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Salomon Smith Barney LifeVest-SM-
- ------------------------------------------------
Annual Report for:
- Single Premium Variable Life Insurance
Policy issued by IDS Life Insurance
Company of New York
Prospectus for:
- The Shearson Lehman Brothers Fund of
Stripped ("Zero Coupon") U.S. Treasury Securities
Fund, Series A
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
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 --
Single Premium Variable Life Insurance (comprised of subaccounts NAP, NGO, NHI,
NTR, NMM and N04) as of December 31, 1999, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended. These financial statements are the responsibility of the management
of IDS Life Insurance Company 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1999 with
the affiliated mutual fund manager and the unit investment trust sponsor. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of IDS Life of New York Account 7 -- Single Premium
Variable Life Insurance at December 31, 1999 and the individual and combined
results of their operations and the changes in their net assets for the periods
described above, in conformity with accounting principles generally accepted in
the United States.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 17, 2000
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1
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
--------------------------------------------------------- VARIABLE
DEC. 31, 1999 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
- -----------------------------------------------------------------------------------------------------
Investments in shares of
mutual fund portfolios and
units of the trust:
at cost $ 631,583 $7,190 $126,602 $138,391 $101,181 $13,092 $1,018,039
- -----------------------------------------------------------------------------------------------------
at market value $1,843,558 $6,841 $118,879 $209,373 $101,180 $31,675 $2,311,506
Dividends receivable -- 32 1,450 -- 467 -- 1,949
Accounts receivable from IDS
Life of New York for
contract purchase payments -- -- -- -- -- 99 99
Receivable from mutual fund
portfolios and the trust for
share redemptions -- -- -- -- -- 55 55
- -----------------------------------------------------------------------------------------------------
Total assets 1,843,558 6,873 120,329 209,373 101,647 31,829 2,313,609
Liabilities
- -----------------------------------------------------------------------------------------------------
Payable to IDS Life of New
York for:
Mortality and expense risk
fee 932 4 61 106 52 16 1,171
Minimum death benefit
guarantee risk charge 621 2 41 71 34 11 780
Issue and adminstrative
expense charge 466 2 31 53 26 8 586
Mortality charge 777 3 51 89 43 13 976
Transaction charge -- -- -- -- -- 7 7
Payable to mutual fund
portfolios and the trust for
investments purchased -- -- -- -- -- 99 99
- -----------------------------------------------------------------------------------------------------
Total liabilities 2,796 11 184 319 155 154 3,619
- -----------------------------------------------------------------------------------------------------
Net assets applicable to
Variable Life contracts in
accumulation period $1,840,762 $6,862 $120,145 $209,054 $101,492 $31,675 $2,309,990
- -----------------------------------------------------------------------------------------------------
Accumulation units outstanding 216,155 3,829 80,489 52,556 70,527 12,449
- -----------------------------------------------------------------------------------------
Net asset value per
accumulation unit $ 8.52 $ 1.79 $ 1.49 $ 3.98 $ 1.44 $ 2.54
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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2 IDS LIFE OF NEW YORK ACCOUNT 7
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
----------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1999 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
- ----------------------------------------------------------------------------------------------------------
Dividend income from mutual fund
portfolios and in the trust $ -- $ 460 $ 9,737 $ 5,355 $ 4,619 $ -- $ 20,171
- ----------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 7,173 52 818 1,096 604 192 9,935
Minimum death benefit guarantee risk
charge 4,744 33 542 730 400 129 6,578
Issue and administrative expense charge 3,564 25 407 548 300 97 4,941
Mortality charge 5,935 41 678 914 500 161 8,229
Transaction charge -- -- -- -- -- 81 81
- ----------------------------------------------------------------------------------------------------------
Total expenses 21,416 151 2,445 3,288 1,804 660 29,764
- ----------------------------------------------------------------------------------------------------------
Investment income (loss) -- net (21,416) 309 7,292 2,067 2,815 (660) (9,593)
- ----------------------------------------------------------------------------------------------------------
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 56,653 5,315 66,241 2,185 32,069 715 163,178
Cost of investments sold 33,052 5,277 67,335 1,656 32,069 294 139,683
- ----------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 23,601 38 (1,094) 529 -- 421 23,495
Net change in unrealized appreciation or
depreciation of investments 803,181 (664) (8,381) 35,661 3 (1,230) 828,570
- ----------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 826,782 (626) (9,475) 36,190 3 (809) 852,065
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $805,366 $ (317) $(2,183) $38,257 $ 2,818 $(1,469) $842,472
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
3
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
-------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1998 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
- -----------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in the
trust $162,813 $748 $11,326 $13,057 $4,806 $ -- $192,750
- -----------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charge 5,997 73 931 961 583 193 8,738
Minimum death benefit guarantee risk charge 3,998 48 621 641 389 129 5,826
Issue and administrative expense charge 3,008 36 467 482 293 97 4,383
Mortality charge 5,007 61 778 803 487 161 7,297
Transaction charge -- -- -- -- -- 81 81
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 18,010 218 2,797 2,887 1,752 661 26,325
- -----------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 144,803 530 8,529 10,170 3,054 (661) 166,425
- -----------------------------------------------------------------------------------------------------------------------
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 32,893 -- 4,252 37,330 -- 659 75,134
Cost of investments sold 20,013 -- 4,187 29,687 -- 280 54,167
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 12,880 -- 65 7,643 -- 379 20,967
Net change in unrealized appreciation or depreciation of
investments (88,745) 227 (3,136) 855 -- 2,862 (87,937)
- -----------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (75,865) 227 (3,071) 8,498 -- 3,241 (66,970)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 68,938 $757 $ 5,458 $18,668 $3,054 $2,580 $ 99,455
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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4 IDS LIFE OF NEW YORK ACCOUNT 7
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
---------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1997 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
- --------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in the
trust $ 38,768 $1,367 $11,034 $15,582 $ 4,683 $ -- $ 71,434
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charge 7,486 149 950 1,177 696 237 10,695
Minimum death benefit guarantee risk charge 3,758 72 632 586 346 158 5,552
Issue and administrative expense charge 3,085 60 533 481 285 136 4,580
Distribution charge 784 17 175 121 75 53 1,225
Mortality charge 4,691 90 789 732 432 197 6,931
Premium tax charge 272 6 60 42 26 18 424
Transaction charge -- -- -- -- -- 99 99
- --------------------------------------------------------------------------------------------------------------------------
Total expenses 20,076 394 3,139 3,139 1,860 898 29,506
- --------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 18,692 973 7,895 12,443 2,823 (898) 41,928
- --------------------------------------------------------------------------------------------------------------------------
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 196,635 11,291 41,833 19,018 -- 13,954 282,731
Cost of investments sold 101,199 11,373 41,601 14,864 -- 6,504 175,541
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 95,436 (82) 232 4,154 -- 7,450 107,190
Net change in unrealized appreciation or depreciation of
investments 67,292 265 274 6,230 -- (4,302) 69,759
- --------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 162,728 183 506 10,384 -- 3,148 176,949
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $181,420 $1,156 $ 8,401 $22,827 $ 2,823 $ 2,250 $218,877
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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5
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
------------------------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1999 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
- ------------------------------------------------------------------------------------------------------------------------
Investment income (loss) --
net $ (21,416) $ 309 $ 7,292 $ 2,067 $ 2,815 $ (660) $ (9,593)
Net realized gain (loss) on
investments 23,601 38 (1,094) 529 -- 421 23,495
Net change in unrealized
appreciation or depreciation
of investments 803,181 (664) (8,381) 35,661 3 (1,230) 828,570
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 805,366 (317) (2,183) 38,257 2,818 (1,469) 842,472
- ------------------------------------------------------------------------------------------------------------------------
Contract transactions
- ------------------------------------------------------------------------------------------------------------------------
Net transfers* -- -- 114 -- (58) 48 104
Transfers for policy loans 5,089 -- (14,410) -- 31,391 -- 22,070
Contract terminations:
Surrender benefits (22,664) (5,293) (18,478) -- -- -- (46,435)
Death benefits (4,623) -- (1,370) -- (31,399) -- (37,392)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from
contract transactions (22,198) (5,293) (34,144) -- (66) 48 (61,653)
- ------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of
year 1,057,594 12,472 156,472 170,797 98,740 33,096 1,529,171
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,840,762 $ 6,862 $120,145 $209,054 $101,492 $ 31,675 $2,309,990
- ------------------------------------------------------------------------------------------------------------------------
Accumulation unit activity
- ------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning
of year 220,618 6,700 103,394 52,556 70,527 12,449
Transfers for policy loans 1,095 -- (9,566) -- 21,943 --
Contract terminations:
Surrender benefits (4,775) (2,871) (12,416) -- -- --
Death benefits (783) -- (923) -- (21,943) --
- ---------------------------------------------------------------------------------------------------------
Units outstanding at end of
year 216,155 3,829 80,489 52,556 70,527 12,449
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life of New York's fixed account.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
6 IDS LIFE OF NEW YORK ACCOUNT 7
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
--------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1998 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
- --------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 144,803 $ 530 $ 8,529 $ 10,170 $ 3,054 $ (661) $ 166,425
Net realized gain (loss) on investments 12,880 -- 65 7,643 -- 379 20,967
Net change in unrealized appreciation or depreciation of
investments (88,745) 227 (3,136) 855 -- 2,862 (87,937)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 68,938 757 5,458 18,668 3,054 2,580 99,455
- --------------------------------------------------------------------------------------------------------------------------------
Contract transactions
- --------------------------------------------------------------------------------------------------------------------------------
Net transfers* -- -- 598 497 -- -- 1,095
Transfers for policy loans (13,097) -- (1,809) -- -- -- (14,906)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions (13,097) -- (1,211) 497 -- -- (13,811)
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 1,001,753 11,715 152,225 151,632 95,686 30,516 1,443,527
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,057,594 $12,472 $156,472 $170,797 $98,740 $33,096 $1,529,171
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation unit activity
- --------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 223,878 6,700 104,605 52,556 70,527 12,449
Transfers for policy loans (3,260) -- (1,211) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 220,618 6,700 103,394 52,556 70,527 12,449
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life of New York's fixed account.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEGREGATED ASSET SUBACCOUNTS COMBINED
----------------------------------------------------------- VARIABLE
YEAR ENDED DEC. 31, 1997 NAP NGO NHI NTR NMM N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 18,692 $ 973 $ 7,895 $ 12,443 $ 2,823 $ (898) $ 41,928
Net realized gain (loss) on investments 95,436 (82) 232 4,154 -- 7,450 107,190
Net change in unrealized appreciation or depreciation of
investments 67,292 265 274 6,230 -- (4,302) 69,759
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 181,420 1,156 8,401 22,827 2,823 2,250 218,877
- ---------------------------------------------------------------------------------------------------------------------------------
Contract transactions
- ---------------------------------------------------------------------------------------------------------------------------------
Net transfers* 11,561 -- (10,324) -- -- -- 1,237
Transfers for policy loans (52,748) -- 7,464 (607) -- -- (45,891)
Contract terminations:
Surrender benefits (61,355) (11,291) (8,339) (18,371) -- (12,971) (112,327)
Death benefits (59,912) -- (15,207) -- -- -- (75,119)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions (162,454) (11,291) (26,406) (18,978) -- (12,971) (232,100)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 982,787 21,850 170,230 147,783 92,863 41,237 1,456,750
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,001,753 $ 11,715 $152,225 $151,632 $95,686 $ 30,516 $1,443,527
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation unit activity
- ---------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 260,415 13,304 123,932 59,059 70,527 17,938
Net transfers* 3,094 -- (7,568) -- -- --
Transfers for policy loans (12,562) -- 5,533 (220) -- --
Contract terminations:
Surrender benefits (14,071) (6,604) (5,997) (6,283) -- (5,489)
Death benefits (12,998) -- (11,295) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 223,878 6,700 104,605 52,556 70,527 12,449
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes transfer activity from (to) other subaccounts and transfers from (to)
IDS Life of New York's fixed account.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8 IDS LIFE OF NEW YORK ACCOUNT 7
<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 under New
York law on Sept. 12, 1985 as a segregated asset account of IDS Life Insurance
Company of New York (IDS Life of New York). The Variable Account is registered
as a single unit investment trust under the Investment Company Act of 1940, as
amended (the 1940 Act). Operations of the Variable Account commenced on
April 15, 1987.
The Variable Account is comprised of various subaccounts. Each subaccount
invests exclusively in shares of one of the following portfolios (the Funds) of
IDS Life Series Fund, Inc. (IDS Life Series Fund) or in the Trust. IDS Life
Series Fund is registered under the 1940 Act as a diversified, open-end
management investment company. The Trust is registered under the 1940 Act as a
unit investment trust. The Funds have the following investment managers and the
Trust has the following sponsor.
<TABLE>
<CAPTION>
Subaccount Invests exclusively in shares of Investment Manager/Sponsor
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
IDS Life Insurance
NAP IDS Life Series Fund -- Equity Portfolio Company(1)
IDS Life Insurance
NGO IDS Life Series Fund -- Government Securities Portfolio Company(1)
IDS Life Insurance
NHI IDS Life Series Fund -- Income Portfolio Company(1)
IDS Life Insurance
NTR IDS Life Series Fund -- Managed Portfolio Company(1)
IDS Life Insurance
NMM IDS Life Series Fund -- Money Market Portfolio Company(1)
N04 2004 Trust Salomon Smith Barney Inc.
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) American Express Financial Corporation (AEFC) is the investment advisor.
The assets of each subaccount of the Variable Account are not chargeable with
liabilities arising out of the business conducted by any other segregated asset
account or by IDS Life of New York.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN THE FUNDS
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and recorded as income by the subaccounts on the
ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
INVESTMENTS IN THE TRUST
Investments in units of the Trust are stated at market value which is the net
asset value per unit as determined by the Trust. Investment transactions are
accounted for on the date the units are purchased and sold. The cost of
investments sold and redeemed is determined on the average cost method.
- --------------------------------------------------------------------------------
9
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccount's share of the Trust's
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
FEDERAL INCOME TAXES
IDS Life 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, IDS Life of New York is not subject to
income taxes 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% 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% 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% 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 is
made from the Variable Account and computed on a daily basis. This charge is
guaranteed for the life of the contract and may not be increased.
6. ISSUE AND ADMINISTRATIVE EXPENSE CHARGE
IDS Life 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 0.3% of the daily net asset value of the
Variable Account. There is not necessarily a relationship between the amount of
the charge imposed on a particular policy and the amount of administrative
expenses that may be attributable to that policy.
- --------------------------------------------------------------------------------
10 IDS LIFE OF NEW YORK ACCOUNT 7
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
7. TRANSACTION CHARGE
IDS Life of New York makes a daily charge against the assets of each 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 Salomon
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% of the
account value invested in the Trust. This amount may be increased in the future
but in no event will it exceed an effective annual rate of 0.5% of the Variable
Account value. The charge will be cost-based (taking into account a loss of
interest) with no anticipated element of profit for IDS Life of New York.
8. INVESTMENT IN SHARES/UNITS
The subaccounts' investment in shares of the Funds or units of the Trust as of
Dec. 31, 1999 were as follows:
<TABLE>
<CAPTION>
Subaccount Investment Shares/Units NAV
- ---------------------------------------------------------------------
<S> <C> <C> <C>
IDS Life Series Fund -- Equity
NAP Portfolio 37,008 $49.82
IDS Life Series Fund -- Government
NGO Securities Portfolio 712 9.61
IDS Life Series Fund -- Income
NHI Portfolio 12,692 9.37
IDS Life Series Fund -- Managed
NTR Portfolio 9,063 23.10
IDS Life Series Fund -- Money
NMM Market Portfolio 101,188 1.00
N04 2004 Trust 43,192 0.73
- ---------------------------------------------------------------------
</TABLE>
9. INVESTMENT TRANSACTIONS
The subaccounts' purchases of Funds' shares or Trust units, including
reinvestment of dividend distributions, were as follows:
<TABLE>
<CAPTION>
Year ended Dec. 31,
Subaccount Investment 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
IDS Life Series Fund -- Equity
NAP Portfolio $15,835 $161,504 $52,171
IDS Life Series Fund --
Government Securities
NGO Portfolio 310 530 973
IDS Life Series Fund -- Income
NHI Portfolio 38,123 11,770 23,122
IDS Life Series Fund --
NTR Managed Portfolio 4,571 47,577 12,337
IDS Life Series Fund -- Money
NMM Market Portfolio 34,506 3,054 2,824
N04 2004 Trust 44 -- 65
- -----------------------------------------------------------------------
Combined Variable Account $93,389 $224,435 $91,492
- -----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
10. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of IDS Life of New York and
the Variable Account. All of the major systems used by IDS Life of New York and
the Variable Account are maintained by AEFC and are utilized by multiple
subsidiaries and affiliates of AEFC. IDS Life of New York's and the Variable
Account's businesses are heavily dependent upon AEFC's computer systems and have
significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to IDS Life of New York and the Variable Account, was
conducted to identify the major systems that could be affected by the Year 2000
issue. Steps were taken to resolve any potential problems including modification
to existing software and the purchase of new software. As of Dec. 31, 1999, AEFC
had completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC
had also completed an evaluation of the Year 2000 readiness of third parties
whose system failures could have an impact on IDS Life of New York's and the
Variable Account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on IDS Life of New York's and the
Variable Account's business, results of operations, or financial condition as a
result of the Year 2000 issue.
- --------------------------------------------------------------------------------
12 IDS LIFE OF NEW YORK ACCOUNT 7
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7
CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following tables give per-unit information about the financial history of
each subaccount.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subaccount NAP (Investing in shares of IDS Life Series Fund -- Equity Portfolio)
Accumulation unit
value at
beginning of
period $4.79 $4.48 $3.77 $3.22 $2.38 $2.37 $2.14 $2.08 $1.28 $1.31
Accumulation unit
value at end of
period $8.52 $4.79 $4.48 $3.77 $3.22 $2.38 $2.37 $2.14 $2.08 $1.28
Number of
accumulation
units outstanding
at end of period
(000 omitted) 216 221 224 260 274 268 325 317 307 362
- -------------------------------------------------------------------------------------------------------------
Subaccount NGO (Investing in shares of IDS Life Series Fund -- Government Securities Portfolio)
Accumulation unit
value at
beginning of
period $1.86 $1.75 $1.64 $1.66 $1.44 $1.54 $1.41 $1.35 $1.19 $1.13
Accumulation unit
value at end of
period $1.79 $1.86 $1.75 $1.64 $1.66 $1.44 $1.54 $1.41 $1.35 $1.19
Number of
accumulation
units outstanding
at end of period
(000 omitted) 4 7 7 13 53 20 20 28 65 50
- -------------------------------------------------------------------------------------------------------------
Subaccount NHI (Investing in shares of IDS Life Series Fund -- Income Portfolio)
Accumulation unit
value at
beginning of
period $1.51 $1.46 $1.38 $1.36 $1.15 $1.23 $1.10 $1.02 $0.90 $1.12
Accumulation unit
value at end of
period $1.49 $1.51 $1.46 $1.38 $1.36 $1.15 $1.23 $1.10 $1.02 $0.90
Number of
accumulation
units outstanding
at end of period
(000 omitted) 80 103 105 124 157 293 326 358 358 148
- -------------------------------------------------------------------------------------------------------------
Subaccount NTR (Investing in shares of IDS Life Series Fund -- Managed Portfolio)
Accumulation unit
value at
beginning of
period $3.25 $2.89 $2.50 $2.24 $1.92 $1.95 $1.67 $1.55 $1.20 $1.21
Accumulation unit
value at end of
period $3.98 $3.25 $2.89 $2.50 $2.24 $1.92 $1.95 $1.67 $1.55 $1.20
Number of
accumulation
units outstanding
at end of period
(000 omitted) 53 53 53 59 58 78 127 144 109 94
- -------------------------------------------------------------------------------------------------------------
Subaccount NMM (Investing in shares of IDS Life Series Fund -- Money Market Portfolio)
Accumulation unit
value at
beginning of
period $1.40 $1.36 $1.32 $1.28 $1.25 $1.23 $1.23 $1.21 $1.18 $1.12
Accumulation unit
value at end of
period $1.44 $1.40 $1.36 $1.32 $1.28 $1.25 $1.23 $1.23 $1.21 $1.18
Number of
accumulation
units outstanding
at end of period
(000 omitted) 71 71 71 71 87 217 165 165 247 219
- -------------------------------------------------------------------------------------------------------------
Subaccount N04 (Investing in shares of 2004 Trust)
Accumulation unit
value at
beginning of
period $2.70 $2.45 $2.25 $2.33 $1.82 $2.06 $1.74 $1.63 $1.38 $1.36
Accumulation unit
value at end of
period $2.54 $2.70 $2.45 $2.25 $2.33 $1.82 $2.06 $1.74 $1.63 $1.38
Number of
accumulation
units outstanding
at end of period
(000 omitted) 12 12 12 18 18 18 36 36 36 12
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
FINANCIAL INFORMATION
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, 1999 and 1998, and the related statements of income, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Life Insurance Company of
New York at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
February 3, 2000
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-1
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, ($ THOUSANDS) 1999 1998
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value:
1999, $432,004; 1998, $503,909) $ 434,343 $ 473,592
Available for sale, at fair value
(amortized cost:
1999, $579,014; 1998, $561,325) 555,574 578,591
- -----------------------------------------------------------------
989,917 1,052,183
Mortgage loans on real estate 154,062 166,835
Policy loans 27,528 25,421
Other investments -- 566
- -----------------------------------------------------------------
Total investments 1,171,507 1,245,005
Cash and cash equivalents 8,131 3,007
Amounts recoverable from reinsurers 6,914 4,077
Accounts receivable 567 842
Premiums due 199 204
Accrued investment income 18,365 19,893
Deferred policy acquisition costs 136,229 129,477
Deferred income taxes 3,881 --
Other assets 723 1,042
Separate account assets 1,957,703 1,491,679
- -----------------------------------------------------------------
Total assets $3,304,219 $2,895,226
- -----------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- -----------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities $ 821,992 $ 875,507
Universal life-type insurance 156,420 152,195
Traditional life, disability income and
long-term care insurance 64,278 55,910
Policy claims and other policyholders'
funds 2,584 3,105
Deferred income taxes -- 7,912
Amounts due to brokers -- 4,507
Other liabilities 21,432 24,945
Separate account liabilities 1,957,703 1,491,679
- -----------------------------------------------------------------
Total liabilities 3,024,409 2,615,760
- -----------------------------------------------------------------
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
Accumulated other comprehensive (loss)
income:
Net unrealized securities (losses) gains (14,966) 11,014
- -----------------------------------------------------------------
Retained earnings 243,776 217,452
- -----------------------------------------------------------------
Total stockholder's equity 279,810 279,466
- -----------------------------------------------------------------
Total liabilities and stockholder's
equity $3,304,219 $2,895,226
=================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-2 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
REVENUES:
- --------------------------------------------------------------------------------------------
Traditional life, disability income and long-term care
insurance premiums $ 15,613 $ 13,852 $ 12,376
Policyholder and contractholder charges 22,502 20,467 18,319
Mortality and expense risk fees 17,019 13,980 11,312
Net investment income 95,514 100,871 106,274
Net realized gains on investments 1,386 2,163 547
- --------------------------------------------------------------------------------------------
Total revenues 152,034 151,333 148,828
- --------------------------------------------------------------------------------------------
BENEFITS AND EXPENSE:
- --------------------------------------------------------------------------------------------
Death and other benefits:
Traditional life, disability income and long-term care
insurance 5,579 5,553 3,633
Universal life-type insurance and investment contracts 6,313 4,320 3,852
Increase in liabilities for future policy benefits for for
traditional life, disability income and long-term care
insurance 6,098 3,662 3,979
Interest credited on universal life-type insurance and
investment contracts 50,767 55,073 62,294
Amortization of deferred policy acquisition costs 15,787 18,362 17,201
Other insurance and operating expenses 9,925 8,917 10,220
- --------------------------------------------------------------------------------------------
Total benefits and expenses 94,469 95,887 101,179
- --------------------------------------------------------------------------------------------
Income before income taxes 57,565 55,446 47,649
Income taxes 19,241 19,098 16,471
- --------------------------------------------------------------------------------------------
Net income $ 38,324 $ 36,348 $ 31,178
============================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-3
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TOTAL ADDITIONAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL PAID-IN (LOSS) INCOME, RETAINED
THREE YEARS ENDED DECEMBER 31, 1999 ($ THOUSANDS) EQUITY STOCK CAPITAL NET OF TAX EARNINGS
<S> <C> <C> <C> <C> <C>
COMPREHENSIVE INCOME:
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 229,863 $ 2,000 $ 49,000 $ 6,937 $171,926
Net income 31,178 -- -- -- 31,178
Unrealized holding gains arising during the year,
net of deferred policy acquisition costs of ($1)
and taxes of ($3,412) 6,337 -- -- 6,337 --
Reclassification adjustment for gains included in
net income, net of tax of $54 (99) -- -- (99) --
Other comprehensive income 6,238 -- -- 6,238 --
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income 37,416 -- --
Cash dividends to parent (10,000) -- -- -- (10,000)
- ---------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME:
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 257,279 2,000 49,000 13,175 193,104
Net income 36,348 -- -- -- 36,348
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of $22
and taxes of $1,415 (2,628) -- -- (2,628) --
Reclassification adjustment for losses included in
net income, net of tax of ($252) 467 -- -- 467 --
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (2,161) -- -- (2,161) --
Comprehensive income 34,187 -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (12,000) -- -- -- (12,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 279,466 2,000 49,000 11,014 217,452
COMPREHENSIVE INCOME:
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 279,466 2,000 49,000 11,014 217,452
Net income 38,324 -- -- -- 38,324
Unrealized holding losses arising during the year,
net of deferred policy acquisition costs of $737
and of taxes of $13,537 (25,140) -- -- (25,140) --
Reclassification adjustment for gains included in
net income, net of tax of $452 (840) -- -- (840) --
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (25,980) -- -- (25,980) --
Comprehensive income 12,344 -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends to parent (12,000) -- -- -- (12,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 279,810 $ 2,000 $ 49,000 $(14,966) $243,776
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-4 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, ($ THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------------------------
Net income $ 38,324 $ 36,348 $ 31,178
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy loans, excluding universal life-type insurance:
Issuance (3,063) (3,110) (3,073)
Repayment 2,826 2,660 1,897
Change in accrued investment income 1,528 312 863
Change in amounts recoverable from reinsurer (2,837) (1,760) (1,345)
Change in premiums due 5 (12) (50)
Change in accounts receivable 275 (119) 218
Change in other assets 319 (47) (95)
Change in deferred policy acquisition costs, net (6,015) (2,841) (7,431)
Change in liabilities for future policy benefits for
traditional life, disability income and long-term care
insurance 8,368 5,441 5,131
Change in policy claims and other policyholders' funds (522) (908) 858
Deferred income tax provision (benefit) 2,196 (2,369) (960)
Change in other liabilities (3,513) (3,986) 3,468
Accretion of discount, net (1,794) (342) (352)
Net realized gain on investments (1,386) (2,163) (547)
Policyholder and contractholder charges, non-cash (9,875) (9,661) (8,772)
Other, net 1,859 118 715
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 26,695 $ 17,561 $ 21,703
CASH FLOWS FROM INVESTING ACTIVITIES:
- -----------------------------------------------------------------------------------------------
Fixed maturities held to maturity:
Maturities, sinking fund payments and calls $ 37,852 $ 46,629 $ 36,511
Sales 790 16,173 12,616
Fixed maturities available for sale:
Purchases (155,690) (86,072) (101,818)
Maturities, sinking fund payments and calls 50,515 96,578 84,229
Sales 89,683 13,180 27,055
Other investments, excluding policy loans:
Purchases (3,598) (9,121) (33,243)
Sales 16,671 21,113 14,233
Change in amounts due from brokers -- -- 995
Change in amounts due to brokers (4,507) (24,547) 26,047
- -----------------------------------------------------------------------------------------------
Net cash provided by investing activities 31,716 73,933 66,625
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------------------------
Activity related to universal life-type insurance and
investment contracts:
Considerations received 68,978 76,009 112,732
Surrenders and death benefits (159,161) (205,946) (251,259)
Interest credited to account balances 50,767 55,073 62,294
Universal life-type insurance policy loans:
Issuance (5,057) (5,222) (4,848)
Repayment 3,186 3,599 2,753
Cash dividend to parent (12,000) (12,000) (10,000)
- -----------------------------------------------------------------------------------------------
Net cash used in financing activities (53,287) (88,487) (88,328)
- -----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,124 3,007 --
Cash and cash equivalents at beginning of year 3,007 -- --
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,131 $ 3,007 $ --
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-5
<PAGE>
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 (AEFC), which is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States which vary in
certain respects from reporting practices prescribed or permitted by the New
York Department of Insurance as reconciled in Note 11.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized gains and
losses on securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
policy acquisition costs and deferred income taxes.
Realized investment gains or losses are determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.
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 an allowance for
mortgage loan losses. The allowance for mortgage loan losses is maintained at a
level that management believes is adequate to absorb estimated losses in the
portfolio. The level of the allowance account is determined based on several
factors, including historical experience, expected future principal and interest
payments, estimated collateral
- --------------------------------------------------------------------------------
F-6 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
values, and current economic and political conditions. Management regularly
evaluates the adequacy of the allowance for mortgage loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
The cost of interest rate caps is amortized to investment income over the life
of the contracts and payments received as a result of these agreements are
recorded as investment income when realized.
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 for the years ended
December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $20,670 $22,470 $17,811
Interest on borrowings 124 1,600 1,026
</TABLE>
RECOGNITION OF PROFITS ON ANNUITY CONTRACTS AND INSURANCE POLICIES
Profits on fixed deferred annuities are recognized by the Company over the lives
of the contracts, using primarily the interest method. Profits represent the
excess of investment income earned from investment of contract considerations
over interest credited to contract owners and other expenses.
The retrospective deposit method is used in accounting for universal life-type
insurance. 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, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Mortality and expense fees are received from the
variable annuity and variable life insurance separate accounts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-7
<PAGE>
and installment annuities are amortized primarily using the interest method. The
costs for universal life-type insurance and certain installment annuities are
amortized as a percentage of the estimated gross profits expected to be realized
on the policies. For traditional life, disability income and long-term care
insurance policies, the costs are amortized over an appropriate period in
proportion to premium revenue.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency rates,
maintenance expense levels and, for variable products, separate account
performance. For universal life-type insurance and deferred annuities, actual
experience is reflected in the Company's amortization models monthly. As actual
experience differs from the current assumptions, management considers the need
to change key assumptions underlying the amortization models prospectively. The
impact of changing prospective assumptions is reflected in the period that such
changes are made and is generally referred to as an unlocking adjustment. Net
unlocking adjustments in 1999, 1998 and 1997 were not significant.
LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal-life type insurance and fixed and variable deferred
annuities are accumulation values.
Liabilities for equity indexed deferred annuities are determined as the present
value of guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.
Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 4 to 10
years.
Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 5% to 8%.
REINSURANCE
The maximum amount of life insurance risk retained by the Company is $750 on any
policy insuring a single life and $1,500 on any policy insuring a joint-life
combination. Risk not retained is reinsured with other life insurance companies,
primarily on a yearly renewable term basis. Long-term care policies are
primarily reinsured on a coinsurance basis. The Company retains all disability
income and waiver of premium risk. Beginning in 2000, the Company will retain
all accidental death benefit risk.
FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
- --------------------------------------------------------------------------------
F-8 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $366, and
$3,647, 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 receives mortality and expense risk fees from the variable
annuity separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
ACCOUNTING CHANGES
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use" became effective January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption to develop
or obtain software for internal use. Software utilized by the Company is owned
by AEFC and capitalized by AEFC. As a result, the new rule did not have a
material impact on the Company's results of operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," providing
guidance for the timing of recognition of liabilities related to guaranty fund
assessments. The Company had historically carried a balance in other liabilities
on the balance sheet for potential guaranty fund assessment exposure. Adoption
of the SOP did not have a material impact on the Company's results of operations
or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
ultimate financial effect of the new rule will be measured based on the
derivatives in place at adoption and cannot be estimated at this time.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the New York Insurance
Department. Currently, "prescribed" statutory practices are interspersed
throughout state insurance laws and regulations, the NAIC ACCOUNTING PRACTICES
AND PROCEDURES MANUAL and a variety of other NAIC publications. "Permitted"
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-9
<PAGE>
statutory accounting practices encompass all accounting practices that are not
prescribed: such practices may differ from state to state, may differ from
company to company within a state, and may change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the State of New York must adopt Codification
as the prescribed basis of accounting on which domestic insurers must report
their statutory-basis results to the Insurance Department. New York has not yet
made a decision regarding whether or not it will accept Codification. While
management has not yet determined the impact of Codification to the Company's
statutory-basis financial statements, it does not believe the impact will be
material.
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform to the 1999
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.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 2,490 $ 20 $ 150 $ 2,360
Corporate bonds and
obligations 384,241 6,066 7,058 383,249
Mortgage-backed securities 47,612 103 1,320 46,395
- ----------------------------------------------------------------------------------------
$434,343 $ 6,189 $ 8,528 $432,004
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal
obligations $ 104 $ 6 $ -- $ 110
Corporate bonds and
obligations 374,846 2,324 20,325 356,845
Mortgage-backed securities 204,064 580 6,025 198,619
- ----------------------------------------------------------------------------
$579,014 $ 2,910 $26,350 $555,574
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
F-10 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 2,871 $ 159 $ -- $ 3,030
Corporate bonds and
obligations 417,648 29,795 474 446,969
Mortgage-backed securities 53,073 844 7 53,910
- ----------------------------------------------------------------------------
$473,592 $30,798 $ 481 $503,909
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal
obligations $ 105 $ 9 $ -- $ 114
Corporate bonds and
obligations 336,985 15,939 6,296 346,628
Mortgage-backed securities 224,235 7,614 -- 231,849
- ----------------------------------------------------------------------------
$561,325 $23,562 $ 6,296 $578,591
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of investments in fixed maturities at December
31, 1999 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 14,966 $ 15,118
Due from one to five years 213,933 214,972
Due from five to ten years 111,707 111,314
Due in more than ten years 46,125 44,205
Mortgage-backed securities 47,612 46,395
- --------------------------------------------------------------------
$434,343 $432,004
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 14,422 $ 14,657
Due from one to five years 37,204 37,477
Due from five to ten years 214,169 203,150
Due in more than ten years 109,155 101,671
Mortgage-backed securities 204,064 198,619
- --------------------------------------------------------------------
$579,014 $555,574
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $790, $16,175
and $12,737, 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.
Fixed maturities available for sale were sold during 1999 with proceeds of
$89,683 and gross realized gains and losses of $1,917 and $625, respectively.
Fixed maturities available for sale were sold during 1998 with proceeds of
$13,180 and gross realized gains and
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-11
<PAGE>
losses of $1,159 and $440, respectively. Fixed maturities available for sale
were sold during 1997 with proceeds of $27,055 and gross realized gains and
losses of $461 and $309, respectively.
At December 31, 1999, bonds carried at $254 were on deposit with the state of
New York as required by law.
At December 31, 1999, investments in fixed maturities comprised 85 percent of
the Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $147
million which are rated by AEFC internal analysts using criteria similar to
Moody's and S&P. A summary of investments in fixed maturities, at amortized
cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Aaa/AAA $ 250,577 $ 280,669
Aa/AA 12,992 15,815
Aa/A 25,489 16,327
A/A 150,187 151,838
A/BBB 68,417 68,640
Baa/BBB 354,331 366,776
Baa/BB 23,562 39,666
Below investment grade 127,802 95,186
- ----------------------------------------------------------------
$1,013,357 $1,034,917
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
At December 31, 1999, 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 one percent of the Company's total investments in fixed maturities.
At December 31, 1999, approximately 13 percent of the Company's investments were
mortgage loans on real estate. Summaries of mortgage loans by region of the
United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
REGION SHEET TO PURCHASE SHEET TO PURCHASE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
West North Central $ 22,686 $ -- $ 24,725 $ --
East North Central 25,195 -- 29,134 59
South Atlantic 31,748 -- 34,175 598
Middle Atlantic 17,672 -- 18,350 --
Pacific 6,751 -- 9,706 --
Mountain 35,608 -- 36,636 --
New England 8,209 -- 7,851 --
East South Central 7,394 -- 7,521 --
West South Central 0 -- 237 --
- --------------------------------------------------------------------------------
155,262 -- 168,335 657
Less allowance for losses 1,200 -- 1,500 --
- --------------------------------------------------------------------------------
$154,062 $ -- $166,835 $657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
F-12 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
PROPERTY TYPE SHEET TO PURCHASE SHEET TO PURCHASE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments $ 54,118 $ -- $ 59,019 $ --
Department/retail stores 49,810 -- 54,018 624
Office buildings 22,090 -- 23,902 --
Industrial buildings 16,938 -- 18,590 33
Nursing/retirement 5,058 -- 5,153 --
Medical buildings 7,248 -- 7,416 --
Hotels/motels -- -- 237 --
- --------------------------------------------------------------------------------
155,262 -- 168,335 657
Less allowance for losses 1,200 -- 1,500 --
- --------------------------------------------------------------------------------
$154,062 $ -- $166,835 $657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
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 it
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 December 31, 1999 and 1998, the Company's recorded investment in impaired
loans was $nil and $1,268, with allowances of $nil and $300, respectively.
During 1999 and 1998, the average recorded investment in impaired loans was $nil
and $1,282, respectively.
The Company recognized $2, $123 and $126 of interest income related to impaired
loans for the years ended December 31, 1999, 1998 and 1997, respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $1,500 $1,500 $1,300
Provision (reduction) for
investment losses (300) -- 200
- -----------------------------------------------------------
Balance, December 31 $1,200 $1,500 $1,500
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
Net investment income for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $78,342 $ 85,164 $ 92,007
Interest on mortgage loans 12,895 14,599 14,228
Other investment income 4,764 3,365 1,715
Interest on cash equivalents 350 64 91
- ----------------------------------------------------------------
96,351 103,192 108,041
Less investment expenses 837 2,321 1,767
- ----------------------------------------------------------------
$95,514 $100,871 $106,274
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-13
<PAGE>
Net realized gains (losses) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $1,086 $2,018 $ 844
Mortgage loans 300 -- (200)
Other investments -- 145 (97)
- -----------------------------------------------------------
$1,386 $2,163 $ 547
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $(40,706) $(3,347) $9,599
</TABLE>
3. INCOME TAXES
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ending December 31 consists of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $16,426 $20,192 $16,371
Deferred 2,196 (2,369) (960)
- --------------------------------------------------------------
18,622 17,823 15,411
State income taxes-current 619 1,275 1,060
- --------------------------------------------------------------
Income tax expense $19,241 $19,098 $16,471
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
Increases (decreases) to the income tax provision applicable to pretax income
based on the statutory rate are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
PROVISION RATE PROVISION RATE PROVISION RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
based on the statutory
rate $20,148 35.0% $19,406 35.0% $16,677 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest and
dividend income (509) (0.9) (660) (1.2) (569) (1.2)
State tax, net of federal
benefit 402 0.7 829 1.5 689 1.4
Other, net (800) (1.4) (477) (0.9) (326) (0.6)
- -------------------------------------------------------------------------------
Total income taxes $19,241 33.4% $19,098 34.4% $16,471 34.6%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
A portion of life insurance company income earned prior to 1984 was not subject
to current taxation but was accumulated, for tax purposes, in a "policyholders'
surplus account." At December 31, 1999, 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.
- --------------------------------------------------------------------------------
F-14 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Policy reserves $28,245 $29,318
Investments 6,980 --
Other 6,690 6,502
- ----------------------------------------------------------
Total deferred income tax assets 41,915 35,820
- ----------------------------------------------------------
- ----------------------------------------------------------
Deferred income tax liabilities:
Deferred policy acquisition costs 38,033 36,673
Investments -- 7,059
- ----------------------------------------------------------
Total deferred income tax liabilities 38,033 43,732
- ----------------------------------------------------------
Net deferred income tax assets
(liabilities) $ 3,882 ($7,912)
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred income tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets and, therefore, no such valuation
allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by the New York Department of Insurance. All dividend
distributions must be approved by the New York Department of Insurance.
Statutory unassigned surplus aggregated $155,952 and $132,702 as of
December 31, 1999 and 1998, respectively (see Note 3 with respect to the income
tax effect of certain distributions and Note 11 for a reconciliation of net
income and stockholder's equity per the accompanying financial statements to
statutory net income and surplus).
BENEFIT PLANS
The Company participates in the American Express Company Retirement Plan which
covers all permanent employees age 21 and over who have met certain employment
requirements. Employer contributions to the plan are based on participants' age,
years of service and total compensation for the year. Funding of retirement
costs for this plan complies with the applicable minimum funding requirements
specified by ERISA. The Company's share of the total net periodic pension cost
was $27, $37 and $39 in 1999, 1998 and 1997, respectively.
The Company has a "Sales Benefit Plan" which is an unfunded, noncontributory
retirement plan for all eligible financial advisors. Total plan costs for 1999,
1998 and 1997, which are calculated on the basis of commission earnings of the
individual financial advisors, were $1,446, $1,480 and $1,965, 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 1999, 1998 and 1997 were $218, $252 and $312,
respectively.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-15
<PAGE>
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and
service-related eligibility requirements. Upon retirement, such employees are
considered to have been employees of AEFC. Costs of these plans charged to
operations in 1999, 1998 and 1997 were $nil.
6. INCENTIVE PLAN AND RELATED PARTY 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 1999, 1998 and
1997 were $96, $140 and $1,490, respectively. Such costs are included in
deferred policy acquisition costs.
Charges by IDS Life and AEFC for the use of joint facilities, marketing services
and other services aggregated $13,042, $9,403 and $11,589 for 1999, 1998 and
1997, respectively. Certain of these costs are included in deferred policy
acquisition costs.
7. COMMITMENTS AND CONTINGENCIES
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one of
these lawsuits. It is expected the settlement will provide $215 million of
benefits to more than 2 million participants. The agreement in principle to
settle also provides for release by class members of all insurance and annuity
market conduct claims dating back to 1985 and is subject to a number of
contingencies including a definitive agreement and court approval. The portion
of the settlement allocated to the Company did not have a material impact on the
Company's financial position or results from operations.
At December 31, 1999 and 1998, traditional life insurance and universal
life-type insurance in force aggregated $5,448,451 and $4,941,727 respectively,
of which $272,276 and $248,280 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 $150, $134 and $115
for the years ended December 31, 1999, 1998 and 1997, respectively. Claim
recoveries under the terms of this reinsurance agreement were $nil, $nil and
$963 in 1999, 1998 and 1997, respectively.
Premiums ceded to reinsurers other than IDS Life amounted to $2,873, $2,178 and
$1,583 for the years ended December 31, 1999, 1998 and 1997, respectively. Claim
recoveries from reinsurers other than IDS Life amounted to $473, $228 and $1,366
for the years ended December 31, 1999, 1998 and 1997, respectively.
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
$237,038 and $267,806 at December 31, 1999 and 1998, respectively. The
accompanying statement of income includes premiums of $nil for the years ended
December 31, 1999, 1998 and 1997, and decreases in liabilities for future policy
benefits of $1,277, $1,742 and $1,889 related to this agreement for the years
ended December 31, 1999, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
F-16 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
8. LINES OF CREDIT
The Company has an available line of credit with AEFC aggregating $25,000. The
interest rate for any borrowing is established by reference to various indicies
plus 20 to 45 basis points depending on the term. There were no borrowings
outstanding under this agreement at December 31, 1999 or 1998.
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 are largely used
to manage risk and, therefore, the cash flow and income effects of the
derivatives are inverse to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty and industry, and requiring collateral,
where appropriate. The Company's counterpart is rated A or better by Moody's and
Standard & Poor's.
Credit risk 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:
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR TOTAL CREDIT
DECEMBER 31, 1999 AMOUNT AMOUNT VALUE EXPOSURE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $200,000 $ -- $ -- $ --
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $200,000 $566 $ 2 $ 2
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps expire in the year 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.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-17
<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 of the field force, are also excluded.
Management believes the value of excluded assets and liabilities is significant.
The fair value of the Company, therefore, cannot be estimated by aggregating the
amounts presented.
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $ 434,343 $ 432,004 $ 473,592 $ 503,909
Available for sale 555,574 555,574 578,591 578,591
Mortgage loans on real
estate (Note 2) 154,062 152,942 166,835 178,559
Other:
Derivative financial
instruments (Note 9) -- -- 566 2
Separate accounts assets
(Note 1) 1,957,703 1,957,703 1,491,679 1,491,679
</TABLE>
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
FINANCIAL LIABILITIES AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Future policy benefits for
fixed annuities $ 732,752 $ 715,213 $ 788,780 $ 765,430
Separate account liabilities 1,722,028 1,668,067 1,355,430 1,302,422
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $83,646 and $81,358, respectively, and policy loans of $5,594 and
$5,369, respectively. The fair value of these benefits is based on the status of
the annuities at December 31, 1999 and 1998. The fair value of deferred
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 1999 and 1998.
At December 31, 1999 and 1998, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less applicable surrender charges
and less variable insurance contracts carried at $235,675 and $136,249,
respectively.
- --------------------------------------------------------------------------------
F-18 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
11. STATUTORY INSURANCE ACCOUNTING PRACTICES
Reconciliations of net income for the years ended December 31 and stockholder's
equity at December 31, as shown in the accompanying financial statements, to
that determined using statutory accounting practices are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net income, per accompanying
financial statements $ 38,324 $ 36,348 $ 31,178
Deferred policy acquisition costs (6,015) (2,841) (7,432)
Adjustments of future policy
benefit liabilities (4,615) (6,199) (4,928)
Deferred income tax benefit 2,196 (2,369) (960)
Provision for losses on investments (161) 862 296
IMR gain/loss transfer and
amortization (154) (1,451) (119)
Adjustment to separate account
reserves 5,498 2,767 10,267
Other, net 766 (350) 430
- -----------------------------------------------------------------
Net income, on basis of statutory
accounting practices $ 35,839 $ 26,767 $ 28,732
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Stockholder's equity, per
accompanying financial statements $279,810 $279,466 $257,279
Deferred policy acquisition costs (136,229) (129,477) (126,614)
Adjustments of future policy
benefit liabilities 2,845 4,697 9,452
Deferred income taxes (3,881) 7,912 11,445
Asset valuation reserve (16,164) (15,516) (16,698)
Adjustments of separate account
liabilities 61,721 56,223 53,456
Adjustments of investments to
amortized cost 23,440 (17,266) (20,613)
Premiums due, deferred and advance 1,485 1,381 1,237
Deferred revenue liability 3,021 2,482 1,941
Allowance for losses 1,200 1,500 1,645
Non-admitted assets (421) (450) (552)
Interest maintenance reserve (3,155) (3,001) (1,551)
Other, net (5,416) (2,915) (1,463)
- -----------------------------------------------------------------
Stockholder's equity, on basis of
statutory accounting practices $208,256 $185,036 $168,963
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
12. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
major systems used by the Company are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. The Company's businesses are
heavily dependent upon AEFC's computer systems and have significant interaction
with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps were taken to
resolve potential problems including modification to existing software and the
purchase of new software. As of December 31, 1999, AEFC had completed its
program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. As of December 31, 1999, AEFC had also
completed an evaluation of the Year 2000 readiness of other third parties whose
system failures could have an impact on the Company's operations.
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY OF NEW YORK F-19
<PAGE>
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. At December 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on the Company's business, results
of operations, or financial condition as a result of the Year 2000 issue.
- --------------------------------------------------------------------------------
F-20 IDS LIFE INSURANCE COMPANY OF NEW YORK
<PAGE>
SALOMON SMITH BARNEY LIFEVEST--SM--
certain investments are sponsored by:
Salomon Smith Barney and subsidiaries
SALOMON SMITH BARNEY LIFEVEST--SM--
is underwritten, issued, managed and serviced by:
IDS Life Insurance Company of New York
- ------------------------------------------------------------------
S-6222 N (5/00)
