11,257,591 $667,292 $46,506 $11,878,377
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency
obligations $ 84,082 $ 3,248 $ 50 $ 87,280
State and municipal obligations 11,020 1,476 -- 12,496
Corporate bonds and obligations 2,514,308 186,596 3,451 2,697,453
Mortgage-backed securities 7,536,726 206,288 24,031 7,718,983
Total fixed maturities 10,146,136 397,608 27,532 10,516,212
Equity securities 3,156 361 -- 3,517
$10,149,292 $397,969 $27,532 $10,519,729
</TABLE>
The amortized cost, gross unrealized gains and losses and fair
values of investments in fixed maturities and equity securities at
Dec. 31, 1994 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 $ 21,500 $ 43 $ 4,372 $ 17,171
State and municipal obligations 9,687 132 -- 9,819
Corporate bonds and obligations 8,806,707 100,468 459,568 8,447,607
Mortgage-backed securities 2,431,967 10,630 222,394 2,220,203
$11,269,861 $111,273 $686,334 $10,694,800
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
U.S. Government agency
obligations $ 128,093 $ 756 $ 1,517 $ 127,332
State and municipal obligations 11,008 702 -- 11,710
Corporate bonds and obligations 1,142,321 24,166 7,478 1,159,009
Mortgage-backed securities 7,177,706 9,514 467,716 6,719,504
Total fixed maturities 8,459,128 35,138 476,711 8,017,555
Equity securities 4,663 -- 2,757 1,906
$8,463,791 $ 35,138 $479,468 $ 8,019,461
/TABLE
<PAGE>
PAGE 30
2. Investments (continued)
The amortized cost and fair value of investments in fixed
maturities at Dec. 31, 1995 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Held to maturity Cost Value
<S> <C> <C>
Due in one year or less $ 268,363 $ 272,808
Due from one to five years 1,692,030 1,783,047
Due from five to ten years 5,467,302 5,833,309
Due in more than ten years 1,570,195 1,696,516
Mortgage-backed securities 2,259,701 2,292,697
$11,257,591 $11,878,377
Amortized Fair
Available for sale Cost Value
<S> <C> <C>
Due in one year or less $ 118,996 $ 120,019
Due from one to five years 849,800 913,175
Due from five to ten years 1,301,191 1,397,237
Due in more than ten years 339,423 366,798
Mortgage-backed securities 7,536,726 7,718,983
$10,146,136 $10,516,212
</TABLE>
During the year ended Dec. 31, 1995, fixed maturities classified as
held to maturity were sold with proceeds of $332,154 and gross
realized gains and losses on such sales were $14,366 and $15,720,
respectively. The sale of these fixed maturities was due to
significant deterioration in the issuers' creditworthiness. As a
result of adopting the FASB Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities," the Company
reclassified securities with a book value of $91,760 and net
unrealized gains of $881 from held to maturity to available for
sale in December 1995.
In addition, fixed maturities available for sale were sold during
1995 with proceeds of $136,825 and gross realized gains and losses
on such sales were $nil and $5,781, respectively.
During the year ended Dec. 31, 1994, fixed maturities classified as
held to maturity were sold with proceeds of $58,001 and gross
realized gains and losses on such sales were $226 and $3,515,
respectively. The sale of these fixed maturities was due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during
1994 with proceeds of $374,564 and gross realized gains and losses
on such sales were $1,861 and $7,602, respectively.
At Dec. 31, 1995, bonds carried at $12,761 were on deposit with
various states as required by law.<PAGE>
PAGE 31
2. Investments (continued)
Net investment income for the years ended Dec. 31 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest on fixed maturities $1,656,136 $1,556,756 $1,589,802
Interest on mortgage loans 232,827 196,521 175,063
Other investment income 35,936 38,366 29,345
Interest on cash equivalents 5,363 6,872 2,137
1,930,262 1,798,515 1,796,347
Less investment expenses 22,953 16,642 13,128
$1,907,309 $1,781,873 $1,783,219
</TABLE>
At Dec. 31, 1995, investments in fixed maturities comprised 86
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 $2.3 billion which are rated by
American Express Financial Corporation internal analysts using
criteria similar to Moody's and S&P. A summary of investments in
fixed maturities, at amortized cost, by rating on Dec. 31 is as
follows:
Rating 1995 1994
Aaa/AAA $ 9,907,664 $ 9,708,047
Aaa/AA 3,112 --
Aa/AA 279,403 242,914
Aa/A 154,846 119,952
A/A 3,104,122 2,567,947
A/BBB 871,782 725,755
Baa/BBB 4,417,654 3,849,188
Baa/BB 657,633 796,063
Below investment grade 2,007,511 1,719,123
$21,403,727 $19,728,989
At Dec. 31, 1995, 95 percent of the securities rated Aaa/AAA are
GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer are greater than 1 percent of the Company's total
investments in fixed maturities.
At Dec. 31, 1995, approximately 11.6 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 at Dec. 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Dec. 31, 1995 Dec. 31, 1994
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
<S> <C> <C> <C> <C>
East North Central $ 720,185 $ 67,206 $ 581,142 $ 62,291
West North Central 303,113 34,411 257,996 7,590
South Atlantic 732,529 111,967 597,896 63,010
Middle Atlantic 508,634 37,079 408,940 34,478
New England 244,816 40,452 209,867 23,087
Pacific 168,272 23,161 138,900 --
West South Central 61,860 27,978 50,854 --
East South Central 58,462 10,122 67,503 --
Mountain 184,964 16,774 122,668 18,750
2,982,835 369,150 2,435,766 209,206
Less allowance
for losses 37,340 -- 35,252 --
$2,945,495 $369,150 $2,400,514 $209,206<PAGE>
PAGE 32
2. Investments (continued)
Dec. 31, 1995 Dec. 31, 1994
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
Apartments $1,038,446 $ 84,978 $ 904,012 $ 56,964
Department/retail stores 985,660 134,538 802,522 88,325
Office buildings 464,381 62,664 321,761 21,691
Industrial buildings 255,469 22,721 232,962 18,827
Nursing/retirement homes 80,864 4,378 89,304 4,649
Mixed Use 53,169 -- -- --
Hotels/motels 31,335 48,816 32,666 --
Medical buildings 57,772 2,495 36,490 15,651
Other 15,739 8,560 16,049 3,099
2,982,835 369,150 2,435,766 209,206
Less allowance
for losses 37,340 -- 35,252 --
$2,945,495 $369,150 $2,400,514 $209,206
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real
estate at the time of origination of the loan. The Company holds
the mortgage document, which gives 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.
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114), as amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures".
The adoption of the new rules did not have a material impact on the
Company's results of operations or financial condition.
SFAS No. 114 applies to all loans except for smaller-balance
homogeneous loans, that are collectively evaluated for impairment.
Impairment 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 as a reserve for investment losses.
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 until it
has been recovered. Once the recorded investment has been
recovered, any additional payments are recognized as interest
income.
The reserve for investment losses is maintained at a level that
management believes is adequate to absorb estimated credit 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
<PAGE>
PAGE 33
2. Investments (continued)
values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the
reserve for investment losses.
At Dec. 31, 1995, the Company's recorded investment in impaired
loans was $83,874 with a reserve of $19,307. During the year, the
average recorded investment in impaired loans was $74,567.
The Company recognized $5,014 of interest income related to
impaired loans for the year ended Dec. 31, 1995.
The following table presents changes in the reserve for investment
losses related to all loans:
1995
Balance, Jan. 1 $35,252
Provision for investment losses 15,900
Sales of related loans (6,600)
Loan payoffs (5,300)
Other (1,912)
Balance, Dec. 31 $37,340
At Dec. 31, 1995, the Company had commitments to purchase real
estate investments for $54,897. Commitments to purchase real
estate investments are made in the ordinary course of
business. The fair value of these commitments is $nil.
3. Income taxes
The Company qualifies as a life insurance company for federal
income tax purposes. As such, the Company is subject to the
Internal Revenue Code provisions applicable to life insurance
companies.
Income tax expense consists of the following:
1995 1994 1993
Federal income taxes:
Current $218,040 $186,508 $180,558
Deferred (33,810) (19,175) (44,237)
184,230 167,333 136,321
State income taxes-current 11,612 9,010 6,326
Income tax expense $195,842 $176,343 $142,647
Increases (decreases) to the federal tax provision applicable to
pretax income based on the statutory rate are attributable to:
<PAGE>
PAGE 34
3. Income taxes (continued)
<TABLE>
<CAPTION>
1995 1994 1993
Provision Rate Provision Rate Provision Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income
taxes based on
the statutory rate $196,274 35.0% $179,379 35.0% $144,454 35.0%
Increases (decreases)
are attributable to:
Tax-excluded interest
and dividend income (8,524) (1.5) (9,939) (2.0) (11,002) (2.7)
Other, net (3,520) (0.6) (2,107) (0.4) 2,869 0.7
Federal income taxes $184,230 32.9% $167,333 32.6% $136,321 33.0%
</TABLE>
A portion of life insurance company income earned prior to 1984 was
not subject to current taxation but was accumulated, for tax
purposes, in a policyholders' surplus account. At Dec. 31, 1995,
the Company had a policyholders' surplus account balance of
$20,114. The policyholder's surplus account balance increased in
1995 due to the acquisition of ACLAC. 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 Dec. 31 are as follows:
1995 1994
Deferred tax assets:
Policy reserves $ 600,176 $533,433
Investments -- 116,736
Life insurance guarantee
fund assessment reserve 26,785 32,235
Total deferred tax assets 626,961 682,404
Deferred tax liabilities:
Derred policy acquisition costs 590,762 553,722
Investments 146,805 --
Other 2,298 4,621
Total deferred tax
liabilities 739,865 558,343
Net deferred tax assets
(liabilities) $(112,904) $124,061
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>
PAGE 35
4. Stockholder's equity
During 1995, the Company received a $39,700 capital contribution
from its parent, American Express Financial Corporation, in the
form of investments in fixed maturities and mortgage loans. In
addition, effective January 1, 1995, the Company began
consolidating the financial results of ACLAC. This change
reflected the transfer of ownership of ACLAC from Amex Life
Assurance Company (Amex Life), a former affiliate, to the Company
prior to the sale of Amex Life to an unaffiliated third party on
October 2, 1995. This transfer of ownership to the Company has
been reflected as a capital contribution of $17,114 in the
accompanying financial statements. The effect of this change in
reporting entity was not significant and prior periods have not
been restated.
As discussed in Note 5, the Company entered into a reinsurance
agreement with Amex Life during 1995. As a result of this
transaction, a loss of $4,574 was realized and reported as a
direct charge to retained earnings.
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 $1,103,993 as of Dec. 31, 1995 and $1,020,981 as of Dec.
31, 1994 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in
1996 in excess of approximately $290,988 would require approval of
the Department of Commerce of the State of Minnesota.
Statutory net income for the years ended Dec. 31 and capital and
surplus as of Dec. 31 are summarized as follows:
1995 1994 1993
Statutory net income $ 326,799 $ 294,699 $ 275,015
Statutory capital and surplus 1,398,649 1,261,958 1,157,022
Dividends paid to American Express Financial Corporation were
$180,000 in 1995, $165,000 in 1994, and $25,000 in 1993.
5. Related party transactions
The Company has loaned funds to American Express Financial
Corporation under two loan agreements. The balance of the first
loan was $25,800 and $40,000 at Dec. 31, 1995 and 1994,
respectively. This loan can be increased to a maximum of $75,000
and pays interest at a rate equal to the preceding month's
effective new money rate for the Company's permanent investments.
It is collateralized by equities valued at $122,978 at Dec. 31,
1995. The second loan was used to fund the construction of the IDS
Operations Center. This loan was paid off during 1994. The loan
was secured by a first lien on the IDS Operations Center property
and had an interest rate of 9.89 percent. The Company also had a
loan to an affiliate which was used to fund construction of the IDS
Learning Center. This loan was sold to the American Express <PAGE>
PAGE 36
5. Related party transactions (continued)
Financial Corporation during 1994. The loan was secured by a first
lien on the IDS Learning Center property and had an interest rate
of 9.82 percent. Interest income on the above loans totaled
$1,371, $2,894 and $11,116 in 1995, 1994 and 1993, respectively.
The Company purchased a five year secured note from an affiliated
company which had an outstanding balance of $19,444 and $23,333 at
Dec. 31, 1995 and 1994, respectively. The note bears a fixed rate
of 8.42 percent. Interest income on the above note totaled $1,937,
$2,278 and $2,605 in 1995, 1994 and 1993, respectively.
The Company has a reinsurance agreement whereby it assumed 100
percent of a block of single premium life insurance business from
Amex Life. The accompanying consolidated balance sheets at Dec.
31, 1995 and 1994 include $764,663 and $765,366, respectively, of
future policy benefits related to this agreement.
The Company has a reinsurance agreement to cede 50 percent of its
long-term care insurance business to Amex Life. The accompanying
consolidated balance sheets at Dec. 31, 1995 and 1994 include
$95,484 and $65,123, respectively, of reinsurance receivables
related to this agreement. Premiums ceded amounted to $25,553,
$20,360 and $16,230 and reinsurance recovered from reinsurers
amounted to $760, $62 and $404 for the years ended Dec. 31, 1995,
1994 and 1993, respectively.
The Company has a reinsurance agreement to assume deferred annuity
contracts from Amex Life. At October 1, 1995 a $803,618 block of
deferred annuities and $28,327 of deferred policy acquisition costs
were transferred to the Company. The accompanying consolidated
balance sheet at Dec. 31, 1995 includes $828,298 of future policy
benefits related to this agreement.
Until July 1, 1995 the Company participated in the IDS Retirement
Plan of American Express Financial Corporation which covered all
permanent employees age 21 and over who had met certain employment
requirements. Effective July 1, 1995, the IDS Retirement Plan was
merged with American Express Company's American Express Retirement
Plan, which simultaneously was amended to include a cash balance
formula and a lump sum distribution option. Employer contributions
to the plan are based on participants' age, years of service
and total compensation for the year. Funding of retirement costs
for this plan complies with the applicable minimum funding
requirements specified by ERISA. The Company's share of the total
net periodic pension cost was $nil in 1995, 1994 and 1993.
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 1995, 1994 and 1993 were $815, $957 and $2,008, respectively.
<PAGE>
PAGE 37
5. Related party transactions (continued)
The Company participates in defined benefit health care plans of
American Express Financial Corporation that provide health care and
life insurance benefits to retired employees and retired financial
advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees
are considered to have been employees of American Express Financial
Corporation. American Express Financial Corporation expenses these
benefits and allocates the expenses to its subsidiaries.
Accordingly, costs of such benefits to the Company are included in
employee compensation and benefits and cannot be identified on a
separate company basis. At Dec. 31, 1995 and 1994, the total
accumulated post retirement benefit obligation has been recorded as
a liability by American Express Financial Corporation.
Charges by American Express Financial Corporation for use of joint
facilities, marketing services and other services aggregated
$377,139, $335,183, and $243,346 for 1995, 1994 and 1993,
respectively. Certain of these costs are included in deferred
policy acquisition costs. In addition, the Company rents its home
office space from American Express Financial Corporation on an
annual renewable basis.
6. Commitments and contingencies
At Dec. 31, 1995 and 1994, traditional life insurance and universal
life-type insurance in force aggregated $59,683,532 and
$52,666,567, respectively, of which $3,771,204 and $3,246,608
were reinsured at the respective year ends. The Company also
reinsures a portion of the risks assumed under disability income
policies. Under the agreements, premiums ceded to reinsurers
amounted to $29,146, $29,489 and $28,276 and reinsurance recovered
from reinsurers amounted to $5,756, $5,505, and $3,345 for the
years ended Dec. 31, 1995, 1994 and 1993.
Reinsurance contracts do not relieve the Company from its primary
obligation to policyholders.
The Company is a defendant in various lawsuits, none of which, in
the opinion of Company counsel, will result in a material
liability.
The IRS has completed its audit of the Company's 1987 through 1989
tax years. The Company is currently contesting one issue at the
IRS Appeals Level. Management does not believe there will be a
material impact as a result of this audit.
7. Lines of credit
The Company has available lines of credit with three banks
aggregating $100,000 at 40 to 80 basis points over the banks' cost
of funds or equal to the prime rate, depending on which line of
credit agreement is used. Borrowings outstanding under these
agreements were $nil at Dec. 31, 1995 and 1994, respectively.
<PAGE>
PAGE 38
8. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including
hedging specific transactions. The Company manages risks
associated with these instruments as described below. The Company
does not hold derivative instruments for trading purposes.
Market risk is the possibility that the value of the derivative
financial instruments will change due to fluctuations in a factor
from which the instrument derives its value, primarily an interest
rate. The Company is not impacted by market risk related to
derivatives held for non-trading purposes beyond that inherent in
cash market transactions. Derivatives held for purposes other than
trading are largely used to manage risk and, therefore, the cash
flow and income effects of the derivatives are inverse to the
effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not
fulfill the terms of the contract. The Company monitors credit
exposure related to derivative financial instruments through
established approval procedures, including setting concentration
limits by counterparty and industry, and requiring collateral,
where appropriate. A vast majority of the Company's counterparties
are rated A or better by Moody's and Standard & Poor's.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional
amounts are not recorded on the balance sheet. Notional amounts
far exceed the related credit exposure.
Credit exposure related to interest rate caps is measured by the
replacement cost of the contracts. The replacement cost
represents the fair value of the instruments. Financial futures
contracts are settled in cash daily.
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
Dec. 31, 1995 Amount Value Value Exposure
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $5,100,000 $26,680 $ 8,366 $ 8,366
Dec. 31, 1994
Assets:
Financial futures
contracts $ 159,800 $ 2,072 $ 2,072 $ --
Interest rate caps 4,400,000 29,054 42,365 42,365
$4,559,800 $31,126 $44,437 $42,365
</TABLE>
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The financial
futures contracts expired in 1995. The interest rate caps expire
on various dates from 1996 to 2000.
<PAGE>
PAGE 39
8. Derivative financial instruments (continued)
Financial futures contracts and interest rate caps are used
principally to manage the Company's exposure to rising interest
rates. These instruments are used primarily to protect the margin
between interest rates earned on investments and the interest rates
credited to related annuity contract holders.
Changes in the fair value of financial futures contracts are
accounted for as adjustments to the carrying amount of the hedged
investments and amortized over the remaining lives of such
investments. The cost of interest rate caps is amortized to
interest expense over the life of the contracts and payments
received as a result of these agreements are recorded as a
reduction of interest expense when realized. The amortized cost of
interest rate cap contracts is included in other investments.
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 practical
to estimate that value. Fair values of life insurance obligations,
receivables and all non-financial instruments, such as deferred
acquisition costs are excluded. Off-balance sheet intangible
assets, such as the value of the field force, are also excluded.
Management believes the value of excluded assets is significant.
The fair value of the Company, therefore, cannot be estimated by
aggregating the amounts presented.
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Financial Assets Value Value Value Value
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $11,257,591 $11,878,377 $11,269,861 $10,694,800
Available for sale 10,516,212 10,516,212 8,017,555 8,017,555
Mortgage loans on
real estate (Note 2) 2,945,495 3,184,666 2,400,514 2,342,520
Other:
Equity securities (Note 2) 3,517 3,517 1,906 1,906
Derivative financial
instruments (Note 8) 26,680 8,366 31,126 44,437
Other 52,182 52,182 -- --
Cash and cash
equivalents (Note 1) 72,147 72,147 267,774 267,774
Separate account assets
(Note 1) 14,974,082 14,974,082 10,881,235 10,881,235
Financial Liabilities
Future policy benefits
for fixed annuities 20,259,265 19,603,114 18,325,870 17,651,897
Separate account
liabilities 14,208,619 13,665,636 10,398,861 9,943,672
</TABLE>
At Dec. 31, 1995 and 1994, the carrying amount and fair value of
future policy benefits for fixed annuities exclude life
insurance-related contracts carried at $1,070,598 and $971,897,
respectively, and policy loans of $74,973 and $64,212,
respectively. The fair value of these benefits is based on the
status of the annuities at Dec. 31, 1995 and 1994. The fair value
of deferred annuities is estimated as the carrying amount less any <PAGE>
PAGE 40
9. Fair values of financial instruments (continued)
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 1995 and 1994.
At Dec. 31, 1995 and 1994, 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 $765,463 and $482,374, respectively.
10. Segment information
The Company's operations consist of two business segments; first,
individual and group life insurance, disability income, health and
long-term care insurance, and second, annuity products designed for
individuals, pension plans, small businesses and employer-sponsored
groups. The consolidated condensed statements of income for the
years ended Dec. 31, 1995, 1994 and 1993 and total assets at Dec.
31, 1995, 1994 and 1993 by segment are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net investment income:
Life, disability income, health
and long-term care insurance $ 256,242 $ 247,047 $ 250,224
Annuities 1,651,067 1,534,826 1,532,995
$ 1,907,309 $ 1,781,873 $ 1,783,219
Premiums, charges and fees:
Life, disability income, health
and long-term care insurance $ 384,008 $ 335,375 $ 287,713
Annuities 249,557 193,370 143,876
$ 633,565 $ 528,745 $ 431,589
Income before income taxes:
Life, disability income, health
and long-term care insurance $ 125,402 $ 122,677 $ 104,127
Annuities 440,278 394,117 315,336
Net loss on investments (4,898) (4,282) (6,737)
$ 560,782 $ 512,512 $ 412,726
Total assets:
Life, disability income, health
and long-term care insurance $ 6,195,870 $ 5,269,188 $ 4,810,145
Annuities 36,704,208 30,478,355 28,247,608
$42,900,078 $35,747,543 $33,057,753
</TABLE>
Allocations of net investment income and certain general expenses
are based on various assumptions and estimates.
Assets are not individually identifiable by segment and have been
allocated principally based on the amount of future policy benefits
by segment.
Capital expenditures and depreciation expense are not material, and
consequently, are not reported.
<PAGE>
PAGE 41
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, 1995 and 1994,
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, 1995. 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, 1995 and
1994, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for certain
investments in debt and equity securities in 1994.
Ernst & Young LLP
February 2, 1996
Minneapolis, Minnesota
<PAGE>
PAGE 42
[ARTICLE] 6
[NAME] IDS Life Variable Account for Smith Barney
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 16376116
[INVESTMENTS-AT-VALUE] 23506607
[RECEIVABLES] 85294
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 23591901
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] (159862)
[TOTAL-LIABILITIES] (159862)
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 9851995
[SHARES-COMMON-PRIOR] 10817260
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 23432039
[DIVIDEND-INCOME] 818741
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] (548927)
[NET-INVESTMENT-INCOME] 269814
[REALIZED-GAINS-CURRENT] 1083378
[APPREC-INCREASE-CURRENT] 3495550
[NET-CHANGE-FROM-OPS] 4848742
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 792460
<NUMBER-OF-SHARES-REDEEMED (1757725)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 2474718
[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] (548927)
[AVERAGE-NET-ASSETS] 22194680
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DISTRIBUTIONS] 0
<PAGE>
PAGE 43
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<PAGE>
PAGE 44
[ARTICLE] 7
[CIK] 0000768836
[NAME] IDS Life Insurance Company
[MULTIPLIER] 1000
[CURRENCY] U.S. DOLLAR
[FISCAL-YEAR-END] DEC-31-1994 DEC-31-1995
[PERIOD-START] JAN-01-1994 JAN-01-1995
[PERIOD-END] DEC-31-1994 DEC-31-1995
[PERIOD-TYPE] YEAR YEAR
[EXCHANGE-RATE] 1 1
[DEBT-HELD-FOR-SALE] 8017555 10516212
[DEBT-CARRYING-VALUE] 11269861 11257591
[DEBT-MARKET-VALUE] 10694800 11878377
[EQUITIES] 1906 3517
[MORTGAGE] 2400514 2945495
[REAL-ESTATE] 20835 28796
[TOTAL-INVEST] 22121637 25290211
[CASH] 267774 72147
[RECOVER-REINSURE] 1110 1849
[DEFERRED-ACQUISITION] 1865324 2025725
[TOTAL-ASSETS] 35747543 42900078
[POLICY-LOSSES] 22708910 25018089
[UNEARNED-PREMIUMS] 0 0
[POLICY-OTHER] 0 0
[POLICY-HOLDER-FUNDS] 50068 56323
[NOTES-PAYABLE] 0 0
[COMMON] 3000 3000
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[OTHER-SE] 1585691 2328708
[TOTAL-LIABILITY-AND-EQUITY] 35747543 42900078
[PREMIUMS] 144640 161530
[INVESTMENT-INCOME] 1781873 1907309
[INVESTMENT-GAINS] (4282) (4898)
[OTHER-INCOME] 384105 472035
[BENEFITS] 1303351 1483431
[UNDERWRITING-AMORTIZATION] 280372 280121
[UNDERWRITING-OTHER] 210101 211642
[INCOME-PRETAX] 512512 560782
[INCOME-TAX] 176343 195842
[INCOME-CONTINUING] 336169 364940
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 336169 364940
[EPS-PRIMARY] 0 0
[EPS-DILUTED] 0 0
[RESERVE-OPEN] 20636 23228
[PROVISION-CURRENT] 93683 117478
[PROVISION-PRIOR] 0 0
[PAYMENTS-CURRENT] 91091 116514
[PAYMENTS-PRIOR] 0 0
[RESERVE-CLOSE] 23228 24192
[CUMULATIVE-DEFICIENCY] 0 0
