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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
COMMISSION FILE NUMBER 33-13375
OF
IDS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0823832
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IDS TOWER 10, MINNEAPOLIS, MINNESOTA 55440-0010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 671-3309
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this form 10-K or any
amendment to this form 10-K: Not applicable
Aggregate market value of the voting stock held by non-affiliates:
Not applicable
Documents incorporated by reference: Certain pages of the Prospectus of
Registrant included in Form S-1 (as amended), file number 33-13375 to be filed
April 3, 1997, are incorporated by reference in Parts I and II of this Annual
Report on Form 10-K.
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PART I
Item 1. BUSINESS
General
IDS Life Account RE (the Account) was established by a resolution of the Board
of Directors of IDS Life Insurance Company (IDS Life) as a separate asset
account, pursuant to Minnesota law. The Account was formed to make real estate
related investments in connection with the sale of individual deferred variable
annuity contracts (Contracts) offered by IDS Life. The Account commenced
operations on August 7, 1987 when the annuity contracts were first offered for
sale to the public. Effective May 1, 1995, the Account discontinued new contract
sales. The Account holds assets that are segregated from all of IDS Life's other
assets and are not chargeable with liabilities arising out of any other business
of IDS Life.
The Account is not registered as an investment management company under the
Investment Company Act of 1940. The Account is under the control and management
of the Board of Directors of IDS Life and its officers. The owners of the
Contracts have no voting rights with respect to the Account.
IDS Life does not guarantee the investment performance of the Account and is not
responsible for the liabilities of the Account. However, IDS Life is responsible
for the fulfillment of the terms of each Contract, including payment of death
benefits and the guarantees of the minimum annuity purchase rates contained in
the Contracts.
Investment Objective
The investment objectives of the Account previously were to provide for payment
of retirement income under the Contracts by seeking to: (i) preserve and protect
the Account's assets in real (i.e., inflation-adjusted) terms; (ii) provide for
compounding of income through reinvestment of cash flow from investments; and
(iii) provide for increases in income through capital appreciation of real
property investments and, to the extent available, through participation in the
capital appreciation, gross revenues or income of the real properties subject to
mortgage loans or land sale- leasebacks. There is no guarantee that the
investment objectives of the Account will be attained. The assets of the Account
have been invested primarily in real estate related investments in accordance
with the diversification requirements regarding variable annuities contained in
Section 817(h) of the Internal Revenue Code (the "Code").
The Account previously sought to have approximately 50 to 70 percent of the
Account's assets invested in income-producing real property investments such as
office buildings, shopping centers, apartment complexes and other real
properties, with approximately 15 to 40 percent of the Account's assets invested
in mortgage loans and land sale-leaseback investments, which could include
participation in
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the appreciation or the gross revenues or income of the real properties that are
subject to the mortgage loans or land sale-leaseback investments. The remaining
portion of the Account's assets generally were to be invested in short-term debt
instruments and intermediate term bonds with maturities of up to five years.
Since the Account has experienced substantial net contract terminations over the
past several years the Account does not intend to acquire additional real estate
related investments. Further, the Account intends to liquidate the real estate
related investments that it currently holds when it becomes advantageous or
necessary to do so. During 1996, the Account liquidated two real estate related
investments.
IDS Life has purchased and expects to continue to purchase accumulation units in
order to maintain the Account's liquidity. IDS Life makes these payments so that
no contract holder is disadvantaged because sales of new contracts have been
discontinued. These payments for accumulation units have been made to enable the
Account to pay off amounts borrowed under its line of credit with IDS Life and
as needed in order to fund all of the Account's obligations under the contracts
such as paying surrenders. By purchasing accumulation units, IDS Life has an
ownership interest in the Account and participates in the increase or decrease
in value of the Account's investments just as other owners of accumulation units
do. IDS Life may realize a gain or loss on its accumulation units when redeemed.
IDS Life currently expects to hold the accumulation units it purchases until the
surrender of all outstanding contracts or until the Account's liquidity improves
(through, for example, one or more sales of real estate related investments)
thereby permitting the Account to satisfy its anticipated contract obligations.
Because IDS Life may purchase a significant amount of accumulation units, IDS
Life may be subject to certain conflicts of interest it would not otherwise have
if it had not purchased such accumulation units, including, among other things,
a conflict in approving periodic valuations of real estate related investments
made by the Investment Adviser, JMB Annuity Advisers.
Competition
As of December 31, 1996, IDS Life was aware of 3 other real estate variable
annuity products that have been registered with the Securities and Exchange
Commission and that are being offered for sale by competitors. These products
differed from the Account in various features although their structure and
investment objectives were similar to the Account's prior to its termination of
new contract sales. In addition, the Account competed against other real estate
investment funds and registered investment companies including limited
partnerships, real estate investment trusts, unit investment trusts, pension and
profit sharing trusts, corporations, etc., all of which may or may not be
offered for sale by commercial and investment banks, realty corporations,
insurance companies, savings and loan associations, diversified financial
service companies, and other financial service intermediaries.
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The Account had been in competition for real property investments, mortgage
loans and land sale-leasebacks with numerous other entities, as well as with
individuals, corporations, real estate investment trusts, real estate
partnerships and other entities engaged in real estate investment activities,
including certain affiliates of the JMB Annuity Advisers (the Investment
Adviser) and IDS Life. The real properties that are the subject of the Account's
real estate related investments are in competition with other real properties
(including those in which the Investment Adviser, IDS Life or their affiliates
may have an interest) in the areas in which they are located, particularly with
respect to obtaining new tenants and the retention of existing tenants. Such
competition is based upon, among other things, effective rents charged, services
to tenants and the facilities available.
Employees
IDS Life Account RE does not directly employ any persons. The business of the
Account is under the control and management of IDS Life's Board of Directors,
its principal officers, and its investment committee to the Account. The
Investment Adviser, an affiliate of JMB Realty Corporation, provides investment
selection, management, disposition, and consulting services with respect to the
real estate related investments of the Account pursuant to an investment
advisory agreement.
Item 2. PROPERTIES
Description of the Account's real estate related investments is hereby
incorporated herein by reference to pages 21 to 41 of the Registrant's
prospectus included in Form S-1 (as amended), File number 33-13375 to be filed
April 3, 1997, which pages are filed herewith as Exhibit 99.2 to this report.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Account is a party or to
which the assets of the Account are subject. IDS Life is engaged in various
kinds of routine litigation that, in IDS Life's judgement, are not of material
importance in relation to its total assets. None of such litigation relates to
the Account.
Item 4. SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDERS MATTERS
The Contracts were offered for sale through the registered representatives of
IDS Life. There is no established public trading market for the Contracts. In
addition, the Contracts were not bid for, but were sold at the Account's current
accumulation unit value. A contract owner may elect to surrender all or part of
the Contract while the Contract is in force prior to the earlier of the
retirement date or the death of the first to die of the annuitant or owner. A
description of surrenders, withdrawals and transfers is hereby incorporated
herein by reference to pages 58 to 60 under the heading "Contract Surrender" and
63 to 65 under the headings "Suspension and Delay of Payments" and "Transfer of
Ownership" in the Registrant's prospectus included in Form S-1 (as amended),
File Number 33-13375, to be filed April 3, 1997, which pages are filed herewith
as Exhibit 99.1 to this report. For the year ended December 31, 1996, the high
and low accumulation unit values were $1.01 and $.98 per unit, respectively. The
number of contract owners at December 31, 1996 was 824.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Contract Purchase Payments
<S> <C> <C> <C> <C> <C>
(Terminations), Net $(2,207,498) $ 2,291,255 $(5,184,527) $(6,873,380) $(6,257,432)
Net Income (Loss) $ (153,491) $(2,378,521) $ (946,390) $ 1,816,417 $(5,761,830)
Total Contract Owners'
Equity (A) $33,545,476 $35,906,465 $35,993,731 $42,124,648 $47,181,611
Accumulation Units
Outstanding (A) 34,144,955 36,353,929 34,238,180 39,000,431 45,475,432
Accumulation Unit
Value $ .98 $ .99 $ 1.05 $ 1.08 $ 1.04
(A) As of December 31, 1996, IDS Life's portion of the Total Contract Owners'
Equity was $24,492,773 (73%) and IDS Life owned 24,969,872 (73%) of the
total Accumulation Units Outstanding.
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Results of Operations
For the Year Ended December 31, 1996 Compared to the Year Ended
December 31, 1995 -
Net assets decreased from $35,906,465 at December 31, 1995 to $33,545,476 at
December 31, 1996. During this same time period, the accumulation unit value
decreased from $.99 to $.98. The Account experienced net terminations amounting
to $2,207,498 for the year ended December 31, 1996 compared to net sales of
$2,291,255 for the year ended December 31, 1995. The net terminations for the
year ended December 31, 1996 and the net sales for the year ended December 31,
1995, included approximately $2,000,000 and $24,700,000, respectively, for
accumulation units purchased by IDS Life, which have been used to repay
principal and accrued interest on the Account's revolving loan payable to IDS
Life and to pay for contract surrenders, as discussed more fully below.
Recorded net loss for the year ended December 31, 1996 was $153,491 compared to
$2,378,521 for the year ended December 31, 1995.
Interest income for the year ended December 31, 1996 primarily represents
interest income earned on the Account's investment in the participation in a
mortgage loan (Riverpoint Shopping Center). Interest income also includes
interest earned on short term investments. The borrower had notified the Lenders
that it was experiencing financial difficulties and approached the Lenders
regarding a loan modification. During the third quarter of 1996, the Lenders and
Borrowers finalized a loan modification whereby they reached an agreement to
defer payment of a portion of the scheduled debt service from September 15, 1995
to July 15, 1996. In conjunction with the loan modification agreement, the
scheduled maturity date of the loan was accelerated to December 31, 1997.
Finally, the Lenders agreed to accept at certain dates through June 30, 1997
repayment of the loan at specified amounts. On December 24, 1996, the borrower
repaid the lenders $27,400,000 (of which the Account's share was approximately
$2,800,000) in full satisfaction of the loan as agreed upon.
For the year ended December 31, 1996, the Account's recorded equity in earnings
of its unconsolidated joint ventures (N/S Associates, Monmouth Associates and
1225 Connecticut) was $2,167,460, compared to $1,924,741 for the year ended
December 31, 1995. However, after eliminating the effect of the recognition in
the first quarter of 1995 of income attributable to certain lease termination
fees received by N/S Associates, the equity in earnings of unconsolidated joint
ventures showed an increase for 1996 of approximately 12.9 percent compared to
the recorded equity in earnings for 1995. The increase is due primarily to (i)
an increase in interest earned which is now currently being paid from Monmouth
Associates, (ii) an increase in rental income at 1225 Connecticut due to the
property being 100 percent leased, and (iii) lower interest expense from N/S
Associates in 1996 as a result of prepayment charges incurred in the first
quarter of 1995 in connection with the repayment and refinancing of the mortgage
loans on Northridge and Southridge Malls. The increase in earnings was partially
offset by lower rental income achieved at Southridge and
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Northridge Malls due to lower occupancy.
Northridge Mall continues to be adversely affected by the perception that it is
an unsafe place to shop. This perception has resulted in declining sales and
occupancy over a three-year period. Compounding the problem of declining sales
are the high operating costs for tenants at the mall due to high real estate
taxes. Occupancy has also been affected by tenant bankruptcies during 1993, 1994
and 1995. As of December 31, 1996, occupancy of the mall shops was approximately
77%, including temporary tenants under short term leases.
To counter the negative perception of Northridge Mall, N/S Associates has
implemented certain capital improvements and operational programs to improve the
shopping center's safety and appearance, as well as instituted certain marketing
efforts to enhance its image. Certain recent positive sales trends appear to
indicate a modest improvement; however, elimination of the negative perception
is expected to take some time. In addition N/S Associates is seeking to increase
occupancy at the shopping center by aggressively marketing space for new and
renewal tenants through leasing incentives, as well as continuing to cooperate
with existing tenants who need short-term rent reductions in order to retain
occupancy of their space. Part of the leasing strategy includes targeting
certain well-recognized retailers as a group that would become tenants at the
shopping center. It is expected that the draw of this group of tenants would
help the shopping center gain leasing momentum and aid in future leasing
efforts.
Kohl's Department Store, a successful tenant occupying approximately 66,000
square feet of space at Southridge Mall, approached N/S Associates regarding an
expansion of its tenant space and a reduction in its overall leasing costs.
During the third quarter of 1995, N/S Associates and Kohl's entered into an
amendment of its lease. Pursuant to the lease amendment, the term of Kohl's
lease has been extended from 2001 until 2015 and the tenant space has been
increased by approximately 19,000 square feet to approximately 85,000 square
feet, exclusive of storage space. Kohl's is required to pay annual base rent of
$9.25 per square foot, as well as one-half of its pro rata share for real estate
taxes and a fixed amount for common area maintenance expense. Kohl's is also
obligated to pay as additional rent a percentage of its gross receipts in excess
of a minimum amount of annual sales determined after the tenant has occupied the
entire leased space. N/S Associates was responsible for paying the costs of
asbestos removal for the tenant space. Kohl's was obligated to pay other costs
associated with the leased space, including tenant improvements and lease
buy-out and relocation costs. The lease amendment also contains an operating
covenant pursuant to which Kohl's is obligated to operate its retail store at
Southridge Mall until 2005, subject to earlier termination under certain
circumstances. Although the lease amendment reduces Kohl's overall rent, the
expansion of its space and the extension of its lease term is expected to help
stabilize the shopping center on a long-term basis by ensuring Kohl's continued
occupancy and contribution to customer. As of December 31, 1996, occupancy of
the portion of Southridge Mall owned by N/S Associates was approximately 94%,
including temporary tenants under short-term leases.
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For the year ended December 31, 1996, the Account recognized net unrealized
depreciation of participation in mortgage loan of $147,608 as a result of lower
effective rents achieved from the mortgage property upon releasing. The Account
recognized net realized depreciation on its investment in wholly-owned real
estate property of $2,146,691 primarily as a result of the sale of the West
Springfield Terrace apartments, as discussed below. In addition, the Account
recognized net unrealized depreciation on its investment in unconsolidated joint
ventures of $1,206,750 primarily a result of (i) a decrease in the current
assets of Monmouth Associates, which partially resulted from a $4,000,000 cash
distribution paid in 1996 in which the Account's share was $278,800; (ii) a
decrease in the estimated value of N/S Associates (Northridge Mall and
Southridge Mall); and (iii) a decrease in the value of 1225 Connecticut. These
decreases were a result of valuations of the properties which indicated the
properties fair market values. In addition, the lower values at Northridge and
Southridge can be attributable to the factors discussed above. Also, the
decrease in value at 1225 Connecticut is partially due to 80% of the building
being leased to one tenant. This increased the property's risk factor.
The Account paid asset management and mortality expense risk fees of $1,011,135
and $1,086,516 for the years ended December 31, 1996 and 1995, respectively.
Distributions from unconsolidated joint ventures increased for 1996 compared to
1995 primarily due to the Account's share of Monmouth Associates' distributions
of $278,800. The increase was partially offset by decreased distributions from
N/S Associates.
On September 30, 1996 the Account sold land and related improvements known as
the West Springfield Terrace Apartments. The purchaser was not affiliated with
the Account and the sale price was determined by arm's-length negotiations. The
sale price for the land and improvements was $16,100,000 (before deducting
selling costs) and was paid in cash at closing. A portion of the net sale
proceeds was utilized to retire the first mortgage debt with an outstanding
balance of $7,704,000.
For the Year Ended December 31, 1995 Compared to the Year Ended December 31,
1994 -
Net assets decreased from $35,993,731 at December 31, 1994 to $35,906,465 at
December 31, 1995. During this same time period, the accumulation unit value
decreased from $1.05 to $.99. The Account experienced net sales amounting to
$2,291,255 for the year ended December 31, 1995 compared to net terminations of
$5,184,527 for the year ended December 31, 1994. The net sales for the year
ended December 31, 1995 include approximately $24,700,000 for accumulation units
purchased by IDS Life, which has been used to repay principal and accrued
interest on the Account's revolving loan payable to IDS Life and to pay for
contract surrenders, as discussed more fully below.
Recorded net loss for the year ended December 31, 1995 was $2,378,521 compared
to $946,390 for the year ended December 31, 1994.
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Interest income for the year ended December 31, 1995 primarily represents income
earned on the Account's investment in the participation in a mortgage loan
(Riverpoint Shopping Center). Income generated from participation in the
mortgage loan remained relatively unchanged compared to the corresponding period
in 1994. Interest income for the year ended December 31, 1994 also included
interest earned on short-term investments of approximately $21,000.
For the year ended December 31, 1995, the Account's recorded equity in earnings
of its unconsolidated joint ventures (N/S Associates, Monmouth Associates and
1225 Connecticut) was $1,924,741, compared to $2,094,682 for the year ended
December 31, 1994. The decrease in earnings was primarily the result of N/S
Associates' reduced earnings as a result of lower rental income achieved at
Northridge Mall due to lower occupancy and higher interest expense attributable
to prepayment charges incurred in the first quarter of 1995 in connection with
the repayment and refinancing of the mortgage loans on Northridge and Southridge
Malls. The decrease was partially offset by the recognition in the first quarter
of 1995 of income attributable to certain lease termination fees received by N/S
Associates in the prior quarter. In addition, during 1995 Monmouth Associates
wrote off the receivable balance of $3,576,000 primarily related to the accrued
interest resulting from the difference between the accrual and pay rates
recorded prior to April 1992, due to the uncertainty as to the collectibility of
these amounts.
In addition, the Account recorded rental income of $2,379,439 for the year ended
December 31, 1995 from its wholly-owned real estate investment, West Springfield
Terrace Apartments, compared to $2,235,867 for the year ended December 31, 1994,
was primarily due to a modest increase in effective rental rates. Expenses
related to the wholly-owned real estate investment totaled $1,756,139 for the
year ended December 31, 1995 compared to $1,792,255 for the corresponding period
in 1994.
For the year ended December 31, 1995, the Account recognized net unrealized
depreciation of participation in mortgage loan of $27,817, and net unrealized
appreciation on its investment in wholly-owned real estate property of $138,764
due to a reduction in estimated capital expenditures to be required in future
years at the property, and net unrealized depreciation on its investment in
unconsolidated joint ventures of approximately $4,000,000. Approximately
$2,199,000, $1,748,000 and $53,000 of unrealized depreciation recognized by the
Account was attributable to the Account's investments in N/S Associates
(Northridge Mall and Southridge Mall), Monmouth Mall and 1225 Connecticut,
respectively. The unrealized depreciation recognized was the result of
reductions in the estimated value of each of the investments. The decrease in
estimated value for the investment in Northridge Mall was attributed to poor
sales, a number of tenant bankruptcies, lower occupancy and the leasing
challenges it faces as discussed below. In addition, the decrease in estimated
value for the investment in Southridge Mall was attributed to recent tenant
bankruptcies and the amendment of Kohl's lease as discussed above. In addition,
the trend of recent bankruptcies and general market conditions for retailers
could have an adverse effect on both revenues and occupancy at both Northridge
and Southridge Malls in the future. The decrease in estimated value for the
investment in Monmouth Mall
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was attributable to lower sales, the slow lease up of renovated mall space, and
the uncertainty of Macy's renewing their operating covenant. While Macy's has an
obligation to operate a retail store at this location through the year 2005,
their obligation to operate the store as a Macy's Department Store expired in
1995. The Macy's store continues to operate at the Monmouth Mall.
For the year ended December 31, 1994, the Account recognized net unrealized
depreciation of investments in unconsolidated joint ventures of approximately
$2,362,000. Approximately $217,000, $751,000 and $1,428,000 of unrealized
depreciation recognized by the Account was attributable to the Account's
investments in the 1225 Connecticut office building, Monmouth Mall and
Northridge Mall, respectively, partially offset by a slight amount of unrealized
appreciation of approximately $34,000 in the Account's investment in Southridge
Mall for the year.
Federated Department Stores converted the Abraham & Straus store at Monmouth
Mall to a Stern's store in early 1995. Monmouth Associates may provide
additional financing to the borrower/lessee to pay future costs necessary for a
long-term solution to replace Abraham & Straus as a department store tenant at
Monmouth Mall. The recognition of unrealized depreciation in 1994 for the
Account's investment in Monmouth Mall primarily reflected the Account's
estimated share of the financing expected to be needed in the future to pay
these costs.
The decrease in the estimated value of the investment in the 1225 Connecticut
office building in 1994 was primarily attributable to a reduction in the assumed
long-term rental rate growth that could be achieved for the property in future
years. The decrease in the estimated value for the investment in the Northridge
Mall in 1994 was primarily attributable to a reduction in anticipated leasing
activity and the expected rents to be achieved for the property. In general, in
1994, it was expected that the vacancy at Northridge Mall would lease up more
slowly and the rents obtained would be lower than previously anticipated.
The Account paid asset management and mortality expense risk fees of $1,086,516
and $1,268,164 for the years ended December 31, 1995 and 1994, respectively. The
decrease in fees is primarily due to the payment of the incentive asset
management fees of $137,299 paid in 1994 to the Investment Adviser based upon
the performance of the Account's real property investments relative to the FRC
Property Index. No incentive asset management fee was payable in 1995.
Liquidity and Capital Resources
For the Year Ended December 31, 1996 Compared to the Year Ended December 31,
1995 -
At December 31, 1996, the Account had cash of approximately $103,000 as compared
to approximately $587,000 at December 31, 1995. The Account financed a portion
of the contract terminations during 1996 and 1995 through additional investments
made by IDS Life Insurance Company (IDS Life). The Account had experienced net
contract terminations in 14 consecutive quarters with net sales (including
accumulation units purchased by IDS Life) in six of the last seven quarters.
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The liquidity requirements of the Account have generally been met by funds
provided from the Account's short-term investments, cash distributions from
unconsolidated joint ventures, operating cash flow, interest income, proceeds
from the sale of West Springfield Terrace apartments, the Loan repayment from
Riverpoint Shopping Center, proceeds from sales of contracts, and borrowings
under the line of credit from IDS Life and purchases of accumulation units by
IDS Life discussed below. The primary uses of funds currently are expected to be
for property operating expenses, asset management and mortality and expense risk
fees and payments for contract terminations.
In March 1994, the Account obtained a revolving line of credit for up to $10
million from IDS Life to pay for contract surrenders and other obligations under
the contracts. In June 1995, the revolving credit loan balance of $9,500,000 and
accrued interest were repaid as discussed below.
Effective May 1, 1995, new contract sales of the Account were discontinued.
Additional purchase payments continue to be accepted for existing contracts in
amounts specified in the Account's prospectus, whether by means of the
previously established bank authorizations or otherwise. Existing contracts also
continue to be serviced and surrender requests will be honored.
IDS Life continues to purchase accumulation units in order to maintain the
Account and its liquidity. IDS Life makes these payments so that no contract
holder is disadvantaged because sales of new contracts have been discontinued.
The initial payments for accumulation units that IDS Life made into the Account
in 1995 were used to pay off the amount that the Account had borrowed under its
revolving line of credit. IDS Life expects to continue to make additional
payments into the Account for accumulation units as needed in order to fund all
of the Account's obligations under the contracts such as paying death benefits
and contract terminations. As of December 31, 1996, IDS Life had purchased
approximately 24,969,872 accumulation units.
By purchasing accumulation units, IDS Life has an ownership interest in the
Account. Since IDS Life does not purchase a contract, it is not subject to
surrender charges. However, IDS Life, as holder of accumulation units,
participates in the increase or decrease in the value of the Account's
investments just as other owners of accumulation units do. IDS Life may realize
a gain or loss on its accumulation units when redeemed.
IDS Life currently expects to hold the accumulation units it purchases until the
surrender of all outstanding contracts or until the Account's liquidity improves
(through, for example, one or more sales of real estate related investments)
thereby permitting the Account to satisfy its anticipated contract obligations.
Because IDS Life may purchase a significant amount of accumulation units, IDS
Life may be subject to certain conflicts of interest it would not otherwise have
if it had not purchased such accumulation units, including, among other things,
a conflict in approving periodic valuations of real estate investments made by
the Investment Adviser.
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Since the Account has experienced substantial net contract terminations over the
past several years, the Account does not intend to acquire additional real
estate related investments. During 1996, the Account liquidated two real estate
related investments. Further, the Account intends to liquidate the real estate
related investments that it currently holds when it becomes advantageous or
necessary to do so. To the extent funds of the Account are not used to pay
obligations of the Account, including those under existing contracts, or the
redemption of accumulation units purchased by IDS Life, such funds will be
invested in short-term debt instruments and possibly intermediate-term bonds
with maturities of up to five years.
Through December 31, 1996, Monmouth Associates had funded approximately
$24,615,000 of the renovation loan for Monmouth Mall. Fundings of principal on
the loan have been made from cash reserves held by Monmouth Associates, cash
flow from interest and ground rent payments received from the borrower/lessee
and capital contributions made to Monmouth Associates by its partners pro rata
based upon their respective interests. The aggregate amount of capital
contributions to finance the loan, is approximately $9,830,000. The Account's
share of these capital contributions is approximately $685,000. The aggregate
amount of the renovation loan, including accrued and deferred interest of
approximately $1,300,000, is currently expected to be approximately $29,100,000.
Remaining fundings for the renovation loan are expected to be made from cash
flow and funds currently held by Monmouth Associates. Monmouth Associates may
also be required to make certain additional loans to pay a portion of the costs
of certain tenant improvements or other ordinary capital expenditures. In
addition, Monmouth Associates may provide additional financing to the
borrower/lessee in order to pay costs to be incurred in connection with the
replacement of a department store tenant at Monmouth Mall. However, it is not
currently expected that this would occur during 1997.
The renovation is nearing completion with tenant improvement work for one of the
larger tenants and retainage work remaining. The occupancy of mall shops and
outparcel space at the shopping center as of December 31, 1996 was approximately
83 percent. However, the mall shops and outparcel space are approximately 86
percent leased. Leasing and occupancy at the shopping center have been adversely
affected by tenant bankruptcies occurring in 1995.
The Account had a loan outstanding in the principal amount of approximately
$7,770,000, prior to its payoff in September 1996 as a result of the sale,
secured by its wholly-owned real estate investment, West Springfield Terrace
Apartments. The loan had an original term of seven years and bore interest at a
rate of 9.5 percent per annum. The loan required monthly payments of principal
and interest aggregating $824,000 per annum until November 1996 when the
remaining principal balance was due.
In February 1995, N/S Associates obtained a new mortgage loan secured by
Southridge Mall in the principal amount of $35,000,000. The new mortgage loan
has a term of seven years, bears interest at 8.35 percent per annum and requires
monthly payments of interest only prior to maturity. A portion of the proceeds
from the new mortgage loan was used to repay the two mortgage loans secured by
<PAGE>
PAGE 13
Northridge Mall as well as the mortgage loan previously secured by Southridge
Mall. Remaining net proceeds from the refinancing have been and will be used to
pay tenant improvement and other capital costs at Northridge and Southridge
Malls.
N/S Associates currently expects that it will incur approximately $5,312,000 in
1997 for tenant improvement, asbestos removal and other capital items at
Northridge and Southridge Malls. Actual amounts expended in 1997 may vary
depending on a number of factors, including actual leasing activity, results of
property operations, liquidity considerations and market conditions over the
course of the year. N/S Associates undertakes asbestos removal from time to time
at portions of the Northridge and Southridge Malls as tenant spaces are vacated
and prior to occupancy by new tenants. The cost of tenant improvements, asbestos
removal and other capital items generally will be provided out of cash flows
from the properties. N/S Associates expended approximately $2,236,000 for tenant
improvements, asbestos removal and other capital projects in 1996.
At December 31, 1996, real property investments (through two unconsolidated
joint ventures, N/S Associates and 1225 Connecticut), land sale-leaseback
investment (through an unconsolidated joint venture, Monmouth Associates) and
short-term investments represented 42.4 percent, 26.9 percent and 30.7
percent of total assets, respectively. At December 31, 1995,
real property investments, mortgage loan and land sale-leaseback
investments and short-term investments represented 70.6 percent, 27.2 percent
and 2.2 percent of total assets, respectively.
For the Year Ended December 31, 1995 Compared to the Year Ended December 31,
1994 -
At December 31, 1995, the Account had cash of approximately $587,000 as compared
to approximately $205,000 at December 31, 1994. The Account financed a portion
of the contract terminations during the third and fourth quarters of 1995
through additional investments made by IDS Life Insurance Company (IDS Life).
The Account had experienced net contract terminations in 14 consecutive quarters
with net sales (including accumulation units purchased by IDS Life) in the last
three quarters.
The liquidity requirements of the Account have generally been met by funds
provided from the Account's short-term investments, cash distributions from
unconsolidated joint ventures, operating cash flow, interest income, proceeds
from sales of contracts, and borrowings under the line of credit from IDS Life
and purchases of accumulation units by IDS Life discussed below. The primary
uses of funds currently are expected to be for property operating expenses,
asset management and mortality and expense risk fees and payments for contract
terminations.
In March 1994, the Account obtained a revolving line of credit for up to $10
million from IDS Life to pay for contract surrenders and other obligations under
the contracts. In June 1995, the revolving credit loan balance of $9,500,000 and
accrued interest were repaid as discussed below.
Effective May 1, 1995, new contract sales of the Account were discontinued.
Additional purchase payments continue to be accepted for existing contracts in
amounts specified in the Account's
<PAGE>
PAGE 14
prospectus, whether by means of the previously established bank authorizations
or otherwise. Existing contracts also continue to be serviced and surrender
requests will be honored.
IDS Life continues to purchase accumulation units in order to maintain the
Account and its liquidity. IDS Life makes these payments so that no contract
holder is disadvantaged because sales of new contracts have been discontinued.
The initial payments for accumulation units that IDS Life made into the Account
were used to pay off the amount that the Account had borrowed under its
revolving line of credit. IDS Life expects to continue to make additional
payments into the Account for accumulation units as needed in order to fund all
of the Account's obligations under the contracts such as paying death benefits
and contract terminations. As of December 31, 1995, IDS Life had purchased
approximately 22,955,910 accumulation units.
By purchasing accumulation units, IDS Life has an ownership interest in the
Account. Since IDS Life does not purchase a contract, it is not subject to
surrender charges. However, IDS Life, as holder of accumulation units,
participates in the increase or decrease in the value of the Account's
investments just as other owners of accumulation units do. IDS Life may realize
a gain or loss on its accumulation units when redeemed.
IDS Life currently expects to hold the accumulation units it purchases until the
surrender of all outstanding contracts or until the Account's liquidity improves
(through, for example, one or more sales of real estate related investments)
thereby permitting the Account to satisfy its anticipated contract obligations.
Because IDS Life may purchase a significant amount of accumulation units, IDS
Life may be subject to certain conflicts of interest it would not otherwise have
if it had not purchased such accumulation units, including, among other things,
a conflict in approving periodic valuations of real estate investments made by
the Investment Adviser.
Since the Account has experienced substantial net contract terminations over the
past several years, the Account does not intend to acquire additional real
estate related investments. Further, the Account intends to liquidate the real
estate related investments that it currently holds when it becomes advantageous
or necessary to do so. To the extent funds of the Account are not used to pay
obligations of the Account, including those under existing contracts, or the
redemptions of accumulation units purchased by IDS Life, such funds will be
invested in short-term debt instruments and possibly intermediate-term bonds
with maturities of up to five years.
Through December 31, 1995, Monmouth Associates had funded approximately
$21,476,000 of the renovation loan for Monmouth Mall. Fundings of principal on
the loan have been made from cash reserves held by Monmouth Associates, cash
flow from interest and ground rent payments received from borrower/lessee and
capital contributions made to Monmouth Associates by its partners pro rata based
upon their respective interests. The aggregate amount of capital contributions
to finance the loan, including one made in July 1995, is approximately
$9,830,000. The Account's share of these capital contributions is approximately
$685,000. The
<PAGE>
PAGE 15
aggregate amount of the renovation loan, including accrued and deferred
interest, is currently expected to be approximately $28,500,000. Remaining
fundings for the renovation loan are expected to be made from cash flow and
funds currently held by Monmouth Associates. Monmouth Associates may also be
required to make certain additional loans to pay a portion of the costs of
certain tenant improvements or other ordinary capital expenditures. In addition,
Monmouth Associates may provide additional financing to the borrower/lessee in
order to pay costs to be incurred in connection with the replacement of a
department store tenant at Monmouth Mall. However, it is not currently expected
that this would occur during 1996.
The renovative is nearing completion with tenant improvement work for one of the
larger tenants and retainage work remaining. The occupancy of mall shops and
outparcel space at the shopping center as of December 31, 1995 was approximately
77 percent. However, the mall shops and outparcel space are approximately 86
percent leased, including leases whose terms will commence after renovation of
the tenant space permits occupancy.
The Account has a loan outstanding in the principal amount of approximately
$7,770,000 as of December 31, 1995, secured by its wholly-owned real estate
investment, West Springfield Terrace Apartments. The loan has an original term
of seven years and bears interest at a rate of 9.5 percent per annum. The loan
requires monthly payments of principal and interest aggregating $824,000 per
annum until November of 1996 when the remaining principal balance of
approximately $7,704,000 and any accrued and unpaid interest will be due and
payable. The current budget for capital expenditures during 1996 is
approximately $207,000 for painting, carpet replacement and other capital costs.
In February 1995, N/S Associates obtained a new mortgage loan secured by
Southridge Mall in the principal amount of $35,000,000. The new mortgage loan
has a term of seven years, bears interest at 8.35 percent per annum and requires
monthly payments of interest only prior to maturity. A portion of the proceeds
from the new mortgage loan was used to repay the two mortgage loans secured by
Northridge Mall as well as the mortgage loan previously secured by Southridge
Mall. Remaining net proceeds from the refinancing have been and will be used to
pay tenant improvement and other capital costs at Northridge and Southridge
Malls.
N/S Associates currently expects that it will incur approximately $4,369,000 in
1996 for tenant improvements, asbestos removal and other capital items at
Northridge and Southridge Malls. Actual amounts expended in 1996 may vary
depending on a number of factors, including actual leasing activity, results of
property operations, liquidity considerations and market conditions over the
course of the year. N/S Associates undertakes asbestos removal from time to time
at portions of the Northridge and Southridge Malls as tenant spaces are vacated
and prior to occupancy by new tenants. The cost of tenant improvements, asbestos
removal and other capital items generally will be provided out of cash flows
from the properties. N/S Associates expended approximately $1,967,000 for tenant
improvements, asbestos removal and other capital projects in 1995.
At December 31, 1995, real property investments (through two
<PAGE>
PAGE 16
unconsolidated joint ventures, N/S Associates and 1225 Connecticut and a
wholly-owned property, West Springfield Terrace Apartments), mortgage loan and
land sale-leaseback investments (through an unconsolidated joint venture,
Monmouth Associates, and a participation in the loan for Riverpoint Center) and
short-term investments represented 70.6 percent, 27.2 percent and 2.2 percent of
total assets, respectively. At December 31, 1994, real property investments,
mortgage loan and land sale-leaseback investments and short-term investments
represented 72 percent, 27.3 percent and .7 percent of total assets,
repsectively.
<PAGE>
PAGE 17
Item 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
Index
Independent Auditors' Report
Balance Sheets, December 31, 1996 and 1995
Statements of Operations, years ended December 31, 1996, 1995
and 1994
Statements of Changes in Contract Owners' Equity, years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows, years ended December 31, 1996, 1995
and 1994
Notes to Financial Statements
Participation in Mortgage Loan on Real Estate and Interest Earned
on Participation in Mortgage - Schedule III
Real Estate Owned and Rental Income - Schedule IV
Schedules not Filed:
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or the information is presented in
financial statements or the related notes.
N/S ASSOCIATES, MONMOUTH ASSOCIATES & 1225 INVESTMENT CORPORATION
UNCONSOLIDATED JOINT VENTURES
of
IDS LIFE ACCOUNT RE
Index
Independent Auditors' Report
Combined Balance Sheets, December 31, 1996 and 1995 Combined Statements of
Operations, years ended December 31, 1996,
1995 and 1994
Combined Statements of Partners' Capital Accounts, years ended December 31,
1996, 1995 and 1994
Combined Statements of Cash Flows, years ended December 31, 1996,
1995 and 1994
Notes to Combined Financial Statements
Participation in Mortgage Loan on Real Estate and Interest Earned
on Participation in Mortgage - Schedule III
Combined Real Estate Owned and Rental Income - Schedule IV
Schedules not Filed:
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or the information is presented in
financial statements or the related notes.
<PAGE>
PAGE 18
INDEPENDENT AUDITORS' REPORT
TheBoard of Directors of IDS Life Insurance Company and Contract Owners of IDS
Life Account RE:
We have audited the financial statements of IDS Life Account RE as listed in the
accompanying index. In connection with our audits of the financial statements,
we also have audited the financial statement schedules as listed in the
accompanying index. These financial statements and financial statement schedules
are the responsibility of the management of IDS Life Insurance Company. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Life Account RE at December
31, 1996 and 1995 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
PAGE 19
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31, December 31,
1996 1995
Assets:
<S> <C> <C>
Cash $ 102,737 $ 586,729
Receivable from IDS Life for contracts sold -- 300,000
Investments in securities, at value (Note 2)
(identified cost $10,254,310) 10,254,310 --
Investments in unconsolidated joint ventures,
at fair value (cost of $36,299,366 and
$35,858,482 at December 31, 1996
and December 31, 1995, respectively) (Note 4) 23,384,605 24,150,472
Participation in mortgage loan, at fair
value (cost of $0 and $3,047,188 at December 31, 1996
and December 31, 1995, respectively) (Note 4) -- 2,960,806
Investment in wholly-owned real estate
property (Note 5):
Building, at fair value (cost of $0
and $14,174,329 at December 31, 1996 and
December 31, 1995, respectively) -- 12,380,339
Land, at fair value (cost of $0 and $3,915,263
at December 31, 1996 and December 31, 1995, respectively) -- 3,915,263
Deferred borrowing costs, net of accumulated
amortization of $157,577 at
December 31, 1995 -- 23,879
Other assets 4,277 43,135
------------ -----------
Total assets $33,745,929 $44,360,623
============ ===========
Liabilities:
Payable to IDS Life for:
Operating expenses $ 42,340 $ 76,619
Contract terminations 4,793 271,318
Accrued mortality and expense risk fee 32,991 40,420
Accrued asset management fee 41,239 50,525
Liabilities related to wholly-owned
real estate property (Note 5):
Accounts payable and other liabilities 79,090 244,937
Mortgage payable -- 7,770,339
----------- -----------
Total liabilities 200,453 8,454,158
=========== ============
Contract Owners' Equity:
Net assets applicable to Variable Annuity
contracts in accumulation period $33,545,476 $35,906,465
============ ===========
Accumulation units outstanding 34,144,955 36,353,929
============ ===========
Net asset value per accumulation unit $ .98 $ .99
============ ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE 20
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
For the years ended
December 31, December 31, December 31,
1996 1995 1994
Income (Note 4):
<S> <C> <C> <C>
Interest income $ 385,026 $ 264,581 $ 286,386
Account's equity in earnings of
unconsolidated joint ventures 2,167,460 1,924,741 2,094,682
Rental income 1,887,995 2,379,439 2,235,867
Realized loss on payoff of participation
in mortgage loan (24,533) -- --
Unrealized depreciation of
participation in mortgage loan (147,608) (27,817) (1,577)
Unrealized appreciation of investment
in wholly-owned real estate property -- 138,764 --
Unrealized depreciation of
investments in unconsolidated joint ventures (1,206,750) (3,999,782) (2,361,701)
Realized loss on sale of wholly-owned real estate
property (725,436) -- --
----------- ------------- -----------
Total income 2,336,154 679,926 2,253,657
------------ ------------- -----------
Expenses (Note 3):
Asset management fee 561,742 603,620 765,557
Mortality and expense risk fee 449,393 482,896 502,607
Professional services 42,133 39,715 36,384
Amortization of deferred borrowing costs 19,602 25,851 25,852
Salaries 17,562 28,218 34,091
Revolving loan interest -- 94,124 26,169
Other operating expenses 17,823 27,884 17,132
Operating expenses related to wholly-owned
real estate property:
Interest 551,434 741,811 749,268
Utilities 139,334 153,416 194,543
Repairs and maintenance 158,047 219,829 144,472
Property and other taxes 160,633 186,440 200,243
Salaries 174,075 181,540 216,137
Management fees 89,712 118,983 112,234
Other 108,155 154,120 175,358
------------ ------------- -----------
Total expenses 2,489,645 3,058,447 3,200,047
------------ ------------- -----------
Net loss $ (153,491) $(2,378,521) $ (946,390)
============= ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAGE 21
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
For the years ended
December 31, December 31, December 31,
1996 1995 1994
<S> <C> <C> <C>
Net loss $ (153,491) $ (2,378,521) $ (946,390)
Contract purchase proceeds 2,049,160 24,922,267 1,452,798
Contract termination payments (4,256,658) (22,631,012) (6,637,325)
----------- ------------ ---------
Decrease in net assets (2,360,989) (87,266) (6,130,917)
Contract owners' equity at
beginning of year 35,906,465 35,993,731 42,124,648
------------- ------------- ------------
Contract owners' equity at end of year $ 33,545,476 $ 35,906,465 $ 35,993,731
============= ============= ============
Accumulation Unit Activity
Units purchased with proceeds from sale
of contracts 2,063,252 23,170,080 1,334,632
Units redeemed for contract terminations (4,272,226) (21,054,331) (6,096,883)
------------- ------------- -------------
Net increase (decrease) in units (2,208,974) 2,115,749 (4,762,251)
Units outstanding at beginning of year 36,353,929 34,238,180 39,000,431
------------- ------------- ------------
Units outstanding at end of year 34,144,955 36,353,929 34,238,180
============= ============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAGE 22
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
For the years ended
December 31, December 31, December 31,
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (153,491) $ (2,378,521) $ (946,390)
Adjustments to reconcile net loss to
net cash used in operating activities:
Account's equity in earnings of
unconsolidated joint ventures (2,167,460) (1,924,741) (2,094,682)
Change in accrued interest on participation
in mortgage loan (5,400) 5,400 --
Amortization of borrowing costs 19,602 25,851 25,852
Change in cumulative discount amortization
on short-term investments (10,926) -- 12,590
Change in unrealized depreciation of investments
in unconsolidated joint ventures 1,206,750 3,999,782 2,361,701
Change in unrealized depreciation (appreciation)
of participation in mortgage loan 147,608 27,817 1,577
Loss on payoff of participation in mortgage loan 24,533 -- --
Change in unrealized (appreciation)
depreciation of investment in wholly-owned
real estate property -- (138,764) --
Loss on sale of wholly-owned
real estate property 725,436 -- --
Change in other assets 38,858 (8,628) 1,505
Change in payable to IDS Life-operating expenses (34,279) 18,219 (3,889)
Change in accrued mortality and expense risk fees (7,429) 284 (4,531)
Change in accrued asset management fees (9,286) 354 (5,663)
Change in payables and other liabilities related
to wholly-owned real estate property (165,847) 32,740 49,580
Change in payable to IDS Life for revolving
loan interest -- (9,224) 9,224
------------- -------------- ------------
Total adjustments to net loss (237,840) 2,029,090 353,264
------------- -------------- ------------
Net cash used in operating activities (391,331) (349,431) (593,126)
------------- -------------- -------------
Cash flows from investing activities:
Net sales (purchases) of short-term securities (10,243,384) -- 2,481,059
Sale of wholly-owned real estate property 15,574,443 -- --
Capital improvements to wholly-owned real estate -- (163,781) (110,874)
Distributions received from joint ventures 1,726,577 1,504,514 1,457,190
------------- -------------- ------------
Net cash provided by investing activities 7,057,636 1,340,733 3,827,375
Cash flows from financing activities:
Proceeds from sales of contracts 2,349,160 24,627,492 1,448,173
Payments for contract terminations (4,523,183) (22,369,833) (6,674,263)
Decrease in mortgage payable (7,770,339) (81,940) (74,542)
Change in payable to IDS Life for revolving loan -- (2,100,000) 2,100,000
Contributions to Monmouth renovation -- (685,151) --
Payoff of participation in mortgage loan 2,794,065 -- --
------------- -------------- ------------
Net cash used in financing activities (7,150,297) (609,432) (3,200,632)
------------- -------------- -------------
Net increase (decrease) in cash (483,992) 381,870 33,617
Balance of cash at beginning of year 586,729 204,859 171,242
------------- -------------- ------------
Balance of cash at end of year $ 102,737 $ 586,729 $ 204,859
============= ============== ============
Supplemental cash flow disclosure:
Cash paid for mortgage and revolving
loan interest $ 551,434 $ 835,935 $ 775,437
============= ============== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PAGE 23
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
December 31, 1996
NOTES TO FINANCIAL STATEMENTS
1. Organization
IDS Life Account RE (the Account) is a segregated asset account of IDS Life
Insurance Company (IDS Life) under Minnesota law. A registration statement
under the Securities Act of 1933 relative to the deferred variable annuity
contracts (the Contracts) issued by the Account became effective on August 6,
1987. Effective May 1, 1995, the Account discontinued new contract sales.
Although additional purchase payments may be made into existing contracts,
prior to making any additional purchase payment an existing contract owner
should bear in mind that the Account intends to liquidate its real estate
related investments over time. The assets of the Account are held for the
exclusive benefit of contract owners and are not chargeable with liabilities
arising out of any other business conducted by IDS Life.
2. Summary of Significant Accounting Policies
The accompanying financial statements have been prepared on the accrual basis
of accounting. Significant accounting policies followed by the Account are
summarized below.
Investments in Securities
Investments in short-term securities maturing more than 60 days from the
valuation date are valued at the market price or approximate fair value based
on current interest rates; those maturing in 60 days or less are valued at
amortized cost. The Account also may invest in intermediate-term bonds with
maturities of up to five years which are valued at fair value as determined
by reference to market quotations, market indices, matrices and data from
independent brokers.
Security transactions are accounted for on the date securities are purchased
or sold. Interest income, including amortization of premium and discount, is
accrued daily.
Consolidation and Unconsolidated Joint Ventures The Account's policy is to
consolidate the underlying assets, liabilities and operations of property
investments where 50 percent or greater ownership position is maintained.
Investments in unconsolidated joint ventures with less than 50 percent
ownership interest are accounted for on the equity method of accounting.
Investments in Real Property, Mortgage Loans and Land/Sale- Leasebacks The
Account initially values real estate related investments at their cost
(including acquisition or mortgage placement fees and other acquisition or
placement expenses) unless circumstances otherwise indicate that a different
value should be used. Subsequently, the value of these investments
<PAGE>
PAGE 24
will be periodically determined by JMB Annuity Advisers (the Investment
Adviser). Procedures utilized to determine the estimated value include the
following: (i) at the time of purchase and once every two years thereafter,
each real property investment and each real property underlying a
participating mortgage loan or land sale-leaseback investment will be
appraised by an independent appraiser or an existing appraisal will be
updated, (ii) various assumptions including, but not limited to, occupancy
and rental rates, expense levels, net operating income, average capital costs
and capitalization rates upon sale will be used in determining the discounted
present value of an investment's estimated cash flow and its estimated sale
proceeds or its asset value under a direct capitalization methodology, and
(iii) for fixed interest rate mortgage loans and fixed rental rate land
sale-leaseback investments, estimated values will be determined by comparison
to current interest rates on U.S. Treasury debt as adjusted for a risk
differential of the Account's investments. The relative weight to be given to
a particular methodology or other relevant factors in determining the
estimated asset value of a particular real property will depend upon an
assessment of the existing and anticipated market conditions and property
specific factors relevant to such real property. There is no assurance that
the assumptions, estimates and methodologies used in valuing the Account's
real estate related investments will in fact prove accurate or that such
values would in fact be realized. Such estimates involve subjective judgments
as the actual price of real estate can only be determined between independent
third parties in sales transactions. In addition, any expenses that may be
borne by the Account in connection with the disposition of a real estate
related investment are not deducted in determining its estimated value.
Because the Account values its real property investments at estimated fair
values, no provision for depreciation expense is recorded.
Each day the Account will record estimated income and expenses attributable
to real estate related assets. Periodically, adjustments to reflect the
difference between estimated and actual income and expenses will be made.
Federal Income Taxes
IDS Life is taxed as a life insurance company. The Account is treated as part
of IDS Life for Federal income tax purposes. Under existing Federal income
tax law, no income taxes are payable with respect to any income of the
Account.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported results of operations during the period. Actual results could
differ from those estimates.
<PAGE>
PAGE 25
3. Fees and Expenses
The Account pays a mortality and expense risk fee to IDS Life which is
accrued daily and is equal, on an annual basis, to 1.00 percent of the
average daily asset value, as defined, of the Account. The mortality risk is
IDS Life's guarantee to make retirement payments according to the terms of
the Contract, no matter how long annuitants live. The expense risk portion of
the fee is paid to IDS Life for its guarantee that the various fees paid by
the Account to IDS Life will not be increased in the future. For the years
ended December 31, 1996, 1995 and 1994, the Account paid IDS Life a mortality
and expense risk fee of $449,393, $482,896 and $502,607, respectively.
The Account also pays IDS Life an asset management fee equal, on an annual
basis, to 1.25 percent of the average daily asset value, as defined, of the
Account. A portion of this fee, equal to 0.95 percent of the average daily
asset value, is paid by IDS Life to the Investment Adviser. The total fee may
be adjusted upward to a maximum of 1.50 percent depending upon the
performance of the Account's real property investments as measured against
the FRC Property Index. The performance-related portion of the fee is
calculated and recorded on an annual basis when the FRC Property Index is
released each year for the preceding calendar year. No performance fees were
paid by the Account in 1996 for 1995 or in 1995 for 1994. The performance fee
paid by the Account in 1994 for 1993 was $137,299. Any performance fee
adjustment will be paid to the Investment Adviser. For the years ended
December 31, 1996, 1995 and 1994, the Account paid total asset management
fees of $561,742, $603,620 and $765,557, respectively.
IDS Life receives from the Account an acquisition and mortgage placement fee
equal to 3.75 percent of the total cash to be paid or advanced by the Account
(net of any borrowings in the case of real property investments) in
connection with each real property investment, mortgage loan or land
sale-leaseback investment made by the Account. A portion of this fee, equal
to 3.50 percent, is paid to the Investment Adviser in consideration for its
services in connection with the acquisition or placement of real estate
related investments of the Account. No acquisition and mortgage placement
fees were paid in 1996, 1995 or 1994.
The Account pays for all operational expenses incurred on its behalf. For the
years ended December 31, 1996, 1995 and 1994, IDS Life was reimbursed
$35,385, $56,102 and $51,223, respectively, for personnel-related expenses
incurred in the administration of the Account.
4. Investments in Unconsolidated Joint Venture Partnerships and
Participation in Mortgage Loan
Joint Venture Partnership - N/S Associates
IDS Life, on behalf of the Account, entered into a joint venture partnership
called N/S Associates, which on April 4, 1988
<PAGE>
PAGE 26
acquired interests in two enclosed super regional shopping malls that are
described below.
The terms of N/S Associates' partnership agreement provide that its annual
net cash flows and net sales or refinancing proceeds generally will be
distributed among all of the partners in accordance with their respective
percentage ownership interests in N/S Associates.
The Account contributed approximately $12,008,000 to N/S Associates as its
capital contribution. The percentage interest of the Account in N/S
Associates is 5.92 percent. In connection with the purchase of the shopping
malls, the Account paid to IDS Life and the Investment Adviser their
respective portions of the acquisition fee amounting to approximately
$450,000.
Summary of Real Estate Investments Made Through N/S Associates
Milwaukee, Wisconsin - Northridge Mall
The Account, through N/S Associates, owns an interest in an existing enclosed
super regional shopping center in Milwaukee, Wisconsin, known as Northridge
Mall. The mall shops and four adjacent department stores comprising the
shopping center contain approximately 1,053,000 square feet of gross leasable
area, of which N/S Associates owns approximately 399,000 square feet
consisting of mall shops (approximately 388,000 square feet) and storage
space (approximately 11,000 square feet). The remaining 654,000 square feet
of gross leasable area are occupied by four department stores, three of which
own their own stores and a portion of the parking area. The fourth department
store leases its space from an unaffiliated third party.
N/S Associates acquired its interest in the shopping center in April 1988 for
a purchase price of approximately $108,107,000, of which $89,653,000 was paid
in cash at closing, subject to the existing mortgage loans with a then
outstanding aggregate balance of approximately $18,454,000. In addition to
the purchase price, a reserve of $8,900,000 was established, all of which had
been used to pay for certain capital improvements made at the shopping
center. In February 1995, the two mortgage loans secured by the property were
repaid with a portion of the proceeds from the refinancing of the Southridge
Mall mortgage loan.
The shopping center is being managed by an affiliate of the Investment
Adviser under a management agreement. The affiliate of the Investment Adviser
receives an annual fee equal to 3.75 percent of the gross receipts of the
property plus reimbursement of certain direct expenses in connection with the
property management.
Greendale, Wisconsin - Southridge Mall
The Account, through N/S Associates, owns an interest in an existing enclosed
super regional shopping center in Greendale, Wisconsin, known as Southridge
Mall. The mall shops and five adjacent department stores comprising the
shopping center
<PAGE>
PAGE 27
contain approximately 1,297,000 square feet of gross leasable area, of which
N/S Associates owns approximately 437,000 square feet, including the space
leased to one of the department stores. The remaining 860,000 square feet of
gross leasable area are occupied by four other department stores, three of
which own their own stores and a portion of the parking area. The fourth
department store leases its space from an unaffiliated third party.
N/S Associates acquired its interest in the shopping center for a purchase
price of approximately $115,401,000, of which $96,865,000 was paid in cash at
closing. In addition to the purchase price, a reserve of approximately
$7,250,000 was established for capital improvements, all of which had been
used to pay for certain capital improvements made at the shopping center. In
February 1995, the mortgage loan secured by the property was repaid with a
portion of the proceeds from a new mortgage loan in the principal amount of
$35,000,000. The new mortgage loan has a term of seven years, bears interest
at 8.35 percent per annum and requires monthly payments of interest only
prior to maturity. Proceeds from the new mortgage loan were also used to
repay the two mortgage loans secured by Northridge Mall. The remaining net
proceeds from the new loan were used to pay approximately $2,900,000 of
tenant improvement and other capital costs incurred for Northridge and
Southridge Malls.
The shopping center is being managed by an affiliate of the Investment
Adviser under a management agreement. The affiliate of the Investment Adviser
receives an annual fee equal to 3.75 percent of the gross receipts of the
property plus reimbursement of certain direct expenses in connection with the
property management.
Joint Venture Partnership - Monmouth Associates
IDS Life, on behalf of the Account, entered into a joint venture partnership
called Monmouth Associates, which on October 27, 1988 (i) acquired certain
land underlying a super regional shopping center in Eatontown, New Jersey
known as Monmouth Mall, (ii) leased the land to the owner of the shopping
center pursuant to a long-term ground lease, and (iii) executed a first
leasehold mortgage loan to the owner of the shopping center secured by the
leasehold real estate and the improvements thereon as more fully described
below. The owner of the shopping center (the Borrower/Lessee) is a
partnership whose partners are not affiliated with Monmouth Associates.
The terms of Monmouth Associates' partnership agreement provide that its
annual net cash flows and net sales or refinancing proceeds generally will be
distributed among all of the partners in accordance with their respective
percentage interests in Monmouth Associates. The Account contributed
approximately $10,000,000 to Monmouth Associates as its initial capital
contribution. The Account has made additional capital contributions of
approximately $685,000. The percentage interest of the Account in Monmouth
Associates is 6.97 percent.
<PAGE>
PAGE 28
In connection with the investment, the Account paid to IDS Life and the
Investment Adviser their respective portions of the acquisition and mortgage
placement fee amounting to approximately $375,000.
Summary of Real Estate Investment Made Through Monmouth
Associates
Eatontown, New Jersey - Monmouth Mall
The Account, through Monmouth Associates, acquired an interest in the land
underlying a shopping center in Eatontown, New Jersey known as Monmouth Mall.
The mall is located on approximately 90 acres of land, of which Monmouth
Associates owns approximately 88.5 acres, subject to the rights of one of the
department store tenants to acquire the land underlying its store and the
improvements thereon for nominal consideration. The remaining acres are owned
by 2 department stores. Monmouth Associates acquired its interest in the land
for a purchase price of approximately $13,000,000.
Monmouth Associates entered into an agreement whereby the land underlying the
mall is leased back to the Borrower/Lessee under a long-term ground lease.
The long-term ground lease, which has a term of 75 years, provides for
monthly base rent aggregating $1,170,000 annually with minimum payments of
$650,000. The long-term ground lease also provides for contingent rent,
payable quarterly out of the excess, if any, of substantially all of the
gross receipts from the shopping center received by the Borrower/Lessee over
certain base amounts, equal to the sum of (x) a specified annual amount
(commencing in the fourth lease year at $390,000 per annum and increasing in
the sixth lease year to $520,000 per annum), increased until paid at the
"applicable rate" of interest payable under the first leasehold mortgage loan
described below (such amount as so increased herein called the "rent
shortfall amount"), plus (y) 15 percent of the balance of such excess gross
receipts remaining after deducting the aggregate amount paid at such time of
the rent shortfall amount under the long-term ground lease and the "interest
shortfall amount" under the first leasehold mortgage loan as described below.
In addition, Monmouth Associates made a first leasehold participating
mortgage loan in the original principal amount of $128,920,000 to the
Borrower/Lessee which is secured by the leasehold real estate and the
improvements thereon. The current loan amount is $127,670,000. The loan has a
term of 15 years, which may be extended from time to time at the option of
Monmouth Associates for up to an additional 20 years. The loan currently
provides for monthly payments of base interest at a base rate of
approximately 5.00 percent per annum for each loan year. The first leasehold
mortgage also provides for quarterly payments of contingent interest, payable
out of the excess, if any, of substantially all of the gross receipts from
<PAGE>
PAGE 29
the shopping center received by the Borrower/Lessee over certain base
amounts, equal to the sum of (x) the difference between the amount of
interest payable on the loan at the "applicable rate" and that payable at the
base rate described above, increased until paid at the applicable rate (such
amount as so increased herein called the "interest shortfall amount"), plus
(y) 45 percent of the balance of such excess gross receipts remaining after
deducting the aggregate amount paid at such time of the rent shortfall amount
under the ground lease and the interest shortfall amount under the first
leasehold mortgage loan. The "applicable rate" under the loan currently is
8.97 percent per annum for each loan year. In addition, upon a
joint sale or refinancing of the land and improvements or at maturity
of the leasehold mortgage loan, Monmouth Associates is entitled to
receive certain participations in the proceeds from such sale or
refinancing after payment of its investment in the land and/or repayment
of the principal amount of the leasehold mortgage loan. For financial
reporting purposes, Monmouth Associates discontinued the accrual of
contingent interest on the leasehold mortgage loan in April 1992 as a
result of uncertainty as to the collectibility of such contingent
interest in light of the previous decrease in the estimated value of
Monmouth Mall. In addition, for financial reporting purposes, no contingent
rent was accrued under the ground lease for 1996, 1995 or 1994. In 1995,
Monmouth Associates wrote off the receivable balance of $3,576,000
primarily related to the accrued interest resulting from the difference
between the accrual and pay rates ("contingent interest") recorded prior to
1992, due to the uncertainty as to the collectibility of these amounts.
Monmouth Associates is obligated to make certain additional loans to the
Borrower/Lessee under certain circumstances to finance the cost of 60 percent
of tenant improvements or other ordinary capital expenditures. In addition,
in May 1994, Monmouth Associates made a loan to finance the cost of a
renovation of the shopping center, which commenced during the third quarter
of 1994. The renovation consists of, among other things, the addition of a
food court and cinema and the re-merchandising of approximately 300,000
square feet of gross leasable area. The renovation loan from Monmouth
Associates bears interest at a fixed interest rate of 10.5 percent per annum.
In addition, Monmouth Associates' participation in certain levels of sale or
refinancing proceeds from the property will be increased until Monmouth
Associates has received aggregate payments equal to an internal rate of
return of 11 percent per annum on its investments in the land and/or the
first leasehold mortgage loan. The maximum amount of the renovation loan is
$29,100,000, and the cost of the renovation is currently estimated to be
$27,800,000, including accrued and deferred interest of approximately
$1,300,000. As of December 31, 1996, Monmouth Associates had funded
approximately $24,615,000, using its cash reserves, cash flow and additional
capital contributions made pro rata based upon the respective interests of
the joint venture partners in Monmouth Associates. The renovation loan
requires monthly payments of interest only until
<PAGE>
PAGE 30
maturity when the entire principal amount and any accrued and unpaid interest
will be due. The renovation loan will mature contemporaneously with the first
leasehold mortgage loan in October 2003, subject to acceleration or extension
of the loan by Monmouth Associates under certain circumstances.
Joint Venture - 1225 Connecticut Avenue, N.W.
Washington, D.C. - 1225 Connecticut Avenue, N.W.
In May 1990, IDS Life, on behalf of the Account, acquired an interest in a
newly formed Delaware corporation, 1225 Investment Corporation (the
Corporation) owned jointly with certain other persons described below. The
Corporation acquired an office building located in Washington, D.C. known as
1225 Connecticut Avenue, N.W. (1225 Connecticut).
The office building, which was completed in 1968, is an eight-story
reinforced concrete frame building containing 184,432 square feet of rentable
office space, 18,498 square feet of rentable retail space, 6,416 square feet
of below grade storage space and 100,024 square feet of subsurface parking
space for over 300 automobiles.
The Corporation has elected to qualify as a real estate investment trust
(REIT) pursuant to sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the Code). For each taxable year that the Corporation
qualifies as a REIT, the Corporation in general will not be subject to
federal corporate income tax or the District of Columbia corporate franchise
tax on its regular taxable income and will not be taxed on long-term capital
gain income to the extent its income is distributed as dividends. If the
Corporation were to fail to qualify as a REIT, it would be taxed at rates
applicable to a corporation on its taxable income, whether or not
distributed.
The Account owns approximately 16.3 percent of the outstanding shares of
common stock of the Corporation. Certain of the outstanding shares of common
stock of the Corporation not owned by the Account are owned by an affiliate
of the Investment Adviser.
The Corporation purchased 1225 Connecticut from the seller for a purchase
price of approximately $54,125,000 (net of prorations and miscellaneous
closing costs), consisting of $51,425,000 paid in cash and assumption of
approximately $2,700,000 of mortgage indebtedness then encumbering the
property. The Corporation paid approximately $2,130,000 for real estate
brokerage commissions to an independent third party and certain closing
costs. The Account contributed $9,000,000 for its interest in the
Corporation. The Account has also paid acquisition fees amounting to
$337,500.
In January 1994, the Corporation refinanced its mortgage loan with a first
mortgage loan in the principal amount of $7,000,000 bearing interest at 6.98
percent per annum. The new loan
<PAGE>
PAGE 31
requires monthly payments of interest only aggregating $488,600 per annum
until maturity in February 2001 when the principal amount together with
accrued interest will be due and payable. Under certain circumstances, the
principal amount of the loan may be prepaid in whole (but not in part),
subject to a prepayment premium. Pursuant to the deed of trust securing the
mortgage loan, the Corporation is prohibited from modifying Ernst & Young's
primary lease or from entering into certain other tenant leases without the
lender's consent. Prior to selling the property or encumbering the property
with any additional debt, the Corporation must obtain the consent of the
lender, which may be arbitrarily withheld. However, subject to certain
restrictions, the Corporation has a one-time right to transfer title to the
property together with an assumption of the mortgage loan.
The property is being managed under an agreement pursuant to which the
manager is obligated to manage 1225 Connecticut, collect all of the receipts
from operations and, to the extent available from such receipts, pay all of
the expenses of 1225 Connecticut. The manager is paid a fee equal to 2.5
percent of the gross revenues of 1225 Connecticut, plus reimbursement for
certain direct expenses of the manager. The property had previously been
managed by JMB Properties Company, an affiliate of the Investment Adviser. In
December 1994, JMB Properties Company sold substantially all of its assets to
an unaffiliated third party, and certain management personnel of JMB
Properties Company became management personnel of the third party. As a
result of the sale, the successor to JMB Properties Company's assets became
the property manager of the 1225 Connecticut office building on the same
terms that existed prior to the sale.
1225 Connecticut leases approximately 80 percent of the available space of
the property to one tenant under leases, all with terms of 12 years. For the
year ended December 31, 1996, such tenant represented approximately 77
percent of total revenues.
Pursuant to a lease currently in effect, an unaffiliated third party leases
and operates the entire parking garage (subject to certain parking rights
provided for tenants of the property) until November 1997. The lease provides
for a fixed rent payment of $485,000 a year, provided that the lessee shall
pay the operating expenses of the parking garage and does not provide such
lessee with an option to extend the term of the lease.
<PAGE>
PAGE 32
Unconsolidated Joint Ventures - Summary Information
<TABLE>
<CAPTION>
Summary information for the Account of its investments in Unconsolidated
Joint Ventures as of and for the years ended December 31, 1996 and 1995 is as
follows:
As of and for As of and for
the year ended the year ended
Dec. 31, 1996 Dec. 31, 1995
Account's investment in Unconsolidated
<S> <C> <C>
Joint Ventures $ 23,384,605 $ 24,150,472
Account's share of net investment income from
Unconsolidated Joint Ventures $ 2,167,460 $ 1,924,741
Net depreciation in Unconsolidated Joint Ventures $ (1,206,750) $ (3,999,782)
Total net investment income of Unconsolidated
Joint Ventures $ 27,455,000 $ 20,070,000
Total assets of Unconsolidated Joint Ventures $ 343,717,000 $ 346,343,000
Total liabilities of Unconsolidated Joint Ventures $ 52,691,000 $ 54,722,000
</TABLE>
Participation in Mortgage Loan - Riverpoint Associates
Chicago, Illinois - Riverpoint Center
In August 1989, IDS Life, on behalf of the Account, participated in the
initial funding of a non-recourse participation first mortgage loan in the
principal amount of $26,000,000. The Account's share of the initial funding
was $2,666,660 or 10.26 percent of this loan. The remaining portion of the
loan was funded by affiliates of the Investment Adviser (herein, the Account
and said affiliates are collectively called the Lenders). The Loan was
secured by a first mortgage on a shopping center known as Riverpoint Center
in Chicago, Illinois. The shopping center was owned by a partnership (the
Borrower) whose general partners were not affiliated with any of the Lenders.
In connection with the loan, the Account paid to the Investment Adviser a
mortgage placement fee amounting to approximately $108,000, less $37,500 in
loan origination fees paid to the Investment Adviser by the Borrower, for a
net fee paid of approximately $70,500 paid by the Account.
Additional amounts aggregating approximately $2,040,000 (of which the
Account's share was approximately $209,000) had been funded since the Initial
Funding. The Borrower did not qualify for any additional fundings above the
$28,040,000 which had been funded to date, and no additional fundings were
made by the Lenders.
The ten-year loan required periodic payments of interest only and bore basic
interest at the rate of 8.84 percent per annum in the first loan year, 8.75
percent per annum during the second loan year, increasing 0.50 percent per
annum in the fourth and 0.25 percent per annum in the seventh loan year to a
maximum
<PAGE>
PAGE 33
rate of 9.50 percent per annum, payable monthly in advance. The loan also
provided for additional annual simple accrual of interest at the rate of 2.00
percent per annum payable upon prepayment or maturity. For financial
reporting purposes, commencing in August of 1991, the Account suspended
recognition of income related to the simple accrual interest receivable
(deferred until maturity).The loan also provided for additional interest in
an amount equal to a percentage of annual gross income from the underlying
property (exclusive of tenant reimbursement of expenses) in excess of a base
amount and, on sale or repayment of the loan, an amount equal to a percentage
of the subsequent increase in the value of the underlying property in excess
of a specified amount. Such amounts of additional interest payments made by
the Borrower would have been used to offset, on a dollar-for-dollar basis,
the amount of accrued interest payable. The loan was generally non-recourse
to the Borrower and its partners.
The borrower had notified the Lenders that it was experiencing financial
difficulties and approached the Lenders regarding a loan modification. During
the third quarter of 1996, the Lenders and Borrowers finalized a loan
modification whereby they reached an agreement to defer payment of a portion
of the scheduled debt service from September 15, 1995 to July 15, 1996. In
conjunction with the loan modification agreement, the scheduled maturity date
of the loan was accelerated to December 31, 1997. Finally, the Lenders agreed
to accept at certain dates through June 30, 1997 repayment of the loan at
specified amounts. On December 24, 1996, the borrower repaid the lenders
$27,400,000 (of which the Account's share was approximately $2,800,000) in
full satisfaction of the loan as agreed upon.
The shopping center, completed in 1989, is located on approximately 17 acres
and consists of approximately 200,800 square feet of gross leasable area.
5. Investments in Wholly-owned Real Estate Property
Fairfax County, Virginia - West Springfield Terrace Apartments
In August 1989, IDS Life, on behalf of the Account, acquired a 244-unit
garden apartment complex known as West Springfield Terrace Apartments, which
is located in Fairfax County, Virginia.
The apartment complex, which was completed in 1978, consists of 17 separate
three and four-story buildings of wood frame with brick veneer construction
containing 52 one-bedroom units, 22 one-bedroom and den units, 118
two-bedroom units, 22 two-bedroom and den units, and 30 three-bedroom units.
The complex contains a swimming pool, tennis court, clubhouse and
approximately 380 parking spaces.
The Account paid $15,222,278 for the apartment complex in cash at closing,
excluding closing costs and prorations. In connection with the acquisition of
the property, the Account paid a prepayment charge at closing of $92,221 to
the lender that held the mortgage loan on the property. The Account also paid
to IDS Life and the Investment Adviser their respective
<PAGE>
PAGE 34
portions of the acquisition fee amounting to $274,834. At the time of the
acquisition it was anticipated that an additional amount of approximately
$1,450,000 would be used by the Account to pay the cost of upgrading kitchens
and bathrooms and certain other upgrades and capital improvements at the
complex. The renovation project was subsequently increased to include
replacing certain carpets in units as they were renovated and to increase the
number of units that received certain upgrades. The renovation project was
completed during 1992 at an aggregate cost of approximately $1,900,000. The
Account paid IDS Life and the Investment Adviser their respective portions of
the acquisition fee amounting to $18,000 in connection with the renovation
project.
In November 1989, the Account obtained a loan from an institutional lender in
the principal amount of $8,000,000 secured by a first mortgage on the
property. The loan was repaid in September 1996 as a result of the sale of
this property, as discussed below. The loan had a term of seven years and
bore interest at a rate of 9.50 percent per annum. The loan required monthly
payments of interest only during the first three loan years and thereafter
was amortizable over a 27-year schedule through monthly payments of principal
and interest aggregating $824,400 per annum until November 1996, when the
remaining principal balance and any accrued and unpaid interest was due and
payable.
On September 30, 1996 the Account sold land and related improvements known as
the West Springfield Terrace Apartments. The purchaser was not affiliated
with the Account and the sale price was determined by arm's-length
negotiations. The sale price for the land and improvements was $16,100,000
(before deducting selling costs) and was paid in cash at closing. A portion
of the net sale proceeds was utilized to retire the first mortgage debt with
an outstanding balance of $7,704,000.
The apartment complex was being managed for a fee equal to 5.00 percent of
the gross revenues from the property, plus reimbursement of certain direct
expenses of the manager. The property had previously been managed by JMB
Properties Company, an affiliate of the Investment Adviser, but since
December 1994 has been managed on the same terms by an unaffiliated third
party that purchased substantially all of JMB Properties Company's assets, as
discussed in Note 4 in connection with the 1225 Connecticut office building.
6. Liquidity Arrangements with IDS Life
The Account has experienced substantial net contract terminations over the
past several years, which have adversely affected its liquidity. In March
1994, the Account obtained a short-term revolving line of credit for up to
$10 million from IDS Life to pay for contract surrenders and other
obligations under the Contracts. On June 2, 1995, the line of credit was
terminated and the Account repaid the outstanding balance under the line of
credit with the proceeds from accumulation units purchased by IDS Life. As of
December 31, 1996, IDS Life had cumulatively contributed $26,700,000 toward
the purchase of accumulation units. IDS
<PAGE>
PAGE 35
Life expects to continue to make additional payments into the Account for
accumulation units in order to maintain the Account and its liquidity. As of
December 31, 1996, IDS Life's portion of the Contract Owners' Equity was
$24,492,773, which represents 73% of total Contract Owners' Equity.
<PAGE>
PAGE 36
<TABLE>
<CAPTION>
Schedule III
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
Participation in Mortgage Loan on Real Estate and
Interest Earned on Participation in Mortgage
December 31, 1996
Part 1 - Participation in Mortgage Part 2 - Interest Earned on
Loan on Real Estate at Close of Year Participation in Mortgage
Liens on Shopping Center:
Principal unpaid Amount of Interest due
Riverpoint Center Carrying at close mortgage being & accrued at Interest
Chicago, Illinois Amount (A) of period foreclosed end of period Income Earned
<S> <C> <C> <C> <C> <C> <C>
1996 $ -- $ -- $ -- $ -- $ 256,843
------------- ============= ========= ============= ============
1995 $ 2,966,206 $ 2,875,853 $ -- $ (5,400) $ 264,581
============= ============= ========= ============= ============
1994 $ 2,994,023 $ 2,875,853 $ -- $ -- $ 265,288
============= ============= ========= ============= ============
</TABLE>
<TABLE>
<CAPTION>
(A) - Reconciliation of the carrying value of the participation in the mortgage
loan:
1996 1995 1994
------------- ------------- ---------
<S> <C> <C> <C>
Balance at the beginning of year........... $ 2,966,206 $ 2,994,023 $ 2,995,600
Changes during year:
Unrealized depreciation.................. (147,608) (27,817) (1,577)
Loan repayment........................... (2,794,065) -- --
Realized loss............................ (24,533) -- --
-------------- ------------- -------------
Balance at end of year..................... -- 2,966,206 2,994,023
-------------- ------------- -------------
</TABLE>
<PAGE>
PAGE 37
<TABLE>
<CAPTION>
Schedule IV
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
Real Estate Owned and Rental Income
December 31, 1996
Part 1 - Real Estate Owned at End of Year (A)
Apartment Complex:
West Springfield Amount at Amount at
Terrace Apartments which carried Cost of Carrying value which carried
Fairfax County, Amount of at beginning improvements, Unrealized of real estate at close of
Virginia encumbrances of period (A) etc. Appreciation sold period (B)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $ -- $ 16,295,602 $ 136,544 $ -- $(16,432,146) $ --
============ ============= ============ ============= ============= ============
1995 $ 7,770,339 $ 15,993,057 $ 163,781 $ 138,764 -- $ 16,295,602
============ ============= ============ ============= ============= ============
1994 $ 7,852,279 $ 15,882,183 $ 110,874 $ -- -- $ 15,993,057
============ ============ ============ ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Part 2 - Rental Income
Rents due Total rental Expended for
and accrued income interest taxes, Net income
at end of applicable repairs, and applicable
period to period expenses to period
<S> <C> <C> <C> <C> <C>
1996 $ -- $ 1,760,141 $ 1,381,391 $ 378,750
============ =========== =========== ==========
1995 $ 4,016 $ 2,379,439 $ 1,756,139 $ 623,300
============ =========== =========== ==========
1994 $ (1,895) $ 2,235,867 $ 1,792,255 $ 443,612
============ =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
(A) Reconciliation of real estate owned:
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Balance at the beginning of period.......... $ 16,295,602 $ 15,993,057 $ 15,882,183
Additions (deductions) during the year:
Improvements, etc......................... 136,544 163,781 110,874
Unrealized appreciation................... -- 138,764 --
Carrying value of real estate sold........ (16,432,146) -- --
------------- ------------- ------------
Balance at end of year...................... $ -- $ 16,295,602 $ 15,993,057
============= ============= ============
</TABLE>
(B) Reserve for depreciation is not applicable as real estate owned is stated
at estimated fair market value.
<PAGE>
PAGE 38
Independent Auditors' Report
The Board of Directors of IDS Life Insurance Company and Contract Owners of IDS
Life Account RE:
We have audited the accompanying combined financial statements of N/S
Associates, Monmouth Associates and 1225 Investment Corporation, unconsolidated
joint ventures of IDS Life Account RE (Note 1), as listed in the accompanying
index. In connection with our audits of the combined financial statements, we
also have audited the combined financial statement schedules as listed in the
accompanying index. These combined financial statements and combined financial
statement schedules are the responsibility of the Investment Adviser. Our
responsibility is to express an opinion on these combined financial statements
and combined financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Investment Adviser, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of N/S
Associates, Monmouth Associates and 1225 Investment Corporation, as of December
31, 1996 and 1995 and the results of their combined operations and combined cash
flows for each of the years in the three year period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related combined financial statement schedules, when considered in relation
to the basic combined financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
PAGE 39
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Combined Balance Sheets
December 31, 1996 and 1995
Assets
1996 1995
------------- ---------
<S> <C> <C>
Investments in real estate $323,484,000 $328,270,000
Cash and cash equivalents (note 1) 14,603,000 12,908,000
Short-term investments -- --
Rents, interest, and other receivables 2,966,000 2,754,000
Other assets 2,664,000 2,411,000
------------- -------------
$343,717,000 $346,343,000
Liabilities and Partners' Capital Accounts
Mortgage notes payable (note 3) $ 42,000,000 $ 42,000,000
Accounts payable and other accrued expenses 10,691,000 12,722,000
------------- ------------
Total liabilities 52,691,000 54,722,000
------------- ------------
Commitments and contingencies (notes 2 and 4)
Partners' capital accounts (notes 1 and 2): IDS Life Account RE:
Capital contributions 32,856,000 32,856,000
Cumulative net investment income 15,951,000 13,783,000
Cumulative share of net unrealized depreciation (12,915,000) (11,708,000)
Cumulative cash distributions (12,507,000) (10,781,000)
------------- -------------
23,385,000 24,150,000
Venture partners:
Capital contributions 379,954,000 379,954,000
Cumulative net investment income 191,319,000 166,032,000
Cumulative share of net unrealized depreciation (155,581,000) (148,138,000)
Cumulative cash distributions (148,051,000) (130,377,000)
------------- -------------
267,641,000 267,471,000
Total partners' capital accounts 291,026,000 291,621,000
------------- ------------
$343,717,000 $346,343,000
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAGE 40
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Combined Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- ------------- ---------
Investment income:
<S> <C> <C> <C>
Rental income $38,715,000 38,008,000 41,706,000
Interest 9,827,000 7,685,000 8,083,000
------------- ------------- ------------
48,542,000 45,693,000 49,789,000
------------- ------------- ------------
Investment expenses:
Mortgage and other interest 3,410,000 4,250,000 3,224,000
Real estate taxes 6,639,000 7,401,000 8,106,000
Property operating expenses 10,908,000 13,789,000 10,657,000
General and administrative 130,000 183,000 320,000
------------- ------------- ------------
21,087,000 25,623,000 22,307,000
------------- ------------- ------------
Net investment income $ 27,455,000 20,070,000 27,482,000
============= ============= ============
Unrealized depreciation on investments
in real estate (note 1) $ (8,650,000) (65,938,000) (34,437,000)
============= ============= =============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAGE 41
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Combined Statements of Partners' Capital Accounts
Years Ended December 31, 1996, 1995 and 1994
Combined IDS Life Venture
Total Account RE Partners
<S> <C> <C> <C>
Balance at December 31, 1993 369,546,000 28,769,000 340,777,000
Net investment income 27,482,000 2,094,000 25,388,000
Net unrealized depreciation on investments
in real estate (34,437,000) (2,361,000) (32,076,000)
Cash distributions and dividends (17,432,000) (1,457,000) (15,975,000)
------------- ----------- ------------
Balance at December 31, 1994 345,159,000 27,045,000 318,114,000
Net investment income 20,070,000 1,925,000 18,145,000
Cash contributions 9,830,000 685,000 9,145,000
Net unrealized depreciation on investments
in real estate (65,938,000) (4,000,000) (61,938,000)
Cash distributions and dividends (17,500,000) (1,505,000) (15,995,000)
------------- ----------- ------------
Balance at December 31, 1995 $291,621,000 24,150,000 267,471,000
------------- ---------- -----------
Net investment income 27,455,000 2,168,000 25,287,000
Net unrealized depreciation on investments
in real estate (8,650,000) (1,207,000) (7,443,000)
Cash distributions and dividends (19,400,000) (1,726,000) (17,674,000)
------------- ----------- ------------
Balance at December 31, 1996 $291,026,000 23,385,000 267,641,000
============ ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
PAGE 42
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Combined Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------- -------------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net investment income $ 27,455,000 $ 20,070,000 27,482,000
Provision for uncollectible accrued interest -- 3,576,000 --
Adjustments to reconcile net investment
income to net cash provided by operating
activities represented by changes in:
Rents, interest and other receivables (212,000) 135,000 (598,000)
Other assets (253,000) (2,129,000) 222,000
Accounts payable and accrued expenses (735,000) (1,713,000) (201,000)
------------- ------------ -------------
Net cash provided by operations 26,255,000 19,939,000 26,905,000
------------- ------------ ------------
Cash flows from investing activities:
Net (purchases) sales of short-term investments -- 7,589,000 1,720,000
Additions to investments in real estate, net of
related accounts payable and accrued expenses (5,160,000) (16,748,000) (14,834,000)
------------- ------------ -------------
Net cash provided by (used in)
investing activities (5,160,000) (9,159,000) (13,114,000)
------------- ------------ -------------
Cash flows from financing activities:
Principal payments on mortgages payable -- (30,929,000) (2,843,000)
Cash distributions to partners (14,250,000) (13,000,000) (13,500,000)
Cash contributions -- 9,830,000 --
Proceeds from mortgage note payable -- 35,000,000 7,000,000
Cash dividends paid to shareholders (5,150,000) (4,500,000) (3,932,000)
------------- ------------ -------------
Net cash used in financing activities (19,400,000) (3,599,000) (13,275,000)
------------- ------------ -------------
Net increase in cash and cash
equivalents $ 1,695,000 7,181,000 516,000
Cash and cash equivalents beginning
of year 12,908,000 5,727,000 5,211,000
------------- ------------ ------------
Cash and cash equivalents end
of year $ 14,603,000 12,908,000 5,727,000
============= ============ ============
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest $ 3,412,000 3,759,000 3,201,000
============= ============ ============
Non-cash investing and financing activities:
Unrealized depreciation on
investments in real estate $ (8,650,000) (65,938,000) (34,437,000)
============= ============ =============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
PAGE 43
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Notes to Combined Financial Statements
Years ended December 31, 1996, 1995, and 1994
(1) Organization and Basis of Accounting
The accompanying combined financial statements have been prepared for
the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and
Exchange Commission. The combined financial statements include the accounts of
the unconsolidated joint ventures in which IDS Life Account RE of IDS Life
Insurance Company owns an equity interest. The unconsolidated joint ventures are
N/S Associates, Monmouth Associates and 1225 Investment Corporation.
The accompanying combined financial statements have been prepared on
the market value accrual basis of accounting.
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The ventures have implemented Statement of Accounting Standards No. 95
"Statement of Cash Flows" which classifies receipts and payments according to
whether they stem from operating, investing or financing activities. The
ventures records amounts held in U.S. Government obligations at cost, which
approximates market. For the purposes of these statements, the ventures' policy
is to consider all such amounts held with original maturities of three months or
less ($12,084,000 and $2,200,000 at December 31, 1996 and 1995, respectively) as
cash equivalents with any remaining amounts reflected as short-term investments.
Investments in real estate are stated at estimated fair value. A
description of the valuation process is contained in Note 2 of Notes to
Financial Statements of the Account. Such note is incorporated herein by
reference.
Market values have been estimated by the Investment Adviser. Such
market values involve subjective judgments and the actual values can only be
determined by negotiations with independent third parties.
No provision for State or Federal income taxes has been made for N/S
Associates or Monmouth Associates as the liability for such taxes, if any, is
expected to be that of the venture partners rather than the venture. 1225
Investment Corporation has elected and qualifies to be treated as a real estate
investment trust for Federal income tax purposes. The Corporation had no Federal
income tax liabilities for taxable years ended December 31, 1996, 1995 and 1994.
<PAGE>
PAGE 44
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Notes to Combined Financial Statements - (Continued)
Maintenance and repair expenses are charged to operations as incurred.
Significant costs of physical improvements are capitalized as part of
investments in real estate.
Fixed rental income is recorded when the obligation for the payment of
rent is incurred according to the terms of the lease agreements.
Statement of Financial Accounting Standards No. 107 ("SFAS 107"),
"Disclosures about Fair Value of Financial Instruments", requires entities to
disclose the SFAS 107 value of all financial assets and liabilities for which it
is practicable to estimate. Value is defined in the Statement as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The ventures believe the
carrying amount of its assets and liabilities (excluding current portion of
long-term debt) approximates SFAS 107 value due to the relatively short maturity
of these instruments. There is no quoted market value available for any of the
ventures' other instruments. Based upon estimates of current market rates for
debt with similar terms, the ventures discounted the scheduled loan payments to
maturity. Based upon this calculation, the ventures believe that the carrying
value of the mortgage notes payable approximate market value at December 31,
1996 and 1995.
(2) Venture Agreements
A description of the venture agreements are contained in Note 4 of Notes to
Financial Statements of the Account for the year ended December 31, 1996. Such
note is incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
PAGE 45
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Notes to Combined Financial Statements - (Continued)
(3) Mortgage Notes Payable
(a) Mortgage notes payable consist of the following at
December 31, 1996 and 1995:
1996 1995
------------- ---------
8.35% mortgage note, secured by Southridge Mall; payable in
monthly installments of $244,000 (interest only) until
<S> <C> <C> <C> <C>
maturity on February 1, 2002 (see 3 (b) below) 35,000,000 35,000,000
6.98% mortgage note, due February 1, 2001, secured by 1225
Connecticut Avenue; interest only, payable monthly 7,000,000 7,000,000
----------- ------------
Total mortgage notes payable $42,000,000 42,000,000
=========== ============
</TABLE>
(b) Refinancing - Southridge
On February 1, 1995, the Partnership refinanced the existing mortgage note
on Southridge Mall in the amount of $35,000,000. Proceeds, net of transaction
costs, were used to repay the existing mortgage notes at Southridge and
Northridge Malls (including prepayment penalties of $155,000 and $240,000,
respectively). The remaining proceeds which were reserved for future leasing
costs, capital improvements and other related costs, have been expended.
Five year maturities of mortgage notes payable are as follows:
1997 . . . . . . . . . . $ --
1998 . . . . . . . . . . --
1999 . . . . . . . . . . --
2000 . . . . . . . . . . --
2001 . . . . . . . . . . 7,000,000
(4) Leases - As Property Lessor
The venture has determined that all leases relating to the two retail
properties and the office building are properly classified as operating leases;
therefore, rental income is reported when earned. Leases with tenants range in
term from one to thirty-two years and provide for fixed minimum rent and partial
to full reimbursement of operating costs. In addition, substantially all retail
leases provide for additional rent based upon percentage of tenants' sale
volumes over certain specified amounts.
<PAGE>
PAGE 46
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Notes to Combined Financial Statements - (Continued)
Minimum lease payments to be received in the future under the above
operating lease agreements, are as follows:
1997 . . . . . . . . . . $ 20,371,162
1998 . . . . . . . . . . 18,498,130
1999 . . . . . . . . . . 16,920,740
2000 . . . . . . . . . . 15,213,911
2001 . . . . . . . . . . 12,889,407
Thereafter . . . . . . . 57,575,215
------------
$141,468,565
Contingent rent (based on sales by property tenants) from the retail
investments included in rental income is $578,000, $1,058,000 and $1,010,000 in
1996, 1995 and 1994, respectively.
Monmouth Associates entered into an agreement whereby the land
underlying the Monmouth shopping center is leased under a long-term ground
lease. The long-term ground lease, which has a term of 75 years, provides for
accrual of annual base rent of $1,170,000 with minimum payments of $650,000 per
annum.
(5) Related Party Transactions
N/S Associates has entered into a management agreement with Urban
Retail Properties Company, (the "Retail Manager"). The Retail Manager is
entitled to receive a fee of 3.75% of gross receipts from the operations of the
Malls. Management fees earned by the Retail Manager are included in property
operating expenses and aggregated approximately $1,132,000 and $1,174,000 for
the periods ended December 31, 1996 and 1995, respectively.
1225 Investment Corporation had entered into a management agreement
with JMB Properties Company. During December 1994, JMB Properties Company
assigned the management agreement to Heitman Washington D.C. Properties, Ltd.
("Office Manager"). The Office Manager is entitled to receive a fee of 2.5% of
gross receipts from the operations of the Property. Management fees earned by
the Office Manager are included in property operating expenses and aggregated
approximately $188,000 and $175,000 for the years ended December 31, 1996 and
1995, respectively.
<PAGE>
PAGE 47
IDS LIFE ACCOUNT RE
OF IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Notes to Combined Financial Statements - (Continued)
(6) Subsequent Events
(a) N/S Associates
In February 1997, the Investment Adviser authorized and paid a
cash distribution to the partners aggregating $2,500,000. Each
partner received its proportionate share based on its respective
ownership percentage.
(b) 1225 Investment Corporation
In February 1997, 1225 Investment Corporation paid a dividend of
$1,250,000 ($22.67 per share) to the shareholders of record as of
December 31, 1996.
(c) Monmouth Associates
In February 1997, the Investment Advisor authorized and paid a
cash distribution to the partners aggregating $7,500,000. Each
partner received its proportionate share based on its respective
ownership percentage.
<PAGE>
<TABLE>
<CAPTION>
PAGE 48
Schedule III
IDS LIFE ACCOUNT RE of
IDS LIFE INSURANCE COMPANY
Monmouth Associates
Unconsolidated Joint Venture of IDS Life Account RE
Participation in Mortgage Loan on Real Estate and
Interest Earned on Participation in Mortgage
December 31, 1996
Part 1 - Participation in Mortgage Part 2 - Interest Earned on
Loan on Real Estate at Close of Year on Participation in Mortgage
Liens on Shopping Center:
Principal unpaid Amount of Interest due
Monmouth Mall Carrying at close mortgage being & accrued at Interest
Eatontown, New Jersey Amount (A) of period foreclosed end of period Income Earned
<S> <C> <C> <C> <C> <C> <C>
1996 $ 109,556,000 $ 160,033,000 $ -- $ 772,000 $ 9,159,000
1995 $ 108,000,000 $ 158,373,000 $ -- $ 742,000 $ 6,994,000
1994 $ 119,154,000 $ 141,056,000 $ -- $ 3,960,000 $ 7,641,000
</TABLE>
<TABLE>
<CAPTION>
(A) - Reconciliation of the carrying value of the participation in the mortgage
loan:
1996 1995 1994
------------- ------------- ---------
<S> <C> <C> <C>
Balance at the beginning of year........... $ 108,000,000 $ 119,154,000 $ 119,650,000
Changes during year:
Additional fundings...................... 1,556,000 17,317,000 9,318,000
Unrealized depreciation.................. -- (28,471,000) (9,814,000)
-------------- ------------- --------------
Balance at end of year..................... $ 109,556,000 $ 108,000,000 $ 119,154,000
============== ============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE 49
Schedule IV
IDS LIFE ACCOUNT RE of
IDS LIFE INSURANCE COMPANY
N/S Associates, Monmouth Associates and 1225 Investment Corporation
Unconsolidated Joint Ventures of IDS Life Account RE
Combined Real Estate Owned and Rental Income
December 31, 1996
Part 1 - Real Estate Owned at End of Year (C)
Amount at
Cost of which carried
Amount of improvements, Unrealized at close of
encumbrances Initial Cost etc. Depreciation period (A)(B)
Retail properties:
Northridge Mall,
<S> <C> <C> <C> <C> <C>
Milwaukee, WI $ -- $108,107,000 $ 15,469,000 $(80,976,000) $ 42,600,000
Southridge Mall,
Greendale, WI $ 35,000,000 $115,401,000 $ 16,702,000 $(25,775,000) $106,328,000
Office Building:
1225 Connecticut Ave.,
Washington, D.C. $ 7,000,000 $ 54,775,000 $ 7,638,000 $ (10,413,000) $ 52,000,000
Ground Lease:
Monmouth Mall,
Eatontown, NJ $ -- $ 13,000,000 $ -- $ -- $ 13,000,000
------------ ------------ ------------ -------------- ------------
$ 42,000,000 $291,283,000 $ 39,809,000 $(117,164,000) $213,928,000
============ ============ ============ ============== ============
</TABLE>
Part 2 - Rental Income
Rents due
and accrued
at end of
period
Retail Properties:
Northridge Mall,
Milwaukee, WI $ 158,000
Southridge Mall,
Greendale, WI $ 185,000
Office Building:
1225 Connecticut Ave.,
Washington, D.C. $ 92,000
-----------
$ 435,000
(A) The aggregate cost of real estate owned at December 31, 1996 for Federal
Income tax purposes was approximately $466,855,400.
<TABLE>
<CAPTION>
(B) Reconciliation of real estate owned:
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Balance at the beginning of period.......... $220,270,000 $254,500,000 $272,660,000
Additions (deductions), including
unrealized depreciation................... (6,342,000) (34,230,000) (18,160,000)
------------- ------------- -------------
Balance at end of year...................... $213,928,000 $220,270,000 $254,500,000
============= ============= ============
</TABLE>
(C) - Reconciliation for depreciation is not applicable as real estate owned
is stated at estimated market value.
<PAGE>
PAGE 50
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Account has no directors or officers. The directors and principal executive
officers of IDS Life Insurance Company are listed below.
David R. Hubers, born in 1943: Director, IDS Life, since September 1989;
president and chief executive officer, AEFC, since August 1993, and director
since January 1984. Senior vice president, Finance and chief financial
officer, AEFC, from January 1984 to August 1993.
Richard W. Kling, born in 1940: Director, IDS Life, since February 1984;
president, IDS Life, since March 1994; Senior vice president, AEFC, from
January 1988 to March 1994. Senior vice president, AEFC, since May 1994.
Director of IDS Life Series Fund, Inc. and chairman of the board of managers
of IDS Life Variable Annuity Funds A & B.
Paul F. Kolkman, born in 1946: Director, IDS Life, since May 1984; executive
vice president, IDS Life, since March 1994; vice president, Finance, IDS Life
from May 1984 to March 1994; vice president, AEFC, since January 1987.
James A. Mitchell, born in 1941: Chairman of the Board since March 1994; chief
executive officer since November 1986; president from July 1984 to March 1994;
executive vice president, AEFC, since March 1994; Director, AEFC, since July
1984; senior vice president, AEFC, from July 1984 to March 1994.
Barry J. Murphy, born in 1951: Director and executive vice president, Client
Service since March 1994; senior vice president, Operations, Travel Related
Services (TRS) a subsidiary of American Express Company, from July 1992 to
April 1994; vice president, TRS, from November 1989 to July 1992.
Stuart A. Sedlacek, born in 1957: Director and executive vice president,
Assured Assets since March 1994; vice president, AEFC, since September 1988.
Melinda S. Urion, born in 1953: Director and controller, IDS Life, since
September 1991; executive vice president since March 1994; vice president and
treasurer from September 1991 to March 1994; director, senior vice president
and chief financial officer, AEFC, since November 1995; corporate controller,
AEFC, from April 1994 to November 1995; vice president, AEFC, from September
1991 to November 1995; chief accounting officer, AEFC, from July 1988 to
September 1991.
Morris Goodwin Jr., born in 1951: Vice president and treasurer since March
1994; vice president and corporate treasurer, AEFC, since July 1989; chief
financial officer and treasurer, American Express Trust Company, from January
1988 to July 1989.
<PAGE>
PAGE 51
William A. Stoltzmann, born in 1945: Vice President, general counsel and
secretary since 1989; vice president and assistant general counsel, AEFC,
since November 1985. Vice president, general counsel and secretary, American
Enterprise Life Insurance Company, American Partners Life Insurance
Company.
The directors, executive officers and certain other officers of JMB Realty
Corporation (JMB), the managing partner of the Investment Adviser, are listed
below. Many of such persons are also officers and/or directors of numerous
affiliated companies of JMB and/or partners of certain partnerships (herein
collectively referred to as the Associate Partnerships) which are partners,
directly or indirectly, in publicly offered real estate limited partnerships
sponsored by JMB.
Judd D. Malkin, 59, Chairman and Director of JMB, is a director of Urban
Shopping Centers, Inc., an affiliate of JMB engaged in the business of owning,
managing and developing shopping centers, an officer and/or director of
various other JMB affiliates and a partner of the Associate Partnerships.
Until December 1994, he was also a Trustee of JMB Group Trust I, JMB Group
Trust II, JMB Group Trust III, JMB Group Trust IV and JMB Group Trust V, which
until that time had been advised by an affiliate of the Investment Adviser.
Mr. Malkin has been associated with JMB since October 1969. He is a Certified
Public Accountant.
Neil G. Bluhm, 59, President and Director of JMB, is a director of Urban
Shopping Centers, Inc., an affiliate of JMB engaged in the business of owning,
managing and developing shopping centers, an officer and/or director of
various other JMB affiliates and a partner of the Associate Partnerships.
Until December 1994, he was also a Trustee of JMB Group Trust I, JMB Group
Trust II, JMB Group Trust III, JMB Group Trust IV and JMB Group Trust V, which
until that time has been advised by an affiliate of the Investment Adviser.
Mr. Bluhm has been associated with JMB since August 1970. He is a member of
the Bar of the State of Illinois and is a Certified Public Accountant.
<PAGE>
PAGE 52
Burton E. Glazov, 58, Director of JMB, was until December 1990 also Executive
Vice President of JMB. Mr. Glazov has been associated with JMB since June
1971. He is member of the Bar of the State of Illinois and is a Certified
Public Accountant.
Stuart C. Nathan, 55, Executive Vice President and Director of JMB, is an
officer and/or director of various JMB affiliates and a partner of the
Associate Partnerships. Mr. Nathan has been associated with JMB since July
1972. He is also a director of Sportmart Inc., a retailer of sporting goods.
He is member of the Bar of the State of Illinois.
John G. Schreiber, 50, Director of JMB, is also a director of Urban Shopping
Centers, Inc., an affiliate of JMB engaged in the business of owning, managing
and developing shopping centers, and was, until December 1990, Executive Vice
President of JMB. Mr. Schreiber has been associated with JMB since December
1970. Mr. Schreiber is President of Schreiber Investments, Inc., a company
which is engaged in the real estate investing business. He is also a senior
advisor and partner of Blackstone Real Estate Partners, an affiliate of the
Blackstone Group, L.P. Mr. Schreiber also serves as a Trustee of Amli
Residential Property Trust, a publicly-traded real estate investment trust
that invests in multi-family properties. He is also a director of a number of
investment companies advised or managed by T. Rowe Price Associates and its
affiliates. He holds a master's degree in business administration from the
Harvard University Graduate School of Business.
A. Lee Sacks, 63, Director of JMB, is President and Director of
JMB Insurance Agency, Inc. and a partner of various Associate
Partnerships. Mr. Sacks has been associated with JMB since
December 1972.
H. Rigel Barber, 48, Chief Executive Officer and Executive Vice President of
JMB, is an officer of various JMB affiliates and a partner of various
Associate Partnerships. Mr. Barber has been associated with JMB since March
1982. He holds a law degree from the Northwestern University Law School and is
a member of the Bar of the State of Illinois.
Ira J. Schulman, 45, Executive Vice President of JMB, is an officer of various
JMB affiliates and a partner of various Associate Partnerships. Mr. Schulman
has been associated with JMB since February 1983. He holds a master's degree
in business administration from the University of Pittsburgh.
Gary Nickele, 44, Executive Vice President and General Counsel of JMB, is an
officer and/or director of various JMB affiliates and a partner of various
Associate Partnerships. Mr. Nickele has been associated with JMB since
February 1984. He holds a law degree from the University of Michigan Law
School and is a member of the Bar of the State of Illinois.
Glenn E. Emig, age 49, Executive Vice President and Chief Operating Officer of
JMB, is an officer of various JMB affiliates and a partner of various
Associate Partnerships. Mr. Emig has been associated with JMB since December
1979. He holds a master's degree in business administration from the Harvard
University Graduate School of Business.
<PAGE>
PAGE 53
Item 11. EXECUTIVE COMPENSATION
Not applicable.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
IDS Life has purchased and expects to continue to purchase accumulation units in
order to maintain the Account's liquidity. By purchasing accumulation units, IDS
Life has an ownership interest in the Account and participates in the increase
or decrease in value of the Account's investments just as other owners of
accumulation units do. As of March 19, 1997, IDS Life owned 24,969,872
accumulation units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Account incurred asset management fees for the year ended December 31, 1996
of $561,742 of which $426,924 was paid to the Investment Adviser and the
remainder to IDS Life. Asset management fees incurred for the year ended
December 31, 1995 were $603,620, of which $458,751 was paid to the Investment
Adviser and the remainder to IDS Life.
For the years ended December 31, 1996 and 1995, IDS Life was paid or reimbursed
$449,393 and $482,896, respectively, for mortality and expense risk fee and
$35,385 and $56,102, respectively, for personnel-related expenses incurred in
the administration of the Account.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A.1) See Item 8 for required financial statements.
(A.2) See Item 8 for required financial statements schedules.
(B) Report on Form 8-K.
No reports on Form 8-K were required by the Registrant during the year
ended December 31, 1996.
No annual report for the fiscal year 1996 or proxy material for the
current year has been distributed to the contract owners as of March
31, 1997. An annual report for the period ending December 31, 1996 will
be distributed to contract owners subsequent to this filing, and copies
of such annual report will be furnished to the Securities and Exchange
Commission at such time.
<PAGE>
PAGE 54 (C) Exhibits.
3.1 Copy of Articles of Incorporation of IDS Life Insurance Company
are hereby incorporated herein by reference to Exhibit A(6)(b) to
Form N-8B-2, File Number 2-97637, filed April 28, 1986.
3.2 Copy of By-laws of IDS Life Insurance Company are hereby
incorporated herein by reference to Exhibit A(6)(b) to Form
N-8b-2, File Number 2-97637, filed
April 28, 1986.
3.3 Copy of Resolution of the Board of Directors of IDS Life Insurance
Company establishing IDS Life Account RE is hereby incorporated
herein by reference to Exhibit 3.3 to the Account's Form S-1, File
Number 33-13375, filed April 13, 1987.
4.1 Form of Deferred Variable Annuity Contract is hereby incorporated
herein by reference to Exhibit 4 to the Account's Form S-1 (as
amended), File Number 33-13375, filed July 17, 1987.
4.2 Copy of mortgage loan documents relating to West Springfield
Terrace Apartments is hereby incorporated herein by reference to
Exhibit 4.2 to the Account's Form S-1 (as amended), File Number
33-13375, filed April 12, 1990.
4.3 Copy of the line of credit agreement, dated March 30, 1994 between
IDS Life and the Account (including a copy of the executed
promissory note, dated March 30, 1994), filed April 5, 1994.
10.1 Copy of Investment Advisory Agreement between IDS Life and JMB
Annuity Advisors is hereby incorporated herein by reference to
Exhibit 10.1 to the Account's Form S-1 (as amended), File Number
33-13375, filed April 29, 1988.
10.2 Copy of N/S Associates Joint Venture Agreement together with
certain documents relating to the purchase of an interest in
Northridge Mall is hereby incorporated herein by reference to
Exhibit 10.2 to the Account's Form S-1 (as amended), File Number
33-13375, filed April 29, 1988.
10.2.1 Copy of Second Amended and Restated Articles of Partnership of N/S
Associates hereby incorporated herein by reference to Exhibit
10.2.1 to the Account's Form S-1 (as amended), File Number
33-13375, filed April 20, 1989.
10.3 Copy of N/S Associates Joint Venture Agreement together with
certain documents relating to the purchase of an interest in
Southridge Mall is hereby incorporated herein by reference to
Exhibit 10.3 to Form S-1 (as amended), File Number 33-13375, filed
April 29, 1988.
<PAGE>
PAGE 55
10.4 Copy of Commitment Letter relating to the funding of a
participating mortgage loan secured by Riverpoint Center is hereby
incorporated herein by reference to Exhibit 10.4 to Form S-1 (as
amended), File Number 33-13375, filed October 11, 1988.
10.5 Copy of Amended and Restated Articles of Partnership of Monmouth
Associates are hereby incorporated herein by reference to Exhibit
10.5 to the Account's Form S-1 (as amended), File Number 33-13375,
filed April 12, 1990.
10.5.1 Copy of Amended and Restated Articles of Partnership of Monmouth
Associates are hereby incorporated herein by reference to Exhibit
10.5.2 to the Account's Form S-1 (as amended), File Number
33-13375, filed April 12, 1990.
10.6 Copy of Agreement together with certain other documents relating
to the purchase of West Springfield Terrace Apartments is hereby
incorporated herein by reference to Exhibit 10.6 to Form S-1 (as
amended), File Number 33-13375, filed
October 16, 1989.
10.7 Copy of Agreement together with certain documents relating to the
purchase of an interest in 1225 Connecticut Avenue is hereby
incorporated herein by reference to the Account's Form S-1 (as
amended), File Number 33-13375, filed June 29, 1990.
10.8 Copy of Purchase Agreement for the sale of the West Springfield
Terrace Apartments is hereby incorporated herein by reference to
the Accounts Report on Form 10-Q (File No. 33-13375) for September
30, 1996 dated
November 14, 1996.
21.1 List of subsidiaries of IDS Life Insurance Company:
American Centurion Life Assurance Company, American
Enterprise Life Insurance Company, American Partners
Life Insurance Company, and IDS Life Insurance Company
of New York
27.1 Financial Data Schedule of the Account for the period ended
December 31, 1995 is filed herewith.
99.1 Copy of description of surrenders, withdrawals and transfers from
pages 61 to 62 and 66 to 67 of the Account's prospectus included
in its Form S-1 (as amended), File Number 33-13375 to be filed
March 31, 1997, is filed herewith.
99.2 Copy of description of the Account's real estate related
investments from pages 21 to 44 of the Account's prospectus
included in its Form S-1 (as amended), File Number 33-13375 to be
filed March 31, 1997, is filed herewith.
<PAGE>
PAGE 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned officers of IDS Life Insurance Company, thereunto duly
authorized.
IDS LIFE ACCOUNT RE of IDS LIFE INSURANCE COMPANY
Registrant
March 29, 1997 By /S/ James A. Mitchell
Date James A. Mitchell, Chairman of the
Board and Chief Executive Officer
March 29, 1997 By /S/ Melinda S. Urion
Date Melinda S. Urion, Executive Vice
President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
March 29, 1997 By /S/ David R. Hubers
Date David R. Hubers, Director
March 29, 1997 By /S/ Richard W. Kling
Date Richard W. Kling, President
March 29, 1997 By /S/ Paul F. Kolkman
Date Paul F. Kolkman, Executive
Vice President
March 29, 1997 By /S/ James A. Mitchell
Date James A. Mitchell, Chairman of the
Board and Chief Executive Officer
March 29, 1997 By /S/ Melinda S. Urion
Date Melinda S. Urion, Executive Vice
President and Controller
<PAGE>
PAGE 1
IDS Life Account RE
File No. 33-13375
EXHIBIT INDEX
Exhibit 27.1: Financial Data Schedule.
Exhibit 99.1: Copies of pages 58-60 & 63-65 of Form S-1.
Exhibit 99.2: Copies of pages 21-41 of Form S-1.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 102737
<SECURITIES> 10254310
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10357047
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33745929
<CURRENT-LIABILITIES> 200453
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33545476
<TOTAL-LIABILITY-AND-EQUITY> 33745929
<SALES> 1887995
<TOTAL-REVENUES> 2336154
<CGS> 0
<TOTAL-COSTS> 1488818
<OTHER-EXPENSES> 449393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551434
<INCOME-PRETAX> (153491)
<INCOME-TAX> (153491)
<INCOME-CONTINUING> (153491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153491)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
PAGE 1
Contract Surrender
An election to surrender a Contract may be made in writing to the home office of
IDS Life in Minneapolis, MN. If required by IDS Life, the request for surrender
must be accompanied by the Contract if a request for the full surrender value is
being made. An election to surrender a Contract can be made only while the
Contract is in force prior to the earlier of the retirement date or the death of
the first to die of the annuitant or owner. The surrender value is determined on
the basis of the accumulation unit value in effect on the date on which a
request for surrender is received by IDS Life in proper order.
A partial surrender request not exceeding $50,000 may be made by contacting IDS
Life by telephone. IDS Life has the authority to honor any telephone partial
surrender request it believes to be authentic and will use reasonable procedures
to confirm that they are. This includes asking identifying questions and tape
recording calls. As long as the procedures are followed, neither IDS Life nor
its affiliates will be liable for any loss resulting from fraudulent requests.
At times when the volume of telephone requests is unusually high, IDS Life will
take special measures to ensure your call is answered as promptly as possible. A
telephone surrender request will not be allowed within 30 days of a phoned-in
address change. You may request that telephone withdrawals not be authorized
from your account by writing IDS Life.
The surrender value will be paid within seven days after the date on which a
proper request is received by IDS Life, except that under certain circumstances
IDS Life may delay or suspend payments. See the Suspension and Delay of Payments
section. You will be charged a fee if you request express mail delivery of your
payment.
An owner may surrender all or a portion of the contract value. Any partial
surrender must be for at least $250, and no partial surrender can be made if it
would reduce the contract value after such surrender to less than $600.
Automated partial surrenders may be made through a one-time written request (or
other method acceptable to IDS Life). The minimum surrender amount from the
Contract is $50, and such surrender can be made on a monthly, quarterly,
semi-annual or annual basis. You may start or stop this service at any time, but
you must give IDS Life 30 days' notice to change any automated surrender
instructions that are currently in place. Automated partial surrenders are
subject to all of the other contract provisions and terms. Automated partial
surrenders may be restricted by applicable law. In addition, the payment of
additional purchase payments, if allowed under the Contract, while automated
partial surrenders are in effect, may not be appropriate and therefore is not
permitted. Automated partial surrenders may result in taxes and penalties being
applied to all or a portion of the amount surrendered. See the Certain Federal
Income Tax Considerations section. You should consult your tax adviser if you
have any questions about the taxation of your annuity.
No surrender can be made after the retirement date or the death of the first to
die of the annuitant or owner. Any amounts surrendered and charges that may
apply cannot be repaid. A surrender charge, which is a contingent deferred sales
charge, will be imposed for any surrender made during the first eight payment
years of any purchase payment. The surrender charge applies separately to the
initial purchase payment and to each additional purchase payment. Regardless of
when a purchase payment is made, the contract year in which a purchase payment
is made is the first payment year for that purchase payment, and succeeding
payment years continue to be measured separately for that
<PAGE>
PAGE 2 purchase payment.
For a partial surrender, accumulation units attributable to the earliest payment
year are surrendered first. The surrender charge is 8 percent of the amount
surrendered during the first payment year and decreases by 1 percent per year
thereafter to 1 percent in the eighth payment year. There is no surrender charge
on amounts surrendered after the eighth payment year. In no event will the
aggregate surrender charges imposed exceed 8.5 percent of the aggregate purchase
payments received. IDS Life may, in its discretion, reduce or eliminate
surrender charges for certain group sales of the Contracts. See the Contract
Charges and Deductions -- Surrender Charges section. Owners should also be aware
that, under certain circumstances, a surrender before the owner has reached the
age of 59-1/2 may be subject to a penalty under the Code. See the Certain
Federal Income Tax Considerations section.
Suspension and Delay of Payments
IDS Life will attempt to make payments under the Contracts within seven days
whenever the Account has cash available. However, IDS Life reserves the right to
defer making any such payments under the Contracts for up to six months. This
reservation of the right to suspend payments is only intended to be utilized in
the emergency circumstances set forth in the remainder of this section. Subject
to any suspension of payments described below, IDS Life guarantees that payments
on death of the first to die of the annuitant or owner prior to the retirement
date will be made within seven days of receipt by IDS Life of its death claim
requirements after the death of the annuitant or owner, whichever occurs first.
In addition, payment of surrender values may be delayed if a check for a
purchase payment has not cleared the bank on which it was drawn.
IDS Life may suspend any payments due under the Contracts beyond the seven-day
period for up to six months when IDS Life determines that there is insufficient
cash available to meet all current surrender requests and other payment
obligations of the Account and the sale of the real estate related assets of the
Account could not be made on a timely basis on commercially reasonable terms. In
the event of any suspension of payments, the cash available will be used in the
following order of priority:
First -- to meet any obligations the Account has other than Contract
obligations. Such obligations would include those expenses necessary to continue
the operation of the Account, other than fees to IDS Life, which fees will be
deferred until ALL Contract obligations are satisfied.
Second -- to make annuity payments in full or pro rata depending on the cash
available. All annuitants will be treated as a class, including those who
annuitized during the suspension. No other payments will be made until all
unpaid annuity payments are made.
Third -- to make payments due on the death of the annuitant or the owner that
became due and payable after the declaration of suspension. All payees of
payments on death will be treated as a class and payments may be made pro rata
depending upon the cash available.
Finally -- no payments of surrender values will be permitted during such a
suspension while any annuity payments or payments on death remain unpaid.
Depending upon the cash available, any payments of surrender values during such
suspension will be made in accordance with the order in which surrender requests
are received by IDS Life.
<PAGE>
PAGE 3
If a payment of a surrender or an annuity payment is deferred, the amount will
be determined as of the end of the valuation period during which the surrender
request was received or the annuity payment was due, and, with respect to such
amount, participation in the investment experience of the Account will cease. If
IDS Life defers a payment of a surrender or an annuity payment for 30 days or
more, IDS Life will credit interest on the amount of the payment at a rate of 3
percent per year or such higher rate as IDS Life, in its discretion,
establishes. If IDS Life defers payment on death for more than seven days, IDS
Life will credit interest on the amount of payment at a rate of 3 percent per
year or such higher rate as IDS Life, in its discretion, establishes or that
which is required by law.
Owners who remain in the Account will bear the investment risk that real estate
related investments of the Account will have to be sold under emergency
circumstances that could result in the realization by the Account of less than
the investment value of such investments notwithstanding any suspension or delay
in payments as permitted under the Contracts.
Transfer of Ownership
The owner may transfer ownership of the Contract, at any time while the
annuitant is living, by filing a transfer of ownership with IDS Life at its home
office. IDS Life will not be bound by any transfer of ownership until the
written transfer in form and substance acceptable to IDS Life is received by it.
IDS Life is not responsible for the validity of any transfer. A transfer will be
effective as of the date of request for the transfer, subject to any action
taken or payment made by IDS Life prior to receipt of the transfer. IDS Life is
not liable as to any payment or other settlement made by it before receipt of
the transfer.
INASMUCH AS A TRANSFER MAY BE A TAXABLE EVENT, OWNERS SHOULD CONSULT THEIR OWN
TAX ADVISERS SHOULD THEY WISH TO TRANSFER THEIR CONTRACTS.
<PAGE>
<PAGE>
PAGE 1
Summary of Investments
The following is a table which sets forth all real estate related investments
presently made or committed to be made by the Account as of the date of this
prospectus.
Real Property Investments
Long-Term
Cash payments made Indebtedness
or to be made (a) Amount Rate
Shopping Centers
Northridge Mall
Milwaukee, Wis. (b)........ $5,838,000 none N/A
Southridge Mall
Greendale/Greenfield
Milwaukee, Wis. (b)........ 6,170,000 $2,072,700 8.35%
Office Building
1225 Connecticut Avenue
Washington, D.C. (b)........ 9,000,000 1,143,100 6.98%
- -------------------------------------------------------------------
$21,008,000 $3,215,800
Mortgage Loan and Land Sale-Leaseback Investments
Cash payments made
or to be made (a)
Shopping Centers
Monmouth Mall
Eatontown, New Jersey (b)...................... $11,154,000
(a) Includes cash down payments, amounts funded or committed to be funded for
mortgage loans, prepayment premiums, special reserves and other cash payments
made or expected to be made out of the Account's net assets but does not include
acquisition and mortgage placement fees, mortgage financing fees and other
acquisition, placement or financing costs. (b) The interest of the Account in
this investment is owned by the Account through a joint venture. The amount
shown for the property under "Cash payments made or to be made" includes only
the cash investment of the Account in the joint venture for this investment and
does not reflect any investment by any other joint venturers in the investment
owned by the joint venture. For real property investments in which the Account
has an equity interest, the amount shown for the investment under Long-Term
Indebtedness reflects the Account's proportionate share, based upon its percent
interest in the joint venture, of the amount of financing which is encumbering
the property held by the joint venture.
<PAGE>
PAGE 2
The Account's investments in Northridge Mall and Southridge Mall and in the land
sale-leaseback investment and first leasehold mortgage loan secured by Monmouth
Mall have been made through two joint venture partnerships, the other partners
of which include institutional investors. The percent interest of each partner
in these two joint ventures is determined generally based on the timing and
amount of capital contributed by all partners.
The Account made a capital contribution of approximately $12,008,000 in return
for an approximate 5.92 percent interest in N/S Associates, which owns interests
in Northridge Mall and Southridge Mall, and made an initial capital contribution
of $10,000,000 in return for an approximate 6.97 percent interest in Monmouth
Associates, which owns the underlying land subject to a ground lease of, and
holds a first leasehold mortgage on, Monmouth Mall. JMB Group Trust IV, which
had been advised by an affiliate of the Investment Adviser but is currently
advised by an unaffiliated third party, owns the majority percent interest in
each of N/S Associates and Monmouth Associates.
In May 1994, Monmouth Associates agreed to finance the cost of a renovation of
Monmouth Mall. The maximum amount of the renovation loan is $29,100,000 and
through December 31, 1996, Monmouth Associates had funded $24,615,000 of the
renovation loan for Monmouth Mall. Funings of principal on the loan have been
made from cash reserves held by Monmouth Associates, cash flow from interest and
ground rent payments received from the borrower/lessee and capital contributions
made to Monmouth Associates by its partners pro rata base upon their respective
interests. The aggregate amount of capital contributions to finance the loan, is
approximately $9,830,000. The Account's share of these capital contributions is
approximately $685,000. The aggregate amount of the renovation loan, including
accrued and deferred interest of approximately $1,300,000, is currently expected
to be approximately $26,125,000. Remaining fundings for the renovation loan are
expected to be made from cash flow and funds currently held by Monmouth
Associates. Monmouth Associates may also be required to make certain additional
loans to pay a portion of the costs of certain tenant improvements or other
ordinary capital expenditures. In addition, Monmouth Associates may provide
additional financing to the borrower/lessee in order to pay costs to be incurred
in connection with the replacement of a department store tenant at Monmouth
Mall. However, it is not currently expected that this would occur during 1997.
The renovation is nearing completion with tenant improvement work for one of the
larger tenants and retainage work remaining. The occupancy of mall shops and
outparcel space at the shopping center as of December 31, 1996 was approximately
83 percent. However, the mall shops and outparcel space are approximately 86
percent leased. Leasing and occupancy at the shopping center have been adversely
affected my tenant bankruptcies which occurred in 1995.
In general, joint venture partnership agreements for N/S Associates and Monmouth
Associates provide that decisions concerning the joint ventures and their real
estate investments are to be made by the vote or approval of the joint venture
partner or partners holding a majority of the percent interests in the
respective joint ventures.
Under the respective joint venture partnership agreements, in the
<PAGE>
PAGE 3
event that one or more, but less than all, of the joint venture partners propose
to sell the joint venture's entire interest in a real estate related investment
during a specified period commencing generally not earlier than the end of the
fourth year after the funding of the investment and ending 10 years after such
funding, each other joint venture partner not approving such sale will have a
right of first offer to purchase such investment on the terms set forth in a
notice of the proposed sale from the joint venture partners desiring such sale.
If more than one joint venture partner elects to exercise a right of first
offer, each of the joint venture partners making such election will have the
right to purchase an interest in such investment based upon the proportion of
its percent interest in the respective joint venture to the aggregate percent
interests of all joint venture partners making such election. If no Joint
venture partner elects to exercise the right of first offer, the joint venture
partners approving the sale may effect such sale on behalf of the respective
joint venture for a sales price of not less than 90 percent of the proposed
sales price and on other terms at least as favorable to the respective joint
venture as those set forth in the notice of proposed sale.
In general, each joint venture partner may sell its interest in the respective
joint venture subject to each other joint venture partner's right of first
refusal to purchase the interest, and any such sale may not be made without the
consent of all other joint venture partners unless it is to be made to an
affiliate of the selling joint venture partner or to certain institutional
investors, a "Fortune 500" corporation or an affiliate thereof, or to an entity
of similar financial standing or sophistication of the foregoing or of the
selling joint venture partner.
Northridge Mall
Milwaukee, Wisconsin
Northridge Mall, located in Milwaukee, Wisconsin, was completed in 1972. The
mall shops and four adjacent department stores comprising the shopping center
contain approximately 1,053,000 square feet of gross leasable area, of which N/S
Associates owns approximately 399,000 square feet. The remaining 654,000 square
feet of gross leasable area are occupied by four department stores, three of
which own their own stores and a portion of the parking area. These four stores
are Younkers, which leases its store from an unaffiliated third party
(approximately 166,000 square feet), J.C. Penney (approximately 168,000 square
feet), Sears (approximately 169,000 square feet) and Boston Store (approximately
151,000 square feet). Existing operating covenants for occupancy of their stores
by Younkers extend through January 1999 and by Boston Store through 2000. J.C.
Penney and Sears, whose operating covenants expired in August 1992, continue to
operate their respective stores at the shopping center.
The acquisition of Younkers by Proffitt's, Inc. eliminated the need for a
possible anchor replacement at both Northridge and Southridge malls. Carson,
Pirie Scott & Co. had made a bid in 1995 to purchase the Younkers chain, which
operates at both malls. Carson's already operates the Boston Store at Northridge
and Southridge, and indicated that they would not continue operating the
Younkers store if they acquired the chain. The acquisition by Proffitt's
eliminated the need for an anchor replacement at both centers.
<PAGE>
PAGE 4
The shopping center is located on an approximate 105-acre site, of which N/S
Associates owns approximately 32 acres, at the northwest corner of West Brown
Deer Road and North 76th Street on the north side of Milwaukee. The shopping
center is a two-level center of masonry construction and contains a large center
court atrium with a fountain and skylights. The entire parking lot contains
parking for approximately 7,800 automobiles.
Real estate taxes on the portion of the shopping center owned by N/S Associates
were approximately $2,508,000 for the 1996 tax year and are estimated to be
approximately $2,054,000 for the 1997 tax year. By contesting the real estate
taxes, the manager of the property was able to achieve a reduction in real
estate taxes for 1996 and 1995.
The shopping center is subject to competition from other retail properties in
the vicinity. In the opinion of the Investment Adviser, the portion of the
shopping center owned by N/S Associates is adequately insured.
The portion of the shopping center owned by N/S Associates consists of
approximately 388,000 square feet of mall space and 11,000 square feet of
storage space. The mall space is currently approximately 77 percent leased and
occupied by 121 tenants. Tenant leases for mall space have minimum terms, not
including renewal options, ranging from one to twenty years, with current annual
base rents ranging from approximately $12 to $199 per square foot. The current
average annual base rent for mall space is approximately $19.86 per square foot.
The average annual occupancy rates (based upon occupancy at the end of each
month during the year) and approximate average annual base rents per square foot
for the mall space for the past five years are as follows:
Average Annual
Average Annual Base Rent
Year Occupancy Rate Per Square Foot
1992 87% $22.20
1993 87% $22.30
1994 80% $22.65
1995 90% $22.78
1996 80% $19.86
Substantially all of the leases contain provisions pursuant to which N/S
Associates is entitled to participate in tenant gross receipts above certain
minimum amounts, and most leases entitle N/S Associates to receive tenants'
contributions for operating expenses and real estate taxes. Certain of the more
recent leases provide for N/S Associates' participation in tenant gross receipts
above certain minimum amounts without receipt by N/S Associates of any specified
annual base rent or tenant contributions for operating expenses or real estate
taxes.
N/S Associates acquired its interest in the shopping center in April 1988 for a
purchase price of approximately $89,653,000 paid in cash at closing, subject to
the existing mortgage loans with a then outstanding aggregate balance of
approximately $18,454,000. At closing, N/S Associates established a reserve of
approximately $8.9 million that has been used to pay for certain capital
improvements made at the shopping center, including certain asbestos removal,
<PAGE>
PAGE 5
construction of a food court and center and side court improvements.
It is expected that additional asbestos removal will be undertaken from time to
time. For 1997 N/S Associates has currently budgeted approximately $4,329,000
for tenant improvements and asbestos abatement for certain tenant spaces at
Northridge Mall. Such amount is expected to be paid out of the cash flow of the
property.
In February 1995, N/S Associates repaid the two mortgage loans secured by
Northridge Mall, as well as the mortgage loan secured by Southridge Mall, out of
the proceeds of a new loan in the principal amount of $35,000,000 secured by a
mortgage on Southridge Mall. In addition, approximately $2,900,000 of the net
proceeds from the new mortgage loan was used to pay tenant improvements,
asbestos abatement and other capital costs incurred for Northridge and
Southridge Malls during 1995.
The portion of the shopping center owned by N/S Associates is being managed by
an affiliate of the Investment Adviser under an agreement pursuant to which it
is obligated to manage the property and collect all receipts from operations of
the property. The affiliate of the Investment Adviser is paid an annual fee
equal to 3.75 percent of the gross receipts of the property plus reimbursement
of certain direct expenses in connection with the management of the property.
Northridge Mall has been adversely affected by a perception that it is an unsafe
place to shop. This perception has resulted in declining sales and occupancy
over the past several years. Compounding the problem of declining sales are the
high operating costs for tenants due to the high real estate taxes at the
shopping center. By contesting the real estate taxes, the manager of the
property was able to achieve a reduction in taxes in 1996 and 1995. Occupancy
has also been affected by continuing tenant bankruptcies. To counter the
negative image for Northridge Mall, N/S Associates made certain capital
improvements including parking lot lighting and improved interior lighting, and
implemented operational programs to improve the shopping center's safety and
appearance, as well as instituted certain marketing efforts to enhance its
image. In addition, N/S Associates continues to seek to increase occupancy by
aggressively marketing space for new and renewal tenants through leasing
incentives, as well as cooperating with existing tenants who need short-term
rent reductions in order to maintain occupancy of their space. Certain positive
sales trends appear to indicate a modest improvement, however, elimination of
the negative perception is expected to take some time.
<PAGE>
PAGE 6
The following is a schedule of expiration of leases (exclusive of storage space
and assuming no renewals or cancellations) and current annual base rents
allocable thereto as of Dec. 31 1996:
Year of Number Current Percentage of
Expiration of Square Annual Current Annual
of Leases Tenants Feet Base Rent Base Rent
- -----------------------------------------------------------
1997.......... 25 81,283 $ 308,508 5.01%
1998.......... 26 60,361 1,413,492 22.93
1999.......... 24 44,210 1,178,040 19.11
2000.......... 10 12,150 465,480 7.55
2001.......... 9 17,415 500,808 8.13
2002.......... 9 16,738 573,348 9.30
2003.......... 3 16,620 492,144 7.98
2004.......... 4 12,899 299,088 4.85
2005.......... 3 4,548 147,972 2.40
2006.......... 7 17,613 334,344 5.42
2007.......... 2 6,759 135,528 2.20
2008.......... 2 13,739 314,856 5.12
- ---------------------------------------------------------
Southridge Mall
Greendale/Greenfield (Milwaukee),
Wisconsin
Southridge Mall, completed in 1970, is located in the Village of Greendale and
City of Greenfield south of Milwaukee, Wisconsin. The mall shops and five
adjacent department stores comprising the shopping center contain approximately
1,295,000 square feet of gross leasable area, of which N/S Associates owns
approximately 435,000 square feet, including the space leased to Kohl's
Department Store, one of the anchor tenants, and approximately 2,000 square feet
of storage space. The remaining approximately 860,000 square feet of gross
leasable area are occupied by four department stores, three of which own their
own stores and a portion of the parking area. These four stores are Younkers,
which leases its store from an unaffiliated third party (approximately 203,000
square feet), Boston Store (approximately 221,000 square feet), Sears
(approximately 251,000 square feet) and J.C. Penney (approximately 185,000
square feet). Existing operating covenants for occupancy of their stores by
Younkers extend through January 1999 and by Boston Store through 2000. J.C.
Penney and Sears, whose operating covenants have expired, continue to operate
their respective stores at Southridge Mall.
The acquisition of Younkers by Proffitt's, Inc. eliminated the need for a
possible anchor replacement at both Northridge and Southridge malls. Carson,
Pirie Scott & Co. had made a bid in 1995 to purchase the Younkers chain, which
operates stores at both malls. Carson's already operates the Boston Store at
Northridge and Southridge, and had indicated that they would not continue
operating the Younkers store if they acquired the chain. The acquisition by
Proffitt's eliminated the need for an anchor replacement at both centers.
The shopping center is located on an approximately 105-acre site, of which N/S
Associates owns approximately 34 acres, at the intersection of West Grange
Avenue and South 76th Street in Milwaukee County. It is a two-level center of
masonry construction and contains a large center court atrium with a fountain
and skylights. The entire parking lot contains parking for approximately 6,900
automobiles.
<PAGE>
PAGE 7
Real estate taxes on the portion of the shopping center owned by N/S Associates
were approximately $4,088,000 for the 1996 tax year and are estimated to be
approximately $3,628,000 for the 1997 tax year. By contesting the real estate
taxes, the manager of the property was able to achieve a reduction in real
estate taxes for 1996 and 1995.
The shopping center is subject to competition from other retail properties in
the vicinity. In the opinion of the Investment Adviser, the portion of the
shopping center owned by N/S Associates is adequately insured.
The portion of the shopping center owned by N/S is approximately 94 percent
leased and occupied by 132 tenants. During the third quarter of 1995 N/S
Associates and Kohl's entered into an amendment of its lease. Pursuant to the
lease amendment the term of Kohl's lease has been extended from 2001 until 2015
and the tenant space has been increased by approximately 19,000 square feet to
approximately 85,000 square feet, exclusive of storage space. Kohl's is required
to pay annual base rent of $9.25 per square foot, as well as one-half of its pro
rata share for real estate taxes and a fixed amount for common area maintenance
expense. Kohl's is also obligated to pay as additional rent a percentage of its
gross receipts in excess of a minimum amount of annual sales which was
determined after the tenant occupied the entire leased space. N/S Associates is
responsible for paying the costs of asbestos removal for the tenant space, which
is substantially complete as of December 31, 1996. Kohl's was obligated to pay
other costs associated with the leased space, including tenant improvements and
lease buy-out and relocation costs of other tenants. The lease amendment also
contains an operating covenant pursuant to which Kohl's is obligated to operate
its retail store at Southridge Mall until 2005, subject to earlier termination
under certain circumstances. Although the lease amendment reduces Kohl's overall
rent, the expansion of its space and the extension of its lease term is expected
to stabilize the shopping center on a long-term basis by ensuring Kohl's
continued occupancy and therefore its continued contribution to customer
traffic. Other tenant leases (exclusive of storage space) have minimum terms,
not including renewal options, ranging from 3 to 15 years, with current annual
base rents ranging from approximately $10 to $116 per square foot. The current
average annual base rent for mall space is approximately $23.79 per square foot.
The average annual occupancy rates (based upon occupancy at the end of each
month during the year) and approximate average annual base rents per square foot
for tenant space (inclusive of Kohl's Department Store but exclusive of storage
space) for the past five years are as follows:
Average Annual
Average Annual Base Rent
Year Occupancy Rate Per Square Foot
1992 87% $20.90
1993 90% $21.20
1994 91% $20.90
1995 95% $20.40
1996 90% $23.79
Substantially all of the leases contain provisions pursuant to which N/S
Associates is entitled to participate in tenant gross receipts
<PAGE>
PAGE 8
above certain minimum amounts and to receive tenants' contributions for
operating expenses and real estate taxes. N/S Associates acquired its interest
in the shopping center in April 1988 for a purchase price of approximately
$96,865,000 paid in cash at closing, subject to the existing first mortgage loan
with a then outstanding balance of approximately $18,536,000. N/S Associates
established a reserve of approximately $7,250,000 which has been used for
certain capital improvements at the shopping center including, among other
things, asbestos abatement and center and side court improvements. For 1997, N/S
Associates has currently budgeted approximately $983,000 for tenant
improvements, asbestos abatement and capital improvements at Southridge Mall.
Such amount is expected to be paid out of the cash flow from the property.
In February 1995, N/S Associates repaid the mortgage loan secured by Southridge
Mall, as well as the two mortgage loans secured by Northridge Mall, out of the
proceeds of a new loan in the principal amount of $35,000,000 secured by a
mortgage on Southridge Mall. In addition, approximately $2,900,000 of net
proceeds from the new mortgage loan were used to pay for tenant improvements and
other capital costs incurred for Northridge and Southridge Malls. The new
mortgage loan has a term of seven years, bears interest at 8.35 percent per
annum and requires monthly payments of interest only aggregating approximately
$2,923,000 per annum prior to maturity in February 2002, when the entire
principal amount and any accrued and unpaid interest will be due and payable.
The new mortgage loan permits only a prepayment in full, subject to the payment
of a premium of the greater of 1 percent of the outstanding principal balance of
the loan and an amount calculated pursuant to a defined yield maintenance
formula. The remedies under the new mortgage loan are generally limited to the
property securing the loan.
The portion of the shopping center owned by N/S Associates is being managed by
an affiliate of the Investment Adviser under an agreement pursuant to which it
is obligated to manage the property and collect all receipts from operations of
the property. The affiliate of the Investment Adviser is paid a fee equal to
3.75 percent of the gross receipts of the property plus reimbursement of certain
direct expenses in connection with the management of the property.
<PAGE>
PAGE 9
The following is a schedule of expiration of leases (inclusive of Kohl's
Department Store but exclusive of storage space and assuming no renewals or
cancellations) and current annual base rents allocable thereto as of Dec. 31
1996:
Year of Number Current Percentage of
Expiration of Square Annual Current Annual
of Leases Tenants Feet Base Rent Base Rent
- -----------------------------------------------------------
1997.......... 22 39,011 $ 498,420 5.35%
1998.......... 21 50,631 1,490,976 16.01
1999.......... 13 19,766 438,756 4.71
2000.......... 22 39,042 1,281,828 13.76
2001.......... 22 37,902 1,096,500 11.77
2002.......... 9 13,245 561,816 6.03
2003.......... 8 32,651 810,444 8.70
2004.......... 7 25,697 663,900 7.13
2005.......... 9 21,072 673,764 7.23
2006.......... 8 24,767 717,588 7.71
2007.......... 2 3,206 80,400 .86
2009.......... 1 7,507 210,192 2.26
2015.......... 1 85,247 788,535 8.48
- ---------------------------------------------------------
Monmouth Mall
Eatontown, New Jersey
In October 1988 Monmouth Associates (i) acquired certain land underlying a super
regional shopping center in Eatontown, New Jersey known as Monmouth Mall, (ii)
leased the land to the owner of the shopping center pursuant to a long-term
ground lease, and (iii) made a first mortgage loan to the owner of the shopping
center secured by the leasehold estate and the improvements thereon. The
borrower under the first leasehold mortgage loan and lessee under the ground
lease (hereinafter the "borrower/lessee") is a partnership whose partners are
not affiliated with Monmouth Associates or any of its joint venture partners.
The shopping center is being reconfigured in connection with the renovation
discussed below. Upon completion of the renovation, the shopping center will
contain approximately 1,503,000 square feet of gross leasable area, of which
approximately 614,000 square feet will consist of mall shops (approximately
470,000 square feet), a fifteen screen cinema (approximately 77,000 square
feet), outparcel buildings (approximately 17,000 square feet) and storage and
basement area (approximately 50,000 square feet). The remaining gross leasable
area includes four department stores, which are Macy's (approximately 262,000
square feet), J.C. Penney (approximately 203,000 square feet), Abraham & Straus
(approximately 265,000 square feet) and Lord & Taylor (approximately 159,000
square feet). Existing operating covenants of the anchor department stores for
reimbursement of a specified amount of common area maintenance expenses and
operation of a retail business at their stores (which may be different from the
current retail business), generally extend to 1998 for Abraham & Straus, 2005
for Macy's and Lord & Taylor, and 2006 for J.C. Penney, with certain option or
renewal rights thereafter in favor of Abraham & Straus and Lord & Taylor.
Federated Department Stores, which owns Abraham & Straus, completed its merger
with Macy's, and in January 1995 Federated Department Stores announced that it
would close the entire Abraham & Straus
<PAGE>
PAGE 10
chain of stores and either convert them to other stores or sell them. Federated
Department Stores converted the Abraham & Straus store at Monmouth Mall to a
Stern's store in the spring of 1995, as permitted under the terms of its
operating agreement. Macy's covenant to operate a department store (in addition
its covenant to operate a retail business) expired in 1995. Preliminary
discussions with Macy's continue regarding a possible extension of their
operating covenant, but there can be no assurance any such extension will be
finalized. The Macy's store continues to operate at Monmouth Mall.
The shopping center is located on an approximately 104-acre site located at the
intersection of Routes 35 and 36 and Wyckoff Road in Eatontown, New Jersey.
Macy's owns its own department store and approximately 2 acres of underlying
land, and J.C. Penney owns its own store and approximately 12 acres of
underlying land. The remaining approximately 90 acres of land underlying the
shopping center were acquired by Monmouth Associates subject to the right of
Stern's to acquire the land underlying its store. Stern's, which currently
leases its store and the approximately 14 acres of underlying land for nominal
base rent, has the right to acquire the underlying land at any time after 1998
and to acquire its store at any time after 2028, in each case for nominal
consideration. The shopping center is a multi-level super regional center
constructed of structural steel framing with concrete block facing. The entire
parking lot (a portion of which is owned by certain of the department stores)
contains combined surface and deck parking for approximately 8,225 automobiles.
The Lord & Taylor lease provides for annual base rent of approximately $60,400
and an initial term of 16 years ending in 2006 with six 10-year renewal options
at the same annual base rent. Each of Lord & Taylor and Stern's pays a
percentage of its gross receipts above a certain minimum amount as well as a pro
rata share of the real estate taxes as additional rent. Sony Theaters operates
the cinema under a lease that commenced in 1994 and provides for an initial term
of 21 years with a current annual base rent of approximately $711,000 with
specified periodic increases. The lease also requires the tenant to pay a
specified amount of operating expense reimbursements and a pro rata share of the
real estate taxes, as well as a percentage of its gross receipts above a certain
minimum amount as additional rent. The lease also provides for five 5-year
renewal options with specified increases in annual base rent. In addition to its
own department store, Macy's also leases approximately 36,400 square feet of
space from the borrower/lessee for its children's store at the shopping center.
Real estate taxes on the portion of the shopping center owned by the
borrower/lessee were approximately $1,687,839 for the 1996 tax year and are
budgeted to be approximately $2,071,362 for the 1997 tax year. The shopping
center is subject to competition from other retail properties in the area,
including an approximately 1,300,000 square foot shopping center that opened in
the general vicinity in August 1990. In the opinion of the Investment Adviser,
the portion of the shopping center owned by the borrower/lessee is adequately
insured.
<PAGE>
PAGE 11
The mall shops and outparcel space at the shopping center are currently 86
percent leased by 136 tenants with current annual base rents ranging from
approximately $2 to $121 per square foot and a current average annual base rent
of approximately $24.90 per square foot. Leases for mall shops and outparcel
space have minimum terms, not including renewal options, ranging from 5 to 15
years. Due to the renovation of the shopping center discussed below, the current
occupancy of the mall shops and outparcel space is approximately 83 percent. The
average annual occupancy rates (based upon occupancy at the end of each month
during the year) and approximate average annual base rents per square foot for
the mall shops and outparcel space for the past five years are as follows:
Average Annual
Average Annual Base Rent
Year Occupancy Rate Per Square Foot
1992 82% $19.85
1993 81% $19.95
1994 67% $21.40
1995 69% $24.76
1996 75% $24.90
Substantially all of the leases contain provisions pursuant to which tenants are
required to pay specified percentages of their gross receipts above certain
minimum amounts as additional rent and to pay their pro rata share of the
operating expenses and real estate taxes of the shopping center.
The Limited owns a number of apparel store tenants who have the following leases
of mall space at Monmouth Mall:
Current
Square Annual Original
Tenant Feet Base Rent Term
- ----------------------------------------------------------------
The Limited 8,470 $99,522 12 years
The Limited Too 3,952 92,872 12 years
Lerner New York 7,045 140,900 12 years
Compagnie International Express 10,957 128,745 12 years
Structure 5,849 137,451 12 years
Victoria's Secret 6,908 162,338 12 years
Lane Bryant 4,137 60,000 13 years
Mozzarellas Cafe 5,051 114,425 15 years
- ------------------------------------------------------------------
In October 1988, Monmouth Associates (i) purchased approximately 88.5 acres of
land underlying the shopping center (subject to the right of Stern's to acquire
the approximately 14 acres underlying its store) for $13,000,000 paid in cash;
(ii) leased the land back to the borrower/lessee pursuant to a long-term ground
lease; and (iii) made a first mortgage loan in the principal amount of
$128,920,000 to the borrower/lessee secured by the leasehold estate and the
improvements thereon. The ground lease, which has a term of 75 years commencing
in October 1988 (subject to earlier termination in the event of a sale of the
land as described below), provides for monthly base rent aggregating $1,170,000
annually with minimum payments of $650,000. The ground lease also provides for
contingent rent (payable quarterly out of the excess, if any, of substantially
all of the gross receipts from the operations of the shopping center received by
the borrower/lessee over certain base amounts) equal to the sum of (x) a
specified annual amount (commencing in the fourth lease year at
<PAGE>
PAGE 12
$390,000 per annum and increasing in the sixth lease year to $520,000 per
annum), increased until paid at the "applicable rate" of interest payable under
the first leasehold mortgage loan described below (such mount as so increased
herein called the "rent shortfall amount"), plus (y) 15 percent of the balance
of such excess gross receipts remaining after deducting the aggregate amount
paid at such time of the rent shortfall amount under the ground lease and the
"interest shortfall amount" under the first leasehold mortgage loan as described
below.
The first leasehold mortgage loan has a term of 15 years to October 2003, which
may be extended from time to time at the option of Monmouth Associates for up to
an additional 20 years, subject to acceleration of the loan in the event of a
joint sale of the property or a purchase by either Monmouth Associates or the
borrower/lessee of the other party's entire interest in the property.
The first leasehold mortgage loan provides for monthly payments of base interest
at a base rate of 5.98 percent per annum for the first two loan years, 7.97
percent per annum for the third loan year and 5 percent per annum for each loan
year thereafter. The first leasehold mortgage loan also provides for quarterly
payments of contingent interest (payable out of the excess, if any, of
substantially all of the gross receipts from the operations of the shopping
center received by the borrower/lessee over certain base amounts) equal to the
sum of (x) the difference between the amount of interest payable on the loan at
the "applicable rate" and that payable at the base rate described above,
increased until paid at the applicable rate (such amount as so increased herein
called the "interest shortfall amount"), plus (y) 45 percent of the balance of
such excess gross receipts remaining after deducting the aggregate amount paid
at such time of the rent shortfall amount under the ground lease and the
interest shortfall amount under the first leasehold mortgage loan. The
"applicable rate" under the loan is 5.98 percent per annum for the first two
loan years, 7.97 percent per annum for the next three loan years and 8.97
percent per annum for each loan year thereafter.
In May 1994, Monmouth Associates agreed to finance the cost of a renovation of
Monmouth Mall. The maximum amount of the renovation loan is $29,100,000 and as
of December 31, 1996 fundings of $24,615,000 have been made. Certain of the
fundings for the renovation loan have been made out of cash reserves and the
cash flow of Monmouth Associates as well as out of additional capital
contributions to Monmouth Associates made pro rata based upon the respective
interests of its joint venture partners. The Account's share of such additional
capital contributions would be approximately $727,000 based upon its approximate
6.97 percent interest in Monmouth Associates of which $685,000 had been
contributed as of December 31, 1996. The renovation of the shopping center
includes, among other things, the addition of a food court and cinema and the
re-merchandising of approximately 300,000 square feet of space and was
substantially completed in December 1995.
The renovation loan will mature contemporaneously with the first leasehold
mortgage loan in October 2003, subject to (i) acceleration in the event of
default or certain other events, including a joint sale of the entire fee and
leasehold interests in Monmouth Mall, or
<PAGE>
PAGE 13
(ii) extension of the loan maturity by Monmouth Associates under certain
circumstances for up to 20 years on the same loan terms prior to the extension
(other than the maturity date). The renovation loan is secured by a leasehold
mortgage subordinated to the leasehold mortgages securing the first leasehold
mortgage loan and certain other loans made for tenant improvements or other
ordinary capital expenditures and is cross-defaulted with those loans as well as
the ground lease. The remedies under the renovation loan are generally limited
to the property securing the obligation. Payment of principal and accrued
interest of the renovation loan is subordinated to the payment of certain other
amounts payable to Monmouth Associates in connection with the ground lease and
the first leasehold mortgage loan.
Under the terms of the ground lease, as amended in connection with the
renovation loan, upon a joint sale or refinancing of the land and the
improvements thereon, Monmouth Associates generally will be entitled to receive
out of the proceeds of such sale or refinancing the sum of (a) any accrued and
unpaid rent shortfall amount plus $13,000,000 (and any other amounts invested in
the land), plus (b) after payment of principal and any accrued and unpaid base
interest on the first leasehold mortgage loan and the renovation loan, the
return to the borrower/lessee of payments made to cover any cost overruns in
connection with the renovation, and payment of any outstanding additional loans
by Monmouth Associates and any advances by the borrower/lessee to pay the cost
of certain capital or tenant improvements described below, together with any
accrued and unpaid interest thereon, 17.5 percent of such remaining sale or
refinancing proceeds until Monmouth Associates has received aggregate payments
under the ground lease equal to an internal rate of return of 11 percent per
annum on its investment in the land, plus (c) thereafter, 12.5 percent of any
such remaining sale or refinancing proceeds. In general, the remedies under the
ground lease are limited to the property securing such obligation.
Under the terms of the first leasehold mortgage loan, as amended in connection
with the renovation loan, upon a joint sale or refinancing of the land and the
improvements thereon, Monmouth Associates will be entitled to receive out of the
proceeds of such sale or refinancing, after deducting the accrued and unpaid
rent shortfall amount plus $13,000,000 (and any other amounts invested in the
land) payable to Monmouth Associates pursuant to the terms of the ground lease,
the sum of (a)(i) any accrued and unpaid interest shortfall amount, (ii) the
outstanding principal amount of the first leasehold mortgage loan plus any
accrued and unpaid base interest thereon, and (iii) after repayment of the
outstanding principal amount of the renovation loan, and any accrued and unpaid
interest thereon, the return to the borrower/lessee of payments made to cover
any cost overruns in connection with the renovation, and repayment of any
additional loans by Monmouth Associates and any advances by the borrower/lessee
to pay the cost of certain capital or tenant improvements described below,
together with any accrued and unpaid interest thereon, 52.5 percent of such
remaining sale or refinancing proceeds until Monmouth Associates has received
aggregate payments under the first leasehold mortgage loan equal to an internal
rate of return of 11 percent per annum on the principal amount of such loan,
plus (b) thereafter, 37.5 percent of any such remaining sale or refinancing
proceeds. In the event that the loan continues until its stated maturity date
(as it may be extended from time to time) without a joint sale of the
<PAGE>
PAGE 14
property or a sale of Monmouth Associates' entire interest in the property,
Monmouth Associates will be entitled to receive an amount that would provide it
the same consideration payable to it as the first leasehold mortgage lender (but
not as the ground lessor) under a joint sale of the property described above,
assuming that the property were sold for its appraised fair market value.
Aggregate interest payable may not exceed a specified simple interest rate per
annum. In general, except for a prepayment in connection with a joint sale of
the property or a sale to the borrower/lessee of Monmouth Associates' entire
interest in the property as described below, no prepayment of the first
leasehold mortgage loan may be made. In general, the remedies under the first
leasehold mortgage loan are limited to the property securing such obligation.
The borrower/lessee is obligated, at its own expense, to remove any asbestos
from the portion of the shopping center owned by the borrower/lessee under
certain circumstances.
Monmouth Associates also is required to make other additional loans to finance
the cost of 60 percent of tenant improvements or other ordinary capital
expenditures that exceed the amounts reserved by the borrower/lessee for such
expenditures, provided that the borrower/lessee advances the remaining 40
percent of such expenditures. The interest payable on any such additional loans
(as well as on any advances made by the borrower/lessee) is to be at the greater
of the applicable rate under the first leasehold mortgage loan as in effect from
time to time or the market rate of interest charged by institutional lenders for
similar loans. These additional loans generally require payments of interest
only until maturity of the first leasehold mortgage loan (including any
extension thereof described above), at which time the outstanding principal and
any accrued and unpaid interest under the additional loans will be due and
payable. The additional loans may be prepaid prior to maturity without a
prepayment charge. Pursuant to such requirements, Monmouth Associates has loaned
the borrower/lessee an aggregate of approximately $3,085,000 at fixed interest
rates ranging from 8.25 percent to 10.5 percent per annum in connection with the
cost of tenant improvements and ordinary capital expenditures, including tenant
lease expenditures and termination payments. In connection with the termination
of a previous department store lease, Monmouth Associates has advanced an
additional $1,250,000 as an expansion/renovation loan, which together with
accrued interest through October 1991, bears interest at 13 percent per annum,
and has permitted the borrower/lessee to defer payment of approximately $729,000
of base interest, which also bears interest at 13 percent per annum on the
deferred amount. These loan amounts have been advanced out of interest and lease
payments received under the first leasehold mortgage loan and ground lease along
with the reserves of Monmouth Associates.
The mortgage loan and renovation loan, as well as the ground lease, all
discussed above, accrue interest at a higher rate than the actual cash payments
of interest. In April 1992 Monmouth Associates put these loans on non-accrual,
based on the uncertainty as to the collectibility of such contingent interest.
During 1995, accrued interest, from the periods prior to April 1992, totaling
$3,576,000 was written off due to the uncertainty as to collectibility of these
accrued amounts.
<PAGE>
PAGE 15
Under the terms of the ground lease, at any time after October 2001 Monmouth
Associates has the right, and at any time after October 2002 the borrower/lessee
has the right, to cause a joint sale of the land and the portion of the shopping
center owned by the borrower/lessee, subject to the right of first refusal of
the other party to the ground lease to acquire the entire interest in the
property of the party proposing such joint sale. In the event that the first
leasehold mortgage loan continues until its stated maturity date (including any
extension of such maturity date described above), the borrower/lessee has the
option to purchase Monmouth Associates' interest in both the land and the first
leasehold mortgage loan for an aggregate amount that would provide Monmouth
Associates the same consideration payable to it as ground lessor and first
leasehold mortgage lender under a joint sale of the property described above,
assuming that the property were sold for its appraised fair market value.
In general, except for certain transfers by Monmouth Associates to an affiliate,
each of Monmouth Associates and the borrower/lessee may only transfer its entire
respective interest in the property (including its interest in the first
leasehold mortgage loan), subject to the consent of the other party and the
other party's right of first refusal to acquire such interest. In general,
neither Monmouth Associates nor the borrower/lessee may transfer a portion of
its interest in the property.
The portion of the shopping center owned by the borrower/lessee is being managed
by an affiliate of the borrower/lessee under a long-term agreement pursuant to
which it is obligated to manage the property and collect all receipts from
operations of the property for a fee equal to 3.5 percent of the base and
percentage rents from the property. In addition, the manager is entitled to
compensation for leasing and re-leasing services at the shopping center. The
following is a schedule of expiration of present leases for the mall shops and
outparcel space exclusive of storage and basement space and assuming no renewals
or cancellations) and current annual base rents allocable thereto as of Dec. 31
1996:
Year of Number Current Percentage of
Expiration of Square Annual Current Annual
of Leases Tenants Feet Base Rent Base Rent
- -----------------------------------------------------------
1997.......... 6 15,642 269,104 2.6
1998.......... 7 18,504 480,986 4.6
1999.......... 7 8,236 264,764 2.5
2000.......... 6 48,101 701,026 6.7
2001.......... 12 20,228 895,547 8.6
2002.......... 9 24,977 910,147 8.7
2003.......... 11 34,842 1,110,789 10.6
2004.......... 8 7,690 373,191 3.6
2005.......... 25 30,900 1,471,541 14.1
2006.......... 21 67,265 1,414,650 13.5
2007.......... 16 71,028 1,656,499 15.9
2008.......... 2 5,361 157,232 1.5
2010.......... 3 11,729 253,517 2.4
2011.......... 1 42,500 425,000 4.1
2015.......... 2 12,625 64,128 0.6
- ---------------------------------------------------------
<PAGE>
1225 Connecticut Avenue
Washington, D.C.
PAGE 16
In May 1990 the Account acquired an interest in a newly formed Delaware
corporation (the Corporation) owned jointly with certain other persons, as
described below. The Corporation has acquired an office building located in
Washington, D.C. known as 1225 Connecticut Avenue, N.W. (1225 Connecticut), an
eight-story reinforced concrete frame building containing 183,530 square feet of
rentable office space, 18,438 square feet of rentable retail space, 6,416 square
feet of below grade storage space and 100,024 square feet of subsurface parking
space for over 300 automobiles. The building, which was completed in 1968, is
located on an approximately 33,000 square foot site that fronts Connecticut
Avenue, 18th Street and "N" Street, N.W.
The office and retail space of 1225 Connecticut is currently 100 percent leased
and occupied under leases having original minimum terms (not including renewal
options) which vary in duration from 5- 1/2 to 12 years with current annual base
rents ranging from approximately $17.50 to $48.90 per rentable square foot. The
current average annual base rent for the office and retail space is
approximately $33.69 per square foot. The storage space is currently 59 percent
leased and occupied under leases having original minimum terms (not including
renewal options) that vary in duration from 5 to 12 years with the current
annual base rents ranging from approximately $11.05 to $15.00 per square foot.
The current average annual base rent for the storage space is approximately
$11.30 per square foot. The average annual occupancy rates (based upon occupancy
at the end of each month during the year) and approximate average annual base
rents per square foot for the office and retail space for the past four years
are as follows:
Average Annual
Average Annual Base Rent
Year Occupancy Rate Per Square Foot
1992 99% $20.35
1993 95% $28.60
1994 96% $32.60
1995 100% $30.29
1996 100% $33.69
Substantially all of the office and retail leases contain provisions, subject to
certain limitations, requiring tenants to pay, in addition to their annual base
rent, their pro-rata share of real estate taxes and operating expenses over
certain base amounts. In addition, leases covering a majority of the office and
retail space contain provisions, subject to certain limitations, pursuant to
which rents may be increased based upon changes in a consumer price index from a
base year.
Ernst & Young currently leases approximately 80 percent of the office space.
Effective January 1, 1995 per the terms of the Third Amendment to the Ernst and
Young lease, the lease term of the fourth floor premises consisting of 26,328
square feet was amended to expire on June 30, 2007. In addition, the amendment
modified the monthly base rent to $33.82 per average square foot for the total
leased premises of 159,664 square feet. Effective August 1, 1995, Ernst and
Young entered into a Fourth Amendment to occupy 2,023 square feet of retail
space to expire June 30, 2007. As a result, the Ernst & Young leases generally
are as follows:
<PAGE>
PAGE 17
Current
Annual
Square Base Expiration
Tenant Feet Rent Date
Ernst & Young:
Ground Floor 1,676 $17.50 June 2007
2nd,4th,5th,6th,7th,
& 8th floors 157,968 34.00 June 2007
Retail Space 2,023 24.00 June 2007
In connection with the extension and expansion of its leases, Ernst & Young
received certain leasing incentives, including a tenant improvement allowance
and a rent credit for its fourth floor space for a portion of the lease term
commencing in 1995. The primary lease for Ernst & Young covers approximately
157,968 square feet of space, not including the ground floor and retail space.
The real estate and vault taxes on 1225 Connecticut were approximately $990,000
for the tax year ended September 30, 1996. Such taxes are expected to be
approximately $887,000 for the tax year ended September 30, 1997. 1225
Connecticut is subject to competition from several other commercial projects in
its vicinity, including a number of office buildings owned by entities either
sponsored or advised by an affiliate of the Investment Adviser. In the opinion
of the Investment Adviser, the building is adequately insured.
The Corporation has elected to qualify as a real estate investment trust (REIT)
pursuant to sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the Code). For each taxable year that the Corporation qualifies as a
REIT, the Corporation in general will not be subject to federal corporate income
tax or the District of Columbia corporate franchise tax on its regular taxable
income and will not be taxable on long-term capital gain income to the extent
its income is distributed as dividends. If the Corporation were to fail to
qualify as a REIT, it would be taxed at rates applicable to corporations on its
taxable income, whether or not distributed. Because it is a corporation, it will
not be subject to the District of Columbia franchise tax on unincorporated
businesses, which is imposed on any trade or business conducted within the
District by an unincorporated person, including a partnership.
The Account owns approximately 16.3 percent of the outstanding shares of common
stock of the Corporation. Approximately 44 percent of the outstanding shares of
common stock of the Corporation are owned by a publicly held real estate limited
partnership affiliated with the Investment Adviser. There is no other class of
stock of the Corporation authorized or outstanding, and no other shares of
common stock may be issued without the consent of shareholders owning at least
96 percent of the then outstanding shares of common stock of the Corporation.
The major shareholders of the Corporation (including the Account) owning in
excess of 99 percent of the Corporation's outstanding stock have entered into a
shareholders' agreement which provides, among other things, that upon a proposed
sale of shares the non-selling major shareholders shall have a right of first
refusal to buy out the selling major shareholders' shares in the Corporation;
the approval of shareholders owning at least 96 percent of the outstanding
common stock of the Corporation is required to make certain major decisions;
and, in the event of a
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disagreement regarding a proposed sale of 1225 Connecticut, the major
shareholders not desiring to sell would have a right of first refusal to
purchase the other major shareholders' shares in the Corporation and if all of
such shares are not acquired pursuant to the exercise of such right of first
refusal, the Corporation may conclude a sale of the property.
The Corporation purchased 1225 Connecticut from the seller for a purchase price
of approximately $54,125,000, consisting of $51,425,000 paid in cash and
approximately $2,700,000 of mortgage indebtedness then encumbering the property.
In connection with the acquisition of the property, the Corporation paid
approximately $2,130,000 for real estate brokerage commissions to an independent
third party and certain closing costs. The Account contributed $9,000,000 for
its interest in the Corporation.
In January 1994 the Corporation refinanced its mortgage loan, which had an
outstanding principal balance of approximately $1,667,000 at the time of
refinancing, with a new first mortgage loan in the principal amount of
$7,000,000 that bears interest at 6.98 percent per annum. The new loan requires
monthly payments of interest only aggregating $488,600 per annum until maturity
in February 2001 when the entire outstanding principal amount together with
accrued interest will be due and payable. Under certain circumstances, the
principal amount of the loan may be prepaid in whole (but not in part), subject
to a prepayment premium based upon the present value of the difference, if any,
between the remaining scheduled monthly payments on the loan at the date of
prepayment and the amount such monthly payments would be if the interest rate on
the loan were equal to the yield on a U.S. government security with a comparable
maturity date. Pursuant to the deed of trust securing the mortgage loan, the
Corporation is prohibited from modifying Ernst & Young's primary lease or from
entering into certain other tenant leases without the lender's consent. Prior to
selling the property or encumbering the property with any additional debt, the
Corporation must obtain the consent of the lender, which may be arbitrarily
withheld. However, subject to certain restrictions, the Corporation has a
one-time right to transfer title to the property together with an assumption of
the mortgage loan. The excess net proceeds from the refinancing in the amount of
approximately $5,300,000 were used to pay a substantial portion of the costs for
lobby and other common area renovation costs, a sprinkler system and certain
tenant improvement costs related to the Ernst & Young lease extension.
The property is being managed under an agreement pursuant to which the manager
is obligated to manage 1225 Connecticut, collect all of the receipts from
operations and, to the extent available from such receipts, pay all of the
expenses of the property. The manager is paid a fee equal to 2.5 percent of the
gross revenues of the property, plus reimbursement for certain direct expenses
of the manager. The property had been managed by JMB Properties Company, an
affiliate of the Investment Adviser, until December 1994, when JMB Properties
Company sold substantially all of its assets to an unaffiliated third party, and
certain management personnel of JMB Properties Company became management
personnel of the third party. As a result of sale, the successor to JMB
Properties Company's assets now acts as manager of 1225 Connecticut on the same
terms that existed prior to the sale.
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1225 Connecticut leases approximately 80% of the available space of the property
to one tenant under leases, all with terms of 12 years. For the year ended
December 31, 1996 such tenant represented approximately 71% of total revenues.
An unaffiliated third party leases and operates the entire parking garage
(subject to certain parking rights provided for tenants of the property) for a
term extending until November 1997. The lease provides for a fixed rent payment
of $485,000 a year provides that the lessee shall pay the operating expenses of
the parking garage and does not provide such lessee with an option to extend the
term of the lease.
The following is a schedule of expiration of leases for office and retail space
assuming no renewals or cancellations) and current annual base rents allocable
thereto:
Year of Current Percentage of
Expiration Number of Square Annual Current Annual
of Leases Tenants Feet Base Rent Base Rent
- -----------------------------------------------------------------
2000.......... 3 22,103 $753,689 11.11%
2001.......... 1 3,026 106,614 1.57
2002.......... 1 9,909 277,452 4.09
2005.......... 1 5,263 197,113 2.91
2007.......... 1 161,667 5,448,794 80.32
- --------------------------------------------------------------
For a description of all types of fees and compensation payable by the Account
to IDS Life or the Investment Adviser in connection with the acquisition or
placement of real estate related investments on behalf of the Account, see
Compensation of IDS Life, the Investment Adviser and their Affiliates in
Connection with Real Estate Related Services under the Description of the
Investment Adviser and Affiliates section.
For further information regarding the Account's real estate related investments
and their operations see the Management's Discussion and Analysis of Financial
Condition and Results of Operations section.
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