<PAGE>
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SALOMON SMITH BARNEY LIFEVEST-SM-
- ------------------------------------
Annual Report for:
- Single Premium Variable Life Insurance
Policy issued by IDS Life Insurance
Company
Prospectus for:
- The Shearson Lehman Brothers Fund of
Stripped ("Zero Coupon")
U.S. Treasury Securities Fund, Series A
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
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 -- Single Premium Variable Life Insurance (comprised of subaccounts
SAP, SGO, SHI, STR, SMM and S04) as of December 31, 1999, and the related
statements of operations and changes in net assets for each of the three years
in the period then ended. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1999 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 --
Single Premium Variable Life Insurance at December 31, 1999 and the individual
and combined results of their operations and the changes in their net assets for
the periods described above, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 17, 2000
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1
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Net Assets
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
------------------------------------------------------------------------- VARIABLE
DEC. 31, 1999 SAP SGO SHI STR SMM S04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
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Investments in shares of mutual fund
portfolios and units of the trust:
at cost $ 9,204,230 $1,265,035 $1,434,101 $5,082,247 $716,657 $113,269 $17,815,539
----------------------------------------------------------------------------------------
at market value $23,550,293 $1,238,310 $1,263,177 $7,870,300 $716,664 $157,315 $34,796,059
Dividends receivable -- 5,724 15,456 -- 3,344 -- 24,524
Receivable from mutual fund portfolios
and the trust for share redemptions -- -- -- -- -- 7,216 7,216
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 23,550,293 1,244,034 1,278,633 7,870,300 720,008 164,531 34,827,799
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------------
Payable to IDS Life for:
Mortality and expense risk fee 11,976 634 656 4,025 371 83 17,745
Minimum death benefit guarantee risk
charge 7,984 422 437 2,683 247 55 11,828
Issue and adminstrative expense
charge 5,988 317 328 2,013 185 41 8,872
Mortality charge 9,980 528 547 3,354 309 68 14,786
Transaction charge -- -- -- -- -- 34 34
Contract terminations 14,482 -- 1,581 10,679 -- 6,935 33,677
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Total liabilities 50,410 1,901 3,549 22,754 1,112 7,216 86,942
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Variable Life
contracts in accumulation period $23,499,883 $1,242,133 $1,275,084 $7,847,546 $718,896 $157,315 $34,740,857
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Accumulation units outstanding 2,693,078 705,055 847,047 1,919,972 494,521 73,263
- ------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 8.73 $ 1.76 $ 1.51 $ 4.09 $ 1.45 $ 2.15
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</TABLE>
See accompanying notes to financial statements.
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2 IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Operations
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
-------------------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1999 SAP SGO SHI STR SMM S04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
- ---------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund
portfolios and in the trust $ -- $ 71,271 $101,632 $ 208,401 $ 41,518 $ -- $ 422,822
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 96,487 7,623 8,536 42,631 5,630 999 161,906
Minimum death benefit guarantee risk
charge 63,828 5,082 5,649 28,420 3,746 666 107,391
Issue and administrative expense charge 47,948 3,818 4,244 21,352 2,813 499 80,674
Mortality charge 79,862 6,359 7,068 35,562 4,685 832 134,368
Transaction charge -- -- -- -- -- 416 416
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 288,125 22,882 25,497 127,965 16,874 3,412 484,755
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net (288,125) 48,389 76,135 80,436 24,644 (3,412) (61,933)
- ---------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments -- net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of
investments in mutual fund portfolios
and in the trust:
Proceeds from sales 2,117,289 58,000 235,443 723,289 876,511 43,031 4,053,563
Cost of investments sold 1,319,112 56,363 261,783 528,505 876,505 30,279 3,072,547
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 798,177 1,637 (26,340) 194,784 6 12,752 981,016
Net change in unrealized appreciation or
depreciation of investments 9,953,803 (98,653) (71,278) 1,188,939 7 (19,565) 10,953,253
- ---------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 10,751,980 (97,016) (97,618) 1,383,723 13 (6,813) 11,934,269
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $10,463,855 $(48,627) $(21,483) $1,464,159 $ 24,657 $(10,225) $11,872,336
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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3
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Operations
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
------------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1998 SAP SGO SHI STR SMM S04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
- ---------------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in
the trust $ 2,347,627 $ 84,532 $105,945 $578,987 $ 39,078 $ -- $ 3,156,169
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 86,214 9,480 8,671 39,614 4,847 1,151 149,977
Minimum death benefit guarantee risk charge 57,476 5,019 5,780 26,409 3,232 767 98,683
Issue and administrative expense charge 43,236 3,776 4,348 19,867 2,431 575 74,233
Mortality charge 71,974 6,285 7,238 33,071 4,047 959 123,574
Transaction charge -- -- -- -- -- 479 479
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Total expenses 258,900 24,560 26,037 118,961 14,557 3,931 446,946
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 2,088,727 59,972 79,908 460,026 24,521 (3,931) 2,709,223
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Realized and unrealized gain (loss) on investments -- net
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in
mutual fund portfolios and in the trust:
Proceeds from sales 2,200,941 178,325 126,799 577,029 878,518 4,151 3,965,763
Cost of investments sold 1,566,583 169,662 133,331 463,267 878,521 3,042 3,214,406
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 634,358 8,663 (6,532) 113,762 (3) 1,109 751,357
Net change in unrealized appreciation or depreciation
of investments (1,792,851) 16,683 (21,626) 187,034 -- 21,136 (1,589,624)
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Net gain (loss) on investments (1,158,493) 25,346 (28,158) 300,796 (3) 22,245 (838,267)
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Net increase (decrease) in net assets resulting from
operations $ 930,234 $ 85,318 $ 51,750 $760,822 $ 24,518 $18,314 $ 1,870,956
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</TABLE>
See accompanying notes to financial statements.
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4 IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Operations
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
-------------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1997 SAP SGO SHI STR SMM S04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
- ---------------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in
the trust $ 520,767 $ 97,044 $103,257 $603,574 $ 42,790 $ -- $1,367,432
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charge 65,051 9,465 7,356 31,853 6,481 864 121,070
Minimum death benefit guarantee risk charge 55,691 5,320 5,791 25,333 3,408 762 96,305
Issue and administrative expense charge 38,165 3,721 4,087 17,813 2,504 546 66,836
Mortality charge 69,461 6,637 7,224 31,596 4,250 953 120,121
Transaction charge -- -- -- -- -- 477 477
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Total expenses 228,368 25,143 24,458 106,595 16,643 3,602 404,809
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Investment income (loss) -- net 292,399 71,901 78,799 496,979 26,147 (3,602) 962,623
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Realized and unrealized gain (loss) on investments -- net
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in
mutual fund portfolios and in the trust:
Proceeds from sales 2,638,482 485,010 113,702 765,985 1,506,359 27,302 5,536,840
Cost of investments sold 1,602,604 473,135 120,084 592,834 1,506,371 21,867 4,316,895
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,035,878 11,875 (6,382) 173,151 (12) 5,435 1,219,945
Net change in unrealized appreciation or depreciation
of investments 1,041,788 8,076 15,156 235,338 9 14,869 1,315,236
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Net gain (loss) on investments 2,077,666 19,951 8,774 408,489 (3) 20,304 2,535,181
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $2,370,065 $ 91,852 $ 87,573 $905,468 $ 26,144 $16,702 $3,497,804
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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5
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS
------------------------------------------------------------
YEAR ENDED DEC. 31, 1999 SAP SGO SHI STR SMM
<S> <C> <C> <C> <C> <C>
Operations
- -----------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ (288,125) $ 48,389 $ 76,135 $ 80,436 $ 24,644
Net realized gain (loss) on investments 798,177 1,637 (26,340) 194,784 6
Net change in unrealized appreciation
or depreciation of investments 9,953,803 (98,653) (71,278) 1,188,939 7
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 10,463,855 (48,627) (21,483) 1,464,159 24,657
- -----------------------------------------------------------------------------------------------------
Contract transactions
- -----------------------------------------------------------------------------------------------------
Net transfers* (206,267) (34,180) (125,793) 215,821 187,281
Transfers for policy loans (404,401) 7,479 (30,978) (289,310) (1,255)
Contract terminations:
Surrender benefits (692,549) (5,256) (51,642) (198,679) (539,728)
Death benefits (194,746) -- -- (150,450) --
- -----------------------------------------------------------------------------------------------------
Increase (decrease) from contract
transactions (1,497,963) (31,957) (208,413) (422,618) (353,702)
- -----------------------------------------------------------------------------------------------------
Net assets at beginning of year 14,533,991 1,322,717 1,504,980 6,806,005 1,047,941
- -----------------------------------------------------------------------------------------------------
Net assets at end of year $23,499,883 $1,242,133 $1,275,084 $7,847,546 $ 718,896
- -----------------------------------------------------------------------------------------------------
Accumulation unit activity
- -----------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 2,959,244 722,686 986,044 2,038,128 741,544
Net transfers* (35,290) (18,701) (84,051) 60,533 127,300
Transfers for policy loans (77,454) 3,964 (20,655) (81,523) (880)
Contract terminations:
Surrender benefits (116,961) (2,894) (34,291) (55,066) (373,443)
Death benefits (36,461) -- -- (42,100) --
- -----------------------------------------------------------------------------------------------------
Units outstanding at end of year 2,693,078 705,055 847,047 1,919,972 494,521
- -----------------------------------------------------------------------------------------------------
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS
----------- VARIABLE
YEAR ENDED DEC. 31, 1999 S04 ACCOUNT
<S> <C> <C>
Operations
- --------------------------------------------------------------------
Investment income (loss) -- net $ (3,412) $ (61,933)
Net realized gain (loss) on investments 12,752 981,016
Net change in unrealized appreciation
or depreciation of investments (19,565) 10,953,253
- ---------------------------------------
Net increase (decrease) in net assets
resulting from operations (10,225) 11,872,336
- ---------------------------------------
Contract transactions
- -----------------------------------------------------------------------------------
Net transfers* -- 36,862
Transfers for policy loans (238) (718,703)
Contract terminations:
Surrender benefits (32,559) (1,520,413)
Death benefits -- (345,196)
- ---------------------------------------
Increase (decrease) from contract
transactions (32,797) (2,547,450)
- ---------------------------------------
Net assets at beginning of year 200,337 25,415,971
- ---------------------------------------
Net assets at end of year $157,315 $34,740,857
- ---------------------------------------
Accumulation unit activity
- --------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 87,753
Net transfers* --
Transfers for policy loans (109)
Contract terminations:
Surrender benefits (14,381)
Death benefits --
- ---------------------------------------
Units outstanding at end of year 73,263
- ---------------------------------------
</TABLE>
* Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account.
See accompanying notes to financial statements.
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6 IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
--------------------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1998 SAP SGO SHI STR SMM S04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 2,088,727 $ 59,972 $ 79,908 $ 460,026 $ 24,521 $ (3,931) $ 2,709,223
Net realized gain (loss) on investments 634,358 8,663 (6,532) 113,762 (3) 1,109 751,357
Net change in unrealized appreciation or
depreciation of investments (1,792,851) 16,683 (21,626) 187,034 -- 21,136 (1,589,624)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 930,234 85,318 51,750 760,822 24,518 18,314 1,870,956
- ---------------------------------------------------------------------------------------------------------------------------------
Contract transactions
- ---------------------------------------------------------------------------------------------------------------------------------
Net transfers* (160,709) (90,134) 62,186 (56,723) 245,655 (1,800) (1,525)
Transfers for policy loans (282,500) (22,536) (47,030) (205,967) (22,514) (231) (580,778)
Contract terminations:
Surrender benefits (273,468) (36,315) (27,056) (169,822) (93,641) -- (600,302)
Death benefits (321,523) -- -- -- -- -- (321,523)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract
transactions (1,038,200) (148,985) (11,900) (432,512) 129,500 (2,031) (1,504,128)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 14,641,957 1,386,384 1,465,130 6,477,695 893,923 184,054 25,049,143
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,533,991 $1,322,717 $1,504,980 $6,806,005 $1,047,941 $200,337 $25,415,971
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation unit activity
- ---------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 3,193,430 806,092 994,631 2,180,377 652,554 87,862
Net transfers* (45,188) (49,926) 40,798 (19,100) 172,425 --
Transfers for policy loans (57,312) (12,577) (31,458) (68,037) (16,271) (109)
Contract terminations:
Surrender benefits (60,275) (20,903) (17,927) (55,112) (67,164) --
Death benefits (71,411) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 2,959,244 722,686 986,044 2,038,128 741,544 87,753
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
---------------------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1997 SAP SGO SHI STR SMM S04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 292,399 $ 71,901 $ 78,799 $ 496,979 $ 26,147 $ (3,602) $ 962,623
Net realized gain (loss) on investments 1,035,878 11,875 (6,382) 173,151 (12) 5,435 1,219,945
Net change in unrealized appreciation or
depreciation of investments 1,041,788 8,076 15,156 235,338 9 14,869 1,315,236
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,370,065 91,852 87,573 905,468 26,144 16,702 3,497,804
- ---------------------------------------------------------------------------------------------------------------------------------
Contract transactions
- ---------------------------------------------------------------------------------------------------------------------------------
Net transfers* (58,787) (124,034) 4,685 (38,507) 128,879 -- (87,764)
Transfers for policy loans (191,279) (3,767) 2,941 6,665 (50,065) (438) (235,943)
Contract terminations:
Surrender benefits (304,825) (137,608) (52,383) (272,825) (606,569) (17,281) (1,391,491)
Death benefits (216,595) (38,017) -- -- -- -- (254,612)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract
transactions (771,486) (303,426) (44,757) (304,667) (527,755) (17,719) (1,969,810)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 13,043,378 1,597,958 1,422,314 5,876,894 1,395,534 185,071 23,521,149
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $14,641,957 $1,386,384 $1,465,130 $6,477,695 $ 893,923 $184,054 $25,049,143
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation unit activity
- ---------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 3,372,075 991,272 1,021,781 2,287,669 1,055,223 96,078
Net transfers* 3,119 (75,872) 7,401 (7,805) 91,014
Transfers for policy loans (44,966) (2,300) 2,229 1,236 (37,530) (229)
Contract terminations:
Surrender benefits (82,464) (83,757) (36,780) (100,723) (456,153) (7,987)
Death benefits (54,334) (23,251) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 3,193,430 806,092 994,631 2,180,377 652,554 87,862
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life's fixed account.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8 IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
<PAGE>
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 under Minnesota law on April 23, 1986 as a segregated asset account
of IDS Life Insurance Company (IDS Life). The Variable Account is registered as
a single unit investment trust under the Investment Company Act of 1940, as
amended (the 1940 Act). Operations of the Variable Account commenced on Oct. 3,
1986.
The Variable Account is comprised of various subaccounts. Each subaccount
invests exclusively in shares of one of the following portfolios (the Funds) of
IDS Life Series Fund, Inc. (IDS Life Series Fund) or in the Trust. IDS Life
Series Fund is registered under the 1940 Act as a diversified, open-end
management investment company. The Trust is registered under the 1940 Act as a
unit investment trust. The Funds have the following investment managers and the
Trust has the following sponsor.
<TABLE>
<CAPTION>
Subaccount Invests exclusively in shares of Investment Manager/Sponsor
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SAP IDS Life Series Fund -- Equity Portfolio IDS Life Insurance Company(1)
SGO IDS Life Series Fund -- Government Securities Portfolio IDS Life Insurance Company(1)
SHI IDS Life Series Fund -- Income Portfolio IDS Life Insurance Company(1)
STR IDS Life Series Fund -- Managed Portfolio IDS Life Insurance Company(1)
SMM IDS Life Series Fund -- Money Market Portfolio IDS Life Insurance Company(1)
S04 2004 Trust Salomon Smith Barney Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) American Express Financial Corporation (AEFC) is the investment advisor.
The assets of each subaccount of the Variable Account are not chargeable with
liabilities arising out of the business conducted by any other segregated asset
account or by IDS Life.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in the Funds
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Investments in the Trust
Investments in units of the Trust are stated at market value which is the net
asset value per unit as determined by the 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.
- --------------------------------------------------------------------------------
9
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccount's share of the Trust's
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
Federal Income Taxes
IDS Life is taxed as a life insurance company. The Variable Account is treated
as part of IDS Life for federal income tax purposes. Under existing federal
income tax law, no income taxes are payable with respect to any investment
income of the Variable Account.
3. MORTALITY CHARGE
IDS Life deducts a mortality charge equal (except as explained below), on an
annual basis, to 0.5% 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% 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 expenses and mortality experience of
the policy owners and beneficiaries will not affect the Variable Account. The
mortality and expense risk fee paid to IDS Life is computed daily and is equal,
on an annual basis, to 0.6% 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% 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 is 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 0.3% of the daily net asset value of the
Variable Account. 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.
- --------------------------------------------------------------------------------
10 IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
7. TRANSACTION CHARGE
IDS Life makes a daily charge against the assets of each subaccount investing in
the Trust. This charge is intended to reimburse IDS Life for the transaction
charge paid directly by IDS Life to Salomon 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% of the account value invested in the Trust. This
amount may be increased in the future but in no event will it exceed an
effective annual rate of 0.5% 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.
8. INVESTMENT IN SHARES/UNITS
The subaccounts' investment in shares of the Funds and units of the Trust as of
Dec. 31, 1999 were as follows:
<TABLE>
<CAPTION>
Subaccount Investment Shares/Units NAV
- ----------------------------------------------------------------------
<S> <C> <C> <C>
IDS Life Series Fund -- Equity
SAP Portfolio 472,753 $49.82
IDS Life Series Fund -- Government
SGO Securities Portfolio 128,805 9.61
IDS Life Series Fund -- Income
SHI Portfolio 134,866 9.37
IDS Life Series Fund -- Managed
STR Portfolio 340,695 23.10
IDS Life Series Fund -- Money
SMM Market Portfolio 716,719 1.00
S04 2004 Trust 214,511 0.73
- ----------------------------------------------------------------------
</TABLE>
9. INVESTMENT TRANSACTIONS
The subaccounts' purchases of Funds' shares or Trust units, including
reinvestment of dividend distributions, were as follows:
<TABLE>
<CAPTION>
Year ended Dec. 31,
Subaccount Investment 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IDS Life Series Fund -- Equity
SAP Portfolio $ 381,611 $3,207,080 $2,150,762
IDS Life Series Fund --
Government Securities
SGO Portfolio 70,969 89,312 253,124
IDS Life Series Fund -- Income
SHI Portfolio 91,258 194,806 147,744
IDS Life Series Fund --
STR Managed Portfolio 403,861 584,580 954,707
IDS Life Series Fund -- Money
SMM Market Portfolio 545,221 1,032,539 1,004,752
S04 2004 Trust 3,470 -- 7,115
- ------------------------------------------------------------------------------
Combined Variable Account $1,496,390 $5,108,317 $4,518,204
- ------------------------------------------------------------------------------
</TABLE>
10. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of IDS Life and the
Variable Account. All of the major systems used by IDS Life and the Variable
Account are maintained by AEFC and are utilized by multiple subsidiaries and
affiliates of AEFC. IDS Life's and the Variable Account's businesses are heavily
dependent upon AEFC's computer systems and have significant interaction with
systems of third parties.
- --------------------------------------------------------------------------------
11
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
A comprehensive review of AEFC's computer systems and business processes,
including those specific to IDS Life and the Variable Account, was conducted to
identify the major systems that could be affected by the Year 2000 issue. Steps
were taken to resolve any potential problems including modification to existing
software and the purchase of new software. As of Dec. 31, 1999, AEFC had
completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC
had also completed an evaluation of the Year 2000 readiness of third parties
whose system failures could have an impact on IDS Life's and the Variable
Account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on IDS Life's and the Variable
Account's business, results of operations, or financial condition as a result of
the Year 2000 issue.
- --------------------------------------------------------------------------------
12 IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
<PAGE>
IDS LIFE VARIABLE ACCOUNT FOR SMITH BARNEY
Condensed Financial Information
(UNAUDITED)
The following tables give per-unit information about the financial history of
each subaccount.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subaccount SAP (Investing in shares of IDS Life Series Fund -- Equity Portfolio)
Accumulation unit
value at
beginning of
period $4.91 $4.59 $3.87 $3.30 $2.44 $2.43 $2.20 $2.14 $1.32 $1.35
Accumulation unit
value at end of
period $8.73 $4.91 $4.59 $3.87 $3.30 $2.44 $2.43 $2.20 $2.14 $1.32
Number of
accumulation
units outstanding
at end of period
(000 omitted) 2,693 2,959 3,193 3,372 3,739 4,143 4,254 4,592 4,902 5,464
- -------------------------------------------------------------------------------------------------------------
Subaccount SGO (Investing in shares of IDS Life Series Fund -- Government Securities Portfolio)
Accumulation unit
value at
beginning of
period $1.83 $1.72 $1.61 $1.63 $1.41 $1.52 $1.39 $1.33 $1.17 $1.12
Accumulation unit
value at end of
period $1.76 $1.83 $1.72 $1.61 $1.63 $1.41 $1.52 $1.39 $1.33 $1.17
Number of
accumulation
units outstanding
at end of period
(000 omitted) 705 723 806 991 1,068 995 1,264 1,486 1,724 1,548
- -------------------------------------------------------------------------------------------------------------
Subaccount SHI (Investing in shares of IDS Life Series Fund -- Income Portfolio)
Accumulation unit
value at
beginning of
period $1.53 $1.47 $1.39 $1.38 $1.16 $1.24 $1.11 $1.04 $0.92 $1.13
Accumulation unit
value at end of
period $1.51 $1.53 $1.47 $1.39 $1.38 $1.16 $1.24 $1.11 $1.04 $0.92
Number of
accumulation
units outstanding
at end of period
(000 omitted) 847 986 995 1,021 1,030 1,064 1,144 901 947 1,310
- -------------------------------------------------------------------------------------------------------------
Subaccount STR (Investing in shares of IDS Life Series Fund -- Managed Portfolio)
Accumulation unit
value at
beginning of
period $3.34 $2.97 $2.57 $2.30 $1.98 $2.01 $1.72 $1.59 $1.23 $1.25
Accumulation unit
value at end of
period $4.09 $3.34 $2.97 $2.57 $2.30 $1.98 $2.01 $1.72 $1.59 $1.23
Number of
accumulation
units outstanding
at end of period
(000 omitted) 1,920 2,038 2,180 2,287 2,653 3,145 3,397 3,515 3,784 4,173
- -------------------------------------------------------------------------------------------------------------
Subaccount SMM (Investing in shares of IDS Life Series Fund -- Money Market Portfolio)
Accumulation unit
value at
beginning of
period $1.41 $1.37 $1.32 $1.29 $1.25 $1.24 $1.24 $1.23 $1.18 $1.13
Accumulation unit
value at end of
period $1.45 $1.41 $1.37 $1.32 $1.29 $1.25 $1.24 $1.24 $1.23 $1.18
Number of
accumulation
units outstanding
at end of period
(000 omitted) 495 742 653 1,055 1,249 787 982 1,452 1,822 2,038
- -------------------------------------------------------------------------------------------------------------
Subaccount S04 (Investing in shares of 2004 Trust)
Accumulation unit
value at
beginning of
period $2.28 $2.09 $1.90 $1.98 $1.55 $1.74 $1.47 $1.38 $1.17 $1.16
Accumulation unit
value at end of
period $2.15 $2.28 $2.09 $1.90 $1.98 $1.55 $1.74 $1.47 $1.38 $1.17
Number of
accumulation
units outstanding
at end of period
(000 omitted) 73 88 88 96 112 140 139 280 261 605
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
IDS LIFE INSURANCE COMPANY
FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
IDS LIFE INSURANCE COMPANY
We have audited the accompanying consolidated balance sheets of IDS Life
Insurance Company (a wholly-owned subsidiary of American Express Financial
Corporation) as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IDS Life Insurance
Company at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
February 3, 2000
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-1
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, ($ THOUSANDS) 1999 1998
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value:
1999, $7,105,743; 1998, $8,420,035) $ 7,156,292 $ 7,964,114
Available for sale, at fair value
(amortized cost:
1999, $13,703,137; 1998,
$13,344,949) 13,049,549 13,613,139
- ------------------------------------------------------------------
20,205,841 21,577,253
Mortgage loans on real estate 3,606,377 3,505,458
Policy loans 561,834 525,431
Other investments 506,797 366,604
- ------------------------------------------------------------------
Total investments 24,880,849 25,974,746
Cash and cash equivalents 32,333 22,453
Amounts recoverable from reinsurers 327,168 262,260
Amounts due from brokers 145 327
Other accounts receivable 48,578 47,963
Accrued investment income 343,449 366,574
Deferred policy acquisition costs 2,665,175 2,496,352
Deferred income taxes, net 216,020 --
Other assets 33,089 30,487
Separate account assets 35,894,732 27,349,401
- ------------------------------------------------------------------
Total assets $64,441,538 $56,550,563
- ------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities $20,552,159 $21,172,303
Universal life-type insurance 3,391,203 3,343,671
Traditional life insurance 226,842 225,306
Disability income and long-term care
insurance 811,941 660,320
Policy claims and other policyholders'
funds 24,600 70,309
Deferred income taxes, net -- 16,930
Amounts due to brokers 148,112 195,406
Other liabilities 579,678 410,285
Separate account liabilities 35,894,732 27,349,401
- ------------------------------------------------------------------
Total liabilities 61,629,267 53,443,931
- ------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Capital stock, $30 par value per
share;
100,000 shares authorized, issued and
outstanding 3,000 3,000
Additional paid-in capital 288,327 288,327
Accumulated other comprehensive (loss)
income, net of tax:
Net unrealized securities (losses) gains (411,230) 169,584
- ------------------------------------------------------------------
Retained earnings 2,932,174 2,645,721
- ------------------------------------------------------------------
Total stockholder's equity 2,812,271 3,106,632
- ------------------------------------------------------------------
Total liabilities and stockholder's
equity $64,441,538 $56,550,563
==================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-2 IDS LIFE INSURANCE COMPANY
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
REVENUES:
- -----------------------------------------------------------------------------
Premiums:
Traditional life insurance $ 53,790 $ 53,132 $ 52,473
Disability income and long-term care
insurance 201,637 176,298 154,021
- -----------------------------------------------------------------------------
Total premiums 255,427 229,430 206,494
Policyholder and contractholder charges 411,994 383,965 341,726
Management and other fees 473,108 401,057 340,892
Net investment income 1,919,573 1,986,485 1,988,389
Net realized gain on investments 26,608 6,902 860
- -----------------------------------------------------------------------------
Total revenues 3,086,710 3,007,839 2,878,361
- -----------------------------------------------------------------------------
BENEFITS AND EXPENSES:
- -----------------------------------------------------------------------------
Death and other benefits:
Traditional life insurance 29,819 29,835 28,951
Universal life-type insurance and
investment contracts 118,561 108,349 92,814
Disability income and long-term care
insurance 30,622 27,414 22,333
Increase in liabilities for future
policy benefits:
Traditional life insurance 7,311 6,052 3,946
Disability income and long-term care
insurance 87,620 73,305 63,631
Interest credited on universal life-type
insurance and investment contracts 1,240,575 1,317,124 1,386,448
Amortization of deferred policy
acquisition costs 332,705 382,642 322,731
Other insurance and operating expenses 335,180 287,326 276,596
- -----------------------------------------------------------------------------
Total benefits and expenses 2,182,393 2,232,047 2,197,450
- -----------------------------------------------------------------------------
Income before income taxes 904,317 775,792 680,911
Income taxes 267,864 235,681 206,664
- -----------------------------------------------------------------------------
Net income $ 636,453 $ 540,111 $ 474,247
=============================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-3
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TOTAL ADDITIONAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL PAID-IN (LOSS) INCOME, RETAINED
THREE YEARS ENDED DECEMBER 31, 1999 ($ THOUSANDS) EQUITY STOCK CAPITAL NET OF TAX EARNINGS
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $2,444,080 $3,000 $283,615 $ 86,102 $2,071,363
Comprehensive income:
Net income 474,247 -- -- -- 474,247
Unrealized holding gains arising during the year,
net of deferred policy acquisition costs of
($7,714) and taxes of ($75,215) 139,686 -- -- 139,686 --
Reclassification adjustment for losses included in
net income, net of tax of ($308) 571 -- -- 571 --
Other comprehensive income 140,257 -- -- 140,257 --
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income 614,504 -- -- -- --
Capital contribution from parent 7,232 -- 7,232 -- --
Cash dividends to parent (200,000) -- -- -- (200,000)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,865,816 3,000 290,847 226,359 2,345,610
Comprehensive income:
Net income 540,111 -- -- -- 540,111
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of
$6,333 and taxes of $32,826 (60,964) -- -- (60,964) --
Reclassification adjustment for losses included in
net income, net of tax of ($2,254) 4,189 -- -- 4,189 --
Other comprehensive loss (56,775) -- -- (56,775) --
Comprehensive income 483,336 -- -- -- --
Other changes (2,520) -- (2,520) -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (240,000) -- -- -- (240,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,106,632 3,000 288,327 169,584 2,645,721
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $3,106,632 $3,000 $288,327 $ 169,584 $2,645,721
Comprehensive income:
Net income 636,453 -- -- -- 636,453
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of
$28,444 and taxes of $304,936 (566,311) -- -- (566,311) --
Reclassification adjustment for gains included in
net income, net of tax of $7,810 (14,503) -- -- (14,503) --
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (580,814) -- -- (580,814) --
Comprehensive income 55,639 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (350,000) -- -- -- (350,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $2,812,271 $3,000 $288,327 $(411,230) $2,932,174
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-4 IDS LIFE INSURANCE COMPANY
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------
Net income $ 636,453 $ 540,111 $ 474,247
Adjustments to reconcile net income to
net cash provided by operating
activities: Policy loans, excluding
universal life-type insurance:
Issuance (56,153) (53,883) (54,665)
Repayment 54,105 57,902 46,015
Change in amounts recoverable from
reinsurers (64,908) (56,544) (47,994)
Change in other accounts receivable (615) (10,068) 6,194
Change in accrued investment income 23,125 (9,184) (14,077)
Change in deferred policy acquisition
costs, net (140,379) (10,443) (156,486)
Change in liabilities for future policy
benefits for traditional life,
disability income and long-term care
insurance 153,157 138,826 112,915
Change in policy claims and other
policyholders' funds (45,709) 1,964 (15,289)
Deferred income tax provision (benefit) 79,796 (19,122) 19,982
Change in other liabilities 169,395 64,902 13,305
(Accretion of discount), amortization of
premium, net (17,907) 9,170 (5,649)
Net realized gain on investments (26,608) (6,902) (860)
Policyholder and contractholder charges,
non-cash (175,059) (172,396) (160,885)
Other, net (5,324) 10,786 7,161
- -------------------------------------------------------------------------------
Net cash provided by operating
activities $ 583,369 $ 485,119 $ 223,914
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------------------------------------------------
Fixed maturities held to maturity:
Purchases $ (3,030) $ (1,020) $ (1,996)
Maturities, sinking fund payments and
calls 741,949 1,162,731 686,503
Sales 66,547 236,963 236,761
Fixed maturities available for sale:
Purchases (3,433,128) (4,100,238) (3,160,133)
Maturities, sinking fund payments and
calls 1,442,507 2,967,311 1,206,213
Sales 1,691,389 278,955 457,585
Other investments, excluding policy
loans:
Purchases (657,383) (555,647) (524,521)
Sales 406,684 579,038 335,765
Change in amounts due from brokers 182 8,073 2,647
Change in amounts due to brokers (47,294) (186,052) 119,471
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 208,423 390,114 (641,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------------------------------------------------
Activity related to universal life-type
insurance and investment contracts:
Considerations received 2,031,630 1,873,624 2,785,758
Surrenders and other benefits (3,669,759) (3,792,612) (3,736,242)
Interest credited to account balances 1,240,575 1,317,124 1,386,448
Universal life-type insurance policy
loans:
Issuance (102,239) (97,602) (84,835)
Repayment 67,881 67,000 54,513
Capital transaction with parent -- -- 7,232
Dividends paid (350,000) (240,000) (200,000)
- -------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (781,912) (872,466) 212,874
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 9,880 2,767 (204,917)
Cash and cash equivalents at beginning
of year 22,453 19,686 224,603
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 32,333 $ 22,453 $ 19,686
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a
wholly-owned subsidiary of American Express Financial Corporation (AEFC), which
is a wholly owned subsidiary of American Express Company. The Company serves
residents of all states except New York. IDS Life Insurance Company of New York
is a wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company, American Partners Life Insurance
Company and American Express Corporation.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single premium
and flexible premium deferred annuities on both a fixed and variable dollar
basis. Immediate annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single premium life and
term products (including waiver of premium and accidental death benefits). The
Company also markets disability income and long-term care insurance.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
which vary in certain respects from reporting practices prescribed or permitted
by state insurance regulatory authorities (see Note 4).
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized gains and
losses on securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of the related
deferred policy acquisition costs effect and deferred taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.
- --------------------------------------------------------------------------------
F-6 IDS LIFE INSURANCE COMPANY
<PAGE>
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of a loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for mortgage
loan losses. The reserve for mortgage loan losses is maintained at a level that
management believes is adequate to absorb estimated losses in the portfolio. The
level of the reserve account is determined based on several factors, including
historical experience, expected future principal and interest payments,
estimated collateral values, and current economic and political conditions.
Management regularly evaluates the adequacy of the reserve for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
The cost of interest rate caps and floors is amortized to investment income over
the life of the contracts and payments received as a result of these agreements
are recorded as investment income when realized. The amortized cost of interest
rate caps and floors is included in other investments. Amounts paid or received
under interest rate swap agreements are recognized as an adjustment to
investment income.
The Company may purchase and write index options to hedge the fee income earned
on the management of equity securities in separate accounts and the underlying
mutual funds. These index options are carried at market value and are included
in other investments or other liabilities, as appropriate. Gains or losses on
index options that qualify as hedges are deferred and recognized in management
and other fees in the same period as the hedged fee income.
The Company also uses index options to manage the risks related to a certain
annuity product that pay interest based upon the relative change in a major
stock market index between the beginning and end of the product's term.
Purchased options used in conjunction with this product are reported in other
investments and written options are included in other liabilities. The
amortization of the cost of purchased options, the proceeds of written options
and the changes in intrinsic value of the contracts are included in net
investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost, which approximates fair value.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-7
<PAGE>
Supplementary information to the consolidated statements of cash flows for the
years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $214,940 $215,003 $174,472
Interest on borrowings 4,521 14,529 8,213
</TABLE>
RECOGNITION OF PROFITS ON ANNUITY CONTRACTS AND INSURANCE POLICIES
Profits on fixed deferred annuities are recognized by the Company over the lives
of the contracts, using primarily the interest method. Profits represent the
excess of investment income earned from investment of contract considerations
over interest credited to contract owners and other expenses.
The retrospective deposit method is used in accounting for universal life-type
insurance. Under this method, profits are recognized over the lives of the
policies in proportion to the estimated gross profits expected to be realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and expenses
are associated with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees from underlying proprietary mutual funds and mortality and
expense risk fees received from the variable annuity and variable life insurance
separate accounts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities and installment annuities are amortized using
primarily the interest method. The costs for universal life-type insurance and
certain installment annuities are amortized as a percentage of the estimated
gross profits expected to be realized on the policies. For traditional life,
disability income and long-term care insurance policies, the costs are amortized
over an appropriate period in proportion to premium revenue.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency rates,
maintenance expense levels and, for variable products, separate account
performance. For universal life-type insurance and deferred annuities, actual
experience is reflected in the Company's amortization models monthly. As actual
experience differs from the current assumptions, management considers the need
to change key assumptions underlying the amortization models prospectively. The
impact of changing prospective assumptions is reflected in the period that such
changes are made and is generally referred to as an unlocking adjustment. During
1999, unlocking adjustments resulted in a net decrease in amortization of $56.8
million. Net unlocking adjustments in 1998 and 1997 were not significant.
LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal-life type insurance and fixed and variable deferred
annuities are accumulation values.
- --------------------------------------------------------------------------------
F-8 IDS LIFE INSURANCE COMPANY
<PAGE>
Liabilities for equity indexed deferred annuities are determined as the present
value of guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for fixed annuities in a benefit status are based on established
industry mortality tables and interest rates ranging from 5% to 9.5%, depending
on year of issue.
Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.
Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 5 to 10
years.
Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 5% to 8%.
REINSURANCE
The maximum amount of life insurance risk retained by the Company is $750 on any
policy insuring a single life and $1,500 on any policy insuring a joint-life
combination. Beginning in 1999, the Company retains only 20% of the mortality
risk on new variable universal life insurance policies. Risk not retained is
reinsured with other life insurance companies, primarily on a yearly renewable
term basis. Long-term care policies are primarily reinsured on a coinsurance
basis. The Company retains all disability income and waiver of premium risk.
Beginning in 2000, the Company will retain all accidental death benefit risk.
FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $852 receivable
from and $26,291 payable to, respectively, AEFC for federal income taxes.
SEPARATE ACCOUNT BUSINESS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance contract
owners. The Company receives investment management fees from the proprietary
mutual funds used as investment options for variable annuities and variable life
insurance. The Company receives mortality and expense risk fees from the
separate accounts.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-9
<PAGE>
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
ACCOUNTING CHANGES
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use" became effective January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption to develop
or obtain software for internal use. Software utilized by the Company is owned
by AEFC and capitalized by AEFC. As a result, the new rule did not have a
material impact on the Company's results of operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," providing
guidance for the timing of recognition of liabilities related to guaranty fund
assessments. The Company had historically carried a liability for estimated
guaranty fund assessment exposure. Adoption of the SOP did not have a material
impact on the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires the recognition of all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. The ultimate
financial effect of adoption of the new rule will depend on the derivatives in
place at adoption and cannot be estimated at this time.
2. INVESTMENTS
Fair values of investments in fixed maturities represent quoted market prices
and estimated values when quoted prices are not available. Estimated values are
determined by established procedures involving, among other things, review of
market indices, price levels of current offerings of comparable issues, price
estimates and market data from independent brokers and financial files.
- --------------------------------------------------------------------------------
F-10 IDS LIFE INSURANCE COMPANY
<PAGE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 37,613 $ 236 $ 2,158 $ 35,691
State and municipal
obligations 9,681 150 -- 9,831
Corporate bonds and
obligations 5,713,475 91,571 113,350 5,691,696
Mortgage-backed securities 1,395,523 4,953 31,951 1,368,525
- ------------------------------------------------------------------------------
$7,156,292 $96,910 $147,459 $7,105,743
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 46,325 $ 612 $ 2,231 $ 44,706
State and municipal
obligations 13,226 519 191 13,554
Corporate bonds and
obligations 7,960,352 60,120 560,450 7,460,022
Mortgage-backed securities 5,683,234 9,692 161,659 5,531,267
- --------------------------------------------------------------------------------
Total fixed maturities 13,703,137 70,943 724,531 13,049,549
Equity securities 3,000 16 -- 3,016
- --------------------------------------------------------------------------------
$13,706,137 $70,959 $724,531 $13,052,565
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 39,888 $ 4,460 $ -- $ 44,348
State and municipal
obligations 9,683 490 -- 10,173
Corporate bonds and
obligations 6,305,476 447,752 27,087 6,726,141
Mortgage-backed securities 1,609,067 30,458 152 1,639,373
- -------------------------------------------------------------------------------
$7,964,114 $483,160 $27,239 $8,420,035
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-11
<PAGE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 52,043 $ 3,324 $ -- $ 55,367
State and municipal
obligations 11,060 1,231 -- 12,291
Corporate bonds and
obligations 7,332,344 271,174 155,181 7,448,337
Mortgage-backed securities 5,949,502 151,511 3,869 6,097,144
- --------------------------------------------------------------------------------
Total fixed maturities 13,344,949 427,240 159,050 13,613,139
Equity securities 3,000 158 -- 3,158
- --------------------------------------------------------------------------------
$13,347,949 $427,398 $159,050 $13,616,297
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- ----------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 238,740 $ 239,747
Due from one to five years 2,996,713 3,012,721
Due from five to ten years 1,922,199 1,893,918
Due in more than ten years 603,117 590,832
Mortgage-backed securities 1,395,523 1,368,525
- ----------------------------------------------------------------
$7,156,292 $7,105,743
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
- ------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 271,381 $ 274,415
Due from one to five years 595,747 592,533
Due from five to ten years 4,936,041 4,669,573
Due in more than ten years 2,216,734 1,981,761
Mortgage-backed securities 5,683,234 5,531,267
- ------------------------------------------------------------------
$13,703,137 $13,049,549
- ------------------------------------------------------------------
</TABLE>
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $68,470,
$230,036 and $229,848, respectively. Net gains and losses on these sales were
not significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' credit worthiness.
Fixed maturities available for sale were sold during 1999 with proceeds of
$1,691,389 and gross realized gains and losses of $36,568 and $14,255,
respectively. Fixed maturities available for sale were sold during 1998 with
proceeds of $278,955 and gross realized gains and losses of $15,658 and $22,102,
respectively. Fixed maturities available for sale were sold during 1997 with
proceeds of $457,585 and gross realized gains and losses of $6,639 and $7,518,
respectively.
At December 31, 1999, bonds carried at $14,559 were on deposit with various
states as required by law.
- --------------------------------------------------------------------------------
F-12 IDS LIFE INSURANCE COMPANY
<PAGE>
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $3.7
billion which are rated by AEFC's internal analysts using criteria similar to
Moody's and S&P. A summary of investments in fixed maturities, at amortized
cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Aaa/AAA $ 7,144,280 $ 7,629,628
Aaa/AA 1,920 2,277
Aa/AA 301,728 308,053
Aa/A 314,168 301,325
A/A 2,598,300 2,525,283
A/BBB 1,014,566 1,148,736
Baa/BBB 6,319,549 6,237,014
Baa/BB 348,849 492,696
Below investment grade 2,816,069 2,664,051
- ------------------------------------------------------------------
$20,859,429 $21,309,063
- ------------------------------------------------------------------
</TABLE>
At December 31, 1999, 90 percent of the securities rated Aaa/AAA are GNMA, FNMA
and FHLMC mortgage-backed securities. No holdings of any other issuer are
greater than one percent of the Company's total investments in fixed maturities.
At December 31, 1999, approximately 14 percent of the Company's invested assets
were mortgage loans on real estate. Summaries of mortgage loans by region of the
United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
REGION SHEET TO PURCHASE SHEET TO PURCHASE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
East North Central $ 715,998 $ 10,380 $ 750,705 $ 16,393
West North Central 555,635 42,961 491,006 81,648
South Atlantic 867,838 23,317 839,233 21,020
Middle Atlantic 428,051 1,806 476,448 6,169
New England 259,243 4,415 263,761 2,824
Pacific 238,299 3,466 195,851 16,946
West South Central 144,607 4,516 136,841 1,412
East South Central 43,841 -- 46,029 --
Mountain 381,148 9,380 345,379 8,473
- ----------------------------------------------------------------------------------
3,634,660 100,241 3,545,253 154,885
Less allowance for losses 28,283 -- 39,795 --
- ----------------------------------------------------------------------------------
$3,606,377 $100,241 $3,505,458 $154,885
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
PROPERTY TYPE SHEET TO PURCHASE SHEET TO PURCHASE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Department/retail stores $1,158,712 $ 33,829 $1,139,349 $ 59,305
Apartments 887,538 11,343 960,808 9,272
Office buildings 931,234 26,062 783,576 50,450
Industrial buildings 309,845 5,525 298,549 13,263
Hotels/motels 103,625 -- 109,185 14,122
Medical buildings 114,045 -- 124,369 --
Nursing/retirement homes 45,935 -- 46,696 --
Mixed use 66,893 -- 65,151 --
Other 16,833 23,482 17,570 8,473
- ----------------------------------------------------------------------------------
3,634,660 100,241 3,545,253 154,885
Less allowance for losses 28,283 -- 39,795 --
- ----------------------------------------------------------------------------------
$3,606,377 $100,241 $3,505,458 $154,885
- ----------------------------------------------------------------------------------
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives it
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. Commitments to purchase mortgages are
made in the ordinary course of business. The fair value of the mortgage
commitments is $nil.
At December 31, 1999 and 1998, the Company's recorded investment in impaired
loans was $21,375 and $24,941, respectively, with allowances of $5,750 and
$6,662, respectively. During 1999 and 1998, the average recorded investment in
impaired loans was $23,815 and $37,873, respectively.
The Company recognized $1,190, $1,809 and $2,981 of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997
respectively.
The following table presents changes in the allowance for losses related to all
loans:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $39,795 $38,645 $37,495
Provision (reduction) for
investment losses (9,512) 7,582 8,801
Loan payoffs (500) (800) (3,851)
Foreclosures and writeoffs (1,500) (5,632) (3,800)
- --------------------------------------------------------------
Balance, December 31 $28,283 $39,795 $38,645
- --------------------------------------------------------------
</TABLE>
At December 31, 1999, the Company had no commitments to purchase investments
other than mortgage loans.
- --------------------------------------------------------------------------------
F-14 IDS LIFE INSURANCE COMPANY
<PAGE>
Net investment income for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $1,598,059 $1,676,984 $1,692,481
Interest on mortgage loans 285,921 301,253 305,742
Other investment income 70,892 43,518 25,089
Interest on cash equivalents 5,871 5,486 5,914
- -----------------------------------------------------------------------
1,960,743 2,027,241 2,029,226
Less investment expenses 41,170 40,756 40,837
- -----------------------------------------------------------------------
$1,919,573 $1,986,485 $1,988,389
- -----------------------------------------------------------------------
</TABLE>
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $22,387 $12,084 $16,115
Mortgage loans 10,211 (5,933) (6,424)
Other investments (5,990) 751 (8,831)
- --------------------------------------------------------------
$26,608 $ 6,902 $ 860
- --------------------------------------------------------------
</TABLE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $(921,778) $(93,474) $223,441
Equity securities (142) (203) 53
</TABLE>
3. INCOME TAXES
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31 consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $178,444 $244,946 $176,879
Deferred 79,796 (16,602) 19,982
- -----------------------------------------------------------------
258,240 228,344 196,861
State income taxes-current 9,624 7,337 9,803
- -----------------------------------------------------------------
Income tax expense $267,864 $235,681 $206,664
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-15
<PAGE>
Increases (decreases) to the income tax provision applicable to pretax income
based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
PROVISION RATE PROVISION RATE PROVISION RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
based on the statutory
rate $316,511 35.0% $271,527 35.0% $238,319 35.0%
Tax-excluded interest and
dividend income (9,626) (1.1) (12,289) (1.6) (10,294) (1.5)
State taxes, net of
federal benefit 6,256 0.7 4,769 0.6 6,372 0.9
Affordable housing
credits (31,000) (3.4) (19,688) (2.5) (20,705) (3.0)
Other, net (14,277) (1.6) (8,638) (1.1) (7,028) (1.0)
- -------------------------------------------------------------------------------
Total income taxes $267,864 29.6% $235,681 30.4% $206,664 30.4%
- -------------------------------------------------------------------------------
</TABLE>
A portion of life insurance company income earned prior to 1984 was not subject
to current taxation but was accumulated, for tax purposes, in a policyholders'
surplus account. At December 31, 1999, the Company had a policyholders' surplus
account balance of $20,114. The policyholders' surplus account is only taxable
if dividends to the stockholder exceed the stockholder's surplus account or if
the Company is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy reserves $733,647 $756,769
Unrealized loss on available for sale
investments 221,431 --
Investments, other 1,873 --
Life insurance guaranty fund assessment
reserve 4,789 15,289
Other -- 4,253
- ------------------------------------------------------------
Total deferred tax assets 961,740 776,311
- ------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 740,837 698,471
Unrealized gain on available for sale
investments -- 91,315
Investments, other -- 3,455
Other 4,883 --
- ------------------------------------------------------------
Total deferred tax liabilities 745,720 793,241
- ------------------------------------------------------------
Net deferred tax assets (liabilities) $216,020 $(16,930)
- ------------------------------------------------------------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax assets that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets and, therefore, no such valuation
allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by state insurance regulatory authorities. Statutory
unassigned surplus
- --------------------------------------------------------------------------------
F-16 IDS LIFE INSURANCE COMPANY
<PAGE>
aggregated $1,693,356 as of December 31, 1999 and $1,598,203 as of December 31,
1998 (see Note 3 with respect to the income tax effect of certain
distributions). In addition, any dividend distributions in 2000 in excess of
approximately $418,845 would require approval of the Department of Commerce of
the State of Minnesota.
Statutory net income for the years ended December 31 and capital and surplus as
of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 478,173 $ 429,903 $ 379,615
Statutory capital and surplus 1,978,406 1,883,405 1,765,290
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company loans funds to AEFC under a collateral loan agreement. The balance
of the loan was $nil at December 31, 1999 and 1998. This loan can be increased
to a maximum of $75,000 and pays interest at a rate equal to the preceding
month's effective new money rate for the Company's permanent investments.
Interest income on related party loans totaled $nil, $nil and $103 in 1999, 1998
and 1997, respectively.
The Company participates in the American Express Company Retirement Plan which
covers all permanent employees age 21 and over who have met certain employment
requirements. Employer contributions to the plan are based on participants' age,
years of service and total compensation for the year. Funding of retirement
costs for this plan complies with the applicable minimum funding requirements
specified by ERISA. The Company's share of the total net periodic pension cost
was $223, $211 and $201 in 1999, 1998 and 1997, respectively.
The Company also participates in defined contribution pension plans of American
Express Company which cover all employees who have met certain employment
requirements. Company contributions to the plans are a percent of either each
employee's eligible compensation or basic contributions. Costs of these plans
charged to operations in 1999, 1998 and 1997 were $1,906, $1,503 and $1,245,
respectively.
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees are considered
to have been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. The Company's share of postretirement benefits in
1999, 1998 and 1997 was $1,147, $1,352 and $1,330, respectively.
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $485,177, $411,337 and $414,155 for 1999,
1998 and 1997, respectively. Certain of these costs are included in deferred
policy acquisition costs.
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, 1998 and 1997, traditional life insurance and universal
life-type insurance in force aggregated $89,271,957, $81,074,928 and $74,730,720
respectively, of which $8,281,576, $4,912,313 and $4,351,904 were reinsured at
the respective year ends. The Company also reinsures a portion of the risks
assumed under disability income and long-term care policies. Under all
reinsurance agreements, premiums ceded to reinsurers amounted to $76,970,
$66,378 and $60,495 and reinsurance recovered from reinsurers amounted to
$27,816, $20,982, and $19,042 for the years ended December 31, 1999, 1998 and
1997, respectively. Reinsurance contracts do not relieve the Company from its
primary obligation to policyholders.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY F-17
<PAGE>
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in all three
lawsuits. It is expected the settlement will provide $215 million of benefits to
more than 2 million class participants. The agreement in principle to settle
also provides for release by class members of all insurance and annuity market
conduct claims dating back to 1985 and is subject to a number of contingencies
including a definitive agreement and court approval. The settlement costs
allocated to the Company are included in the accompanying 1999 statement of
income and did not have a material impact on the Company's consolidated
financial position or results from operations.
The Company is named as a defendant in various other lawsuits. The outcome of
any litigation cannot be predicted with certainty. In the opinion of management,
however, the ultimate resolution of these lawsuits, taken in aggregate should
not have a material adverse effect on the Company's consolidated financial
position.
The IRS routinely examines the Company's federal income tax returns and is
currently completing the audit for the 1990 through 1992 tax years. Management
does not believe there will be a material adverse effect on the Company's
consolidated financial position as a result of this audit.
7. LINES OF CREDIT
The Company has available lines of credit with its parent aggregating $200,000
($100,000 committed and $100,000 uncommitted). The interest rate for any
borrowings is established by reference to various indices plus 20 to 45 basis
points, depending on the term. Borrowings outstanding under this agreement were
$50,000 uncommitted at December 31, 1999 and $nil at December 31, 1998.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into transactions involving derivative financial instruments
to manage its exposure to interest rate risk and equity market risk, including
hedging specific transactions. The Company does not hold derivative instruments
for trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate or equity market index.
The Company is not impacted by market risk related to derivatives held for
non-trading purposes beyond that inherent in cash market transactions.
Derivatives held for purposes other than trading are largely used to manage risk
and, therefore, the cash flow and income effects of the derivatives are inverse
to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty, and requiring collateral, where
appropriate. A vast majority of the Company's counterparties are rated A or
better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors and index options is
measured by the replacement cost of the contracts. The replacement cost
represents the fair value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance sheet.
Notional amounts far exceed the related credit risk.
- --------------------------------------------------------------------------------
F-18 IDS LIFE INSURANCE COMPANY
<PAGE>
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1999 AMOUNT AMOUNT VALUE EXPOSURE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $2,500,000 $ 9,685 $ 12,773 $12,773
Interest rate floors 1,000,000 602 319 319
Options purchased 180,897 49,789 61,745 61,745
Liabilities:
Options written 43,262 (1,677) (2,402) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (17,582) --
------- -------- -------
$58,399 $ 54,853 $74,837
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1998 AMOUNT AMOUNT VALUE EXPOSURE
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<S> <C> <C> <C> <C>
Assets:
Interest rate caps $3,400,000 $ 15,985 $ 4,256 $ 4,256
Interest rate floors 1,000,000 1,082 13,971 13,971
Options purchased 110,912 24,094 29,453 29,453
Liabilities:
Options purchased/written 265,454 (10,526) (11,062) --
Off balance sheet:
Interest rate swaps 1,667,000 -- (73,477) --
-------- -------- -------
$ 30,635 $(36,859) $47,680
======== ======== =======
</TABLE>
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps, floors and swaps expire
on various dates from 2000 to 2003. The purchased and written options expire on
various dates from 2000 to 2006.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the margin
between interest rates earned on investments and the interest rates credited to
related annuity contract holders.
The Company also uses interest rate swaps to manage interest rate risk related
to the level of fee income earned on the management of fixed income securities
in separate accounts and the underlying mutual funds. The amount of fee income
received is based upon the daily market value of the separate account and mutual
fund assets. As a result, changing interest rate conditions could impact the
Company's fee income significantly. The Company entered into interest rate swaps
to hedge anticipated fee income for 1999 related to separate accounts and mutual
funds which invest in fixed income securities. Interest was reported in
management and other fees.
The Company offers an annuity product that pays interest based upon the relative
change in a major stock market index between the beginning and end of the
product's term. As a means of hedging its obligation under the provisions of
this product, the Company purchases and writes options on the major stock market
index.
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IDS LIFE INSURANCE COMPANY F-19
<PAGE>
Index options are used to manage the equity market risk related to the fee
income that the Company receives from its separate accounts and the underlying
mutual funds. The amount of the fee income received is based upon the daily
market value of the separate account and mutual fund assets. As a result, the
Company's fee income could be impacted significantly by fluctuations in the
equity market. The Company entered into index option collars (combination of
puts and calls) to hedge anticipated fee income for 1999 and 1998 related to
separate accounts and mutual funds which invest in equity securities. Testing
demonstrated the impact of these instruments on the income statement closely
correlates with the amount of fee income the Company realizes. At December 31,
1999 deferred losses on purchased put and written call index options were $nil.
At December 31, 1998 deferred losses on purchased put and written call index
options were $2,933 and deferred gains on written call index options were
$7,435, respectively.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company discloses fair value information for most on- and off-balance sheet
financial instruments for which it is practicable to estimate that value. Fair
values of life insurance obligations and all non-financial instruments, such as
deferred acquisition costs are excluded.
Off-balance sheet intangible assets, such as the value of the field force, are
also excluded. Management believes the value of excluded assets and liabilities
is significant. The fair value of the Company, therefore, cannot be estimated by
aggregating the amounts presented.
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $ 7,156,292 $ 7,105,743 $ 7,964,114 $ 8,420,035
Available for sale 13,049,549 13,049,549 13,613,139 13,613,139
Mortgage loans on real
estate (Note 2) 3,606,377 3,541,958 3,505,458 3,745,617
Other:
Equity securities (Note 2) 3,016 3,016 3,158 3,158
Derivative financial
Instruments (Note 8) 60,076 74,837 41,161 47,680
Other 2,258 2,258 28,872 28,872
Cash and cash equivalents
(Note 1) 32,333 32,333 22,453 22,453
Separate account assets (Note
1) 35,894,732 35,894,732 27,349,401 27,349,401
</TABLE>
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL LIABILITIES VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Future policy benefits for
fixed annuities $19,189,170 $18,591,859 $19,855,203 $19,144,838
Derivative financial
instruments (Note 8) 1,677 19,984 10,526 84,539
Separate account liabilities 31,869,184 31,016,081 25,005,732 24,179,115
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,270,094 and $1,226,985, respectively, and policy loans of $92,895
and $90,115, respectively. The fair value of these benefits is based on the
status of the annuities at December 31, 1999 and 1998. The fair value of
deferred
- --------------------------------------------------------------------------------
F-20 IDS LIFE INSURANCE COMPANY
<PAGE>
annuities is estimated as the carrying amount less any applicable surrender
charges and related loans. The fair value for annuities in non-life contingent
payout status is estimated as the present value of projected benefit payments at
rates appropriate for contracts issued in 1999 and 1998.
At December 31, 1999 and 1998, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less any applicable surrender
charges and less variable insurance contracts carried at $4,025,548 and
$2,343,669, respectively.
10. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
major systems used by the Company are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. The Company's businesses are
heavily dependent upon AEFC's computer systems and have significant interaction
with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps were taken to
resolve potential problems including modification to existing software and the
purchase of new software. As of December 31, 1999, AEFC had completed its
program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. As of December 31, 1999, AEFC had also
completed an evaluation of the Year 2000 readiness of other third parties whose
system failures could have an impact on the Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. At December 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on the Company's business, results
of operations, or financial condition as a result of the Year 2000 issue.
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IDS LIFE INSURANCE COMPANY F-21
<PAGE>
SALOMON SMITH BARNEY LIFEVEST--SM--
certain investments are sponsored by:
Salomon Smith Barney and subsidiaries
SALOMON SMITH BARNEY LIFEVEST--SM--
is underwritten, issued, managed and serviced by:
IDS Life Insurance Company
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S-6220 N (5/00)
