<PAGE>
                                  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, 1996

                                       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 33-28976/33-50968/33-48701

                           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.)

                      IDS TOWER 10, MINNEAPOLIS, MINNESOTA
               55440-0534 (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),  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
and American  Centurion Life Assurance Company are wholly owned  subsidiaries of
the Company  and serve New York State  residents.  The Company  also wholly owns
American  Enterprise Life Insurance Company and American Partners Life Insurance
Company.

The Company's  principal  products are deferred  annuities  and  universal  life
insurance,  which are issued primarily to individuals.  It offers single premium
and flexible  premium  deferred  annuities  on both a fixed and variable  dollar
basis. Immediate annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single premium life and
term products  (including waiver of premium and accidental death benefits).  The
Company also markets disability income and long-term care insurance.

The Company's principal annuity product in terms of amount in force is the fixed
deferred annuity. The annuity contract guarantees a minimum interest rate during
the accumulation  period (the time before annuity payments begin),  although the
Company  normally  pays a higher rate  reflective of current  market rates.  The
Company  has  also  adopted  a  practice  whereby  the  higher  current  rate is
guaranteed for a specified  period.  The Company also offers a variable  annuity
product  under the name Flexible  Portfolio  Annuity.  This is a  fixed/variable
annuity  offering the  purchaser a choice among mutual funds with  portfolios of
equities, bonds, managed assets and/or short-term securities,  and the Company's
general account, as the underlying  investment  vehicles.  With respect to funds
applied to the variable portion of the annuity,  the purchaser,  rather than the
Company,  assumes the investment  risks and receives the rewards inherent in the
ownership of the underlying investment.  The Flexible Portfolio Annuity provides
for a surrender  charge during the first eight years after a purchase payment is
made. At December 31, 1996,  the Company had $39.2 billion of fixed and variable
annuities in force, an increase of 10 percent from the prior year end.

The   Company's   principal   insurance   product   is   the   flexible-premium,
adjustable-benefit  universal life insurance  policy.  In this type of insurance
policy, each premium payment accumulates  interest in a cash value account.  The
policyholder  has access to the cash  surrender  value in whole or in part after
the first year. The size of the cash value of the fund can also be controlled by
the  policyholder  by  increasing  or  decreasing  premiums,   subject  only  to
maintaining a required minimum to keep the policy in force.  Monthly  deductions
from the cash value of the policy  are made for the cost of  insurance,  expense
charges and any policy  riders.  At  December  31,  1996,  the Company had $49.6
billion of fixed and variable  universal  life-type  insurance  in force,  up 15
percent from December 31, 1995.

Assets held in segregated  accounts which fund the variable annuity and variable
life insurance products totaled $18.5 billion at December 31, 1996, a 24 percent
increase from December 31, 1995.

<PAGE>

IDS Life Insurance  Company,  American  Enterprise  Life  Insurance  Company and
American Partners Life Insurance Company 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.
IDS Life  Insurance  Company of New York and American  Centurion  Life Assurance
Company are both subject to comprehensive  regulation by the New York Department
of  Insurance.  The laws of the other states in which the Company does  business
regulate  such matters as the licensing of sales  personnel  and, in some cases,
the  contents  of  insurance  policies.  The  purpose  of  such  regulation  and
supervision  is primarily  to protect the  interests  of  policyholders.  In the
United States, the McCarran-Ferguson Act provides that the primary regulation of
the  insurance  industry is left to the  individual  states.  Typically,  states
regulate such matters as company  licensing,  agent  licensing,  cancellation or
nonrenewal of policies, minimum health insurance policy benefits, life insurance
cost disclosure, solicitation and replacement practices, unfair trade and claims
practices,  rates,  forms,  advertising,  investment  type and quality,  minimum
capital and surplus levels and changes in control.  Virtually all states mandate
participation  in  insurance  guaranty  associations,   which  assess  insurance
companies  in order to fund  claims  of  policyholders  of  insolvent  insurance
companies.  In addition  to state laws,  the Company is affected by a variety of
federal laws, and there is periodic  federal  interest in various aspects of the
insurance industry including taxation,  solvency and accounting  procedures,  as
well as the  treatment of persons  differently  because of sex,  with respect to
terms,  conditions,  rates or benefits of an insurance contract. If any of these
issues were resolved unsatisfactorily, there could be an adverse effect upon the
Company.

As  a  distributor  of  variable  contracts,  the  Company  is  registered  as a
broker-dealer.  As the investment manager for various investment companies,  the
Company is registered as an investment advisor under applicable federal laws and
is a member of the National Association of Securities Dealers, Inc.

The  insurance  and annuity  business is highly  competitive  and the  Company's
competitors  consist of insurance  companies and other  financial  institutions.
Competitive  factors  applicable  to the  business  of the  Company  include the
interest  rates  credited  to  its  products,  the  financial  strength  of  the
organization and the services provided to policyholders.

For additional information,  see Note 10, Segment information,  in the "Notes to
Consolidated Financial Statements".

ITEM 2.  PROPERTIES

The Company occupies office space in Minneapolis,  Minnesota, which is leased by
its parent,  American  Express  Financial  Corporation.  The Company  reimburses
American  Express  Financial  Corporation  for rent based on direct and indirect
allocation  methods.  IDS  Life  Insurance  Company  of New  York  and  American
Centurion  Life  Assurance  Company  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.

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

A number of  lawsuits  have been  filed  against  life and  health  insurers  in
jurisdictions  in which the  Company and AEFC do  business  involving  insurers'
sales practices, alleged agent misconduct, failure to properly supervise agents,
and other matters.  The Company and AEFC,  like other life and health  insurers,
from time to time are involved in such  litigation.  On December  13,  1996,  an
action entitled Lesa  Benacquisto and Daniel  Benacquisto vs. IDS Life Insurance
Company and American  Express  Financial  Corporation was commenced in Minnesota
state  court.  The action is brought by  individuals  who  replaced  an existing
Company  insurance policy with a new Company policy.  The plaintiffs  purport to
represent  a class  consisting  of all  persons who  replaced  existing  Company
policies with new policies from and after January 1, 1985. The complaint puts at
issue various alleged sales practices and  misrepresentations,  alleged breaches
of  fiduciary  duties  and  alleged   violations  of  consumer  fraud  statutes.
Plaintiffs  seek damages in an  unspecified  amount and also seek to establish a
claims  resolution  facility for the  determination  of individual  issues.  The
Company and AEFC filed an answer to the Complaint on February 18, 1997.

The Company is a defendant  in various  other  lawsuits,  none of which,  in the
opinion of the Company counsel, will result in a material liability.

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

Not applicable.

<PAGE>

                                     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.

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

1996 Compared to 1995:

Consolidated net income  increased 14 percent to $415 million in 1996,  compared
to $365 million in 1995.  Earnings growth  resulted  primarily from increases in
management fees and policyholder and contractholder  charges partially offset by
a slight decrease in investment margins.  These increases reflect higher average
insurance  and  annuities in force during  1996.  Investment  margins were below
prior year levels primarily due to increasing interest credited rates throughout
1996.

Consolidated  income before income taxes totaled $622 million in 1996,  compared
with $561 million in 1995. In 1996,  $161 million was from the life,  disability
income and long-term care insurance segment, compared with $125 million in 1995.
In 1996, $461 million was from the annuity  segment,  compared with $440 million
in 1995.

Total premiums  received  increased to $6.1 billion in 1996,  compared with $5.0
billion in 1995.  This  increase  is  primarily  due to an  increase in sales of
variable annuities in 1996.

Total revenues increased to $2.7 billion in 1996,  compared with $2.5 billion in
1995.  The increase is primarily  due to  increases  in net  investment  income,
policyholder  and  contractholder  charges,  and management fees. Net investment
income,  the  largest  component  of  revenues,  increased  from the prior year,
reflecting a slight increase in investments owned.

Policyholder  and  contractholder  charges,  which consist  primarily of cost of
insurance charges on universal life-type policies,  increased 18 percent to $303
million in 1996,  compared  with $256 million in 1995.  This  increase  reflects
higher  total life  insurance  in force  which grew 13 percent to $67 billion at
December 31, 1996.

Management and other fees increased 26 percent to $271 million in 1996, compared
with $216  million in 1995.  This is  primarily  due to an  increase in separate
account  assets,  which grew 24 percent to $19 billion at December 31, 1996, due
to market  appreciation and sales. The Company  provides  investment  management
services for the 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 $2.1 billion in 1996.  The
largest component of expenses,  interest  credited to policyholder  accounts for
universal  life-type  insurance  and  investment  contracts,  increased  to $1.4
billion.  This was due to higher  aggregate  amounts in force and an increase in
average interest credited rates.

1995 compared to 1994:

Consolidated net income increased 8.6% to $365 million in 1995, compared to $336
million in 1994. Earnings growth resulted primarily from increases in management
fees and policyholder and  contractholder  charges  partially offset by a slight
decrease in investment margins. These increases reflect higher average insurance
and  annuities in force during  1995.  Investment  margins were below prior year
levels  primarily  due to higher  interest  credited  rates during the first two
quarters of 1995.

Consolidated  income before income taxes totaled $561 million in 1995,  compared
with $513 million in 1994. In 1995,  $125 million was from the life,  disability
income, health and long-term care insurance segment,  compared with $123 million
in 1994. In 1995, $440 million was from the annuity segment,  compared with $394
million in 1994.  There was a $4.9 million net realized loss on  investments  in
1995, compared with a net realized loss on investments of $4.3 million in 1994.

Total premiums  received  decreased to $5.0 billion in 1995,  compared with $5.7
billion in 1994.  This  decrease  is  primarily  due to a  decrease  in sales of
variable  annuities,  reflecting  very strong sales of variable  products during
1994.

<PAGE>

Total revenues increased to $2.5 billion in 1995,  compared with $2.3 billion in
1994.  The increase is primarily  due to  increases  in net  investment  income,
policyholder  and  contractholder  charges,  and management fees. Net investment
income,  the  largest  component  of  revenues,  increased  from the prior year,
reflecting an increase in investments owned.

Policyholder  and  contractholder  charges,  which consist  primarily of cost of
insurance charges on universal life-type policies, increased 16% to $256 million
in 1995, compared with $220 million in 1994. This increase reflects higher total
life insurance in force which grew 13% to $59.4 billion at December 31, 1995.

Management and other fees  increased 32% to $216 million in 1995,  compared with
$164 million in 1994.  This is primarily due to an increase in separate  account
assets,  which  grew 38% to $15  billion at  December  31,  1995,  due to market
appreciation and sales. The Company provides investment  management services for
the 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  to $2.0  billion in 1995.  The largest
component of expenses,  interest credited to policyholder accounts for universal
life-type insurance and investment  contracts,  increased to $1.3 billion.  This
was due to higher aggregate amounts in force and an increase in average interest
credited rates.

Risk Management

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  minimizing  risk,  and to provide a
dependable  and targeted  spread between the interest rate earned on investments
and the interest rate credited to clients' accounts. The Company does not invest
in securities to generate trading profits.

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  and  their  impact  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.

Rates  credited to clients'  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 purchase of some types of  derivatives,
such as interest rate caps and swaps, for hedging  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 clients' accounts.

<PAGE>

Liquidity and Capital Resources

The  liquidity  requirements  of the  Company  are met by  funds  provided  from
operations and investment activity. The primary components of the funds provided
are 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 two  banks  and its  parent
aggregating $175 million,  of which $100 million is with its parent. The $25,000
line of credit  with one bank  expired on Dec.  31, 1996 and the Company did not
seek renewal. The $50,000 line of credit with the other bank expires on June 30,
1997 and the  Company  expects  to seek  renewal.  The lines of credit  are used
strictly  as  short-term  sources  of funds.  Borrowings  outstanding  under the
agreements  were $nil at Dec. 31, 1996.  At Dec. 31, 1996,  outstanding  reverse
repurchase agreements totaled $17 million.

At Dec. 31, 1996,  investments in fixed  maturities  comprised 86 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 Dec. 31, 1996,  approximately  9.6 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  high-rated  issues  because of the
borrower's generally greater sensitivity to adverse economic 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.

At Dec.  31, 1996,  net  unrealized  appreciation  on fixed  maturities  held to
maturity included $380 million of gross unrealized  appreciation and $94 million
of  gross  unrealized   depreciation.   Net  unrealized  appreciation  on  fixed
maturities  available  for  sale  included  $231  million  of  gross  unrealized
appreciation and $93 million of gross unrealized depreciation.

At Dec. 31, 1996,  the Company had an  allowance  for losses for mortgage  loans
totaling $37 million and for real estate investments totaling $4 million.

The economy and other factors have caused an increase in the number of insurance
companies that are under regulatory supervision.  This circumstance has resulted
in an increase 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.

In the first  quarter of 1997,  the Company  paid a $45 million  dividend to its
parent. In 1996, dividends paid to its parent were $165 million.

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 Dec. 31, 1996, the Company's  total adjusted  capital was well in
excess of the levels requiring regulatory attention.

Segment Information

The Company's operations consist of two business segments:  Individual and group
life,  disability  income and long-term care  insurance;  and fixed and variable
annuity products designed for individuals,  pension plans,  small businesses and
employer-sponsored groups. The Company is not dependent upon any single customer
and no single  customer  accounted  for more than 10 percent of revenue in 1996,
1995 or 1994.  Additionally,  no single  distributor  accounted for more than 10
percent  of  premiums  received  in 1996,  1995 or  1994.(See  Note 10,  Segment
information, in the "Notes to Consolidated Financial Statements".)

<PAGE>

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in a separate section of this report.

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

None.

<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.

<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.

           (2)  Financial Statement Schedules

                See Index to Financial Statements and Financial Statement 
                Schedules.

           (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  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  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   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.

               4.6  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.

               4.7  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.

               4.8  Form  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.

               22.  Copy of List of Subsidiaries filed electronically as Exhibit
                    21  to  Post-Effective   Amendment  No.  7  to  Registration
                    Statement  No. 33-28976 is herein incorporated by reference.

               27.  Financial data schedule is filed electronically herewith.

     (b) Reports on Form 8-K filed in the fourth quarter of 1996

          No reports on Form 8-K were  required  to be filed by the  Company for
          the quarter ended December 31, 1996.

<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


3/14/97                             By   /s/ James A. Mitchell
                                         ---------------------------------
Date                                         James A. Mitchell, Chairman of the
                                             Board and Chief Executive Officer

3/14/97                             By   /s/ Melinda S. Urion
                                         ---------------------------------
Date                                         Melinda S. Urion, Executive Vice
                                             President and Controller

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.

3/14/97                             By   /s/ David R. Hubers
                                         ---------------------------------
Date                                         David R. Hubers, Director

3/14/97                             By   /s/ Richard W. Kling
                                         ---------------------------------
Date                                         Richard W. Kling, President

3/14/97                             By   /s/ Paul F. Kolkman
                                         ---------------------------------
Date                                         Paul F. Kolkman, Executive Vice
                                             President

3/14/97                             By   /s/ James A. Mitchell
                                         ----------------------------------
Date                                         James A. Mitchell, Chairman of the
                                             Board and Chief Executive Officer

3/14/97                             By   /s/ Stuart A. Sedlacek
                                         -----------------------------------
Date                                         Stuart A. Sedlacek, Executive Vice
                                             President, Assured Assets

3/14/97                             By   /s/ Melinda S. Urion
                                         -----------------------------------
Date                                         Melinda S. Urion, Executive Vice
                                             President and Controller

<PAGE>

                           ANNUAL REPORT ON FORM 10-K

                    ITEM 8 and ITEM 14(a) (1) and (2) and (d)

         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                          FINANCIAL STATEMENT SCHEDULES

                          YEAR ENDED DECEMBER 31, 1996

                           IDS LIFE INSURANCE COMPANY

                             MINNEAPOLIS, MINNESOTA

<PAGE>

                           IDS LIFE INSURANCE COMPANY

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES



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

     Report of Independent Auditors

     Consolidated Balance Sheets at December 31, 1996 and 1995

     Consolidated Statements of Income for the years ended December 31, 1996, 
          1995 and 1994

     Consolidated Statements of Stockholder's Equity for the years ended
          December 31, 1996, 1995 and 1994

     Consolidated Statements of Cash Flows for the years ended December 31, 
          1996, 1995 and 1994

     Notes to Consolidated Financial Statements

The following  consolidated  financial statement schedules of IDS Life Insurance
Company are included in Item 14(d):

       I.  Summary of Investments - Other than Investments in Related Parties

     III.  Supplementary Insurance Information

      IV.  Reinsurance

       V.  Valuation and Qualifying Accounts

   All other  schedules to the  consolidated  financial  statements  required by
Article 7 of Regulation S-X are not required under the related  instructions  or
are inapplicable and therefore have been omitted.

<PAGE>

Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company



We have  audited  the  accompanying  consolidated  balance  sheets  of IDS  Life
Insurance  Company (a wholly  owned  subsidiary  of American  Express  Financial
Corporation)  as of  December  31,  1996 and 1995 and the  related  consolidated
statements of income,  stockholder's equity and cash flows for each of the three
years in the period  ended  December  31,  1996.  Our audits also  included  the
financial statement schedules listed in the index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of IDS
Life  Insurance  Company at  December  31, 1996 and 1995,  and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.  Also, in our opinion,  the related financial  statement  schedules,
when considered in relation to the basic financial  statements taken as a whole,
present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
changed  its method of  accounting  for certain  investments  in debt and equity
securities in 1994.



Ernst & Young LLP

Minneapolis, Minnesota
February 7, 1997

<PAGE>

                           IDS LIFE INSURANCE COMPANY
                           CONSOLIDATED BALANCE SHEETS


                                                        Dec. 31,       Dec. 31,
ASSETS                                                    1996           1995
------                                                    ----        ---------
                                                             (thousands)

Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1996, $10,521,650; 1995, $11,878,377) ..............   $10,236,379   $11,257,591
Available for sale, at fair value (Amortized cost:
1996, $11,008,622; 1995, $10,146,136) ..............    11,146,845    10,516,212
Mortgage loans on real estate ......................     3,493,364     2,945,495
Policy loans .......................................       459,902       424,019
Other investments ..................................       251,465       146,894

Total investments ..................................    25,587,955    25,290,211

Cash and cash equivalents ..........................       224,603        72,147
Amounts recoverable from reinsurers ................       157,722       114,387
Amounts due from brokers ...........................        11,047            --
Other accounts receivable ..........................        44,089        39,108
Accrued investment income ..........................       343,313       348,008
Deferred policy acquisition costs ..................     2,330,805     2,025,725
Deferred income taxes ..............................        33,923            --
Other assets .......................................        37,364        36,410
Separate account assets ............................    18,535,160    14,974,082

Total assets .......................................   $47,305,981   $42,900,078
                                                       ===========   ===========

<PAGE>

                           IDS LIFE INSURANCE COMPANY
                     CONSOLIDATED BALANCE SHEETS (continued)


                                                       Dec. 31,        Dec. 31
LIABILITIES AND STOCKHOLDER'S EQUITY                    1996             1995
------------------------------------                    ----             ----
                                                             (thousands)


Liabilities:
Future policy benefits:
Fixed annuities ....................................   $21,838,008   $21,404,836
Universal life-type insurance ......................     3,177,149     3,076,847
Traditional life insurance .........................       209,685       209,249
Disability income and long-term care insurance .....       424,200       327,157

Policy claims and other
policyholders' funds ...............................        83,634        56,323
Deferred income taxes ..............................            --       112,904
Amounts due to brokers .............................       261,987       121,618
Other liabilities ..................................       332,078       285,354
Separate account liabilities .......................    18,535,160    14,974,082

Total liabilities ..................................    44,861,901    40,568,370

Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding ..         3,000         3,000
Additional paid-in capital .........................       283,615       278,814
Net unrealized gain on investments .................        86,102       230,129
Retained earnings ..................................     2,071,363     1,819,765

Total stockholder's equity .........................     2,444,080     2,331,708

Total liabilities and stockholder's equity .........   $47,305,981   $42,900,078
                                                       ===========   ===========

Commitments and contingencies (Note 6)

See accompanying notes to consolidated financial statements.

<PAGE>

                                              IDS LIFE INSURANCE COMPANY
                                           CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                         Years ended Dec. 31,
                                                       1996               1995                1994
                                                       ----               ----                ----
                                                                     (thousands)
<S>                                               <C>                 <C>                 <C>
Revenues:
Premiums:
Traditional life insurance                        $    51,403         $   50,193          $   48,184
Disability income and long-term care insurance        131,518            111,337              96,456

Total premiums                                        182,921            161,530             144,640

Policyholder and contractholder charges               302,999           256,454             219,936
Management and other fees                             271,342           215,581             164,169
Net investment income                               1,965,362         1,907,309           1,781,873
Net realized loss on investments                         (159)           (4,898)             (4,282)

Total revenues                                      2,722,465          2,535,976           2,306,336

Benefits and expenses:
Death and other benefits:
Traditional life insurance                             26,919             29,528              28,263
Universal life-type insurance
and investment contracts                               85,017             71,691              52,027
Disability income and
long-term care insurance                               19,185             16,259              13,393

Increase (decrease) in liabilities for future policy benefits:
Traditional life insurance                              1,859             (1,315)             (3,229)
Disability income and
long-term care insurance                               57,230             51,279              37,912

Interest credited on universal life-type
insurance and investment contracts                  1,370,468          1,315,989           1,174,985
Amortization of deferred policy acquisition costs     278,605            280,121             280,372
Other insurance and operating expenses                261,468            211,642             210,101

Total benefits and expenses                         2,100,751          1,975,194           1,793,824

Income before income taxes                            621,714            560,782             512,512

Income taxes                                         207,138            195,842             176,343

Net income                                         $  414,576         $  364,940          $  336,169
                                                   ==========         ==========          ==========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
                                               IDS LIFE INSURANCE COMPANY
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                             Three years ended Dec. 31, 1996
                                                       (thousands)

                                                               Additional    Net Unrealized
                                              Capital           Paid-In     Gain (Loss) on     Retained
                                               Stock            Capital       Investments      Earnings            Total
                                               -----            -------       -----------      --------            -----
<S>                                           <C>            <C>           <C>               <C>              <C>
Balance, Dec. 31, 1993                         $3,000         $ 222,000     $      114        $1,468,230       $1,693,344
Initial adoption of SFAS No. 115                   --                --        181,269                --          181,269
Net income                                         --                --             --           336,169          336,169
Change in net unrealized
gain (loss) on  investments                        --                --       (457,091)               --         (457,091)
Cash dividends                                     --                --             --          (165,000)        (165,000)

Balance, Dec. 31, 1994                          3,000           222,000       (275,708)        1,639,399        1,588,691
Net income                                         --                --             --           364,940          364,940
Change in net unrealized
gain (loss) on investments                         --                --        505,837                --          505,837
Capital contribution from parent                   --            56,814             --                --           56,814
Loss on reinsurance transaction
with affiliate                                     --                --             --            (4,574)          (4,574)
Cash dividends                                     --                --             --          (180,000)        (180,000)

Balance, Dec. 31, 1995                          3,000           278,814        230,129         1,819,765        2,331,708
Net income                                         --                --             --           414,576          414,576
Change in net unrealized
gain (loss) on investments                         --                --       (144,027)               --         (144,027)
Capital contribution from parent                   --             4,801             --                --            4,801
Other changes                                      --                --             --             2,022            2,022
Cash dividends                                     --                --             --          (165,000)        (165,000)

Balance, Dec. 31, 1996                         $3,000          $283,615       $ 86,102        $2,071,363       $2,444,080
                                                =====           =======         ======          ========         ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
                                                   IDS LIFE INSURANCE COMPANY
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                       Years ended Dec. 31,
                                                            1996               1995                1994
                                                            ----               ----                ----
                                                                            (thousands)
<S>                                                      <C>                <C>                 <C>      
Cash flows from operating activities:
Net income                                               $ 414,576          $ 364,940           $ 336,169
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Policy loan issuance, excluding universal
life-type insurance                                        (49,314)           (46,011)            (37,110)
Policy loan repayment, excluding universal
life-type insurance                                         41,179             36,416              33,384
Change in amounts recoverable from reinsurers              (43,335)           (34,083)            (25,006)
Change in other accounts receivable                         (4,981)            12,231             (28,551)
Change in accrued investment income                          4,695            (30,498)            (10,333)
Change in deferred policy acquisition
costs, net                                                (294,755)          (196,963)           (192,768)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance                                    97,479             85,575              55,354
Change in policy claims and other
policyholders' funds                                        27,311              6,255               5,552
Change in deferred income taxes                            (65,609)           (33,810)            (19,176)
Change in other liabilities                                 46,724             (6,548)               (122)
(Accretion of discount)
amortization of premium, net                               (23,032)           (22,528)             30,921
Net realized loss on investments                               159              4,898               4,282
Policyholder and contractholder
charges, non-cash                                         (154,286)          (140,506)           (126,918)
Other, net                                                 (10,816)             3,849              (8,709)

Net cash (used in) provided by operating
activities                                               $ (14,005)         $   3,217           $  16,969
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                              IDS LIFE INSURANCE COMPANY
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)


                                                                         Years ended Dec. 31,
                                                            1996               1995                1994
                                                                            (thousands)
<S>                                                   <C>                <C>                   <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases                                             $    (43,751)      $ (1,007,208)         $ (879,740)
Maturities, sinking fund payments and calls                759,248            538,219           1,651,762
Sales                                                      279,506            332,154              58,001
Fixed maturities available for sale:
Purchases                                               (2,299,198)        (2,452,181)         (2,763,278)
Maturities, sinking fund payments and calls              1,270,240            861,545           1,234,401
Sales                                                      238,905            136,825             374,564
Other investments, excluding policy loans:
Purchases                                                 (904,536)          (823,131)           (634,807)
Sales                                                      236,912            160,521             243,862
Change in amounts due from brokers                         (11,047)             7,933              (2,214)
Change in amounts due to brokers                           140,369           (105,119)           (124,749)

Net cash used in investing activities                     (333,352)        (2,350,442)           (842,198)

Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received                                  3,567,586          4,189,525           3,566,814
Surrenders and death benefits                           (4,250,294)        (3,141,404)         (3,602,392)
Interest credited to account balances                    1,370,468          1,315,989           1,174,985
Universal life-type insurance policy loans:
Issuance                                                   (86,501)           (84,700)            (78,239)
Repayment                                                   58,753             52,188              50,554
Capital contribution from parent                             4,801                 --                  --
Cash dividends to parent                                  (165,000)          (180,000)           (165,000)

Net cash provided by financing activities                  499,813          2,151,598             946,722

Net increase (decrease) in cash and
cash equivalents                                           152,456           (195,627)            121,493

Cash and cash equivalents at
beginning of year                                           72,147            267,774             146,281

Cash and cash equivalents at
end of year                                          $     224,603        $    72,147         $   267,774
                                                         =========           ========            ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                           IDS LIFE INSURANCE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ($ thousands)

1. Summary of significant accounting policies

   Nature of business

   IDS Life Insurance  Company (the Company) is a stock life  insurance  company
   organized  under the laws of the State of Minnesota.  The Company is a wholly
   owned subsidiary of American Express Financial Corporation, which is a wholly
   owned subsidiary of American Express Company. The Company serves residents of
   all  states  except  New York.  IDS Life  Insurance  Company of New York is a
   wholly owned  subsidiary of the Company and serves New York State  residents.
   The Company also wholly owns  American  Enterprise  Life  Insurance  Company,
   American  Centurion Life Assurance Company (ACLAC) and American Partners Life
   Insurance Company.

   The Company's  principal  products are deferred  annuities and universal life
   insurance,  which are  issued  primarily  to  individuals.  It offers  single
   premium and flexible premium deferred  annuities on both a fixed and variable
   dollar  basis.  Immediate  annuities  are  offered  as  well.  The  Company's
   insurance  products include universal life (fixed and variable),  whole life,
   single  premium  life and term  products  (including  waiver of  premium  and
   accidental death benefits).  The Company also markets  disability  income and
   long-term care insurance.

   Basis of presentation

   The accompanying  consolidated  financial  statements include the accounts of
   the Company and its wholly  owned  subsidiaries.  All  material  intercompany
   accounts and transactions have been eliminated in consolidation.

   The  accompanying  consolidated  financial  statements  have been prepared in
   conformity  with  generally  accepted  accounting  principles  which  vary in
   certain  respects from reporting  practices  prescribed or permitted by state
   insurance regulatory authorities.

   The preparation of financial statements in conformity with generally accepted
   accounting  principles  requires management to make estimates and assumptions
   that affect the reported  amounts of assets and liabilities and disclosure of
   contingent assets and liabilities at the date of the financial statements and
   the reported amounts of revenues and expenses during the reporting period.
   Actual results could differ from those estimates.

   Investments

   Fixed  maturities  that the  Company  has both the  positive  intent  and the
   ability to hold to maturity are classified as held to maturity and carried at
   amortized  cost.  All  other  fixed  maturities  and  all  marketable  equity
   securities  are  classified  as available for sale and carried at fair value.
   Unrealized  gains and losses on  securities  classified as available for sale
   are carried as a separate component of stockholder's  equity, net of deferred
   taxes.

   Realized investment gain or loss is determined on an identified cost basis.

   Prepayments  are  anticipated  on  certain   investments  in  mortgage-backed
   securities  in  determining  the constant  effective  yield used to recognize
   interest income.  Prepayment estimates are based on information received from
   brokers who deal in mortgage-backed securities.

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

   Impairment of mortgage loans is measured as the excess of the loan's recorded
   investment over its present value of expected principal and interest payments
   discounted  at the  loan's  effective  interest  rate,  or the fair  value of
   collateral.  The  amount of the  impairment  is  recorded  in a  reserve  for
   mortgage loan losses.  The reserve for mortgage loans losses is maintained at
   a level that management  believes is adequate to absorb  estimated  losses in
   the  portfolio.  The level of the  reserve  account  is  determined  based on
   several factors,  including historical experience,  expected future principal
   and  interest  payments,   estimated   collateral  values,  and  current  and
   anticipated economic and political conditions. Management regularly evaluates
   the adequacy of the reserve for mortgage loan losses.

   The Company  generally  stops  accruing  interest on mortgage loans for which
   interest   payments  are  delinquent   more  than  three  months.   Based  on
   management's  judgement  as to  the  ultimate  collectibility  of  principal,
   interest  payments received are either recognized as income or applied to the
   recorded investment in the loan.

   <PAGE>

   The cost of interest rate caps and floors is amortized to  investment  income
   over the life of the  contracts  and  payments  received as a result of these
   agreements  are recorded as investment  income when  realized.  The amortized
   cost of  interest  rate caps and  floors is  included  in other  investments.
   Amounts paid or received under  interest rate swap  agreements are recognized
   as an adjustment to investment income.

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

   When  evidence  indicates a decline,  which is other than  temporary,  in the
   underlying value or earning power of individual investments, such investments
   are written down to the fair value by a charge to income.

   Statements of cash flows

   The  Company  considers  investments  with a  maturity  at the  date of their
   acquisition of three months or less to be cash equivalents.  These securities
   are carried principally at amortized cost which approximates fair value.

   Supplementary information to the consolidated statements of cash flows
   for the years ended Dec. 31 is summarized as follows:

                                         1996         1995          1994
                                      ---------      --------      -----
     Cash paid during the year for:
       Income taxes                    $317,283     $191,011     $226,365
       Interest on borrowings             4,119        5,524        1,553

   Recognition of profits on annuity contracts and insurance policies

   Profits on fixed  deferred  annuities are  recognized by the Company over the
   lives  of  the  contracts,  using  primarily  the  interest  method.  Profits
   represent the excess of investment  income earned from investment of contract
   considerations over interest credited to contract owners and other expenses.

   The  retrospective  deposit  method  is  used  in  accounting  for  universal
   life-type  insurance.  This method  recognizes  profits over the lives of the
   policies  in  proportion  to  the  estimated  gross  profits  expected  to be
   realized.

   Premiums on traditional life,  disability income and long-term care insurance
   policies  are  recognized  as revenue  when due,  and  related  benefits  and
   expenses  are  associated  with  premium  revenue in a manner that results in
   recognition  of  profits  over the  lives  of the  insurance  policies.  This
   association  is  accomplished  by means of the  provision  for future  policy
   benefits and the deferral and subsequent  amortization of policy  acquisition
   costs.

   Policyholder and contractholder charges include the monthly cost of insurance
   charges and issue and  administrative  fees.  These  charges also include the
   minimum  death  benefit  guarantee  fees  received  from  the  variable  life
   insurance  separate  accounts.  Management and other fees include  investment
   management fees and mortality and expense risk fees from the variable annuity
   and variable life insurance separate accounts and underlying funds.

   Deferred policy acquisition costs

   The costs of acquiring new business,  principally sales compensation,  policy
   issue costs,  underwriting and certain sales expenses,  have been deferred on
   insurance  and annuity  contracts.  The deferred  acquisition  costs for most
   single premium deferred annuities and installment  annuities are amortized in
   relation  to  surrender  charge  revenue  and a  portion  of  the  excess  of
   investment income earned from investment of the contract  considerations over
   the interest credited to contract owners.  The costs for universal  life-type
   insurance and certain installment  annuities are amortized as a percentage of
   the  estimated  gross profits  expected to be realized on the  policies.  For
   traditional life,  disability  income and long-term care insurance  policies,
   the costs are amortized over an  appropriate  period in proportion to premium
   revenue.

   Liabilities for future policy benefits

   Liabilities  for  universal  life-type  insurance,  single  premium  deferred
   annuities and installment annuities are accumulation values.

   Liabilities  for  fixed  annuities  in a  benefit  status  are  based  on the
   Progressive  Annuity  Table with interest at 5 percent,  the 1971  Individual
   Annuity Table with interest at 7 percent or 8.25 percent,  or the 1983a Table
   with  various  interest  rates  ranging  from  5.5  percent  to 9.5  percent,
   depending on year of issue.

   <PAGE>

   Liabilities  for future  benefits on traditional  life insurance are based on
   the net level  premium  method and  anticipated  rates of  mortality,  policy
   persistency  and interest  earnings.  Anticipated  mortality  rates generally
   approximate the 1955-1960 Select and Ultimate Basic Table for policies issued
   prior to 1980,  the  1965-1970  Select and Ultimate  Basic Table for policies
   issued from  1981-1984 and the 1975-1980  Select and Ultimate Basic Table for
   policies  issued after 1984.  Anticipated  policy  persistency  rates vary by
   policy form,  issue age and policy  duration with  persistency  on cash value
   plans generally  anticipated to be better than  persistency on term insurance
   plans.  Anticipated  interest  rates are 4% for policies  issued before 1974,
   5.25% for policies issued from 1974-1980,  and range from 10% to 6% depending
   on policy form,  issue year and policy  duration  for  policies  issued after
   1980.

   Liabilities for future  disability income policy benefits include both policy
   reserves  and  claim  reserves.  Policy  reserves  are based on the net level
   premium  method  and  anticipated  rates  of  morbidity,   mortality,  policy
   persistency and interest earnings.  Anticipated  morbidity rates are based on
   the 1964  Commissioners  Disability Table for policies issued before 1996 and
   the 1985 CIDA table for policies issued in 1996.  Anticipated mortality rates
   are based on the 1958  Commissioners  Standard  Ordinary  Table for  policies
   issued before 1996 and the 1975-1980 Basic Table for policies issued in 1996.
   Anticipated policy  persistency rates vary by policy form,  occupation class,
   issue age and policy duration. Anticipated interest rates are 3% for policies
   issued  before  1996 and grade from 7.5% to 5% over five  years for  policies
   issued in 1996.  Claim  reserves are  calculated on the basis of  anticipated
   rates  of  claim  continuance  and  interest   earnings.   Anticipated  claim
   continuance  rates are based on the 1964  Commissioners  Disability Table for
   claims incurred before 1993 and the 1985 CIDA Table for claims incurred after
   1992. Anticipated interest rates are 8% for claims incurred prior to 1992, 7%
   for claims incurred in 1992 and 6% for claims incurred after 1992.

   Liabilities  for future  long-term care policy  benefits  include both policy
   reserves  and  claim  reserves.  Policy  reserves  are based on the net level
   premium  method  and  anticipated  rates  of  morbidity,   mortality,  policy
   persistency and interest earnings.  Anticipated  morbidity rates are based on
   the 1985 National Nursing Home Survey.  Anticipated mortality rates are based
   on the 1983a Table. Anticipated policy persistency rates vary by policy form,
   issue age and policy duration. Anticipated interest rates are 9.5% grading to
   7% over 10 years for policies  issued from  1989-1992 and 7.75% grading to 7%
   over 4 years for policies issued after 1992. Claim reserves are calculated on
   the basis of anticipated  rates of claim  continuance and interest  earnings.
   Anticipated  claim  continuance  rates are based on the 1985 National Nursing
   Home Survey.  Anticipated  interest rates are 8% for claims incurred prior to
   1992, 7% claims incurred in 1992 and 6% for claims incurred after 1992.

   Reinsurance

   The maximum  amount of life insurance risk retained by the Company on any one
   life is $750 of life and waiver of premium  benefits  plus $50 of  accidental
   death benefits.  The maximum amount of disability income risk retained by the
   Company on any one life is $6 of monthly  benefit for benefit  periods longer
   than three  years.  The  excesses  are  reinsured  with other life  insurance
   companies on a yearly  renewable  term basis.  Graded  premium whole life and
   long-term care policies are primarily reinsured on a coinsurance basis.

   Federal income taxes

   The Company's  taxable income is included in the consolidated  federal income
   tax return of American Express Company. The Company provides for income taxes
   on a separate return basis,  except that, under an agreement between American
   Express  Financial  Corporation and American Express Company,  tax benefit is
   recognized for losses to the extent they can be used on the  consolidated tax
   return.  It is the  policy  of  American  Express  Financial  Corporation  to
   reimburse subsidiaries for all tax benefits.

   Included  in other  liabilities  at Dec.  31,  1996 and 1995 are  $33,358 and
   ($13,415),  respectively,   receivable  from/(payable  to)  American  Express
   Financial Corporation for federal income taxes.

   Separate account business

   The separate  account  assets and  liabilities  represent  funds held for the
   exclusive  benefit  of the  variable  annuity  and  variable  life  insurance
   contract owners.

   The Company makes  contractual  mortality  assurances to the variable annuity
   contract  owners  that the net assets of the  separate  accounts  will not be
   affected by future variations in the actual life expectancy experience of the
   annuitants and the beneficiaries from the mortality  assumptions  implicit in
   the annuity  contracts.  The Company  makes  periodic  fund  transfers to, or
   withdrawals  from, the separate  accounts for such actuarial  adjustments for
   variable  annuities that are in the benefit payment period. For variable life
   insurance,  the Company  guarantees that the rates at which insurance charges
   and  administrative  fees are deducted  from  contract  funds will not exceed
   contractual maximums. The Company also guarantees that the death benefit will
   continue payable at the initial level regardless of investment performance so
   long as minimum premium payments are made.

   <PAGE>
   
   Accounting changes

   The Financial  Accounting  Standards  Board's  (FASB)  Statement  of
   Financial Accounting  Standards  (SFAS) No. 121,  "Accounting  for the
   Impairment of Long-Lived  Assets  and for  Long-Lived  Assets  to Be
   Disposed  Of,"  was effective Jan. 1, 1996. The new rule did not have a
   material  impact on the Company's results of operations or financial
   condition.  The Company adopted  SFAS No. 115, "Accounting   for   Certain
   Investments   in  Debt  and Equity Securities."  The  effect  of  adopting
   the new  rule  was to  increase stockholder's  equity by $181,269,  net of
   tax, as of Jan. 1, 1994,  but the adoption had no impact on the Company's net
   income.

   Reclassification

   Certain 1995 and 1994 amounts have been  reclassified  to conform to the 1996
   presentation.

2. Investments

   Fair values of investments in fixed maturities represent quoted market prices
   and estimated  values when quoted prices are not available.  Estimated values
   are  determined  by  established  procedures  involving,  among other things,
   review of market  indices,  price levels of current  offerings of  comparable
   issues,  price  estimates  and  market  data  from  independent  brokers  and
   financial files.

   Net realized gain (loss) on investments for the years ended Dec. 31 is
   summarized as follows:

                                          1996           1995            1994
                                       --------        --------        --------

   Fixed maturities ............       $  8,736        $  9,973        $ (1,575)
   Mortgage loans ..............         (8,745)        (13,259)         (3,013)
   Other investments ...........           (150)         (1,612)            306
                                       --------        --------        --------
                                       $   (159)       $ (4,898)       $ (4,282)
                                       ========        ========        ========

   <PAGE>

   Changes in net unrealized appreciation (depreciation) of investments for the
   years ended Dec. 31 are summarized as follows:

                                         1996          1995            1994
                                     ----------    ------------     -----------
   Fixed maturities:
      Held to maturity .......     $  (335,515)     $ 1,195,847     $(1,329,740)
      Available for sale .....        (231,853)         811,649        (720,449)
   Equity securities .........             (52)           3,118          (2,917)

   The  amortized  cost,  gross  unrealized  gains and losses and fair values of
   investments in fixed maturities and equity securities at Dec. 31, 1996 are as
   follows:

<TABLE>
<CAPTION>
                                                    Gross       Gross
                                        Amortized  Unrealized  Unrealized   Fair
   Held to maturity                         Cost      Gains     Losses      Value
   ----------------                         ----      -----     ------      -----
<S>                                      <C>         <C>      <C>          <C>
   U.S. Government agency obligations    $ 44,002    $   933  $  1,276     $ 43,659
   State and municipal obligations          9,685        412        --       10,097
   Corporate bonds and obligations      8,057,997    356,687    47,639    8,367,045
   Mortgage-backed securities           2,124,695     21,577    45,423    2,100,849
                                     ------------  ---------   ------- ------------
                                      $10,236,379   $379,609   $94,338  $10,521,650
                                      ===========   ========   =======  ===========

                                                      Gross       Gross
                                       Amortized  Unrealized  Unrealized       Fair
   Available for sale                       Cost      Gains      Losses        Value
   ------------------                       ----      -----      ------        -----
   U.S. Government agency obligations $    77,944   $  2,607   $     96  $    80,455
   State and municipal obligations         11,032      1,336         --       12,368
   Corporate bonds and obligations      3,701,604    122,559     24,788    3,799,375
   Mortgage-backed securities           7,218,042    104,808     68,203    7,254,647
                                       ----------   --------     ------  -----------
   Total fixed maturities              11,008,622    231,310     93,087   11,146,845
   Equity securities                        3,000        308         --        3,308
                                      -----------   --------    -------  -----------
                                      $11,011,622   $231,618    $93,087  $11,150,153
                                      ===========   ========    =======  ===========
</TABLE>

   The  amortized  cost,  gross  unrealized  gains and losses and fair values of
   investments in fixed maturities and equity securities at Dec. 31, 1995 are as
   follows:
<TABLE>
<CAPTION>
                                                       Gross         Gross
                                          Amortized   Unrealized   Unrealized     Fair
   Held to maturity                           Cost      Gains       Losses        Value

<S>                                     <C>           <C>          <C>       <C>
   U.S. Government agency obligations   $    64,523   $  3,919     $    --   $    68,442
   State and municipal obligations           11,936        362          32        12,266
   Corporate bonds and obligations        8,921,431    620,327      36,786     9,504,972
   Mortgage-backed securities             2,259,701     42,684       9,688     2,292,697
                                        -----------  ---------     -------   -----------
                                        $11,257,591   $667,292     $46,506   $11,878,377
                                        ===========   ========     =======   ===========

                                                        Gross        Gross
                                          Amortized   Unrealized   Unrealized     Fair
   Available for sale                        Cost       Gains       Losses        Value

   U.S. Government agency obligations   $    84,082  $   3,248    $     50   $    87,280
   State and municipal obligations           11,020      1,476          --        12,496
   Corporate bonds and obligations        2,514,308    186,596       3,451     2,697,453
   Mortgage-backed securities             7,536,726    206,288      24,031     7,718,983
                                         ----------   --------     -------    ----------
   Total fixed maturities                10,146,136    397,608      27,532    10,516,212
   Equity securities                          3,156        361          --         3,517
                                         ----------   --------     -------    ----------
                                        $10,149,292   $397,969     $27,532   $10,519,729
                                        ===========   ========     =======   ===========
</TABLE>

<PAGE>

   The amortized cost and fair value of investments in fixed  maturities at Dec.
   31, 1996 by contractual  maturity are shown below.  Expected  maturities will
   differ from contractual  maturities  because  borrowers may have the right to
   call or prepay obligations with or without call or prepayment penalties.

                                           Amortized             Fair
   Held to maturity                           Cost               Value

   Due in one year or less               $    197,711       $    200,134
   Due from one to five years               2,183,374          2,294,335
   Due from five to ten years               4,606,775          4,779,690
   Due in more than ten years               1,123,824          1,146,642
   Mortgage-backed securities               2,124,695          2,100,849
                                         ------------       ------------
                                          $10,236,379        $10,521,650

                                            Amortized             Fair
   Available for sale                         Cost                Value

   Due in one year or less               $    227,051       $    229,650
   Due from one to five years                 851,428            899,098
   Due from five to ten years               2,140,579          2,182,079
   Due in more than ten years                 571,522            581,371
   Mortgage-backed securities               7,218,042          7,254,647
                                         ------------       ------------
                                          $11,008,622        $11,146,845

   During  the years  ended  Dec.  31,  1996,  1995 and 1994,  fixed  maturities
   classified  as held to maturity  were sold with  amortized  cost of $277,527,
   $333,508 and $61,290,  respectively. Net gains and losses on these sales were
   not  significant.  The sale of these fixed  maturities was due to significant
   deterioration in the issuers' creditworthiness.

   As a result of adopting the FASB Special Report,  "A Guide to  Implementation
   of Statement 115 on  Accounting  for Certain  Investments  in Debt and Equity
   Securities," the Company reclassified securities with a book value of $91,760
   and net unrealized  gains of $881 from held to maturity to available for sale
   in December 1995.

   In addition,  fixed maturities  available for sale were sold during 1996 with
   proceeds of $238,905 and gross realized gains and losses of $571 and $16,084,
   respectively.  Fixed maturities available for sale were sold during 1995 with
   proceeds of $136,825 and gross  realized gains and losses of $nil and $5,781,
   respectively.  Fixed maturities available for sale were sold during 1994 with
   proceeds  of  $374,564  and gross  realized  gains and  losses of $1,861  and
   $7,602, respectively.

   At Dec. 31, 1996, bonds carried at $13,571 were on deposit with various
   states as required by law.

<PAGE>

   Net investment income for the years ended Dec. 31 is summarized as follows:

                                         1996            1995           1994
                                        ---------       -------        -----

   Interest on fixed maturities       $1,666,929      $1,656,136    $1,556,756
   Interest on mortgage loans            283,830         232,827       196,521
   Other investment income                43,283          35,936        38,366
   Interest on cash equivalents            5,754           5,363         6,872
                                   -------------         -------   -----------
                                       1,999,796       1,930,262     1,798,515
   Less investment expenses               34,434          22,953        16,642
                                    ------------       ---------    ----------
                                      $1,965,362      $1,907,309    $1,781,873
                                      ==========      ==========    ==========

   At Dec. 31, 1996, investments in fixed maturities comprised 84 percent of the
   Company's total invested  assets.  These  securities are rated by Moody's and
   Standard & Poor's (S&P),  except for securities carried at approximately $1.9
   billion which are rated by American Express  Financial  Corporation  internal
   analysts using criteria  similar to Moody's and S&P. A summary of investments
   in fixed maturities, at amortized cost, by rating on Dec. 31 is as follows:

     Rating                              1996               1995
     ------                          -----------         -----------
     Aaa/AAA ....................... $ 9,460,134         $ 9,907,664
     Aaa/AA ........................       2,870               3,112
     Aa/AA .........................     241,914             279,403
     Aa/A ..........................     192,631             154,846
     A/A ...........................   2,949,895           3,104,122
     A/BBB .........................   1,034,661             871,782
     Baa/BBB .......................   4,531,515           4,417,654
     Baa/BB ........................     768,285             657,633
     Below investment grade ........   2,063,096           2,007,511
                                     -----------         -----------
                                     $21,245,001         $21,403,727

   At Dec. 31, 1996, 95 percent of the securities rated Aaa/AAA are GNMA, FNMA
   and FHLMC mortgage-backed securities.  No holdings of any other issuer are
   greater than 1 percent of the Company's  total investments in fixed
   maturities.

<PAGE>

   At Dec. 31, 1996, approximately 13.7 percent of the Company's invested assets
   were mortgage loans on real estate.  Summaries of mortgage loans by region of
   the United States and by type of real estate are as follows:

                                 Dec. 31, 1996               Dec. 31, 1995
                           -------------------------    ------------------------
                           On Balance   Commitments    On Balance   Commitments
     Region                   Sheet     to Purchase       Sheet     to Purchase
   ------------------      -----------   -----------    -----------   ----------
   East North Central      $  777,960      $  19,358     $  720,185    $ 67,206
   West North Central         389,285         29,620        303,113      34,411
   South Atlantic             891,852         35,007        732,529     111,967
   Middle Atlantic            553,869         17,959        508,634      37,079
   New England                310,177         14,042        244,816      40,452
   Pacific                    190,770          4,997        168,272      23,161
   West South Central         105,173         11,246         61,860      27,978
   East South Central          75,176             --         58,462      10,122
   Mountain                   236,597         11,401        184,964      16,774
                           ----------       --------       --------      ------
                            3,530,859        143,630      2,982,835     369,150
   Less allowance for losses   37,495             --         37,340          --
                           ----------       --------        -------         ---
                           $3,493,364       $143,630     $2,945,495    $369,150
                           ==========       ========     ==========    ========

                                   Dec. 31, 1996                Dec. 31, 1995
                           -------------------------    ------------------------
                           On Balance    Commitments    On Balance   Commitments
     Property type             Sheet     to Purchase       Sheet     to Purchase
-----------------------     ---------      ---------    -----------  -----------
Department/retail stores   $1,154,179      $  68,032    $   985,660    $ 134,538
Apartments                  1,119,352         23,246      1,038,446       84,978
Office buildings              611,395         27,653        464,381       62,664
Industrial buildings          296,944          6,716        255,469       22,721
Hotels/motels                  97,870          6,257         31,335       48,816
Nursing/retirement homes       88,226          1,877         80,864        4,378
Mixed Use                      73,120             --         53,169           --
Medical buildings              67,178          8,289         57,772        2,495
Other                          22,595          1,560         15,739        8,560
                         ------------     ----------      ---------     --------
                            3,530,859        143,630      2,982,835      369,150
Less allowance for losses      37,495             --         37,340           --
                         ------------         ------      ---------       ------
                           $3,493,364       $143,630     $2,945,495     $369,150
                           ==========       ========     ==========     ========

<PAGE>

Mortgage loan fundings are restricted by state insurance regulatory  authorities
to 80  percent  or less of the  market  value of the real  estate at the time of
origination  of the loan. The Company holds the mortgage  document,  which gives
the right to take  possession  of the property if the borrower  fails to perform
according to the terms of the agreement. The fair value of the mortgage loans is
determined by a discounted  cash flow analysis  using  mortgage  interest  rates
currently offered for mortgages of similar  maturities.  Commitments to purchase
mortgages  are made in the ordinary  course of  business.  The fair value of the
mortgage commitments is $nil.

At Dec. 31, 1996 and 1995, the Company's  recorded  investment in impaired loans
was  $79,441 and $83,874  with a reserve of $16,162 and  $19,307,  respectively.
During 1996 and 1995,  the average  recorded  investment  in impaired  loans was
$74,338 and $74,567, respectively.

The Company  recognized $4,889 and $5,014 of interest income related to impaired
loans for the year ended Dec. 31, 1996 and 1995, respectively.

The  following  table  presents  changes in the  reserve for  investment  losses
related to all loans:

                                            1996              1995
                                         ---------         --------
Balance, Jan. 1 ....................      $ 37,340         $ 35,252
Provision for investment losses ....        10,005           15,900
Loan payoffs .......................        (4,700)         (11,900)
Foreclosures .......................        (5,150)          (1,350)
Other ..............................            --             (562)
                                          --------         --------
Balance, Dec. 31 ...................      $ 37,495         $ 37,340
                                          ========         ========

At Dec. 31, 1996,  the Company had  commitments to purchase  affordable  housing
limited partnership  investments of $28,476, which is recorded as a liability in
the accompanying  balance sheets.  The total amounts  committed in 1997 and 1998
are $25,234 and  $3,242,  respectively.  The  Company  also had  commitments  to
purchase  real estate  investments  for $35,425.  Commitments  to purchase  real
estate  investments are made in the ordinary course of business.  The fair value
of these commitments is $nil.

<PAGE>

3. Income taxes

   The Company  qualifies  as a life  insurance  company for federal  income tax
   purposes.  As such,  the  Company  is subject to the  Internal  Revenue  Code
   provisions applicable to life insurance companies.

   Income tax expense consists of the following:

                                     1996          1995          1994
                                    ------       --------      -------
   Federal income taxes:
         Current                   $260,357      $218,040     $186,508
         Deferred                   (65,609)      (33,810)     (19,175)
                                   --------      --------     --------
                                    194,748       184,230      167,333
   State income taxes-current        12,390        11,612        9,010
                                  ---------       -------       ------
   Income tax expense              $207,138      $195,842     $176,343
                                   ========      ========     ========

   Increases  (decreases)  to the federal  tax  provision  applicable  to pretax
   income based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
                                        1996                  1995                  1994
                                 -----------------     -----------------     -----------------
                                 Provision    Rate     Provision    Rate     Provision    Rate
<S>                              <C>         <C>        <C>         <C>       <C>         <C>
        Federal income
          taxes based on
        the statutory rate       $217,600    35.0%      $196,274    35.0%     $179,379    35.0%
        Increases (decreases)
        are attributable to:
        Tax-excluded interest
          and dividend income      (9,636)   (1.6)        (8,524)   (1.5)       (9,939)   (2.0)
        Other, net                (13,216)   (2.1)        (3,520)   (0.6)       (2,107)   (0.4)
                                ---------   -----       --------    ----      --------    ----
        Federal income taxes     $194,748    31.3%      $184,230    32.9%     $167,333    32.6%
                                 ========   =====       ========    ====      ========    ====
</TABLE>

   A portion  of life  insurance  company  income  earned  prior to 1984 was not
   subject to current  taxation  but was  accumulated,  for tax  purposes,  in a
   policyholders'  surplus  account.  At  Dec.  31,  1996,  the  Company  had  a
   policyholders' surplus account balance of $20,114. The policyholders' surplus
   account  is  only  taxable  if  dividends  to  the  stockholder   exceed  the
   stockholder's  surplus  account  or if the  Company is  liquidated.  Deferred
   income taxes of $7,040 have not been established  because no distributions of
   such amounts are contemplated.

<PAGE>

   Significant components of the Company's deferred tax assets and liabilities
   as of Dec. 31  are as follows:

                                           1996            1995
                                          -------         -----
   Deferred tax assets:
   Policy reserves                       $724,412       $600,176
   Life insurance guarantee
      fund assessment reserve              29,854         26,785
   Other                                    2,763             --
                                      -----------  -------------
   Total deferred tax assets              757,029        626,961
                                        ---------        -------

   Deferred tax liabilities:
   Deferred policy acquisition costs      665,685        590,762
   Unrealized gain on investments          48,486        129,653
   Investments, other                       8,935         17,152
   Other                                       --          2,298
                                         --------        -------
   Total deferred tax liabilities         723,106        739,865
                                         --------        -------
   Net deferred tax assets (liabilities)$  33,923      $(112,904)
                                        =========      =========

   The Company is required to establish a "valuation  allowance" for any portion
   of the deferred tax assets that management believes will not be realized.  In
   the opinion of  management,  it is more likely than not that the Company will
   realize  the  benefit of the  deferred  tax assets  and,  therefore,  no such
   valuation allowance has been established.

4. Stockholder's equity

   During 1996,  the Company  received a $4,801  capital  contribution  from its
   parent,  American  Express  Financial  Corporation.  During 1995, the Company
   received  a  $39,700  capital  contribution  from its  parent  in the form of
   investments in fixed  maturities and mortgage loans.  In addition,  effective
   Jan. 1, 1995, the Company began consolidating the financial results of ACLAC.
   This  change  reflected  the  transfer of  ownership  of ACLAC from Amex Life
   Assurance  Company (Amex Life), a former  affiliate,  to the Company prior to
   the sale of Amex Life to an  unaffiliated  third party on Oct. 2, 1995.  This
   transfer  of  ownership  to the  Company  has  been  reflected  as a  capital
   contribution of $17,114 in the accompanying financial statements.  The effect
   of this change in reporting entity was not significant and prior periods have
   not been restated.

   As discussed in Note 5, the Company entered into a reinsurance agreement with
   Amex Life during 1995. As a result of this transaction,  a loss of $4,574 was
   realized and reported as a direct charge to retained earnings.

   Other changes in the statements of stockholder's equity are primarily related
   to reinsurance transactions with affiliates.

   Retained  earnings  available for distribution as dividends to the parent are
   limited to the Company's  surplus as determined in accordance with accounting
   practices  prescribed by state insurance  regulatory  authorities.  Statutory
   unassigned surplus  aggregated  $1,261,592 as of Dec. 31, 1996 and $1,103,993
   as of Dec.  31,  1995 (see Note 3 with  respect  to the  income tax effect of
   certain  distributions).  In addition,  any dividend distributions in 1997 in
   excess of approximately  $351,306 would require approval of the Department of
   Commerce of the State of Minnesota.

   Statutory net income for the years ended Dec. 31 and capital and surplus as
   of Dec. 31 are summarized as follows:

                                       1996            1995           1994
                                      ------          ------        ------
   Statutory net income            $ 365,585       $ 326,799       $ 294,699
   Statutory capital and surplus   1,565,082       1,398,649       1,261,958

   Dividends paid to American  Express  Financial  Corporation  were $165,000 in
   1996, $180,000 in 1995, and $165,000 in 1994.

5. Related party transactions

   The Company has loaned funds to American Express Financial  Corporation under
   a collateral loan agreement.  The balance of the loan was $11,800 and $25,800
   at Dec.  31, 1996 and 1995,  respectively.  This loan can be  increased  to a
   maximum of $75,000 and pays interest at a rate equal to the preceding month's
   effective  new money  rate for the  Company's  permanent  investments.  It is
   collateralized  by equity  securities  valued at $116,543 at Dec.  31,  1996.
   Interest  income on related party loans  totaled  $780,  $1,371 and $2,894 in
   1996, 1995 and 1994, respectively.

   The Company  purchased a five year  secured note from an  affiliated  company
   which had an  outstanding  balance of $nil and  $19,444 at Dec.  31, 1996 and
   1995,  respectively.  The note bears a fixed rate of 8.42  percent.  Interest
   income on the above note totaled $1,637,  $1,937 and $2,278 in 1996, 1995 and
   1994, respectively.

   <PAGE>

   The Company has a reinsurance  agreement  whereby it assumed 100 percent of a
   block of single  premium life  insurance  business  from Amex Life  Assurance
   Company  (Amex  Life),  a former  affiliate.  The  accompanying  consolidated
   balance  sheets at Dec.  31, 1996 and 1995  include  $758,812  and  $764,663,
   respectively, of future policy benefits related to this agreement.

   The Company has a  reinsurance  agreement to cede 50 percent of its long-term
   care insurance business to Amex Life. The accompanying  consolidated  balance
   sheets at Dec. 31, 1996 and 1995 include $134,121 and $95,484,  respectively,
   of reinsurance receivables related to this agreement. Premiums ceded amounted
   to $32,917,  $25,553 and $20,360 and  reinsurance  recovered from  reinsurers
   amounted to $5,135, $4,998 and $3,022 for the years ended Dec. 31, 1996, 1995
   and 1994, respectively.

   The Company has a reinsurance  agreement to assume deferred annuity contracts
   from Amex Life. At Oct. 1, 1995, a $803,618  block of deferred  annuities and
   $28,327 of deferred policy acquisition costs were transferred to the Company.
   The  accompanying  consolidated  balance  sheet  at Dec.  31,  1996  includes
   $828,298 of future policy benefits related to this agreement.  Contracts with
   future policy benefits  totaling $50,400 were still reinsured with the former
   affiliate at Dec.  31,  1996.  The  remaining  contracts  had been novated to
   Company contracts.

   Until July 1, 1995, the Company  participated  in the IDS Retirement  Plan of
   American Express Financial  Corporation which covered all permanent employees
   age 21 and over who had met certain employment  requirements.  Effective July
   1, 1995, the IDS Retirement Plan was merged with American  Express  Company's
   American Express Retirement Plan, which simultaneously was amended to include
   a  cash  balance  formula  and  a  lump  sum  distribution  option.  Employer
   contributions  to the plan are based on  participants'  age, years of service
   and total  compensation  for the year.  Funding of retirement  costs for this
   plan complies with the applicable minimum funding  requirements  specified by
   ERISA.  The Company's share of the total net periodic  pension cost was $174,
   $155 and $156 in 1996, 1995 and 1994, respectively.

   The  Company  also  participates  in defined  contribution  pension  plans of
   American  Express  Company  which  cover all  employees  who have met certain
   employment requirements.  Company contributions to the plans are a percent of
   either each employee's eligible compensation or basic contributions. Costs of
   these plans charged to operations in 1996,  1995 and 1994 were $990, $815 and
   $957, respectively.

   The Company  participates  in defined  benefit  health care plans of American
   Express  Financial  Corporation  that provide  health care and life insurance
   benefits to retired  employees  and  retired  financial  advisors.  The plans
   include   participant   contributions   and   service   related   eligibility
   requirements.  Upon  retirement,  such  employees are considered to have been
   employees  of  American  Express  Financial  Corporation.   American  Express
   Financial  Corporation  expenses these benefits and allocates the expenses to
   its  subsidiaries.  Accordingly,  costs of such  benefits  to the Company are
   included in employee  compensation and benefits and cannot be identified on a
   separate company basis.

   Charges  by  American  Express   Financial   Corporation  for  use  of  joint
   facilities,  marketing  services  and  other  services  aggregated  $397,362,
   $377,139,  and $335,183  for 1996,  1995 and 1994,  respectively.  Certain of
   these costs are included in deferred policy  acquisition  costs. In addition,
   the  Company  rents its home office  space from  American  Express  Financial
   Corporation on an annual renewable basis.

6. Commitments and contingencies

   At Dec. 31, 1996 and 1995, traditional life insurance and universal life-type
   insurance in force aggregated $67,274,354 and $59,683,532,  respectively,  of
   which  $3,875,921 and $3,771,204  were reinsured at the respective year ends.
   The Company also  reinsures a portion of the risks assumed  under  disability
   income  and  long-term  care  policies.  Under  all  reinsurance  agreements,
   premiums  ceded to  reinsurers  amounted to $48,250,  $39,399 and $31,016 and
   reinsurance  recovered  from  reinsurers  amounted to $15,612,  $14,088,  and
   $10,778  for the years  ended  Dec.  31,  1996,  1995 and  1994.  Reinsurance
   contracts  do  not  relieve  the  Company  from  its  primary  obligation  to
   policyholders.

   A number of  lawsuits  have been filed  against  life and health  insurers in
   jurisdictions in which the Company and its subsidiaries do business involving
   insurers'  sales  practices,  alleged agent  misconduct,  failure to properly
   supervise agents, and other matters. In December 1996, an action of this type
   was brought against the Company and its parent,  American  Express  Financial
   Corporation.  The plaintiffs  purport to represent a class  consisting of all
   persons who replaced existing Company policies with new Company policies from
   and after Jan. 1, 1985.  The complaint  puts at issue  various  alleged sales
   practices and  misrepresentations,  alleged  breaches of fiduciary duties and

   <PAGE>

   alleged violations of consumer fraud statutes.  Plaintiffs seek damages in an
   unspecified amount and seek to establish a claims resolution facility for the
   determination of individual  issues.  The Company and its parent believe they
   have meritorious defenses to the claims raised in the lawsuit. The outcome of
   any litigation cannot be predicted with certainty,  particularly in the early
   stages of an action.  In the opinion of  management,  however,  the  ultimate
   resolution of the above  lawsuit and others filed against the Company  should
   not have a material  adverse effect on the Company's  consolidated  financial
   position.

   During 1996, the Company  settled the federal tax audit for 1987 through 1989
   tax years.  There was no material impact as a result of that audit. Also, the
   IRS is  currently  auditing  the  Company's  1990  through  1992  tax  years.
   Management  does not believe  there will be a material  impact as a result of
   this audit.

7. Lines of credit 

   The  Company  has  available  lines of  credit  with two  banks  and its 
   parent aggregating  $175,000,  of which $100,000 is with its parent.  The 
   lines of credit  are at 40 to 80 basis  points  over the  lenders' cost of
   funds or equal to the prime rate,  depending  on which line of credit  
   agreement  is used. The $25,000 line of credit with one bank expired on 
   Dec. 31, 1996 and the Company did not seek renewal. The $50,000 line of 
   credit with the other bank  expires on June 30,  1997 and the  Company  
   expects to seek  renewal. Borrowings  outstanding  under these  agreements 
   were $nil at Dec. 31, 1996 and 1995.

8. Derivative financial instruments

   The  Company  enters  into  transactions   involving   derivative   financial
   instruments to manage its exposure to interest rate risk,  including  hedging
   specific  transactions.  The Company does not hold derivative instruments for
   trading purposes. The Company manages risks associated with these instruments
   as described below.

   Market risk is the  possibility  that the value of the  derivative  financial
   instruments  will  change  due to  fluctuations  in a factor  from  which the
   instrument derives its value,  primarily an interest rate. The Company is not
   impacted by market risk related to derivatives held for non-trading  purposes
   beyond  that  inherent  in cash  market  transactions.  Derivatives  held for
   purposes  other than trading are largely used to manage risk and,  therefore,
   the cash flow and  income  effects  of the  derivatives  are  inverse  to the
   effects of the underlying transactions.

   Credit risk is the  possibility  that the  counterparty  will not fulfill the
   terms of the  contract.  The  Company  monitors  credit  exposure  related to
   derivative  financial  instruments through established  approval  procedures,
   including  setting  concentration  limits by counterparty  and industry,  and
   requiring  collateral,  where  appropriate.  A vast majority of the Company's
   counterparties are rated A or better by Moody's and Standard & Poor's.

   Credit  exposure  related to interest rate caps and floors is measured by the
   replacement  cost of the contracts.  The replacement cost represents the fair
   value of the instruments.

   The  notional or contract  amount of a  derivative  financial  instrument  is
   generally used to calculate the cash flows that are received or paid over the
   life of the  agreement.  Notional  amounts  are not  recorded  on the balance
   sheet. Notional amounts far exceed the related credit exposure.

<PAGE>

   The Company's holdings of derivative financial instruments are as follows:

                               Notional    Carrying      Fair      Total Credit
   Dec. 31, 1996                Amount       Value       Value       Exposure
   -------------              ---------     -------     --------   ------------
   Assets:
    Interest rate caps      $ 4,000,000     $16,227     $  7,439      $  7,439
    Interest rate floors      1,000,000       2,041        4,341         4,341
    Interest rate swaps       1,000,000          --      (24,715)           --
                             ----------     -------     --------       -------
                             $6,000,000     $18,268     $(12,935)      $11,780
                             ==========     =======     ========       =======
   Dec. 31, 1995
   Assets:
     Interest rate caps      $5,100,000     $26,680     $  8,366       $ 8,366
                             ==========     =======     ========       =======

   The fair  values  of  derivative  financial  instruments  are based on market
   values,  dealer quotes or pricing  models.  The interest rate caps and floors
   expire on various  dates from 1996 to 2001.  The  interest  rate swaps are in
   effect through 2001.

   Interest  rate  caps,  swaps and floors  are used  principally  to manage the
   Company's  interest  rate risk.  These  instruments  are used to protect  the
   margin between  interest  rates earned on investments  and the interest rates
   credited to related annuity contract holders.

9. Fair values of financial instruments

   The Company  discloses fair value  information  for most on- and  off-balance
   sheet  financial  instruments  for which it is  practicable  to estimate that
   value.  Fair  values  of life  insurance  obligations  and all  non-financial
   instruments,  such as deferred  acquisition  costs are excluded.  Off-balance
   sheet  intangible  assets,  such as the  value of the field  force,  are also
   excluded.  Management  believes the value of excluded  assets is significant.
   The fair value of the Company,  therefore, cannot be estimated by aggregating
   the amounts presented.

<TABLE>
<CAPTION>
                                           1996                        1995
                                          ------                      -----
                                 Carrying         Fair        Carrying         Fair
   Financial Assets               Value           Value         Value         Value
   ----------------               -----           -----         -----         -----
<S>                            <C>           <C>           <C>           <C>        
   Investments:
     Fixed maturities (Note 2):
       Held to maturity        $10,236,379   $10,521,650   $11,257,591   $11,878,377
       Available for sale       11,146,845    11,146,845    10,516,212    10,516,212
     Mortgage loans on
       real estate (Note 2)      3,493,364     3,606,077     2,945,495     3,184,666
     Other:
       Equity securities (Note 2)    3,308         3,308         3,517         3,517
       Derivative financial
         instruments (Note 8)       18,268       (12,935)       26,680         8,366
       Other                        63,993        66,242        52,182        52,182
   Cash and
     cash equivalents (Note 1)     224,603       224,603        72,147        72,147
   Separate account assets
     (Note 1)                   18,535,160    18,535,160    14,974,082    14,974,082

   Financial Liabilities
     Future policy benefits
       for fixed annuities      20,641,986    19,721,968    20,259,265    19,603,114
     Separate account 
         liabilities            17,358,087    16,688,519    14,208,619    13,665,636
</TABLE>

<PAGE>

   At Dec.  31,  1996 and 1995,  the  carrying  amount  and fair value of future
   policy benefits for fixed annuities exclude life insurance-related  contracts
   carried at  $1,112,155  and  $1,070,598,  respectively,  and policy  loans of
   $83,867 and $74,973,  respectively. The fair value of these benefits is based
   on the status of the  annuities at Dec. 31, 1996 and 1995.  The fair value of
   deferred  annuities is estimated as the carrying  amount less any  applicable
   surrender charges and related loans. The fair value for annuities in non-life
   contingent  payout  status is  estimated  as the present  value of  projected
   benefit payments at rates appropriate for contracts issued in 1996 and 1995.

   At Dec. 31, 1996 and 1995, the fair value of liabilities  related to separate
   accounts is estimated as the carrying  amount less any  applicable  surrender
   charges and less  variable  insurance  contracts  carried at  $1,177,073  and
   $765,463, respectively.

10.Segment information

   The Company's operations consist of two business segments;  first, individual
   and group life insurance, disability income and long-term care insurance, and
   second,  annuity  products  designed for  individuals,  pension plans,  small
   businesses  and   employer-sponsored   groups.  The  consolidated   condensed
   statements  of income for the years ended Dec.  31,  1996,  1995 and 1994 and
   total  assets at Dec. 31, 1996,  1995 and 1994 by segment are  summarized  as
   follows:

                                          1996           1995            1994
                                         ------         ------          -----
   Net investment income:
   Life, disability income
     and long-term care insurance   $    262,998   $    256,242   $     247,047
   Annuities                           1,702,364      1,651,067       1,534,826
                                     -----------    -----------    ------------
                                     $ 1,965,362    $ 1,907,309    $  1,781,873
                                     ===========    ===========    ============
   Premiums, charges and fees:
   Life, disability income
     and long-term care insurance   $    448,389   $    384,008   $     335,375
   Annuities                             308,873        249,557         193,370
                                    ------------   ------------   -------------
                                    $    757,262   $    633,565   $     528,745
                                    ============   ============   =============
   Income before income taxes:
   Life, disability income
     and long-term care insurance   $    161,115   $    125,402   $     122,677
   Annuities                             460,758        440,278         394,117
   Net loss on investments                  (159)        (4,898)         (4,282)
                                   -------------  -------------  --------------
                                    $    621,714   $    560,782   $     512,512
                                    ============   ============   =============
   Total assets:
   Life, disability income
     and long-term care insurance   $  7,028,906   $  6,195,870    $  5,269,188
   Annuities                          40,277,075     36,704,208      30,478,355
                                     -----------    -----------     -----------
                                     $47,305,981    $42,900,078     $35,747,543
                                     ===========    ===========     ===========

   Allocations of net investment  income and certain general  expenses are based
   on various assumptions and estimates.

   Assets are not  individually  identifiable by segment and have been allocated
   principally based on the amount of future policy benefits by segment.

   Capital  expenditures  and  depreciation   expense  are  not  material,   and
   consequently, are not reported.

<PAGE>

IDS LIFE INSURANCE COMPANY
SCHEDULE I - CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ thousands)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------
Column A                                  Column B         Column C           Column D

Type of Investment                          Cost            Value         Amount at which
                                                                            shown in the
                                                                           balance sheet
-------------------------------------------------------------------------------------------
<S>                                       <C>               <C>                 <C>       
Fixed maturities:
    Held to maturity:
        United States Government and
          government agencies and
          authorities (a)             $    2,085,280  $      2,060,778  $        2,085,280
        States, municipalities and
           political subdivisions              9,685            10,097               9,685
        All other corporate bonds          8,141,414         8,450,775           8,141,414
                                        -------------   ---------------   -----------------
              Total held to maturity      10,236,379        10,521,650          10,236,379

    Available for sale:
        United States Government and
          government agencies and
          authorities (b)                  6,925,876         6,960,002           6,960,002
        States, municipalities and
           political subdivisions             11,032            12,368              12,368
        All other corporate bonds          4,071,714         4,174,475           4,174,475
                                        -------------   ---------------   -----------------
              Total available for sale    11,008,622        11,146,845          11,146,845

Mortgage loans on real estate              3,493,364         XXXXXXXXX           3,493,364
Policy loans                                 459,902         XXXXXXXXX             459,902
Other investments                            251,465         XXXXXXXXX             251,465
                                        -------------                     -----------------

              Total investments       $   25,449,732  $      XXXXXXXXX  $       25,587,955
                                        =============                     =================

(a) - Includes mortgage-backed securities with a cost and market value of $2,041,278 and $2,017,119,
           respectively.
(b) - Includes mortgage-backed securities with a cost and market value of $6,847,932 and $6,879,547,
           respectively.
</TABLE>

<PAGE>

IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>

    Column A     Column B      Column C  Column D    Column E    Column F   Column G    Column H    Column I      Column J  Column K

    Segment      Deferred      Future    Unearned  Other policy  Premium      Net       Benefits,  Amortization    Other    Premiums
                  policy       policy    premiums   claims and  revenue    investment   claims,     of deferred  operating  written
                 acquisition  benefits,              benefits                income    losses and    policy       expenses
                   cost        losses,                payable                          settlement   acquisition
                              claims and                                                 expenses     costs
                                loss
                               expenses
------------------------------------------------------------------------------------------------------------------------------------

<S>           <C>           <C>          <C>        <C>          <C>         <C>         <C>         <C>          <C>           <C> 
Annuities     $  1,398,025  $ 21,838,008 $       -  $    50,137  $        -  $1,702,364  $    2,724  $   189,645  $ 180,942      N/A



Life, DI, and
Long-term 
Care Insurance     932,780     3,811,034         -       33,497     182,921     262,998     187,486       88,960     80,526      N/A

------------------------------------------------------------------------------------------------------------------------------------

Total         $  2,330,805  $ 25,649,042 $       -  $    83,634  $  182,921  $1,965,362  $  190,210  $   278,605  $ 261,468      N/A

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>

    Column A      Column B     Column C    Column D    Column E    Column F   Column G    Column H    Column I    Column J  Column K

    Segment      Deferred      Future       Unearned  Other policy  Premium      Net       Benefits,  Amortization  Other   Premiums
                  policy       policy       premiums   claims and   revenue    investment   claims,   of deferred operating  written
                 acquisition  benefits,                benefits                income     losses and     policy     expenses
                   cost        losses,                 payable                            settlement   acquisition
                              claims and                                                  expenses       costs
                                loss
                               expenses
------------------------------------------------------------------------------------------------------------------------------------

<S>            <C>         <C>          <C>        <C>           <C>        <C>         <C>         <C>          <C>            <C> 
Annuities      $ 1,227,169 $ 21,404,836 $       -  $     28,191  $       -  $1,651,067  $    2,693  $   189,626  $  166,191      N/A



Life, DI, 
and Long-term 
Care Insurance     798,556    3,613,253         -        28,132    161,530     256,242     164,749       90,495      45,451      N/A


------------------------------------------------------------------------------------------------------------------------------------

Total          $ 2,025,725 $ 25,018,089 $       -  $     56,323  $ 161,530  $1,907,309  $  167,442  $   280,121  $  211,642      N/A

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

IDS LIFE INSURANCE COMPANY
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION ($ thousands)
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>

  Column A        Column B    Column C    Column D    Column E    Column F  Column G    Column H    Column I      Column J  Column K

   Segment       Deferred     Future      Unearned  Other policy  Premium     Net       Benefits,  Amortization    Other    Premiums
                  policy      policy      premiums   claims and   revenue   investment   claims,    of deferred  operating   written
                 acquisition  benefits,              benefits                income     losses and    policy      expenses
                   cost       losses,                payable                           settlement   acquisition
                             claims and                                                 expenses      costs
                               loss
                              expenses
------------------------------------------------------------------------------------------------------------------------------------

<S>            <C>         <C>          <C>       <C>          <C>        <C>         <C>         <C>          <C>            <C>   
Annuities      $ 1,150,585 $ 19,361,979 $       - $    23,888  $        - $1,534,826  $   (5,762) $   194,060  $  131,515      N/A



Life, DI, and
Long-term Care
Insurance          714,739    3,346,931         -      26,180     144,640    247,047     134,128       86,312      78,586      N/A


------------------------------------------------------------------------------------------------------------------------------------

Total          $ 1,865,324 $ 22,708,910 $       - $    50,068  $  144,640 $1,781,873  $  128,366  $   280,372  $  210,101      N/A

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

IDS LIFE INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------
        Column A              Column B       Column C        Column D      Column E    Column F

                             Gross amount  Ceded to other   Assumed from      Net     % of amount
                                            companies     other companies   Amount   assumed to net
---------------------------------------------------------------------------------------------------

<S>                        <C>            <C>            <C>              <C>               <C>  
For the year ended
  December 31, 1996

Life insurance in force    $  65,571,173  $   3,875,921  $     1,703,181  $63,398,433       2.69%
===================================================================================================

Premiums:
  Life insurance           $      54,111  $       3,253  $           545  $    51,403       1.06%
  DI & LTC insurance             164,561         33,043               --      131,518       0.00%
---------------------------------------------------------------------------------------------------
Total premiums             $     218,672  $      36,296  $           545  $   182,921       0.30%
===================================================================================================

For the year ended
  December 31, 1995

Life insurance in force    $  57,895,180  $   3,771,204  $     1,788,352  $55,912,328       3.20%
===================================================================================================

Premiums:
  Life insurance           $      53,089  $       2,648  $          (248) $    50,193      -0.49%
  DI & LTC insurance             137,016         25,679               --      111,337       0.00%
---------------------------------------------------------------------------------------------------
Total premiums             $     190,105  $      28,327  $          (248) $   161,530      -0.15%
===================================================================================================

For the year ended
  December 31, 1994

Life insurance in force    $  50,814,651  $   3,246,608  $     1,851,916  $49,419,959       3.75%
===================================================================================================

Premiums:
  Life insurance           $      51,219  $       3,354  $           319  $    48,184       0.66%
  DI & LTC insurance             114,049         17,593               --       96,456       0.00%
---------------------------------------------------------------------------------------------------
Total premiums             $     165,268  $      20,947  $           319  $   144,640       0.22%
===================================================================================================
</TABLE>

<PAGE>

IDS LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
               Column A           Column B        Column C                       Column D      Column E

                                                  Additions
                                                -------------
                                 Balance at                       Charged to
              Description         Beginning      Charged to     Other Accounts- Deductions-  Balance at End
                                  of Period   Costs & Expenses     Describe      Describe *    of Period
------------------------------------------------------------------------------------------------------------

<S>                                  <C>                   <C>               <C>          <C>       <C>    
For the year ended
  December 31, 1996
------------------------------
Reserve for Mortgage Loans           $37,340               $155              $0           $0        $37,495
Reserve for Other Investments         $4,713              ($750)             $0           $0         $3,963

For the year ended
  December 31, 1995
------------------------------
Reserve for Mortgage Loans           $35,252             $1,088              $0      ($1,000)       $37,340
Reserve for Other Investments         $7,515            ($2,802)             $0           $0         $4,713

For the year ended
  December 31, 1994
------------------------------
Reserve for Mortgage Loans           $35,020               $232              $0           $0        $35,252
Reserve for Fixed Maturities         $22,777           ($16,777)             $0       $6,000             $0
Reserve for Other Investments        $10,700            ($3,185)             $0           $0         $7,515

* 1995 amount represents a reserve on mortgage loans which were transferred from an affiliate. 
  1994 amount represents a direct writedown of the related investments in fixed maturities.
</TABLE>