UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

                   For the transition period from       to

                         Commission file number 33-28976

                           IDS LIFE INSURANCE COMPANY
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                    MINNESOTA                    41-0823832
           -------------------------------      -------------
          (State or other jurisdiction of       (I.R.S. Employer
           incorporation or organization)      Identification No.)

         227 AXP FINANCIAL CENTER, MINNEAPOLIS, MINNESOTA         55474
         ------------------------------------------------         -----
           (Address of principal executive offices)             (Zip Code)

(Registrant's telephone number, including area code) (612) 671-3131
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [Not Applicable] THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTIONS I(1) (a) and (b) OF FORM 10-K AND IS THEREFORE FILING THIS
FORM WITH THE PERMITTED ABBREVIATED NARRATIVE DISCLOSURE.

<PAGE>

                                     PART I
ITEM 1.  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") and
serves all states except New York. The Company believes it is the fifteenth
largest life insurance company in the United States, with consolidated assets at
December 31, 2001 of approximately $58 billion (under generally accepted
accounting principles). The IDS Life Insurance Company of New York is a
wholly-owned subsidiary of the Company and serves New York State residents. The
Company also owns American Enterprise Life Insurance Company ("American
Enterprise Life"), which issues fixed and variable annuity contracts for sale
through insurance agencies and broker-dealers who may also be associated with
financial institutions, such as banks. American Centurion Life Assurance Company
("American Centurion Life") is an IDS Life subsidiary that offers fixed and
variable annuities to American Express(R) Cardmembers and others in New York, as
well as fixed and variable annuities for sale through insurance agencies and
broker-dealers who may also be associated with financial institutions, such as
banks, in New York. The Company owns American Partners Life Insurance Company
("American Partners Life"), which offers fixed and variable annuity contracts to
American Express(R) Cardmembers and others who reside in states other than New
York.

The Company's products include whole life, universal life (fixed and variable),
single premium life and term products (including waiver of premium and
accidental death benefits), disability income and long-term care insurance. The
Company also offers variable universal life insurance products, including
American Express(R) Variable Universal Life III and American Express Succession
Select(SM) Variable Universal Life Insurance.

The Company is one of the nation's largest issuers of single premium and
flexible premium deferred annuities on both a fixed and variable basis.
Immediate annuities are offered as well. The Company's fixed deferred annuities
guarantee a relatively low annual interest rate during the accumulation period
(the time before annuity payments begin). However, the Company has the option of
paying a higher rate set at its discretion. In addition, persons owning one type
of annuity may have their interest calculated based on any movement in a
broad-based stock market index. The Company also offers variable annuities,
including the American Express Retirement Advisor Advantage(SM) Variable Annuity
and the American Express Retirement Advisor Select(SM) Variable Annuity.

Under the Company's variable life insurance and variable annuity products
described above, the purchaser may choose among investment options that include
the Company's "general account" as well as from a variety of portfolios
including common stocks, bonds, managed assets and/or short term securities. The
Company serves as the investment manager and AEFC serves as the investment
adviser of seven portfolios underlying the variable life insurance products and
of nineteen portfolios underlying both the variable life insurance and variable
annuity products. The investment options also include many portfolios managed by
firms other than the Company or its subsidiaries.

Although over the past several years the Company's variable annuity sales have
had an increasing impact on total annuity sales, in 2001, sales of total annuity
products declined four percent over the prior year.

The Company, American Enterprise Life and American Partners Life are subject to
comprehensive regulation by the Minnesota Department of Commerce (Insurance
Division), the Indiana Department of Insurance, and the Arizona Department of
Insurance, respectively. American Centurion Life and IDS Life Insurance Company
of New York are regulated by the New York State Department of Insurance. The
laws of the other states in which these companies do business also regulate such
matters as the licensing of sales personnel and, in some cases, the marketing
and contents of insurance policies and annuity contracts. The purpose of such
regulation and supervision is primarily to protect the interests of
policyholders.

                                      -2-
<PAGE>

Regulatory scrutiny of market conduct practices of insurance companies,
including sales, marketing and replacements of fixed and variable life insurance
and annuities and "bonus" annuities, has increased significantly in recent years
and is affecting the manner in which companies approach various operational
issues, including compliance. The number of private lawsuits alleging violations
of laws in connection with insurance and annuity market conduct has increased
(see Legal Proceedings below). Virtually all states mandate participation in
insurance guaranty associations, which assess insurance companies in order to
fund claims of policyholders of insolvent insurance companies. On the federal
level, there is periodic interest in enacting new regulations relating to
various aspects of the insurance industry, including taxation of variable
annuities and life insurance policies, accounting procedures, as well as the
treatment of persons differently because of gender, with respect to terms,
conditions, rates or benefits of an insurance contract. New federal regulation
in any of these areas could potentially have an adverse effect upon the Company.

As a distributor of variable annuity and life insurance contracts, the Company
is registered as a broker-dealer and is a member of the NASD. As investment
manager of various investment companies, the Company is registered as an
investment advisor under applicable federal requirements.

The insurance and annuity business is highly competitive, and the Company's
competitors consist of both stock and mutual insurance companies. Competitive
factors applicable to the insurance business include the interest rates credited
to products, the charges deducted from the cash values of such products, the
financial strength of the organization and the services provided to
policyholders.

ITEM 2.  PROPERTIES

The Company occupies office space in Minneapolis, Minnesota, which is leased by
its parent, AEFC. The Company reimburses AEFC for rent based on direct and
indirect allocation methods. IDS Life Insurance Company of New York and American
Centurion Life rent office space in Albany, New York. Facilities occupied by the
Company and its subsidiaries are believed to be adequate for the purposes for
which they are used and are well maintained.

ITEM 3.  LEGAL PROCEEDINGS

A  number  of  lawsuits  involving  insurance  sales  practices,  alleged  agent
misconduct,  failure to properly  supervise agents and other matters relating to
life insurance  policies and annuity  contracts have been filed against life and
health  insurers in  jurisdictions  in which the Company and its  affiliates  do
business.  The Company and its affiliates,  like other life and health insurers,
are  involved in such  litigation.  The Company was a named  defendant  in three
class action  lawsuits of this nature.  On December 13, 1996, an action entitled
Lesa  Benacquisto  and Daniel  Benacquisto  v. IDS Life  Insurance  Company  and
American Express Financial Corporation was commenced in Minnesota state court. A
second action,  entitled Arnold Mork,  Isabella Mork,  Ronald Melchert and Susan
Melchert  v.  IDS  Life  Insurance   Company  and  American  Express   Financial
Corporation  was  commenced in the same court on March 21, 1997.  On October 13,
1998,  an action  entitled  Richard W. and  Elizabeth  J.  Thoresen v.  American
Express  Financial  Corporation,  American  Centurion  Life  Assurance  Company,
American  Enterprise Life Insurance  Company,  American  Partners Life Insurance
Company,  IDS Life Insurance  Company and IDS Life Insurance Company of New York
was also commenced in Minnesota  state court.  These three class action lawsuits
included allegations of improper insurance and annuity sales practices including
improper  replacement  of existing  annuity  contracts and  insurance  policies,
improper use of annuities to fund tax deferred  contributory  retirement  plans,
alleged agent misconduct, failure to properly supervise agents and other matters
relating to life insurance policies and annuity contracts.

                                      -3-
<PAGE>

In January 2000, AEFC and its subsidiaries reached an agreement in principle to
settle the three class action lawsuits described above. It is expected the
settlement will provide $215 million of benefits to more than two million
participants in exchange for a release by class members of all insurance and
annuity market conduct claims dating back to 1985.

In August 2000, an action entitled Lesa Benacquisto, Daniel Benacquisto, Richard
Thoresen, Elizabeth Thoresen, Arnold Mork, Isabella Mork, Ronald Melchert and
Susan Melchert v. American Express Financial Corporation, American Express
Financial Advisors, American Centurion Life Assurance Company, American
Enterprise Life Insurance Company, American Partners Life Insurance Company, IDS
Life Insurance Company and IDS Life Insurance Company of New York was commenced
in the United States District Court for the District of Minnesota. The complaint
put at issue various alleged sales practices and misrepresentations and
allegations of violations of federal laws.

In May 2001, the United States District Court for the District of Minnesota and
the District Court, Fourth Judicial District for the State of Minnesota,
Hennepin County entered orders approving the settlement as tentatively reached
in January 2000. Appeals were filed in both federal and state court but
subsequently dismissed by the parties filing the appeals. The orders approving
the settlement were final as of September 24, 2001. Implementation of the
settlement commenced October 15, 2001.

Numerous individuals opted out of the settlement described above and therefore
did not release their claims against AEFC and its subsidiaries. Some of these
class members who opted out were represented by counsel and presented separate
claims to the Company. Most of their claims have been settled.

The outcome of any litigation or threatened litigation cannot be predicted with
any certainty. However, in the aggregate, the Company does not consider any
lawsuits in which it is named as a defendant to be material.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not applicable.

ITEM 6.  SELECTED FINANCIAL DATA

Item omitted pursuant to General Instructions I(2) (a) of Form 10-K.

                                       -4-
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

2001 Compared to 2000:

Consolidated net loss was $65 million in 2001, compared to consolidated net
income of $586 million in 2000. Consolidated loss before income tax benefit and
cumulative effect of accounting change totaled $189 million in 2001, compared
with consolidated income before income tax expense of $807 million in 2000. This
decline was primarily the result of a $633 million increase in net pretax loss
on investments and a $245 million decrease in investment income.

Total premiums and investment contract deposits received decreased to $5.8
billion in 2001, compared with $6.9 billion in 2000. The reduction is primarily
due to lower variable annuity sales.

Total revenues decreased to $2.1 billion in 2001, compared with $3.0 billion in
2000. The decrease was primarily due to decreases in net investment income and
from the realized investments losses. Net investment income, the largest
component of revenues, decreased by $245 million from the prior year, primarily
reflecting credit related yield adjustments on fixed maturity investments and
overall lower investment yields.

Contractholder charges, which consist primarily of cost of insurance charges on
universal life-type policies, increased 12 percent to $490 million in 2001,
compared with $438 million in 2000. This increase reflects increased total life
insurance in force, which grew 10 percent to $108 billion at December 31, 2001.

Net realized losses on investments were $650 million in 2001, compared to net
realized losses of $17 million in 2000. The net loss for the year was comprised
of a $143 million pretax net loss in the first quarter resulting primarily from
the recognition of impairment losses and the sale of certain high-yield
securities; a $227 million writedown in the second quarter to recognize the
impact of higher default rate assumptions on certain structured investments; a
$262 million writedown of lower-rated securities (most of which were sold during
2001) in the second quarter primarily in connection with the Company's decision
to lower its risk profile by reducing the level of its high-yield fixed maturity
investment portfolio, allocating holdings toward stronger credits, and reducing
the concentration of exposure to individual companies and industry sectors; and
$18 million of other net losses primarily related to the sale and write-down of
investments.

Management and other fees decreased 21 percent to $473 million in 2001, compared
with $598 million in 2000. This decrease reflects lower average separate account
assets outstanding, resulting primarily from equity market depreciation. The
Company provides investment management services for many of the mutual funds
that are available as investment options for variable annuities and variable
life insurance. The Company also receives a mortality and expense risk fee from
the separate accounts.

Total benefits and expenses increased slightly to $2.3 billion in 2001 from $2.2
billion in 2000. The largest component of expenses, interest credited to
policyholder accounts for universal life-type insurance and investment
contracts, decreased slightly to $1.1 billion, reflecting a slight decrease in
fixed annuities in force and lower interest crediting rates due to the lower
interest rate environment. Amortization of deferred policy acquisition costs
(DAC's) increased to $371 million in 2001, compared to $362 million in 2000. The
increase was primarily due to DAC unlocking adjustments (see footnote one of the
attached financial statements for the definition of unlocking adjustments),
which resulted in a net increase in amortization of $33.6 million in 2001 and a
net decrease in amortization of $12.3 million in 2000. Amortization, excluding
unlocking adjustments, was significantly less in 2001 than in 2000, due
primarily to the significant drop in equity-based separate account values and
associated fee revenue.

                                      -5-
<PAGE>

Other insurance and operating expenses increased to $408 million in 2001,
compared to $379 million in 2000. This increase was primarily a result of
business growth and technology costs related to growth initiatives.

2000 Compared to 1999:

Consolidated net income decreased 8 percent to $586 million in 2000, compared to
$636 million in 1999. Consolidated income before income taxes totaled $807
million in 2000, compared with $904 million in 1999. The decrease resulted
primarily from a decrease in net investment income. This reflects decreases in
investments owned and decreased investment yields during 2000.

Total premiums and investment contract deposits received increased to $6.9
billion in 2000, compared with $5.0 billion in 1999. This increase is primarily
due to an increase in variable annuity deposits in 2000.

Total revenues decreased to $3.0 billion in 2000, compared with $3.1 billion in
1999. Decreases in net investment income and net realized gains (losses) on
investments were partially offset by increases in insurance premiums,
contractholder charges and management and other fees. Net investment income, the
largest component of revenues, decreased by $189 million from the prior year,
reflecting decreases in investments owned and investment yields.

Contractholder charges, which consist primarily of cost of insurance charges on
universal life-type policies, increased 6 percent to $438 million in 2000,
compared with $412 million in 1999. This increase reflects increased total life
insurance in force, which grew 10 percent to $98 billion at December 31, 2000.

Net realized loss on investments was $17 million in 2000, compared to a net
realized gain of $27 million in 1999. The loss was primarily due to the loss on
sales and writedowns of fixed maturity investments.

Management and other fees increased 26 percent to $598 million in 2000, compared
with $473 million in 1999. This is primarily due to an increase in separate
account fees, which grew 25 percent to $543 million at December 31, 2000, due to
market appreciation and sales. The Company provides investment management
services for mutual funds used as investment options for variable annuities and
variable life insurance. The Company also receives a mortality and expense risk
fee from the separate accounts.

Total benefits and expenses increased slightly to $2.2 billion in 2000. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, decreased slightly to
$1.2 billion, reflecting a decrease in fixed annuities in force. Amortization of
deferred policy acquisition costs increased to $362 million, compared to $321
million in 1999. This increase was due primarily to the impact of changing
prospective separate account investment performance assumptions.

Other insurance and operating expenses increased to $379 million in 2000,
compared to $347 million in 1999. This increase was primarily a result of
business growth and technology costs related to growth initiatives.

                                      -6-
<PAGE>

Certain Critical Accounting Policies

In  December  2001,  The  Securities  and  Exchange  Commission  (SEC)  issued a
financial  reporting release,  FR-60,  "Cautionary  Advice Regarding  Disclosure
About  Critical  Accounting   Policies."  In  this  connection,   the  following
information has been provided about certain  critical  accounting  policies that
are important to the  Consolidated  Financial  Statements and that entail,  to a
significant  extent,  the use of estimates,  assumptions  and the application of
management's  judgment.  These policies  relate to the recognition of impairment
within the investment portfolio and deferred acquisition costs.

Generally, investment securities are carried at fair value on the balance sheet.
Gains and losses are recognized in the results of operations upon disposition of
the securities. In addition, losses are also recognized when management
determines that a decline in value is not temporary, which requires judgment
regarding the amount and timing of recovery. Typically, the Company defines an
event of impairment for debt securities as issuer default or bankruptcy. Fair
value is generally based on quoted market prices. However, the Company's
investment portfolio also contains structured investments of various asset
quality, including Collateralized Debt Obligations (CDOs) and Structured Loan
Trusts (backed by high-yield bonds and bank loans, respectively), which are not
readily marketable. As a result, the carrying values of these structured
investments are based on cash flow projections which require a significant
degree of judgment and as such are subject to change. If actual future cash
flows are less than projected, additional losses would be realized.

The Company's deferred acquisition costs (DACs) represent costs of acquiring new
business, principally sales and other distribution and underwriting costs, that
have been deferred on the sale of annuity, insurance, and certain mutual fund
and long-term products. DAC's are amortized over the lives of the products,
either as a constant percentage of projected earnings or as a constant
percentage of projected liabilities associated with such products. Such
projections require use of certain assumptions, including interest margins,
mortality rates, persistency rates, maintenance expense levels and, for variable
products, separate account performance. As actual experience differs from the
current assumptions, management considers on a quarterly basis the need to
change key assumptions underlying the amortization models prospectively. For
example, if the stock market trend rose or declined appreciably, it could impact
assumptions made about separate account performance and result in an adjustment
to income, either positively or negatively. The impact on results of operations
of changing prospective assumptions with respect to the amortization of DACs is
reflected in the period in which such changes are made.

Risk Management

The sensitivity analysis of two different types of market risk discussed below
estimate the effects of hypothetical sudden and sustained changes in the
applicable market conditions on the ensuing year's earnings, based on year-end
positions. The market changes, assumed to occur as of year-end, are a 100 basis
point increase in market interest rates and a 10% decline in the value of equity
securities under management. Computations of the prospective effects of
hypothetical interest rate and equity market changes are based on numerous
assumptions, including relative levels of market interest rates and equity
prices, as well as the levels of assets and liabilities. The hypothetical
changes and assumptions will be different from what actually occur. Furthermore,
the computations do not incorporate actions that management could take if the
hypothetical market changes actually occurred. As a result, actual earnings
consequences will differ from those quantified below.

The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while controlling risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.

                                      -7-
<PAGE>

The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios, risk/return measures, and
their effect on profitability. The objective of the committee is to structure
the investment security portfolio based upon the type and behavior of products
in the liability portfolio so as to achieve targeted levels of profitability
within defined risk parameters and to meet contractual obligations.

Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the use of derivatives, such as interest rate
caps, swaps and floors, for risk management purposes. These derivatives protect
margins by increasing investment returns if there is a sudden and severe rise in
interest rates, thereby mitigating the impact of an increase in rates credited
to contractholders' accounts.

The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
2001, would be approximately $12 million.

On a certain annuity product, the interest is credited to contractholders'
accounts based upon the relative change in a major stock market index between
the beginning and end of the product's term. As a means of hedging the Company's
obligation under the provisions of this product, the committee's strategy is to
purchase and write options on the major stock market index, and to purchase
futures which are marked to market daily and exchange traded, exposing the
Company to no counterparty risk.

The amount of the fee income the Company receives is based upon the daily market
value of the separate account assets. As a result, the Company's fee income
would be negatively impacted by a decline in the equity markets. Another part of
the committee's strategy is to use index options to manage the equity market
risk related to fee income. These derivatives help protect fee income by
providing option income when there is a significant decline in the equity
markets.

The negative effect on the Company's pretax earnings of a 10% decline in equity
prices would be approximately $30 million based on assets under management as of
December 31, 2001.

Liquidity and Capital Resources

The liquidity requirements of the Company are met by funds provided by premiums,
investment income, proceeds from sales of investments as well as maturities and
periodic repayments of investment principal.

The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, dividends and investment purchases.

The Company has available lines of credit with its parent aggregating $200
million ($100 million committed and $100 million uncommitted). The line of
credit is used strictly as a short-term source of funds. There were no
borrowings outstanding at December 31, 2001. At December 31, 2001, there were no
outstanding reverse repurchase agreements.

At December 31, 2001, investments in fixed maturities comprised 80 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 42 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.

At December 31, 2001, approximately 4 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic

                                      -8-
<PAGE>

conditions,  such as  recession or  increasing  interest  rates,  and in certain
instances,  the lack of an active  secondary  market.  Expected returns on below
investment grade bonds reflect  consideration  of such factors.  The Company has
identified  those  fixed  maturities  for  which  a  decline  in fair  value  is
determined to be other than  temporary,  and has written them down to fair value
with a charge to earnings.

During 2001, the Company placed a majority of its rated Collateralized Debt
Obligation (CDO) (obligations that are backed primarily by high-yield bonds)
securities and related accrued interest, (collectively referred to as
transferred assets), having an aggregate book value of $675 million, into a
securitization trust. In return, the Company received $90 million in cash
relating to sales to unaffiliated investors and retained interests with
allocated book amounts aggregating $586 million. The book amount is determined
by allocating the previous carrying value of the transferred assets between
assets sold and the retained interests based on their relative fair values. Fair
values are based on the estimated present value of future cash flows.

At December 31, 2001, net unrealized appreciation on available-for-sale fixed
maturities included $386 million of gross unrealized appreciation and $251
million of gross unrealized depreciation. The Company does not have any
held-to-maturity fixed maturities at December 31, 2001.

At December 31, 2001, the Company had a reserve for losses for mortgage loans
totaling $21 million and for real estate investments totaling $nil.

In 2001, the Company received a capital contribution from its parent of $400
million.

The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments.

The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 2001, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.

                                      -9-
<PAGE>

Forward-Looking Statements

Certain statements in item #7 of this Form 10-K Annual Report contain
forward-looking statements which are subject to risks and uncertainties that
could cause results to differ materially from such statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. The Company undertakes no
obligation to update publicly or revise any forward-looking statements.
Important factors that could cause actual results to differ materially from the
Company's forward-looking statements include, among other things, changes in the
ability of issuers of investment securities held by the Company to meet their
debt obligations, which could result in further losses in the Company's
investment portfolio.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Items required under this section are included in the Mangement's Discussion and
Analysis of financial condition and results of operations under the section
titled risk management.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1.  Financial Statements and Schedules Required under Regulation S-X.

     Index to financial statements

       The following consolidated financial statements of IDS Life Insurance
           Company are included in Item 8:

       Report of Independent Auditors                                         16

       Consolidated Balance Sheets at December 31, 2001 and 2000           17-18

       Consolidated Statements of Income for the years ended
           December 31, 2001, 2000 and 1999                                   19

       Consolidated Statements of Stockholder's Equity for the years ended
           December 31, 2001, 2000 and 1999                                20-21

       Consolidated Statements of Cash Flows for the years ended
           December 31, 2001, 2000 and 1999                                22-23

       Notes to Consolidated Financial Statements                          24-40

     All information on schedules to the consolidated financial statements
    required by Article 7 of Regulation S-X is included in the consolidated
    financial statements or is not required. Therefore, all schedules have been
    omitted.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.

                                      -10-
<PAGE>




                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Item omitted pursuant to General Instructions I(2) (c) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Item omitted pursuant to General Instructions I(2) (c) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item omitted pursuant to General Instructions I(2) (c) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Item omitted pursuant to General Instructions I(2) (c) of Form 10-K.


                                      -11-
<PAGE>



                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (a) (1)  Financial Statements

            See Index to Financial Statements and Financial Statement Schedules
            on page 11.

       (2)  Financial Statement Schedules

            See index to Financial Statements and Financial Statement Schedules.
            All information on schedules to the consolidated financial
            statements required by Article 7 of Regulation S-X is included in
            the consolidated financial statements or is not required.
            Therefore,  all schedules have been omitted.

       (3)  Exhibits

               3.1  Copy of Certificate of  Incorporation  of IDS Life Insurance
                    Company   filed    electronically    as   Exhibit   3.1   to
                    Post-Effective Amendment No. 5 to Registration Statement No.
                    33-28976 is incorporated herein by reference.

               3.2  Copy of the Amended  By-laws of IDS Life  Insurance  Company
                    filed   electronically  as  Exhibit  3.2  to  Post-Effective
                    Amendment No. 5 to  Registration  Statement No.  33-28976 is
                    incorporated herein by reference.

               3.3  Copy of  Resolution  of the Board of  Directors  of IDS Life
                    Insurance Company, dated May 5, 1989,  establishing IDS Life
                    Account   MGA  filed   electronically   as  Exhibit  3.3  to
                    Post-Effective Amendment No. 5 to Registration Statement No.
                    33-28976 is incorporated herein by reference.

               4.1  Copy of  Non-tax  qualified  Group  Annuity  Contract,  Form
                    30363C,    filed    electronically   as   Exhibit   4.1   to
                    Post-Effective Amendment No. 5 to Registration Statement No.
                    33-28976 is incorporated herein by reference.

               4.2  Copy of Non-tax  qualified Group Annuity  Certificate,  Form
                    30360C,    filed    electronically   as   Exhibit   4.2   to
                    Post-Effective Amendment No. 5 to Registration Statement No.
                    33-28976 is incorporated herein by reference.

               4.3  Copy of  Endorsement  No.  30340C-GP  to the  Group  Annuity
                    Contract   filed    electronically   as   Exhibit   4.3   to
                    Post-Effective Amendment No. 5 to Registration Statement No.
                    33-28976 is incorporated herein by reference.

               4.4  Copy  of  Endorsement   No.  30340C  to  the  Group  Annuity
                    Certificate   filed   electronically   as  Exhibit   4.4  to
                    Post-Effective Amendment No. 5 to Registration Statement No.
                    33-28976 is incorporated herein by reference.

               4.5  Copy of Tax qualified Group Annuity  Contract,  Form 30369C,
                    filed   electronically  as  Exhibit  4.5  to  Post-Effective
                    Amendment No. 10 to  Registration  Statement No. 33-28976 is
                    incorporated herein by reference.

               4.6  Copy  of  Tax  qualified  Group  Annuity  Certificate,  Form
                    30368C,    filed    electronically   as   Exhibit   4.6   to
                    Post-Effective  Amendment No. 10 to  Registration  Statement
                    No. 33-28976 is incorporated herein by reference.

                                      -12-
<PAGE>

               4.7  Copy of Group  IRA  Annuity  Contract,  Form  30372C,  filed
                    electronically  as Exhibit 4.7 to  Post-Effective  Amendment
                    No.  10  to   Registration   Statement   No.   33-28976   is
                    incorporated herein by reference.

               4.8  Copy of Group IRA Annuity  Certificate,  Form 30371C,  filed
                    electronically  as Exhibit 4.8 to  Post-Effective  Amendment
                    No.  10  to   Registration   Statement   No.   33-28976   is
                    incorporated herein by reference.

               4.9  Copy of Non-tax qualified Individual Annuity Contract,  Form
                    30365D,    filed    electronically   as   Exhibit   4.9   to
                    Post-Effective  Amendment No. 10 to  Registration  Statement
                    No. 33-28976 is incorporated herein by reference.

               4.10 Copy of  Endorsement  No.  30379 to the  Individual  Annuity
                    Contract,  filed  electronically  as  Exhibit  4.10  to Post
                    Effective  Amendment  No. 10 to  Registration  Statement No.
                    33-28976 is incorporated herein by reference.

               4.11 Copy of Tax  qualified  Individual  Annuity  Contract,  Form
                    30370C,    filed   electronically   as   Exhibit   4.11   to
                    Post-Effective  Amendment No. 10 to  Registration  Statement
                    No. 33-28976 is incorporated herein by reference.

               4.12 Copy of Individual IRA Annuity Contract,  Form 30373C, filed
                    electronically as Exhibit 4.12 to  Post-Effective  Amendment
                    No.  10  to   Registration   Statement   No.   33-28976   is
                    incorporated herein by reference.

               4.13 Copy  of  Endorsement  No.  33007  filed  electronically  as
                    Exhibit  4.13  to   Post-Effective   Amendment   No.  12  to
                    Registration  Statement No. 33-28976 is incorporated  herein
                    by reference.

               4.14 Copy  of  Group  Annuity   Contract,   Form  30363D,   filed
                    electronically  as Exhibit 4.1 to  Post-Effective  Amendment
                    No. 2 to Registration Statement No. 33-50968 is incorporated
                    herein by reference.

               4.15 Copy  of  Group  Annuity  Certificate,  Form  30360D,  filed
                    electronically  as Exhibit 4.2 to  Post-Effective  Amendment
                    No. 2 to Registration Statement No. 33-50968 is incorporated
                    herein by reference.

               4.16 Form  of  Deferred  Annuity  Contract,  Form  30365E,  filed
                    electronically  as Exhibit 4.3 to  Post-Effective  Amendment
                    No. 2 to Registration Statement No. 33-50968 is incorporated
                    herein by reference.

               4.17 Copy of  Group  Deferred  Variable  Annuity  Contract,  Form
                    34660, filed electronically as Exhibit 4.1 to Post-Effective
                    Amendment No. 2 to  Registration  Statement No.  33-48701 is
                    incorporated herein by reference.

               4.18 Copy of  Non-tax  qualified  Group  Annuity  Contract,  Form
                    33111,  filed  electronically as Exhibit 4.1 to Registration
                    Statement No. 333-42793 is incorporated herein by reference.

               4.19 Copy of Non-tax  qualified Group Annuity  Certificate,  Form
                    33114,  filed  electronically as Exhibit 4.2 to Registration
                    Statement No. 333-42793 is incorporated herein by reference.

                                      -13-
<PAGE>

               4.20 Copy of Tax qualified  Group Annuity  Contract,  Form 33112,
                    filed   electronically   as  Exhibit  4.3  to   Registration
                    Statement No. 333-42793 is incorporated herein by reference.

               4.21 Copy of Tax qualified Group Annuity Certificate, Form 33115,
                    filed   electronically   as  Exhibit  4.4  to   Registration
                    Statement No. 333-42793 is incorporated herein by reference.

               4.22 Copy of  Group  IRA  Annuity  Contract,  Form  33113,  filed
                    electronically as Exhibit 4.5 to Registration  Statement No.
                    333-42793 is incorporated herein by reference.

               4.23 Copy of Group IRA Annuity  Certificate,  Form  33116,  filed
                    electronically as Exhibit 4.6 to Registration  Statement No.
                    333-42793 is incorporated herein by reference.

               4.24 Copy of Non-tax qualified Individual Annuity Contract,  Form
                    30484, filed electronically as Exhibit 4.7 to Post-Effective
                    Amendment No. 1 to Registration  Statement No.  333-42793 is
                    incorporated herein by reference.

               4.25 Copy of Tax  qualified  Individual  Annuity  Contract,  Form
                    30485, filed electronically as Exhibit 4.8 to Post-Effective
                    Amendment No. 1 to Registration  Statement No.  333-42793 is
                    incorporated herein by reference.

               4.26 Copy  of  Individual   IRA  Contract,   Form  30486,   filed
                    electronically  as Exhibit 4.9 to  Post-Effective  Amendment
                    No.  1  to   Registration   Statement   No.   333-42793   is
                    incorporated herein by reference.

               21.  Copy of List of Subsidiaries filed electronically as Exhibit
                    22  to  Post-Effective   Amendment  No.  8  to  Registration
                    Statement No. 33-28976 is incorporated herein by reference.

               27.  Financial data schedule is filed electronically herewith.

     (b)  Reports on Form 8-K filed in the fourth quarter of 2001

No reports on Form 8-K were required to be filed by the Company for the quarter
ended December 31, 2001.
                                      -14-
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                           IDS LIFE INSURANCE COMPANY

                                     Registrant


3/12/2002                            By /s/ Timothy V. Bechtold
                                        --------------------------------
Date                                        Timothy V. Bechtold, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.

3/12/2002                            By /s/ Gumer C. Alvero
                                        --------------------------------
Date                                        Gumer C. Alvero, Director and
                                            Executive Vice President - Annuities

3/12/2002                            By /s/ Timothy V. Bechtold
                                        --------------------------------
Date                                        Timothy V. Bechtold, President

3/12/2002                            By /s/ Barry J. Murphy
                                        --------------------------------
Date                                        Barry J. Murphy, Director

3/12/2002                            By /s/ Stephen W. Roszell
                                        --------------------------------
Date                                        Stephen W. Roszell, Director

3/12/2002                            By /s/ Bridget M. Sperl
                                        --------------------------------
Date                                        Bridget M. Sperl, Executive Vice
                                            President - Client Services

3/12/2002                            By /s/ John T. Sweeney
                                        --------------------------------
Date                                        John T. Sweeney, Executive Vice
                                            President - Finance

3/12/2002                            By /s/ Philip C. Wentzel
                                        --------------------------------
Date                                        Philip C. Wentzel, Vice President
                                            and Controller

                                      -15-
<PAGE>


Report of Independent Auditors

The Board of Directors
IDS Life Insurance Company

We have audited the accompanying consolidated balance sheets of IDS Life
Insurance Company (a wholly-owned subsidiary of American Express Financial
Corporation) as of December 31, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.


Ernst & Young LLP
January 28, 2002
Minneapolis, Minnesota

                                      -16-
<PAGE>

                           IDS LIFE INSURANCE COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                     ASSETS                                               2001            2000
                                                                                     ------------      ----------
Investments:
   Fixed maturities:
<S>                                                                                    <C>              <C>
     Held-to-maturity, at amortized cost (fair value: 2000, $6,471,798)                $         -      $ 6,463,613
     Available-for-sale, at fair value (amortized cost: 2001, $20,022,072; 2000,
       $12,929,870)                                                                     20,157,137       12,399,990
   Common stocks                                                                             1,704           10,333
   Mortgage loans on real estate                                                         3,680,394        3,738,091
   Policy loans                                                                            619,571          618,973
   Other investments                                                                       621,897          575,551
                                                                                      ------------     ------------
        Total investments                                                               25,080,703       23,806,551

Cash and cash equivalents                                                                1,150,251          316,974

Amounts recoverable from reinsurers                                                        529,166          416,480
Amounts due from brokers                                                                    90,794           15,302
Other accounts receivable                                                                   46,349           42,324
Accrued investment income                                                                  278,199          334,928
Deferred policy acquisition costs                                                        3,107,187        2,951,655
Deferred income taxes, net                                                                 156,308          136,588
Other assets                                                                               123,246           80,054
Separate account assets                                                                 27,333,697       32,349,347
                                                                                        ----------      -----------

        Total assets                                                                   $57,895,900      $60,450,203
                                                                                       ===========      ===========
</TABLE>

See notes to consolidated financial statements.

                                      -17-
<PAGE>



                           IDS LIFE INSURANCE COMPANY
                     CONSOLIDATED BALANCE SHEETS (continued)
                                  December 31,
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDER'S EQUITY                                2001            2000
                                                                                       -----------     ----------
Liabilities:
  Future policy benefits:
<S>                                                                                    <C>              <C>
     Fixed annuities                                                                   $19,592,273      $19,417,446
     Universal life-type insurance                                                       3,433,904        3,410,871
     Traditional life insurance                                                            241,165          232,913
     Disability income and long-term care insurance                                      1,227,172        1,012,247
  Policy claims and other policyholders' funds                                              71,879           52,067
  Amounts due to brokers                                                                 1,740,031          446,347
  Other liabilities                                                                        437,017          463,561
  Separate account liabilities                                                          27,333,697       32,349,347
                                                                                        ----------     ------------

          Total liabilities                                                             54,077,138       57,384,799
                                                                                        ----------     ------------
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                                                               688,327          288,327
  Accumulated other comprehensive income (loss), net of tax:
    Net unrealized securities gains (losses)                                                85,549         (333,734)
   Net unrealized derivative (losses)                                                         (774)               -
                                                                                        ----------      -----------
          Total accumulated other comprehensive income (loss)                               84,775         (333,734)
  Retained earnings                                                                      3,042,660        3,107,811
                                                                                       -----------      -----------
          Total stockholder's equity                                                     3,818,762        3,065,404
                                                                                       -----------      -----------

Total liabilities and stockholder's equity                                             $57,895,900      $60,450,203
                                                                                       ===========      ===========
</TABLE>

See notes to consolidated financial statements.

                                      -18-
<PAGE>

                           IDS LIFE INSURANCE COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                            Years ended December 31,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                         2001             2000             1999
                                                                     ------------     -------------      ---------
              REVENUES
   Premiums:
<S>                                                                  <C>               <C>              <C>
     Traditional life insurance                                      $   59,415        $   56,187       $   53,790
     Disability income and long-term care insurance                     255,428           231,311          201,637
                                                                      ---------         ---------        ---------

           Total premiums                                               314,843           287,498          255,427

   Net investment income                                              1,485,688         1,730,605        1,919,573
   Contractholder charges                                               489,583           438,127          411,994
   Management and other fees                                            473,406           598,168          473,108
   Net realized (loss) gain on investments                             (649,752)          (16,975)          26,608
                                                                       ---------      ------------     -----------

           Total revenues                                             2,113,768         3,037,423        3,086,710
                                                                      ---------         ---------        ---------
             BENEFITS AND EXPENSES
   Death and other benefits:
     Traditional life insurance                                          35,519            29,042           29,819
     Universal life-type insurance and investment contracts
                                                                        175,247           131,467          118,561
     Disability income and long-term care insurance                      44,725            40,246           30,622
   Increase in liabilities for future policy benefits:
     Traditional life insurance                                           7,231             5,765            7,311
     Disability income and long-term care insurance                     123,227           113,239           87,620
   Interest credited on universal life-type insurance and
     investment contracts                                             1,137,636         1,169,641        1,240,575
   Amortization of deferred policy acquisition costs                    371,342           362,106          321,036
   Other insurance and operating expenses                               407,798           378,653          346,849
                                                                        -------        ----------       ----------

           Total benefits and expenses                                2,302,725         2,230,159        2,182,393
                                                                      ---------         ---------        ---------
(Loss) income before income tax (benefit) expense and
   cumulative effect of accounting change                              (188,957)          807,264          904,317

Income tax (benefit) expense                                           (145,222)          221,627          267,864
                                                                     -----------       ----------       ----------
(Loss) income before cumulative effect of accounting change
                                                                        (43,735)          585,637          636,453
Cumulative effect of accounting change (net of income tax
   benefit of $11,532)                                                  (21,416)                -                -
                                                                     -----------       -----------       ---------

Net (loss) income                                                    $  (65,151)       $  585,637       $  636,453
                                                                     ===========       ==========       ==========
</TABLE>

See notes to consolidated financial statements.

                                      -19-
<PAGE>

                           IDS LIFE INSURANCE COMPANY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                   For the three years ended December 31, 2001
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                Accumulated
                                                                                   other
                                                               Additional      comprehensive                         Total
                                                   Capital       paid-in      income (loss),       Retained      stockholder's
                                                    Stock        capital        net of tax         earnings          equity
                                                    -----        -------        ----------         --------          ------
<S>                                                <C>           <C>              <C>            <C>              <C>
Balance, January 1, 1999                           $ 3,000       $ 288,327        $  169,584     $ 2,645,721      $ 3,106,632
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 income taxes of $304,936
                                                         -               -          (566,311)              -         (566,311)
    Reclassification adjustment for gains
       included in net income, net of income
       tax of $7,810                                     -               -           (14,503)              -          (14,503)
                                                                                 ------------                   --------------
     Other comprehensive loss                            -               -          (580,814)              -         (580,814)
                                                                                                                --------------
     Comprehensive income                                                                                              55,639
Cash dividends                                           -               -                 -        (350,000)        (350,000)
                                                ----------    ------------- ----------------    -------------   --------------

Balance, December 31, 1999                           3,000         288,327          (411,230)      2,932,174        2,812,271
Comprehensive income:
    Net income                                           -               -                 -         585,637          585,637
    Unrealized holding gains arising during
       the year, net of deferred policy
       acquisition costs of ($5,154) and
       income taxes of ($46,921)
                                                         -               -            87,138               -           87,138
    Reclassification adjustment for gains
       included in net income, net of
       income tax of $5,192                              -               -            (9,642)              -           (9,642)
                                                                               -------------                    -------------
     Other comprehensive income                          -               -            77,496               -           77,496
                                                                                                                --------------
     Comprehensive income                                                                                             663,133
Cash dividends                                           -               -               -          (410,000)        (410,000)
                                                ----------    -------------- ---------------      -----------    -------------

Balance, December 31, 2000                         $ 3,000       $ 288,327        $ (333,734)    $ 3,107,811      $ 3,065,404
</TABLE>

See notes to consolidated financial statements.

                                      -20-
<PAGE>

                           IDS LIFE INSURANCE COMPANY
           CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (continued)
                   For the three years ended December 31, 2001
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                Accumulated
                                                                                   other
                                                               Additional      comprehensive                         Total
                                                  Capital        paid-in      income (loss),       Retained      stockholder's
                                                  Stock          capital        net of tax         earnings          equity
                                                  -----          -------        ----------         --------          ------
<S>                                                <C>           <C>              <C>             <C>             <C>
Balance, December 31, 2000                         $ 3,000       $ 288,327        $ (333,734)     $3,107,811      $ 3,065,404
Comprehensive income:
    Net loss                                             -               -                 -         (65,151)         (65,151)
    Cumulative effect of adopting SFAS No.
       133, net of income tax benefit of $626
                                                         -               -            (1,162)              -           (1,162)
    Unrealized holding losses on
       available-for-sale securities
       arising during the year, net of
       deferred policy acquisition costs
       of ($20,191) and income taxes of
       $15,037
                                                         -               -           (11,262)              -          (11,262)
    Reclassification adjustment for losses on
       available-for-sale securities included
       in net loss, net of income tax benefit
       of $228,003                                       -               -           423,434               -          423,434
    Reclassification adjustment for losses on
       derivatives included in net loss, net
       of income tax benefit of $4,038
                                                         -               -             7,499               -            7,499
                                                                                  ----------                     -------------
     Other comprehensive income                          -               -           418,509               -          418,509
                                                                                                                 ------------
     Comprehensive income                                                                                             353,358
Capital contribution                                     -         400,000                 -               -          400,000
                                                 ---------       ---------   ---------------    ------------     ------------

Balance, December 31, 2001                          $3,000       $ 688,327         $  84,775     $ 3,042,660      $ 3,818,762
                                                   =======       =========         =========     ===========      ===========
</TABLE>

See notes to consolidated financial statements.

                                      -21-
<PAGE>

                           IDS LIFE INSURANCE COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years ended December 31,
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                            2001              2000             1999
                                                                       ------------      ------------        ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                       <C>               <C>               <C>
  Net (loss) income                                                       $ (65,151)        $ 585,637         $ 636,453
  Adjustments to reconcile net (loss) income to net cash
     provided by operating activities:
     Cumulative effect of accounting change, net of tax                      21,416                 -                 -
     Policy loans, excluding universal life-type insurance:
       Issuance                                                             (43,687)          (61,313)          (56,153)
       Repayment                                                             54,004            56,088            54,105
     Change in amounts recoverable from reinsurers                         (112,686)          (89,312)          (64,908)
     Change in other accounts receivable                                     (4,025)            6,254              (615)
     Change in accrued investment income                                     56,729             8,521            23,125
     Change in deferred policy acquisition costs, net                      (175,723)         (291,634)         (140,379)
     Change in liabilities for future policy benefits for
       traditional life, disability income and long-term care
       insurance                                                            223,177           206,377           153,157
     Change in policy claims and other policyholder's funds                  19,812            27,467           (45,709)
     Deferred income tax (benefit) provision                               (246,205)           37,704            79,796
     Change in other liabilities                                            (24,509)         (120,256)          169,395
     Amortization of premium (accretion of discount), net                   108,958            37,909           (17,907)
     Net realized loss (gain) on investments                                649,752            16,975           (26,608)
     Contractholder charges, non-cash                                      (217,496)         (151,745)         (175,059)
     Other, net                                                             (83,023)           (9,279)           (5,324)
                                                                     ---------------    -------------       -----------

       Net cash provided by operating activities                          $ 161,343         $ 259,393         $ 583,369
</TABLE>

See notes to consolidated financial statements.

                                      -22-
<PAGE>


                           IDS LIFE INSURANCE COMPANY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                            Years ended December 31,
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                         2001              2000             1999
                                                                   -------------     -------------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Held-to-maturity securities:
<S>                                                                  <C>               <C>              <C>
     Purchases                                                       $         -       $    (4,487)     $    (3,030)
     Maturities, sinking fund payments and calls                               -           589,742          741,949
     Sales                                                                     -            50,067           66,547
  Available-for-sale securities:
     Purchases                                                        (9,477,740)       (1,454,010)      (3,433,128)
     Maturities, sinking fund payments and calls                       2,706,147         1,019,403        1,442,507
     Sales                                                             5,493,141         1,237,116        1,691,389
  Other investments, excluding policy loans:
     Purchases                                                          (442,876)         (706,082)        (657,383)
     Sales                                                               370,636           435,633          406,684
  Change in amounts due from brokers                                     (75,492)          (15,157)             182
  Change in amounts due to brokers                                     1,293,684           298,236          (47,294)
                                                                       ---------       -----------     ------------

       Net cash (used in) provided by investing activities              (132,500)        1,450,461          208,423
                                                                      -----------      -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Activities related to universal life-type insurance and
     investment contracts:
     Considerations received                                           2,088,114         1,842,026        2,031,630
     Surrenders and other benefits                                    (2,810,401)       (3,974,966)      (3,669,759)
     Interest credited to account balances                             1,137,636         1,169,641        1,240,575
  Universal life-type insurance policy loans:
     Issuance                                                            (83,720)         (134,107)        (102,239)
     Repayment                                                            72,805            82,193           67,881
  Capital contribution                                                   400,000                 -                -
  Dividends paid                                                               -          (410,000)        (350,000)
                                                                      ----------       -----------      -----------

       Net cash provided by (used in) financing activities               804,434        (1,425,213)        (781,912)
                                                                      ----------       -----------      -----------

  Net increase in cash and cash equivalents                              833,277           284,641            9,880

  Cash and cash equivalents at beginning of year                         316,974            32,333           22,453
                                                                     -----------       -----------     ------------

  Cash and cash equivalents at end of year                           $ 1,150,251       $   316,974      $    32,333
                                                                     ===========       ===========      ===========
  Supplemental disclosures:
     Income taxes paid                                               $         -       $   225,704      $   214,940
     Interest on borrowings                                               23,688             3,299            4,521
</TABLE>

See notes to consolidated financial statements.

                                      -23-
<PAGE>

                           IDS LIFE INSURANCE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In 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.

     Revenue Recognition

     Profits on fixed deferred annuities are the excess of contractholder
     charges and investment income earned from investment of contract
     considerations over interest credited to contract values, amortization of
     deferred acquisition costs, and other expenses. Profits on variable
     deferred annuities also include the excess of management and other fees
     over the costs of guaranteed benefits provided. Contractholder charges
     include policy fees and surrender charges. Management and other fees
     include investment management fees from underlying proprietary mutual
     funds, certain fee revenues from underlying nonproprietary mutual funds and
     mortality and expense risk fees from the variable annuity separate
     accounts.

     Profits on fixed universal life insurance are the excess of contractholder
     charges and investment income earned from investment of contract
     considerations over interest credited to contract values, death and other
     benefits paid in excess of contract values, amortization of deferred
     acquisition costs, and other expenses. Profits on variable universal life
     insurance also include management and other fees. 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, certain fee revenues from underlying
     nonproprietary mutual funds and mortality and expense risk fees received
     from the variable life insurance separate accounts.

     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.

                                      -24-
<PAGE>


1.   Summary of significant accounting policies (continued)

     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).
     Certain prior year amounts have been reclassified to conform to the current
     year's presentation.

     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 - securities

     Debt securities 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 debt securities and marketable equity
     securities are classified as available-for-sale and carried at fair value.
     Unrealized gains and losses on securities classified as available-for-sale
     are carried as a separate component of accumulated other comprehensive
     income (loss), net of the related deferred policy acquisition costs and
     income taxes. When evidence indicates there is a decline in a security's
     value, which is other than temporary, the security is written down to fair
     value through a charge to current year's earnings.

     The Company's investment portfolio contains structured investments,
     including Collateralized Debt Obligations (CDO's) (obligations that are
     primarily backed by high-yield bonds), which are not readily marketable.
     The carrying values of these investments are based on cash flow projections
     and, as such, these values are subject to change. If actual cash flows are
     less than projected, losses would be recognized; increases in cash flows
     would be recognized over future periods.

     Realized investment gains or losses are 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.

     Investments - mortgage loans on real estate

     Mortgage loans on real estate are carried at amortized cost less reserves
     for losses. The estimated fair value of the mortgage loans is determined by
     discounted cash flow analyses using mortgage interest rates currently
     offered for mortgages of similar maturities.

                                      -25-
<PAGE>

1.   Summary of significant accounting policies (continued)

     Impairment of mortgage loans is measured as the excess of the loan's
     recorded investment over its present value of expected principal and
     interest payments discounted at the loan's effective interest rate, or the
     fair value of collateral. The amount of the impairment is recorded in a
     reserve for losses. The reserve for 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 collectability of principal,
     interest payments received are either recognized as income or applied to
     the recorded investment in the loan.

     Policy loans

     Policy loans are carried at the aggregate of the unpaid loan balances,
     which do not exceed the cash surrender values of the related policies.

     Cash and cash equivalents

     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.

     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 the interest method. The costs for universal life and variable
     universal life 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 fixed and variable universal life 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 prospective
     assumptions underlying the amortization models. 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. Unlocking
     adjustments resulted in a net increase in amortization of $33,600 in 2001
     and net decreases in amortization of $12,300 in 2000 and $56,800 in 1999.

                                      -26-
<PAGE>

1.   Summary of significant accounting policies (continued)

     In amortizing deferred policy acquisition costs associated with variable
     annuities, the Company assumes contract values will appreciate at a
     specified long-term annual rate. The Company may project near-term
     appreciation at a different rate in order to maintain the long-term rate
     assumption.

     Liabilities for future policy benefits

     Liabilities for fixed and variable universal life insurance and fixed and
     variable deferred annuities are accumulation values.

     Liabilities for equity indexed deferred annuities issued in 1997 and 1998
     are equal to the present value of guaranteed benefits and the intrinsic
     value of index-based benefits. Liabilities for equity indexed deferred
     annuities issued in 1999 or later are equal to the accumulation of host
     contract values covering guaranteed benefits and the market value of
     embedded equity options.

     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

     Reinsurance premiums and benefits paid or provided are accounted for on a
     basis consistent with those used in accounting for original policies issued
     and with the terms of the reinsurance contracts.

     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. The Company retains 20% of the mortality risk on
     new variable universal life insurance policies and 10% of the risk on new

                                      -27-
<PAGE>

1.   Summary of significant accounting policies (continued)

     term 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 accidental death benefit, disability income and waiver of
     premium 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.

     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.

     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 to be payable at the initial level regardless
     of investment performance so long as minimum premium payments are made.

     Accounting developments

     In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a
     consensus on Issue 99-20, "Recognition of Interest Income and Impairment on
     Purchased and Retained Beneficial Interests in Securitized Financial
     Assets". The Company adopted the consensus as of January 1, 2001. Issue
     99-20 prescribes new procedures for recording interest income and measuring
     impairment on retained and purchased beneficial interests. The consensus
     primarily affects certain high-yield investments contained in structured
     securities. Adoption of the consensus required the Company to adjust the
     carrying amount of these investments downward by $21,416, net of tax, upon
     adoption. See Note 2 for further discussion.

                                      -28-
<PAGE>

1.   Summary of significant accounting policies (continued)

     Effective January 1, 2001, the Company adopted Statement of Financial
     Accounting Standards No. 133, "Accounting for Derivative Instruments and
     Hedging Activities," as amended (SFAS No. 133), which requires an entity to
     recognize all derivatives as either assets or liabilities on the balance
     sheet and measure those instruments at fair value. Changes in the fair
     value of a derivative are recorded in earnings or directly to equity,
     depending on the instrument's designated use. The adoption of SFAS No. 133
     on January 1, 2001, resulted in a cumulative after-tax reduction to other
     comprehensive income of $1,162. The cumulative impact to earnings was not
     significant. See Note 8 for further discussion of the Company's derivative
     and hedging activities.

     SFAS No. 133 also provided a one-time opportunity to reclassify
     held-to-maturity security investments to available-for-sale without
     tainting the remaining securities in the held-to-maturity portfolio. The
     Company elected to take the opportunity to reclass all its held-to-maturity
     investments to available-for-sale.

     The Company adopted SFAS No. 140, "Accounting for Transfers and Servicing
     of Financial Assets and Extinguishments of Liabilities," which superceded
     SFAS No. 125. The Statement was effective for transfers and servicing of
     financial assets and extinguishments of liabilities occurring after March
     31, 2001. The Statement was effective for recognition and reclassification
     of collateral and for disclosures relating to securitization transactions
     and collateral for fiscal years ending after December 15, 2000. The impact
     on the Company's financial position or results of operations of adopting
     the Statement was not significant.

2.   Investments

     Securities

     Pursuant to the adoption of SFAS No. 133 the Company reclassified all
     held-to-maturity securities with a carrying value of $6,463,613 and net
     unrealized gains of $8,185 to available-for-sale as of January 1, 2001.

<TABLE>
<CAPTION>
     The following is a summary of securities available-for-sale at December 31,
     2001:
                                                                                              Gross          Gross
                                                                            Amortized      unrealized     unrealized       Fair
                                                                              cost            gains         losses         value
     Fixed maturities:
<S>                                                                       <C>              <C>            <C>        <C>
        U.S. Government agency obligations                                $    31,074      $  2,190       $     56   $    33,208
        State and municipal obligations                                         7,826           149              -         7,975
        Corporate bonds and obligations                                    11,658,888       276,332        218,365    11,716,855
        Mortgage-backed securities                                          8,292,576       103,109         32,801     8,362,884
        Foreign government bonds and obligations                               31,708         4,507              -        36,215
                                                                          -----------      --------       --------   -----------
     Total fixed maturity securities                                      $20,022,072      $386,287       $251,222   $20,157,137
                                                                          ===========      ========       ========   ===========
     Common stocks                                                        $       805      $    899       $      -   $     1,704
                                                                          ===========      ========       ========   ===========
</TABLE>

                                      -29-
<PAGE>

2.   Investments (continued)

     The amortized cost and fair value of fixed maturity securities at December
     31, 2001 by contractual maturity are as follows:
                                                    Amortized            Fair
                                                       Cost              Value
     Due within one year                            $ 1,093,557      $ 1,114,618
     Due from one to five years                       2,885,509        3,007,435
     Due from five to ten years                       5,503,284        5,519,588
     Due in more than ten years                       2,247,146        2,152,612
     Mortgage-backed securities                       8,292,576        8,362,884
                                                      ---------        ---------
          Total                                     $20,022,072      $20,157,137
                                                    ===========      ===========

     The timing of actual receipts may differ from contractual maturities
     because issuers may call or prepay obligations.

     The  following  is a summary  of  held-to-maturity  and  available-for-sale
     securities at December 31, 2000:
<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              $    38,302       $   3,455        $     80          $   41,677
    State and municipal obligations                       7,678              16               -               7,694
    Corporate bonds and obligations                   5,248,517         111,466         114,330           5,245,653
    Mortgage-backed securities                        1,169,116           9,130           1,472           1,176,774
                                                      ---------           -----           -----           ---------
         Total fixed maturity securities            $ 6,463,613       $ 124,067        $115,882          $6,471,798
                                                    ===========       =========        ========          ==========

                                                                       Gross            Gross
    Available-for-sale                              Amortized       Unrealized       Unrealized             Fair
    Fixed maturities:                                  Cost            Gains           Losses              Value
       U.S. Government agency obligations
                                                    $    96,408     $     6,134        $    268         $   102,274
       State and municipal obligations                   12,848             247               -              13,095
       Corporate bonds and obligations                7,586,423         123,691         693,303           7,016,811
       Mortgage-backed securities                     5,234,191          57,697          24,078           5,267,810
                                                      ---------          ------          ------           ---------
    Total fixed maturity securities                 $12,929,870        $187,769        $717,649         $12,399,990
                                                    ===========        ========        ========         ===========

    Common stocks                                   $    11,829     $         -        $  1,496         $    10,333
                                                    ===========     ===========        ========         ===========
</TABLE>

     At December 31, 2001, bonds carried at $14,639 were on deposit with various
     states as required by law.

     At December 31, 2001, fixed maturity securities comprised approximately 80
     percent of the Company's total investments. These securities are rated by
     Moody's and Standard & Poor's (S&P), except for approximately $2.6 billion
     of securities which are rated by AEFC's internal analysts using criteria
     similar to Moody's and S&P. A summary of fixed maturity securities, at
     amortized cost, by rating on December 31, is as follows:

                                      -30-
<PAGE>


2.   Investments (continued)

     Rating                                     2001              2000
     Aaa/AAA                                $  8,977,075      $  6,559,188
     Aaa/AA                                            -            32,001
     Aa/AA                                       261,252           220,446
     Aa/A                                        372,120           327,147
     A/A                                       2,602,027         2,494,621
     A/BBB                                       911,477           747,636
     Baa/BBB                                   5,904,013         5,828,847
     Baa/BB                                      274,228           287,583
     Below investment grade                      719,880         2,896,014
                                                 -------         ---------
          Total                             $ 20,022,072       $19,393,483
                                            ============       ===========

     At December 31, 2001, approximately 93 percent of the securities rated
     Aaa/AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
     any other issuer were greater than ten percent of stockholder's equity.

     During the years ended December 31, 2000 and 1999, fixed maturities
     classified as held-to-maturity were sold with amortized cost of $53,169 and
     $68,470, 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.

     Available-for-sale securities were sold during 2001 with proceeds of
     $5,493,141 and gross realized gains and losses of $116,485 and $767,144,
     respectively. Available-for-sale securities were sold during 2000 with
     proceeds of $1,237,116 and gross realized gains and losses of $25,101 and
     $10,267, respectively. Available-for-sale securities were sold during 1999
     with proceeds of $1,691,389 and gross realized gains and losses of $36,568
     and $14,255, respectively.

     The net unrealized gain (loss) on available-for-sale securities as of
     December 31, 2001 and 2000, was $135,964 and ($531,376), respectively, with
     the $667,340 change, net of taxes and deferred policy acquisition costs,
     reflected as a separate component in accumulated other comprehensive income
     for the year ended December 31, 2001. For the year ended December 31, 2000
     the change in net unrealized losses on available-for-sale securities was a
     decrease of $122,196. For the year ended December 31, 1999 the change in
     net unrealized gain on available-for-sale securities was a decrease of
     $921,920.

     During 2001, the Company recorded pretax losses of $828,175 to recognize
     the impact of higher default rate assumptions on certain structured
     investments; to write down lower rated securities (most of which were sold
     during 2001) in connection with Company's decision to lower its risk
     profile by reducing the level of its high-yield portfolio, allocating
     holdings toward stronger credits, and reducing the concentration of
     exposure to individual companies and industry sectors; to write down
     certain other investments; and, to adopt EITF Issue 99-20, as previously
     discussed. Within the Consolidated Statements of Income, approximately
     $623,958 of these losses are included in Net realized (losses) gains on
     investments and approximately $171,269 are included in Net investment
     income, with the remaining losses recorded as a cumulative effect of
     accounting change.

                                      -31-
<PAGE>

2.   Investments (continued)

     During 2001, the Company placed a majority of its rated Collateralized Debt
     Obligation (CDO) (obligations that are backed primarily by high-yield
     bonds) securities and related accrued interest, (collectively referred to
     as transferred assets), having an aggregate book value of $675,347, into a
     securitization trust. In return, the Company received $89,535 in cash
     relating to sales to unaffiliated investors and retained interests with
     allocated book amounts aggregating $585,812. The book amount is determined
     by allocating the previous carrying value of the transferred assets between
     assets sold and the retained interests based on their relative fair values.
     Fair values are based on the estimated present value of future cash flows.

     There was no cash flow related to this transaction other than the receipt
     of the initial $89,535. Cash flows on the assets sold to investors and
     retained interests are not scheduled to begin until March 31, 2002 in
     accordance with governing documents.

     Included in Other investments are affordable  housing  investment  credits,
     trading securities, and real estate.

     Fair values of investments 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, estimated future cash flows and market data from
     independent brokers.

     Mortgages loans on real estate

     At December 31, 2001, approximately 15 percent of the Company's investments
     were mortgage loans on real estate. Concentration of credit risk by region
     of the United States and by type of real estate are as follows:

<TABLE>
<CAPTION>
                                                      December 31, 2001                 December 31, 2000
                                                  On Balance     Funding          On Balance          Funding
          Region                                     Sheet      Commitments           Sheet          Commitments
<S>                                              <C>             <C>              <C>                  <C>
     East North Central                          $  670,387      $ 1,873          $   691,694          $18,868
     West North Central                             549,015            -              564,576            7,621
     South Atlantic                                 815,837        9,490              884,723            7,667
     Middle Atlantic                                352,821        9,363              378,702           13,813
     New England                                    274,486        8,700              279,147            4,604
     Pacific                                        355,945       14,618              318,727              921
     West South Central                             214,000          600              173,158           28,548
     East South Central                              55,798            -               49,176            2,763
     Mountain                                       413,053           27              409,677           10,209
                                                    -------        -----              -------           ------
                                                  3,701,342       44,671            3,749,580           95,014
     Less reserves for losses                        20,948            -               11,489                -
                                                    -------        -----              -------           ------
        Total                                    $3,680,394      $44,671           $3,738,091          $95,014
                                                 ==========      =======           ==========          =======
</TABLE>

                                      -32-
<PAGE>

2.   Investments (continued)

<TABLE>
<CAPTION>
                                                     December 31, 2001                   December 31, 2000
                                               On Balance         Funding          On Balance          Funding
       Property type                              Sheet         Commitments           Sheet          Commitments
<S>                                            <C>               <C>              <C>                 <C>
     Department/retail stores                  $1,117,195        $13,200          $1,174,763          $11,130
     Apartments                                   694,214         11,531             780,228                -
     Office buildings                           1,203,090          7,650           1,085,948           59,941
     Industrial buildings                         333,713          2,263             323,766           23,943
     Hotels/motels                                108,019              -             100,680                -
     Medical buildings                            106,927          6,000             128,101                -
     Nursing/retirement homes                      39,590              -              49,822                -
     Mixed use                                     86,972             27              87,537                -
     Other                                         11,622          4,000              18,735                -
                                                   ------          -----              ------           ------
                                                3,701,342         44,671           3,749,580           95,014
     Less reserves for losses                      20,948              -              11,489                -
                                                   ------          -----              ------           ------
        Total                                  $3,680,394        $44,671          $3,738,091          $95,014
                                               ==========        =======          ==========          =======
</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 fund mortgages are made in the ordinary course of business.
     The fair value of the mortgage commitments is $nil.

     At December 31, 2001, 2000 and 1999, the Company's recorded investment in
     impaired loans was $39,601, $24,999 and $21,375, respectively, with
     reserves of $7,225, $4,350 and $5,750, respectively. During 2001, 2000 and
     1999, the average recorded investment in impaired loans was $24,498,
     $27,063 and $23,815, respectively.

     The Company recognized $1,285, $1,033 and $1,190 of interest income related
     to impaired loans for the years ended December 31, 2001, 2000 and 1999,
     respectively.

     The  following  table  presents  changes in the reserves for mortgage  loan
     losses:
<TABLE>
<CAPTION>
                                                                         2001             2000             1999
<S>                                                                    <C>              <C>               <C>
     Balance, January 1                                                $11,489          $28,283           $39,795
     Provision (reduction) for mortgage loan losses                     14,959          (14,894)           (9,512)
     Loan payoffs                                                            -           (1,200)             (500)
     Foreclosures and write-offs                                        (5,500)            (700)           (1,500)
                                                                        ------             ----            ------
     Balance, December 31                                              $20,948          $11,489           $28,283
                                                                       =======          =======           =======
</TABLE>

                                      -33-
<PAGE>

2.   Investments (continued)

     Sources of investment income and realized (losses) gains on investments

     Net  investment  income for the years ended  December 31 is  summarized  as
     follows:
<TABLE>
<CAPTION>

                                                                       2001             2000              1999
<S>                                                                 <C>              <C>               <C>
     Interest on fixed maturities                                    $1,276,966       $1,473,560        $1,598,059
     Interest on mortgage loans                                         290,608          286,611           285,921
     Interest on cash equivalents                                         2,218            8,084             5,871
     Other                                                              (44,145)           1,750             70,892
                                                                        -------            -----             ------
                                                                      1,525,647        1,770,005         1,960,743
     Less investment expenses                                            39,959           39,400            41,170
                                                                         ------           ------            ------
        Total                                                        $1,485,688       $1,730,605        $1,919,573
                                                                     ==========       ==========        ==========
</TABLE>

     Net realized  (losses) gains on investments for the years ended December 31
     is summarized as follows:
<TABLE>
<CAPTION>

                                                                       2001           2000            1999
<S>                                                                 <C>            <C>              <C>
     Fixed maturities                                               $(621,400)     $(34,857)        $ 8,802
     Mortgage loans                                                   (22,443)       15,845          10,210
     Other investments                                                 (5,909)        2,037           7,596
                                                                       ------         -----           -----
                                                                    $(649,752)     $(16,975)        $26,608
                                                                    =========      ========         =======
</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 (benefit) expense for the years ended December 31 consists
     of the following:
<TABLE>
<CAPTION>
                                                                       2001              2000             1999
     Federal income taxes
<S>                                                                  <C>               <C>               <C>
        Current                                                      $  88,121         $176,397          $178,444
        Deferred                                                      (234,673)          37,704            79,796
                                                                      --------           ------            ------
                                                                      (146,552)         214,101           258,240
     State income taxes-current                                          1,330            7,526             9,624
                                                                         -----            -----             -----
     Income tax (benefit) expense before cumulative effect of
        accounting change                                             (145,222)         221,627           267,864
     Cumulative effect of accounting change income tax benefit         (11,532)               -                 -
                                                                         -----            -----             -----
     Income tax (benefit) expense                                    $(156,754)        $221,627          $267,864
                                                                     =========         ========          ========
</TABLE>

                                       -34-
<PAGE>

3.   Income taxes (continued)

     Income tax (benefit) expense before the cumulative effect of accounting
     change, differs from that computed by using the United States statutory
     rate of 35%. The principal causes of the difference in each year are shown
     below:

<TABLE>
<CAPTION>
                                                          2001                         2000                         1999
                                                  Provision    Rate            Provision    Rate            Provision    Rate
     Federal income taxes
     <S>                                        <C>            <C>            <C>             <C>           <C>            <C>
           based on the statutory rate          $ (66,136)     (35.0%)        $282,542        35.0%         $316,511       35.0%
     Tax-excluded interest and
        dividend income                            (4,663)      (2.5)           (3,788)       (0.5)           (9,626)      (1.1)
     State taxes, net of federal
        benefit                                       865        0.4             4,892         0.6             6,256        0.7
     Affordable housing credits                   (73,200)     (38.7)          (54,569)       (6.8)          (31,000)      (3.4)
     Other, net                                    (2,088)      (1.1)           (7,450)       (0.8)          (14,277)      (1.6)
                                                   ------       ----            ------        ----           -------       ----
     Total income taxes                         $(145,222)     (76.9%)        $221,627        27.5%         $267,864       29.6%
                                                =========      =====          ========        ====          ========       ====
</TABLE>

     A portion of life insurance company income earned prior to 1984 was not
     subject to current taxation but was accumulated, for tax purposes, in a
     "policyholders' surplus account". At December 31, 2001, 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.

     Deferred income taxes reflect the net tax effects of temporary differences
     between the carrying amounts of assets and liabilities for financial
     reporting purposes and the amounts used for income tax purposes.
     Significant components of the Company's deferred income tax assets and
     liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
                                                                                       2001             2000
     Deferred income tax assets
<S>                                                                                  <C>                <C>
        Policy reserves                                                              $  705,637         $730,239
        Unrealized loss - available-for-sale securities                                       -          179,702
        Investments, other                                                              330,675           34,600
        Life insurance guaranty fund assessment reserve                                   1,330            1,365
        Other                                                                            26,492                -
                                                                                      ---------          -------
     Total deferred income tax assets                                                 1,064,134          945,906
                                                                                      ---------          -------
     Deferred income tax liabilities
        Deferred policy acquisition costs                                               861,892          796,292
        Unrealized gain - available-for-sale securities                                  45,934                -
        Other                                                                                  -          13,026
                                                                                      ---------          -------
     Total deferred income tax liabilities                                              907,826          809,318
                                                                                      ---------          -------
     Net deferred income tax assets                                                  $  156,308         $136,588
                                                                                     ==========         ========
</TABLE>

                                      -35-
<PAGE>


3.   Income taxes (continued)

     The Company is required to establish a valuation allowance for any portion
     of the deferred income 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 AEFC are
     limited to the Company's surplus as determined in accordance with
     accounting practices prescribed by state insurance regulatory authorities.
     Statutory unassigned surplus aggregated $1,262,335 as of December 31, 2001
     and $1,493,292 as of December 31, 2000 (see Note 3 with respect to the
     income tax effect of certain distributions). In addition, any dividend
     distributions in 2002 in excess of approximately $194,435 would require
     approval of the Department of Commerce of the State of Minnesota.

     Statutory net (loss) income for the years ended December 31 and capital and
     surplus as of December 31 are summarized as follows:

                                         2001             2000          1999
     Statutory net (loss) income       $ (317,973)     $  344,973     $  478,173
     Statutory capital and surplus      1,947,350       1,778,306      1,978,406

     The National  Association  of Insurance  Commissioners  (NAIC)  revised the
     Accounting  Practices  and  Procedures  Manual in a process  referred to as
     Codification.  The revised  regulations  took effect  January 1, 2001.  The
     domiciliary  states of the  Company  and its  insurance  subsidiaries  have
     adopted the  provisions  of the  revised  manual.  The  revised  manual has
     changed,  to some extent,  prescribed  statutory  accounting  practices and
     resulted in changes to the  accounting  practices  that the Company uses to
     prepare   its   statutory-basis   financial   statements.   The  impact  of
     implementing  these  changes  was an  increase  of $4,660 to the  Company's
     statutory-basis capital and surplus as of January 1, 2001.

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, 2001 and 2000. 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 in 2001,
     2000 and 1999.

     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. Company 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 $263, $250 and $223 in 2001, 2000 and
     1999, respectively.

                                      -36-
<PAGE>

5.   Related party transactions (continued)

     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 2001, 2000 and 1999 were
     $662, $1,707 and $1,906, 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 cost of these plans
     charged to operations in 2001, 2000 and 1999 was $1,011, $1,136 and $1,147,
     respectively.

     Charges by AEFC for use of joint facilities, technology support, marketing
     services and other services aggregated $505,526, $582,836 and $485,177 for
     2001, 2000 and 1999, respectively. Certain of these costs are included in
     deferred policy acquisition costs. Expenses allocated to the Company may
     not be reflective of expenses that would have been incurred by the Company
     on a stand-alone basis.

     Included in other liabilities at December 31, 2001 and 2000 are $68,919 and
     $41,059, respectively, payable to and receivable from AEFC for federal
     income taxes.

6.   Lines of credit

     The Company has available lines of credit with AEFC 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 $nil and $50,000 uncommitted at December 31, 2001 and 2000,
     respectively.

7.   Commitments and contingencies

     At December 31, 2001, 2000 and 1999, traditional life and universal
     life-type insurance in force aggregated $108,255,014, $98,060,472 and
     $89,271,957 respectively, of which $25,986,706, $17,429,851 and $8,281,576
     were reinsured at the respective year ends. The Company also reinsures a
     portion of the risks assumed under long-term care policies. Under all
     reinsurance agreements, premiums ceded to reinsurers amounted to $114,534,
     $89,506 and $76,970 and reinsurance recovered from reinsurers amounted to
     $43,388, $32,500, and $27,816 for the years ended December 31, 2001, 2000
     and 1999, respectively. Reinsurance contracts do not relieve the Company
     from its primary obligation to policyholders.

     At December 31, 2001, the Company had no commitments to purchase
     investments other than mortgage loan fundings (see Note 2).

                                      -37-
<PAGE>



7.   Commitments and contingencies (continued)

     In January 2000, AEFC reached an agreement in principle to settle three
     class-action lawsuits related to the sales of insurance and annuity
     products anticipated to provide for approximately $215 million of benefits.
     The Company had been named as a co-defendant in all three of these
     lawsuits. In September 2000, both state and federal courts gave preliminary
     approval to the proposed settlement and AEFC mailed notices to all of the
     over two million class members. In May 2001 the courts entered orders
     approving the settlement. The orders became final in August 2001 and in
     October 2001 the settlement was implemented. The anticipated costs of
     settlement remain unchanged from prior years. The settlement as approved
     provides for release by class members of all insurance and annuity market
     conduct claims dating back to 1985. Some class members opted out of the
     settlement and therefore did not release their claims against AEFC or the
     Company. Some of these class members who opted out were represented by
     counsel and presented separate claims to AEFC or the Company. Most of their
     claims have been settled.

     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 conducting an audit for the 1993 through 1996 tax years.
     Management does not believe there will be a material adverse effect on the
     Company's consolidated financial position as a result of these audits.

8.   Derivative financial instruments

     The Company maintains an overall risk management strategy that incorporates
     the use of derivative instruments to minimize significant unplanned
     fluctuations in earnings caused by interest rate and equity market
     volatility. The Company does not enter into derivative instruments for
     speculative purposes. As prescribed per SFAS No. 133, derivative
     instruments that are designated and qualify as hedging instruments are
     classified as a cash flow hedge, fair value hedge, or a hedge of a net
     investment in a foreign operation, based upon the exposure being hedged.

     The Company currently has economic hedges that either do not qualify or are
     not designated for hedge accounting treatment under SFAS No. 133. For the
     year ended December 31, 2001, the net effect on earnings of accounting for
     the net changes in fair value of the following undesignated derivatives
     under SFAS No. 133 compared with prior rules was not significant.

     The Company enters into interest rate swaps, caps and floors to manage the
     Company's interest rate risk and options and futures to manage equity-based
     risk. The values of derivative financial instruments are based on market
     values, dealer quotes or pricing models.

     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-

                                      -38-
<PAGE>

8.   Derivative financial instruments (continued)

     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.

     Interest rate caps, swaps and floors are used principally to manage the
     Company's interest rate risk. These instruments are primarily used to
     protect the margin between interest rates earned on investments and the
     interest rates credited to related annuity contract holders. No interest
     rate swaps or floors were outstanding as of December 31, 2001. The interest
     rate caps expire by January 2003. The fair value of the interest rate caps
     is included in Other assets. Changes in the value of the interest rate caps
     are included in Other insurance and operating expenses.

     A purchased (written) option conveys the right (obligation) to buy or sell
     an instrument at a fixed price for a set period of time or on a specific
     date. The Company writes and purchases index options to manage the risks
     related to annuity products that pay interest based upon the relative
     change in a major stock market index between the beginning and end of the
     product's term. The Company views this strategy as a prudent management of
     equity market sensitivity, such that earnings are not exposed to undue risk
     presented by changes in equity market levels.

     The annuity products contain embedded derivatives, essentially the equity
     based return of the product, which must be separated from the host contract
     and accounted for as derivative instruments per SFAS No. 133. As a result
     of fluctuations in equity markets, and the corresponding changes in value
     of the embedded derivatives, the amount of interest credited incurred by
     the Company related to the annuity product will positively or negatively
     impact reported earnings.

     The purchased and written options are carried at fair value and included in
     Other assets and Other liabilities, respectively. The fair value of the
     embedded options are included in Future policy benefits for fixed
     annuities. The changes in fair value of the options are recognized in Other
     insurance and operating expenses and the embedded derivatives are
     recognized in Interest credited on universal life-type insurance and
     investment contracts. The purchased and written options expire on various
     dates from 2002 to 2008.

     The Company also purchases futures to hedge its obligations under equity
     indexed annuities. The futures purchased are marked-to-market daily and
     exchanged traded, exposing the Company to no counterparty risk. The futures
     contracts mature within four months.

                                      -39-
<PAGE>

8.   Derivative financial instruments (continued)

     Index options are used to manage the equity market risk related to the fee
     income that the Company receives from its separate accounts and the
     underlying mutual funds. The amount of the fee income received is based
     upon the daily market value of the separate account and mutual fund assets.
     As a result, the Company's fee income could be impacted significantly by
     fluctuations in the equity market. There are no index options outstanding
     as of December 31, 2001 related to this strategy.

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>
                                                                2001                              2000
                                                      Carrying          Fair           Carrying            Fair
     Financial Assets                                  Value            Value            Value            Value
     Fixed maturities:
<S>                                                    <C>             <C>              <C>              <C>
        Held-to-maturity securities                    $         -     $         -      $ 6,463,613      $ 6,471,798
        Available-for-sale securities                   20,157,137      20,157,137       12,399,990       12,399,990
     Common stocks                                           1,704           1,704           10,333           10,333
     Mortgage loans on real estate                       3,680,394       3,845,950        3,738,091        3,821,825
     Cash and cash equivalents                           1,150,251       1,150,251          316,974          316,974
     Other securities                                       75,721          75,721            1,130            1,130
     Derivative financial instruments                       34,477          34,477           50,387           60,615
     Separate account assets                            27,333,697      27,333,697       32,349,347       32,349,347

     Financial Liabilities
     Future policy benefits for fixed annuities
                                                       $18,139,462     $17,671,777      $18,020,824      $17,479,187
     Derivative financial instruments                        2,506           2,506            3,098            6,069
     Separate account liabilities                       24,280,092      23,716,854       28,791,949       27,822,667
</TABLE>

     At December 31, 2001 and 2000, the carrying amount and fair value of future
     policy benefits for fixed annuities exclude life insurance-related
     contracts carried at $1,368,254 and $1,300,018, respectively, and policy
     loans of $84,557 and $96,603, respectively. The fair value of these
     benefits is based on the status of the annuities at December 31, 2001 and
     2000. The fair value of deferred annuities is estimated as the carrying
     amount less any applicable surrender charges and related loans. The fair
     value for annuities in non-life contingent payout status is estimated as
     the present value of projected benefit payments at rates appropriate for
     contracts issued in 2001 and 2000.

     At December 31, 2001 and 2000, 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
     $3,053,605 and $3,557,398, respectively.

                                      -40-