<PAGE>
For Use in New York Only
Smith Barney LifeVest
Annual Report for:
o Single Premium Variable Life Insurance Policy issued by IDS Life
Insurance Company of New York
Prospectus for:
o Smith Barney Inc. Stripped ("Zero Coupon") U.S. Treasury
Securities Fund, Series A
<PAGE>
Annual Financial Information
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company of New York
We have audited the accompanying individual and combined statements of net
assets of the segregated asset subaccounts of IDS Life of New York Account 7 for
Single Premium Variable Life Insurance as of December 31, 1996, and the related
statements of operations and changes in net assets for each of the three years
in the period then ended, except for the N95 subaccount which is for the year
ended December 31, 1994 and the period January 1, 1995 to November 15, 1995
(date of maturity of securities in the Trust). These financial statements are
the responsibility of the management of IDS Life Insurance Company of New York.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996 with the affiliated mutual
fund manager and the unit investment trust sponsor. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of IDS Life of New York Account 7 for Single
Premium Variable Life Insurance at December 31, 1996 and the individual and
combined results of their operations and the changes in their net assets for the
periods described above in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- ---------------------------------------------------------------------------------------------------------------------------
Statements of Net Assets Dec. 31, 1996
Segregated Asset Subaccounts Combined
------------------------------------------------------------ Variable
NAP NMM NHI NTR NGO N04 Account
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of mutual funds,
at market value:
IDS Life Series Fund Equity Portfolio -
38,457 shares at net asset value
of $25.65 per share (cost $556,337) .......... $986,584 $ -- $ -- $ -- $ -- $ -- $ 986,584
IDS Life Series Fund Income Portfolio -
92,872 shares at net asset value
of $1.00 per share (cost $92,866) ............ -- 92,863 -- -- -- -- 92,863
IDS Life Series Fund Money Market
Portfolio - 16,744 shares at net asset value
of $10.17 per share (cost $166,710) .......... -- -- 170,230 -- -- -- 170,230
IDS Life Series Fund Managed Portfolio -
8,697 shares at net asset value
of $17.06 per share (cost $120,113) .......... -- -- -- 148,349 -- -- 148,349
IDS Life Series Fund Government Securities
Portfolio - 2,179 shares at net asset value
of $10.03 per share (cost $22,027) ........... -- -- -- -- 21,850 -- 21,850
Smith Barney Inc. Stripped ("Zero Coupon")
U. S. Treasury Securities Fund, Series A 2004
Trust - 66,429 shares at net asset value
of $0.62 per share (cost $20,061) ............ -- -- -- -- -- 41,314 41,314
- ---------------------------------------------------------------------------------------------------------------------------
986,584 92,863 170,230 148,349 21,850 41,314 1,461,190
Dividends receivable .......................... -- 390 967 -- 107 -- 1,464
- ---------------------------------------------------------------------------------------------------------------------------
Total assets .................................. 986,584 93,253 171,197 148,349 21,957 41,314 1,462,654
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Payable to IDS Life of New York for:
Mortality and expense risk fee .............. 3,797 186 367 566 44 18 4,978
Minimum death benefit guarantee risk charge . -- -- -- -- -- 12 12
Issue and administrative expense charge ..... -- -- -- -- -- 12 12
Distribution expense charge ................. -- -- -- -- -- 9 9
Mortality charge ............................ -- -- -- -- -- 15 15
State premium tax charge .................... -- -- -- -- -- 3 3
Transaction charge .......................... -- -- -- -- -- 8 8
Payable to mutual fund portfolios
for investments purchased .................. -- 204 600 -- 63 -- 867
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities ............................. 3,797 390 967 566 107 77 5,904
- ---------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Variable Life
contracts in accumulation period ........... $982,787 $92,863 $170,230 $147,783 $21,850 $41,237 $1,456,750
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding ................ 260,415 70,527 123,932 59,059 13,304 17,938
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit ......... $ 3.77 $ 1.32 $ 1.38 $ 2.50 $ 1.64 $ 2.25
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1996
Segregated Asset Subaccounts Combined
------------------------------------------------------------------------- Variable
NAP NMM NHI NTR NGO N04 Account
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from mutual fund portfolios $ 149,047 $ 7,233 $ 12,955 $ 10,422 $ 2,286 $ -- $ 181,943
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee ............ 7,238 1,184 1,461 1,042 246 236 11,407
Minimum death benefit guarantee risk charge 3,473 546 720 514 137 157 5,547
Issue and administrative expense charge ... 3,473 546 720 514 137 157 5,547
Distribution expense charge ............... 2,595 408 538 384 102 118 4,145
Mortality charge .......................... 4,332 681 898 641 171 197 6,920
State premium tax charge .................. 878 138 182 130 35 39 1,402
Transaction charge ........................ -- -- -- -- -- 98 98
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses ............................ 21,989 3,503 4,519 3,225 828 1,002 35,066
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net ............ 127,058 3,730 8,436 7,197 1,458 (1,002) 146,877
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments - Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on
sales of investments in mutual
fund portfolios and in the trust:
Proceeds from sales ....................... 73,792 88,028 44,981 -- 64,950 1,007 272,758
Cost of investments sold .................. 38,652 88,031 43,851 -- 65,167 296 235,997
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ... 35,140 (3) 1,130 -- (217) 711 36,761
Net change in unrealized appreciation or
depreciation of investments ............... (16,941) 2 (7,659) 8,548 (4,056) (292) (20,398)
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments ............ 18,199 (1) (6,529) 8,548 (4,273) 419 16,363
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations .......... $ 145,257 $ 3,729 $ 1,907 $ 15,745 $ (2,815) $ (583) $ 163,240
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1995
Segregated Asset Subaccounts Combined
------------------------------------------------------------------------------ Variable
NAP NMM NHI NTR NGO N95* N04 Account
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from mutual
fund portfolios ................... $ 18,104 $ 9,023 $ 18,799 $ 6,655 $ 2,513 $ -- $ -- $ 55,094
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk
charge ............................ 4,680 1,030 1,661 841 249 166 224 8,851
Minimum death benefit
guarantee risk charge ............. 3,120 687 1,107 561 166 110 150 5,901
Issue and administrative
expense charge .................... 3,120 687 1,107 561 166 110 150 5,901
Distribution expense
charge ............................ 2,331 513 827 419 124 83 113 4,410
Mortality charge .................. 3,891 856 1,381 699 207 138 188 7,360
State premium tax charge .......... 789 174 280 142 42 28 38 1,493
Transaction charge ................ -- -- -- -- -- 69 94 163
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses .................... 17,931 3,947 6,363 3,223 954 704 957 34,079
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income (loss)-- net .... 173 5,076 12,436 3,432 1,559 (704) (957) 21,015
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments -- Net
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales
of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales ............... 55,575 172,639 274,510 58,977 12,751 40,339 944 615,735
Cost of investments sold .......... 29,800 172,648 276,207 53,762 12,482 22,694 527 568,120
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments ....................... 25,775 (9) (1,697) 5,215 269 17,645 417 47,615
Net change in unrealized
appreciation or depreciation
of investments .................... 202,797 9 35,402 11,563 4,007 (15,804) 9,664 247,638
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain on investments ........... 228,572 -- 33,705 16,778 4,276 1,841 10,081 295,253
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations ......... $ 228,745 $ 5,076 $ 46,141 $ 20,210 $ 5,835 $ 1,137 $ 9,124 $ 316,268
- -----------------------------------------------------------------------------------------------------------------------------------
* For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- -------------------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1994
Combined
Segregated Asset Subaccounts Variable
NAP NMM NHI NTR NGO N95 N04 Account
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Dividend income from mutual
fund portfolios ................. $ 77,985 $ 9,414 $ 23,096 $ 21,475 $ 1,970 $ -- $ -- $ 133,940
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk
charge .......................... 4,275 1,560 1,944 1,107 175 250 352 9,663
Minimum death benefit
guarantee risk charge ........... 2,850 1,040 1,296 738 117 163 234 6,438
Issue and administrative
expense charge .................. 2,850 1,040 1,296 738 117 170 235 6,446
Distribution expense
charge .......................... 2,129 777 968 551 87 125 176 4,813
Mortality charge ................ 3,554 1,297 1,641 920 146 209 293 8,060
State premium tax charge ........ 721 263 302 187 30 42 58 1,603
Transaction charge .............. -- -- -- -- -- 104 146 250
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses .................. 16,379 5,977 7,447 4,241 672 1,063 1,494 37,273
- -------------------------------------------------------------------------------------------------------------------------------
Investment income (loss)-- net .. 61,606 3,437 15,649 17,234 1,298 (1,063) (1,494) 96,667
- -------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments -- Net
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales
of investments in mutual fund
portfolios and in the trusts:
Proceeds from sales ............. 143,379 -- 129,125 96,801 223 15,692 32,169 417,389
Cost of investments sold ........ 93,014 -- 129,765 84,062 216 9,558 21,194 337,809
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments ..................... 50,365 -- (640) 12,739 7 6,134 10,975 79,580
Net change in unrealized
appreciation or depreciation
of investments .................. (115,937) (14) (35,670) (31,699) (3,475) (5,526) (18,314) (210,635)
- -------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments .. (65,572) (14) (36,310) (18,960) (3,468) 608 (7,339) (131,055)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting
from operations ................. $ (3,966) $ 3,423 $(20,661) $ (1,726) $(2,170) $ (455) $ (8,833) $ (34,388)
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1996
Segregated Asset Subaccounts Combined
---------------------------------------------------------------------------- Variable
Operations NAP NMM NHI NTR NGO N04 Account
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net ......... $ 127,058 $ 3,730 $ 8,436 $ 7,197 $ 1,458 $ (1,002) $ 146,877
Net realized gain (loss) on investments 35,140 (3) 1,130 -- (217) 711 36,761
Net change in unrealized appreciation or
depreciation of investments ............ (16,941) 2 (7,659) 8,548 (4,056) (292) (20,398)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations............... 145,257 3,729 1,907 15,745 (2,815) (583) 163,240
- ----------------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- ----------------------------------------------------------------------------------------------------------------------------------
Net transfers* ......................... -- 64,949 (4,516) 2,267 (62,691) -- 9
Transfers for policy loans ............. (45,449) -- (2,055) -- -- -- (47,504)
Contract terminations:
Surrender benefits ..................... -- (88,028) (38,409) -- -- -- (126,437)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase from contract transactions .... (45,449) (23,079) (44,980) 2,267 (62,691) -- (173,932)
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year ........ 882,979 112,213 213,303 129,771 87,356 41,820 1,467,442
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year .............. $ 982,787 $ 92,863 $ 170,230 $ 147,783 $ 21,850 $ 41,237 $ 1,456,750
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year . 274,198 87,438 157,173 58,036 52,748 17,938
Net transfers* ......................... -- 50,324 (3,572) 1,023 (39,444) --
Transfers for policy loans ............. (13,783) -- (1,508) -- -- --
Contract terminations:
Surrender benefits ..................... -- (67,235) (28,161) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year ....... 260,415 70,527 123,932 59,059 13,304 17,938
- ----------------------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1995
Segregated Asset Subaccounts Combined
---------------------------------------------------------------------------------------- Variable
Operations NAP NMM NHI NTR NGO N95** N04 Account
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss)--
net ....................... $ 173 $ 5,076 $ 12,436 $ 3,432 $ 1,559 $ (704) $ (957) $ 21,015
Net realized gain (loss) on
investments ................ 25,775 (9) (1,697) 5,215 269 17,645 417 47,615
Net change in unrealized
appreciation or depreciation
of investments ............. 202,797 9 35,402 11,563 4,007 (15,804) 9,664 247,638
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations .. 228,745 5,076 46,141 20,210 5,835 1,137 9,124 316,268
- -----------------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net transfers* ............. 54,733 (70,719) 4,086 (17,680) 65,719 (36,134) -- 5
Transfers for policy loans . (23,671) 9,728 21,632 (346) (192) (3,417) -- 3,734
Contract terminations:
Surrender benefits ......... (13,600) (101,920) (195,631) (22,494) (12,559) -- -- (346,204)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from
contract transactions ...... 17,462 (162,911) (169,913) (40,520) 52,968 (39,551) -- (342,465)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning
of year .................... 636,772 270,048 337,075 150,081 28,553 38,414 32,696 1,493,639
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year .. $ 882,979 $ 112,213 $ 213,303 $ 129,771 $ 87,356 $ -- $ 41,820 $1,467,442
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at
beginning of year .......... 267,688 216,641 293,305 78,087 19,887 24,516 17,938
Net transfers* ............. 19,680 (55,401) 3,102 (9,314) 40,807 (22,392) --
Transfers for policy loans . (8,213) 7,709 18,285 (162) (120) (2,124) --
Contract terminations:
Surrender benefits ......... (4,957) (81,511) (157,519) (10,575) (7,826) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end
of year .................... 274,198 87,438 157,173 58,036 52,748 -- 17,938
- -----------------------------------------------------------------------------------------------------------------------------------
* Includes transfer activity from (to) other subaccounts.
**For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities in the 1995 Trust.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Life of New York Account 7
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1994
Segregated Asset Subaccounts Combined
--------------------------------------------------------------------------------------- Variable
Operations NAP NMM NHI NTR NGO N95 N04 Account
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss)
- -- net ..................... $ 61,606 $ 3,437 $ 15,649 $ 17,234 $ 1,298 $ (1,063) $ (1,494) $ 96,667
Net realized gain (loss) on
investments ................ 50,365 -- (640) 12,739 7 6,134 10,975 79,580
Net change in unrealized
appreciation or depreciation
of investments ............. (115,937) (14) (35,670) (31,699) (3,475) (5,526) (18,314) (210,635)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations ................. (3,966) 3,423 (20,661) (1,726) (2,170) (455) (8,833) (34,388)
- -----------------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net transfers* ............. (34,339) 63,374 66,508 (63,374) -- -- (32,169) --
Transfers for policy loans.. (18,576) -- (6,218) (18,221) (223) -- -- (43,238)
Contract terminations:
Surrender benefits ......... (76,184) -- (56,090) (15,205) -- (15,692) -- (163,171)
Death benefits ............. -- -- (47,842) -- -- -- -- (47,842)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from
contract transactions ...... (129,009) 63,374 (43,642) (96,800) (223) (15,692) (32,169) (254,251)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning
of year .................... 769,837 203,251 401,378 248,607 30,946 54,561 73,698 1,782,278
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year .. $ 636,772 $ 270,048 $ 337,075 $ 150,081 $ 28,553 $ 38,414 $ 32,696 $1,493,639
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at
beginning of year .......... 325,066 165,172 326,343 127,239 20,040 34,520 35,764
Net transfers* ............. (15,001) 51,469 57,439 (31,384) -- -- (17,826)
Transfers for policy loans . (8,912) -- (5,001) (9,765) (153) -- --
Contract terminations:
Surrender benefits ......... (33,465) -- (45,199) (8,003) -- (10,004) --
Death benefits ............. -- -- (40,277) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end
of year .................... 267,688 216,641 293,305 78,087 19,887 24,516 17,938
- -----------------------------------------------------------------------------------------------------------------------------------
* Includes transfer activity from (to) other subaccounts.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
IDS Life of New York Account 7
Notes to Financial Statements
- ---------------------------------------------------------------
1. Organization
IDS Life of New York Account 7 (the Variable Account) was established on Sept.
12, 1985 as a segregated asset account of IDS Life Insurance Company of New York
(IDS Life of New York) under New York law and is registered as a single unit
investment trust under the Investment Company Act of 1940. Operations of the
Variable Account commenced on April 15, 1987.
The Variable Account is comprised of six subaccounts. Prior to Nov. 15, 1995,
the date of maturity of securities in the 1995 Trust, the Variable Account was
comprised of seven subaccounts. The assets of each subaccount of the Variable
Account are not chargeable with liabilities arising out of the business
conducted by any other subaccount, account or by IDS Life of New York. The
assets of the Variable Account shall be available, however, to cover the
liabilities of IDS Life of New York to the extent the assets of the Variable
Account exceed its liabilities arising under the policies supported by it. Five
of the Variable Account subaccounts invest in shares of the corresponding
portfolios of the IDS Life Series Fund, Inc. (the mutual fund). The other
subaccount invests in units of the Smith Barney Inc. Stripped ("Zero Coupon")
U.S. Treasury Securities Fund, Series A (the Trust). Policy owners allocate
their premium payment to one or more of the six subaccounts. Such funds are then
invested in shares of five portfolios of IDS Life Series Fund, Inc. or in units
of one Trust of Smith Barney Inc. Stripped ("Zero Coupon") U.S. Treasury
Securities Fund, Series A (the Trust). Organizational expenses for the Variable
Account were paid by IDS Life of New York. The 1995 Trust matured on Nov. 15,
1995 and is no longer available for investment.
The mutual fund, which commenced operations Jan. 20, 1986, is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. Funds allocated to Subaccount NAP are invested in the shares
of the Equity Portfolio; Subaccount NMM invests in the shares of the Money
Market Portfolio; Subaccount NHI invests in the shares of the Income Portfolio;
Subaccount NTR invests in the shares of the Managed Portfolio; and Subaccount
NGO invests in the shares of the Government Securities Portfolio.
The Trust, which commenced operations Aug. 4, 1986, is registered under the
Investment Company Act of 1940 as a unit investment trust. Funds allocated to
the 2004 subaccount (N04) invest in units of the 2004 Trust and the 1995
subaccount (N95) funds were invested in units of the 1995 Trust.
Prior to Dec. 28, 1990, the Subaccounts invested in the shares of the Shearson
Lehman Series Fund, which was formed on April 18, 1986. It is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company and commenced operations on Nov. 3, 1986. Prior to Dec. 28,
1990, funds allocated to Subaccount NAP were invested in the shares of the
Appreciation Portfolio; Subaccount NMM invested in the shares of the Money
Market Portfolio; Subaccount NHI invested in the shares of the High Income Bond
Portfolio; Subaccount NTR invested in the shares of the Total Return Portfolio;
and Subaccount NGO invested in the shares of the Government Securities
Portfolio.
IDS Life Insurance Company (IDS Life), parent company of IDS Life of New York,
acts as investment manager and American Express Financial Corporation acts as
the investment advisor of IDS Life Series Fund, Inc. IDS Life serves as
distributor for the Variable Account and the underlying mutual fund. Smith
Barney Inc. serves as sponsor for the Trust.
- ---------------------------------------------------------------
2. Summary of Significant Accounting Policies
Investments in Mutual Fund
Investments in shares of the mutual fund portfolios are stated at market value
which is the net asset value per share as determined by the respective
portfolios. Investment transactions are accounted for on the date the shares are
purchased and sold. The cost of investments sold and redeemed is determined on
the average cost method. Dividend distributions received from the portfolios are
reinvested, net of any expenses payable to IDS Life, in additional shares of the
portfolios and recorded as income by the subaccounts on the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the portfolios'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
<PAGE>
Investments in the Trust
Investments in units of the Trust are stated at market value which is the net
asset value per unit as determined by the respective trust. Investment
transactions are accounted for on the date the units are purchased and sold. The
cost of investments sold and redeemed is determined on the average cost method.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Trust's
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Federal Income Taxes
IDS Life of New York is taxed as a life insurance company. The Variable Account
is treated as part of IDS Life of New York for federal income tax purposes.
Under existing federal income tax law, no income taxes are payable with respect
to any investment income of the Variable Account.
- ---------------------------------------------------------------
3. Mortality Charge
IDS Life of New York deducts a mortality charge equal (except as explained
below), on an annual basis, to 0.5 percent of the daily net asset value of the
Variable Account. Prior to the maturity date of the policy the death benefit
will always be higher than the policy value. This deduction will enable IDS Life
of New York to pay this additional amount. Although IDS Life of New York does
not expect to charge more than the rate mentioned above, its charge for
providing life insurance protection could be greater. IDS Life of New York
guarantees that its charge will never be greater than an amount based upon the
1958 Commissioners' Standard Ordinary Mortality Table.
- ---------------------------------------------------------------
4. Mortality and Expense Risk Charge
IDS Life of New York makes contractual assurances to the Variable Account that
possible future adverse changes in administrative expenses and mortality
experience of the policy owners and beneficiaries will not affect the Variable
Account. The mortality and expense risk fee paid to IDS Life of New York is
computed daily and is equal, on an annual basis, to 0.6 percent of the daily net
asset value of the Variable Account.
- ---------------------------------------------------------------
5. Minimum Death Benefit Guarantee Risk Charge
IDS Life of New York deducts a minimum death benefit guarantee risk charge
equal, on an annual basis, to 0.4 percent of the daily net asset value of the
Variable Account. This deduction is made to compensate IDS Life of New York for
the risk it assumes by providing a guaranteed minimum death benefit. The
deduction will be made from the Variable Account and computed on a daily basis.
This charge is guaranteed for the life of the contract and may not be increased.
- ---------------------------------------------------------------
6. Issue and Administrative Expense Charge
IDS Life of New York deducts a charge to compensate it for expenses it incurs in
administering the policy, such as the costs of underwriting the policy,
conducting any medical examinations, establishing and maintaining records, and
providing reports to policy owners. This charge is deducted daily and is
equivalent, on an annual basis, to 0.4 percent of the daily net asset value of
the Variable Account during the first 10 years of the policy, and to 0.3 percent
thereafter. There is not necessarily a relationship between the amount of the
charge imposed on a particular policy and the amount of administrative expenses
that may be attributable to that policy.
- ---------------------------------------------------------------
7. State Premium Tax Charge
To cover the premium taxes assessed by the state of New York and to compensate
IDS Life of New York for the average premium tax expense it incurs when issuing
the policy, IDS Life of New York deducts a charge equivalent, on an annual
basis, to 0.1 percent of the daily net asset value of the Variable Account
during the first 10 policy years, and 0 percent thereafter.
- ---------------------------------------------------------------
8. Distribution Expense Charge
IDS Life of New York incurs certain sales and other distribution expenses at the
time the policies are issued. This charge is equal, on an annual basis, to 0.3
percent of the daily average net asset value of the Variable Account for the
first 10 policy years and 0 percent thereafter. IDS Life of New York anticipates
that this charge, together with any applicable surrender charge, will cover the
expected costs of distributing the policies. In no event will the sum of the
surrender charge deducted on surrender and cumulative distribution expense
charges previously deducted exceed 9 percent of the single premium paid.
<PAGE>
- ---------------------------------------------------------------
9. Transaction Charge
IDS Life of New York makes a daily charge against the assets of the subaccount
investing in the Trust. This charge is intended to reimburse IDS Life of New
York for the transaction charge paid directly by IDS Life of New York to Smith
Barney Inc. on the sale of the Trust units to the Variable Account. IDS Life of
New York pays these amounts from its general account assets. The amount of the
asset charge is equivalent to an effective annual rate of 0.25 percent of the
account value invested in the Trust. This amount may be increased in the future
but in no event will it exceed an effective annual rate of 0.5 percent of the
account value. The charge will be cost-based (taking into account a loss of
interest) with no anticipated element of profit for IDS Life of New York. This
charge also varies directly with the size of the account value.
- ---------------------------------------------------------------
10. Surrender Charge
IDS Life of New York will use a surrender charge to help it recover certain
selling expenses. The surrender charge will be deducted during the first eight
policy years. Further, IDS Life of New York guarantees that the total cumulative
distribution expense charges and the surrender charge will never exceed 9
percent of the single premium. Charges by IDS Life of New York for surrenders
are not available on an individual segregated asset account basis. Charges for
all segregated asset accounts amounted to $551,374 in 1996, $464,724 in 1995
and $269,275 in 1994. Such charges are not an expense of the subaccounts or
Variable Account. They are deducted from contract surrender benefits paid by IDS
Life of New York.
- ---------------------------------------------------------------
11. Investment Transactions
The subaccounts' purchases of portfolio shares or trust units (net of charges),
including reinvestment of dividend distributions, were as follows:
<TABLE>
<CAPTION>
Year ended Dec.31,
------------------------------
Subaccount Investment 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NAP Equity Portfolio................. $155,918 $ 73,918 $ 75,389
NMM Money Market Portfolio........... 68,679 14,805 66,810
NHI Income Portfolio................. 8,436 117,032 101,134
NTR Managed Portfolio................ 9,550 21,771 16,846
NGO Government Securities Portfolio.. 3,716 67,278 1,299
N95 1995 Trust....................... -- --* (1,099)
N04 2004 Trust....................... -- -- (1,586)
- -------------------------------------------------------------------------------
$246,299 $294,804 $258,793
- -------------------------------------------------------------------------------
*For the period Jan. 1, 1995 to Nov. 15, 1995, date of maturity of securities
in the 1995 Trust.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Financial Information (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
Period from
Year Ended Dec. 31, April 15 to
------------------------------------------------------------------------ Dec. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subaccount NAP (invests in Equity Portfolio)
Accumulation unit value at beginning of
period.................................... $3.22 $2.38 $2.37 $2.14 $2.08 $1.28 $1.31 $1.02 $0.94 $1.00
Accumulation unit value at end of period.. $3.77 $3.22 $2.38 $2.37 $2.14 $2.08 $1.28 $1.31 $1.02 $0.94
Number of accumulation units outstanding
at end of period (000 omitted)............ 260 274 268 325 317 307 362 395 386 409
- ------------------------------------------------------------------------------------------------------------------------------
Subaccount NMM (invests in Money Market Portfolio)
Accumulation unit value at beginning of
period.................................... $1.28 $1.25 $1.23 $1.23 $1.21 $1.18 $1.12 $1.06 $1.02 $1.00
Accumulation unit value at end of period.. $1.32 $1.28 $1.25 $1.23 $1.23 $1.21 $1.18 $1.12 $1.06 $1.02
Number of accumulation units outstanding
at end of period (000 omitted)............ 71 87 217 165 165 247 219 243 228 198
- ------------------------------------------------------------------------------------------------------------------------------
Subaccount NHI (invests in Income Portfolio)
Accumulation unit value at beginning of
period.................................... $1.36 $1.15 $1.23 $1.10 $1.02 $0.90 $1.12 $1.16 $1.05 $1.00
Accumulation unit value at end of period.. $1.38 $1.36 $1.15 $1.23 $1.10 $1.02 $0.90 $1.12 $1.16 $1.05
Number of accumulation units outstanding
at end of period (000 omitted)............ 124 157 293 326 358 358 148 610 742 397
- ------------------------------------------------------------------------------------------------------------------------------
Subaccount NTR (invests in Managed Portfolio)
Accumulation unit value at beginning of
period.................................... $2.24 $1.92 $1.95 $1.67 $1.55 $1.20 $1.21 $1.06 $0.92 $1.00
Accumulation unit value at end of period.. $2.50 $2.24 $1.92 $1.95 $1.67 $1.55 $1.20 $1.21 $1.06 $0.92
Number of accumulation units outstanding
at end of period (000 omitted)............ 59 58 78 127 144 109 94 145 101 91
- ------------------------------------------------------------------------------------------------------------------------------
Subaccount NGO (invests in Government
Securities Portfolio)
Accumulation unit value at beginning of
period.................................... $1.66 $1.44 $1.54 $1.41 $1.35 $1.19 $1.13 $1.05 $1.02 $1.00
Accumulation unit value at end of period.. $1.64 $1.66 $1.44 $1.54 $1.41 $1.35 $1.19 $1.13 $1.05 $1.02
Number of accumulation units outstanding
at end of period (000 omitted)............ 13 53 20 20 28 65 50 10 20 19
- ------------------------------------------------------------------------------------------------------------------------------
Subaccount N95 (invests in 1995 Trust)**
Accumulation unit value at beginning of
period.................................... $ -- $1.57 $1.58 $1.52 $1.45 $1.28 $1.19 $1.05 $1.00 $1.00
Accumulation unit value at end of period.. $ -- $ -- $1.57 $1.58 $1.52 $1.45 $1.28 $1.19 $1.05 $1.00
Number of accumulation units outstanding
at end of period (000 omitted)............ -- -- 25 35 59 69 50 55 59 33
- ------------------------------------------------------------------------------------------------------------------------------
Subaccount N04 (invests in 2004 Trust)***
Accumulation unit value at beginning of
period.................................... $2.33 $1.82 $2.06 $1.74 $1.63 $1.38 $1.36 $1.13 $1.00 --
Accumulation unit value at end of period.. $2.25 $2.33 $1.82 $2.06 $1.74 $1.63 $1.38 $1.36 $1.13 --
Number of accumulation units outstanding
at end of period (000 omitted)........... 18 18 18 36 36 36 12 12 12 --
- ------------------------------------------------------------------------------------------------------------------------------
*Operations commenced on April 15, 1987.
**The 1995 Trust matured on Nov. 15, 1995.
***Subaccount N04 commenced operations on July 19, 1988.
</TABLE>
<PAGE>
IDS Life of New York Financial Information
The financial statements shown below are those of the insurance company and not
those of any other entity. They are included for the purpose of informing the
investor as to the financial condition of the insurance company and its ability
to carry out its obligations under its variable contracts.
IDS LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
Dec. 31, Dec. 31,
ASSETS 1996 1995
- ------ ----------- ------
(thousands)
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1996, $604,635; 1995, $683,147) $ 585,812 $ 642,580
Available for sale, at fair value (Fair value:
1996, $590,608; 1995, $577,068) 601,623 601,298
Mortgage loans on real estate 160,017 158,730
Policy loans 20,077 18,035
Other investments 1,374 1,915
----------- ------
Total investments 1,368,903 1,422,558
Accrued investment income 21,068 22,572
Deferred policy acquisition costs 119,183 109,800
Other assets 3,950 2,108
Separate account assets 950,018 724,212
-------- ---------
Total assets $2,463,122 $2,281,250
======== ========
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS (continued)
Dec. 31, Dec. 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
- ------------------------------------ ---------- ---------
(thousands)
Liabilities:
Future policy benefits:
Fixed annuities $1,054,954 $1,109,167
Universal life-type insurance 142,278 136,475
Traditional life, disability income
and long-term care insurance 45,338 42,477
Policy claims and other policyholders' funds 3,155 3,644
Deferred income taxes 9,046 15,663
Amounts due to brokers 3,007 10,000
Other liabilities 25,463 21,029
Separate account liabilities 950,018 724,212
--------- ---------
Total liabilities 2,233,259 2,062,667
Stockholder's equity:
Capital stock, $10 par value per share;
200,000 shares authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 49,000 49,000
Net unrealized gain on investments 6,943 15,341
Retained earnings 171,920 152,242
--------- -----------
Total stockholder's equity 229,863 218,583
-------- -----------
Total liabilities and stockholder's equity $2,463,122 $2,281,250
======== ========
Commitments and contingencies (Note 7)
See accompanying notes.
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
Years ended Dec.31,
1996 1995 1994
--------- ------- -------
(thousands)
Revenues:
Traditional life, disability income
and long-term care insurance
premiums $ 10,931 $ 9,280 $ 7,846
Policyholder and contractholder charges 15,832 13,216 11,607
Mortality and expense risk fees 8,574 6,213 4,562
Net investment income 109,468 110,924 108,143
Net realized gain (loss) on investments (1,424) 1,548 957
------ ------ -------
Total revenues 143,381 141,181 133,115
-------- -------- -------
Benefits and expenses:
Death and other benefits:
Traditional life, disability income
and long-term care insurance 4,182 3,354 6,016
Universal life-type insurance
and investment contracts 4,409 4,548 3,773
Increase in liabilities for future
policy benefits for traditional life,
disability income and
long-term care insurance 2,324 1,958 506
Interest credited on universal life-type
insurance and investment contracts 65,099 68,630 65,018
Amortization of deferred policy
acquisition costs 16,071 13,085 12,994
Other insurance and operating expenses 8,972 7,474 8,359
-------- ------- ------
Total benefits and expenses 101,057 99,049 96,666
------- ------- -------
Income before income taxes 42,324 42,132 36,449
Income taxes 14,640 14,745 12,794
------- ------- -------
Net income $ 27,684 $ 27,387 $ 23,655
====== ====== ======
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
Years ended Dec. 31,
1996 1995 1994
--------- --------- ------
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $27,684 $27,387 $23,655
Adjustments to reconcile net income to net
cash provided by operating activities:
Policy loan issuance, excluding universal
life-type insurance (2,473) (2,093) (1,365)
Policy loan repayment, excluding universal
life-type insurance 1,571 881 849
Change in accrued investment income 1,504 (1,055) (175)
Change in deferred policy acquisition
costs, net (9,087) (11,017) (11,522)
Change in liabilities for future policy
benefits for traditional life, disability income
and long-term care insurance 2,861 1,931 501
Change in policy claims and other
policyholders' funds (489) 427 870
Change in deferred income taxes (2,095) (1,301) (4,321)
Change in other liabilities 4,434 2,429 (1,711)
(Accretion of discount)
amortization of premium, net (652) (480) 2,464
Net realized (gain) loss on investments 1,424 (1,548) (957)
Policyholder and contractholder
charges, non-cash (7,831) (6,962) (6,000)
Other, net (1,781) (508) 689
--------- ----- ------
Net cash provided by operating
activities $15,070 $ 8,091 $2,977
------- ------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY OF NEW YORK
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 $ -- $ (37,540) $ (36,560)
Maturities, sinking fund payments and calls 39,082 34,216 78,757
Sales 14,465 28,905 2,649
Fixed maturities available for sale:
Purchases (97,370) (133,503) (117,965)
Maturities, sinking fund payments and calls 71,939 44,234 70,316
Sales 15,669 8,839 14,533
Other investments, excluding policy loans:
Purchases (14,802) (1,939) (47,353)
Sales 12,659 5,993 2,975
Change in amounts due to brokers (6,993) 10,000 (4,952)
------- ------- -------
Net cash provided by (used in)
investing activities 34,649 (40,795) (37,600)
--------- -------- ---------
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received 131,011 159,431 188,469
Surrenders and death benefits (236,689) (190,695) (212,171)
Interest credited to account balances 65,099 68,630 65,018
Universal life-type insurance policy loans:
Issuance (4,490) (4,870) (3,907)
Repayment 3,350 2,946 2,476
Cash dividend to parent (8,000) (8,000) --
------ ------- ---
Net cash (used in) provided by financing
activities (49,719) 27,442 39,885
-------- ------- -------
Net (decrease) increase in cash and cash
equivalents -- (5,262) 5,262
Cash and cash equivalents at
beginning of year -- 5,262 --
-------- ------ -------
Cash and cash equivalents at
end of year $ -- $ -- $ 5,262
========= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
IDS Life Insurance Company of New York (the Company) is engaged in the
insurance and annuity business in the state of New York. 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 Company is a wholly owned subsidiary of IDS Life Insurance Company
(IDS Life), which is a wholly owned subsidiary of American Express
Financial Corporation, which is a wholly owned subsidiary of American
Express Company. The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles
which vary in certain respects from reporting practices prescribed or
permitted by the New York Department of Insurance as reconciled in Note
11.
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.
The cost of interest rate caps is amortized to investment income over
the life of the contracts and payments received as a result of these
agreements are recorded as a reduction of investment income when
realized. The amortized cost of interest rate caps is included in other
investments.
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 statements of cash flows is summarized
as follows:
1996 1995 1994
-------- -------- ------
Cash paid during the year for:
Income taxes $15,247 $15,026 $17,386
Interest on borrowings 777 742 147
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.
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.
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 $5,161 and
$3,971, respectively, payable to IDS Life 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.
Accounting changes
The Financial Accounting Standards Board's (FASB) Statement of
Financial Accounting Standards 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.
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 $ (572) $1,997 $948
Mortgage loans (855) (487) -
Other investments 3 38 9
---------- ----- --
$(1,424) $1,548 $957
======== ====== ====
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 $(21,744) $73,970 $(84,244)
Available for sale (13,215) 43,726 (38,226)
<PAGE>
The amortized cost, gross unrealized gains and losses and fair value 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 $ 4,498 $ 144 $ -- $ 4,642
Corporate bonds and obligations 523,807 23,060 2,964 543,903
Mortgage-backed securities 57,507 409 1,826 56,090
--------- --------- ------ ---------
$585,812 $23,613 $4,790 $604,635
======== ======= ====== ========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
State and municipal obligations $ 105 $ 10 $ -- $ 115
Corporate bonds and obligations 260,966 8,857 1,181 268,642
Mortgage-backed securities 329,537 5,788 2,459 332,866
-------- -------- ------ --------
$590,608 $14,655 $3,640 $601,623
======== ======= ====== ========
</TABLE>
The change in net unrealized loss on available for sale securities
included as a separate component of stockholder's equity was $8,398 in
1996.
The amortized cost, gross unrealized gains and losses and fair value 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 $ 5,003 $ 199 $ -- $ 5,202
State and municipal obligations 150 -- 2 148
Corporate bonds and obligations 578,253 41,939 2,027 618,165
Mortgage-backed securities 59,174 846 388 59,632
--------- --------- ------- ---------
$642,580 $42,984 $2,417 $683,147
======== ======= ====== ========
Gross Gross
Amortized Unrealized Unrealized Fair
Available for sale Cost Gains Losses Value
State and municipal obligations $ 105 $ 10 $ -- $ 115
Corporate bonds and obligations 248,973 17,470 497 265,946
Mortgage-backed securities 327,990 9,157 1,910 335,237
-------- -------- ------ --------
Total fixed maturities 577,068 26,637 2,407 601,298
Equity securities 10 -- -- 10
----------- ------- --------- -----------
$577,078 $26,637 $2,407 $601,308
======== ======= ====== ========
</TABLE>
The change in net unrealized gain on available for sale securities
included as a separate component of stockholder's equity was $27,710 in
1995.
<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 $ 11,777 $ 11,912
Due from one to five years 125,637 132,169
Due from five to ten years 321,472 333,245
Due in more than ten years 69,419 71,219
Mortgage-backed securities 57,507 56,090
--------- ---------
$585,812 $604,635
======== ========
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 39,155 $ 39,695
Due from one to five years 55,313 58,288
Due from five to ten years 127,642 130,246
Due in more than ten years 38,961 40,528
Mortgage-backed securities 329,537 332,866
-------- --------
$590,608 $601,623
======== ========
During the years ended Dec. 31, 1996, 1995 and 1994, fixed maturities
classified as held to maturity were sold with amortized cost of
$14,507, $27,971 and $2,735, 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 $15,607 and net unrealized gains of $144 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 $15,669 and gross realized gains and losses of $28 and
$1,541, respectively. Fixed maturities available for sale were sold
during 1995 with proceeds of $8,839 and gross realized gains and losses
of $nil and $74, respectively. Fixed maturities available for sale were
sold during 1994 with proceeds of $14,533 and gross realized gains and
losses of $181 and $308, respectively.
At Dec. 31, 1996, bonds carried at $261 were on deposit with the state
of New York as required by law.
Net investment income for the years ended Dec. 31 is summarized as
follows:
1996 1995 1994
---------- --------- -------
Interest on fixed maturities $ 95,574 $ 97,092 $ 93,800
Interest on mortgage loans 14,171 13,888 13,226
Other investment income 1,293 1,291 1,219
Interest on cash equivalents 67 186 363
----------- ---- ------
111,105 112,457 108,608
Less investment expenses 1,637 1,533 465
---------- ------ -------
$109,468 $110,924 $108,143
======== ======== ========
<PAGE>
At Dec. 31, 1996, investments in fixed maturities comprised 87 percent
of the Company's total invested assets. Securities are rated by Moody's
and Standard & Poor's (S&P), except for securities carried at
approximately $130 million 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 $ 396,097 $ 391,321
Aa/AA 13,996 17,572
Aa/A 10,197 9,950
A/A 196,542 209,483
A/BBB 62,488 61,912
Baa/BBB 336,706 357,445
Baa/BB 51,639 46,029
Below investment grade 108,755 125,936
----------- --------
$1,176,420 $1,219,648
========== ==========
At Dec. 31, 1996, 94 percent of the securities rated Aaa/AAA are GNMA,
FNMA and FHLMC mortgage-backed securities. No holdings of any other
issuer are greater than 1 percent of the Company's total investments
in fixed maturities.
At Dec. 31, 1996, approximately 11.6 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans
by region and by type of real estate are as follows:
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995
------------------------ ----------------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
-------------- ------ ----------- --------- -----------
<S> <C> <C> <C> <C>
West North Central $ 23,191 $1,342 $ 23,705 $ --
East North Central 33,430 1,708 34,207 --
South Atlantic 35,501 -- 38,802 2,033
Middle Atlantic 22,889 -- 23,502 --
Pacific 12,986 -- 13,150 --
Mountain 15,425 -- 14,937 5,084
New England 8,805 -- 8,982 --
East South Central 8,825 -- 1,613 7,407
West South Central 265 -- 277 --
--------- ---------- ---- -------
161,317 3,050 159,175 14,524
Less allowance for losses 1,300 -- 445 --
------ --- ---- -------
$160,017 $3,050 $158,730 $14,524
======== ====== ======== =======
Dec. 31, 1996 Dec. 31, 1995
--------------------- --------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
------------------------- -------- ----------- ------- -----------
Apartments $ 70,292 $ 1,708 $ 64,136 $7,988
Department/retail stores 48,476 1,342 55,308 --
Office buildings 18,684 -- 12,367 6,536
Industrial buildings 11,956 -- 13,255 --
Nursing/retirement 6,477 -- 6,565 --
Medical buildings 5,167 -- 5,255 --
Other -- -- 2,012 --
Hotels/motels 265 -- 277 --
------ ---- --- -------
161,317 3,050 159,175 14,524
Less allowance for losses 1,300 -- 445 --
----- ----- ---- -------
$160,017 $ 3,050 $158,730 $14,524
======== ======= ======== =======
</TABLE>
<PAGE>
Mortgage loan fundings are restricted by state insurance regulatory
authority 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 $1,327 and $2,052 with a reserve of $1,300 and $445,
respectively. During 1996 and 1995, the average recorded investment in
impaired loans was $1,628 and $3,003, respectively.
The Company recognized $152 and $204 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 $ 445 $445
Provision for investment losses 855 --
------ ----
Balance, Dec. 31 $1,300 $445
====== ====
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 $15,735 $15,146 $16,419
Deferred (2,095) (1,301) (4,320)
------- ------ -------
13,640 13,845 12,099
State income taxes-current 1,000 900 695
----- ------ -----
Income tax expense $14,640 $14,745 $12,794
======= ======= =======
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 $14,813 35.0% $14,746 35.0% $12,757 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest
and dividend income (458) (1.1) (464) (1.1) (554) (1.5)
Other, net (716) (1.7) (437) (1.0) (104) (0.3)
---- ---- ---- ---- ----- ----
Federal income taxes $13,639 32.2% $13,845 32.9% $12,099 33.2%
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
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 $798. 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 $279 have not been established because no
distributions of such amounts are contemplated.
Significant components of the Company's deferred tax assets and
liabilities as of Dec. 31 are as follows:
1996 1995
-------- ------
Deferred tax assets:
Policy reserves $28,809 $26,237
Other 4,018 2,791
------- -----
Total deferred tax assets 32,827 29,028
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs 35,302 33,001
Investments 6,571 11,690
------ ------
Total deferred tax
liabilities 41,873 44,691
------ -------
Net deferred tax liabilities $(9,046) $(15,663)
======= ========
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that
the Company will realize the benefit of the deferred tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to the parent
are limited to the Company's surplus as determined in accordance with
accounting practices prescribed by the New York Department of
Insurance. Statutory unassigned surplus aggregated $94,007 as of Dec.
31, 1996 and $85,964 as of Dec. 31, 1995 (see Note 3 with respect to
the income tax effect of certain distributions).
Dividends paid to parent were $8,000 in 1996, $8,000 in 1995 and $nil
in 1994.
5. Retirement plan and services
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 $34, $33 and
$33 in 1996, 1995 and 1994, respectively.
The Company has a "Sales Benefit Plan" which is an unfunded,
noncontributory retirement plan for all eligible financial advisors.
Total plan costs for 1996, 1995 and 1994, which are calculated on the
basis of commission earnings of the individual financial advisors, were
$1,474, $1,392 and $1,372, respectively. Such costs are included in
deferred policy acquisition costs.
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 $248, $231 and $251, 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.
6. Incentive plan and operating expenses
The Company maintains a "Persistency Payment Plan." Under the terms of
this plan, financial advisors earn additional compensation based on the
volume and persistency of insurance sales. The total costs for the plan
for 1996, 1995 and 1994 were $1,424, $1,720 and $1,287, respectively.
Such costs are included in deferred policy acquisition costs.
Charges by IDS Life and American Express Financial Corporation for the
use of joint facilities, marketing services and other services
aggregated $12,389, $12,122 and $9,314 for 1996, 1995 and 1994,
respectively. Certain of the costs assessed to the Company are included
in deferred policy acquisition costs.
7. Commitments and contingencies
At Dec. 31, 1996 and 1995, traditional life insurance and universal
life-type insurance in force aggregated $4,053,561 and $3,502,851,
respectively, of which $203,963 and $163,462 were reinsured at the
respective year ends.
In addition, the Company has a stop loss reinsurance agreement with IDS
Life covering ordinary life benefits. IDS Life agrees to pay all death
benefits incurred each year which exceed 125 percent of normal claims,
where normal claims are defined in the agreement as .095 percent of the
mean retained life insurance in force. Premiums ceded to IDS Life
amounted to $98, $85 and $76 for the years ended Dec. 31, 1996, 1995
and 1994, respectively. Claim recoveries under the terms of this
reinsurance agreement were $861, $1,426 and $nil in 1996, 1995 and
1994, respectively.
Premiums ceded to reinsurers other than IDS Life amounted to $747, $667
and $735 for the years ended Dec. 31, 1996, 1995 and 1994,
respectively. Reinsurance recovered from reinsurers other than IDS Life
amounted to $66, $576 and ($107) for the years ended Dec. 31, 1996,
1995 and 1994.
Reinsurance contracts do not relieve the Company from its primary
obligations to policyholders.
The Company has an agreement to assume a block of extended term life
insurance business. The amount of insurance in force related to this
agreement was $345,943 and $392,106 at Dec. 31, 1996 and 1995,
respectively. The accompanying statement of income includes premiums of
$nil for the years ended Dec. 31, 1996, 1995 and 1994, and decrease in
liabilities for future policy benefits of $2,010, 2,039 and $2,538
related to this agreement for the years ended Dec. 31, 1996, 1995 and
1994, respectively.
8. Lines of credit
The Company has available lines of credit with two banks and American
Express Financial Corporation (AEFC) aggregating $55,000 of which
$25,000 is with AEFC. The lines of credit are at 40 to 80 basis points
over each lender's cost of funds. The $10,000 line of credit with one
bank expired on Dec. 31, 1996 and the Company did not seek renewal. The
$20,000 line of credit with the other bank expires on June 30, 1997 and
the Company expects to seek renewal. Outstanding borrowings under these
agreements were $nil at Dec. 31, 1996 and 1995.
<PAGE>
9. 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 is measured by
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.
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 $250,000 $1,374 $832 $832
======== ====== ==== ====
Dec. 31, 1995
Assets:
Interest rate caps $300,000 $1,905 $745 $745
======== ====== ==== ====
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. The interest rate caps expire
on various dates from 1997 to 2000.
Interest rate caps are used to manage the Company's exposure to
interest rate risk. These instruments are used primarily to protect the
margin between interest rates earned on investments and the interest
rates credited to related annuity contract holders.
<PAGE>
10. 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,
receivables and all non-financial instruments, such as deferred
acquisition costs are excluded. Off-balance sheet intangible assets,
such as the value 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 $ 585,812 $ 604,635 $ 642,580 $ 683,147
Available for sale 601,623 601,623 601,298 601,298
Mortgage loans on real estate (Note 2) 160,017 164,444 158,730 168,194
Other:
Equity securities (Note 2) -- -- 10 10
Derivative financial instruments (Note 9) 1,374 832 1,905 745
Separate accounts assets (Note 1) 950,019 950,019 724,212 724,212
Financial Liabilities
Future policy benefits for
fixed annuities 979,030 946,359 1,038,431 1,005,004
Separate account liabilities 880,160 838,492 678,263 645,389
</TABLE>
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 $72,252 and $67,843, respectively, and policy
loans of $3,672 and $2,893, 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 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 applicable
surrender charges and less variable insurance contracts carried at
$69,859 and $45,949, respectively.
<PAGE>
11. Statutory insurance accounting practices
Reconciliations of net income for 1996, 1995 and 1994 and stockholder's
equity at Dec. 31, 1996 and 1995, as shown in the accompanying
financial statements, to that determined using statutory accounting
practices are as follows:
1996 1995 1994
-------- -------- -------
Net income, per accompanying
financial statements $27,684 $27,387 $23,655
Deferred policy acquisition costs (9,087) (11,017) (11,522)
Adjustments of future policy
benefit liabilities (9,683) (10,655) 13,741
Deferred federal income taxes (2,095) (1,301) (4,321)
Provision for losses on investments 877 -- (1,652)
IMR gain/loss transfer and amortization 1,010 (331) (54)
Adjustment to separate account reserves 8,863 20,769 142
Other, net 116 948 144
------- -------- --------
Net income, on basis of
statutory accounting practices $17,685 $25,800 $20,133
======= ======= =======
1996 1995
-------- -------
Stockholder's equity, per accompanying
financial statements $229,863 $218,583
Deferred policy acquisition costs (119,183) (109,800)
Adjustments of future policy benefit liabilities 13,458 23,172
Deferred federal income taxes 9,046 15,663
Securities valuation reserve (19,446) (18,029)
Adjustments of separate account liabilities 43,189 34,326
Net unrealized loss on investments (11,016) (24,231)
Premiums due, deferred and advance 1,149 925
Deferred revenue liability 1,342 794
Allowance for losses 1,349 445
Non-admitted assets (634) (578)
Interest maintenance reserve (1,432) (2,442)
Other, net (281) 347
-------- ------
Stockholder's equity, on basis of statutory
accounting practices $147,404 $139,175
======== ========
<PAGE>
Report of Independent Auditors
The Board of Directors
IDS Life Insurance Company of New York
We have audited the accompanying balance sheets of IDS Life Insurance Company of
New York (a wholly owned subsidiary of IDS Life Insurance Company) as of
December 31, 1996 and 1995, and the related statements of income and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Life Insurance Company of
New York at December 31, 1996 and 1995, and the 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.
Ernst & Young LLP
February 7, 1997
Minneapolis, Minnesota
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000806382
<NAME> IDS Life of New York Account 7
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 978115
<INVESTMENTS-AT-VALUE> 1461190
<RECEIVABLES> 1464
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1462654
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (5904)
<TOTAL-LIABILITIES> (5904)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 545175
<SHARES-COMMON-PRIOR> 647532
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1456750
<DIVIDEND-INCOME> 181943
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (35066)
<NET-INVESTMENT-INCOME> 146877
<REALIZED-GAINS-CURRENT> 36761
<APPREC-INCREASE-CURRENT> (20398)
<NET-CHANGE-FROM-OPS> 163240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 51348
<NUMBER-OF-SHARES-REDEEMED> (153706)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (10692)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (35066)
<AVERAGE-NET-ASSETS> 1462096
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 601623
<DEBT-CARRYING-VALUE> 585812
<DEBT-MARKET-VALUE> 604635
<EQUITIES> 0
<MORTGAGE> 160017
<REAL-ESTATE> 0
<TOTAL-INVEST> 1368903
<CASH> 0
<RECOVER-REINSURE> 12
<DEFERRED-ACQUISITION> 119183
<TOTAL-ASSETS> 2463122
<POLICY-LOSSES> 1242570
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 3155
<NOTES-PAYABLE> 0
<COMMON> 2000
0
0
<OTHER-SE> 227863
<TOTAL-LIABILITY-AND-EQUITY> 2463122
10931
<INVESTMENT-INCOME> 109468
<INVESTMENT-GAINS> (1424)
<OTHER-INCOME> 24406
<BENEFITS> 76014
<UNDERWRITING-AMORTIZATION> 16071
<UNDERWRITING-OTHER> 8972
<INCOME-PRETAX> 42324
<INCOME-TAX> 14640
<INCOME-CONTINUING> 27684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27684
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 1142
<PROVISION-CURRENT> 8591
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 8253
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 1480
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
