<PAGE>
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, 1997.
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, 1998, are incorporated by reference in Parts I and II of this Annual
Report on Form 10-K.
<PAGE>
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 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
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.
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 18 to 35 of the Registrant's
prospectus included in Form S-1 (as amended), File number 33-13375 to be filed
April 3, 1998, 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 judgment, 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.
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 50 to 51 under the heading "Contract Surrender"
and pages 54 to 55 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, 1998, which pages are
filed herewith as Exhibit 99.1 to this report. For the year ended
December 31, 1997, the high and low accumulation unit values were $1.04 and
$.98 per unit, respectively. The number of contract owners at December 31, 1997
was 238.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
Years ended December 31,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Contract Purchase Payments
(Terminations), Net $(6,923,566) $ (2,207,498) $ 2,291,255 $ (5,184,527) $ (6,873,380)
Net Income (Loss) $1,718,205 $ (153,491) $(2,378,521) $ (946,390) $ 1,816,417
Total Contract Owners'
Equity (A) $28,340,115 $33,545,476 $35,906,465 $35,993,731 $42,124,648
Accumulation Units
Outstanding (A) 27,339,211 34,144,955 36,353,929 34,238,180 39,000,431
Accumulation Unit
Value $1.04 $.98 $.99 $1.05 $1.08
</TABLE>
(A) As of December 31, 1997, IDS Life's portion of the Total Contract Owners'
Equity was $25,877,976 (91%) and IDS Life owned 24,969,872 (91%) of the total
Accumulation Units Outstanding.
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, 1997 Compared to the Year Ended
December 31, 1996
Net assets decreased from $33,545,476 at December 31, 1996 to $28,340,115 at
December 31, 1997. During this same time period, the accumulation unit value
increased from $.98 to $1.04. The Account experienced net terminations amounting
to $6,923,566 for the year ended December 31, 1997 compared to net terminations
of $2,207,498 for the year ended December 31, 1996. IDS Life did not purchase or
sell accumulation units for the year ended December 31, 1997. For the year ended
December 31, 1996, IDS Life purchased $2,000,000 accumulation units, as
discussed more fully below.
Recorded net income for the year ended December 31, 1997 was $1,718,205 compared
to net loss of $153,491 for the year ended December 31, 1996.
Interest income for the year ended December 31, 1997, represents income earned
on the Account's investment in short-term securities. Interest income increased
to $467,504 from $385,026 for the year ended December 31, 1997 compared to the
year ended December 31, 1996. The increase for the year ended December 31, 1997,
is due primarily to an increase in the average short-term investment balance
throughout 1997 compared to the same period in 1996. This increase was due
primarily to cash received as a result of (i) the payoff of the Riverpoint
mortgage loan receivable in December 1996 and (ii) the sale of the West
Springfield apartments in September 1996. Short-term investments decreased
towards the end of 1997 due primarily to net Account terminations, as discussed
above. 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 in 1996 also
includes interest earned on short term investments. The borrower of the ten year
non-recourse participating first mortgage loan on the Riverpoint Shopping Center
had notified the Lenders (IDS Life Account RE, JMB Mortgage Partners-III and JMB
Mortgage Partners IV, jointly 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, 1997, the Account's recorded equity in earnings
of its unconsolidated joint ventures (N/S Associates, Monmouth Associates and
1225 Connecticut) was $2,277,775 compared to $2,167,460 for the year ended
December 31, 1996. The increase is due primarily to an increase in interest
income earned by Monmouth Associates. The increase in earnings was partially
offset by lower rental income achieved at Southridge and Northridge Malls due to
lower effective rents.
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. Occupancy has also been
affected by tenant bankruptcies over the past years. As of December 31, 1997,
occupancy of the mall shops was approximately 75%, including temporary tenants
under short term leases. In August 1997, a movie theater, which occupied
approximately 8% of the owned net rentable area at the property, vacated its
space upon expiration of its lease. Northridge is attempting to lease this space
to another movie theater operator, however, there can be no assurance the
Northridge Mall will be successful.
To counter the negative perception of Northridge Mall, N/S Associates
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 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 was extended from 2001 until 2015 and the tenant space was 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
its contribution to customer traffic. As of December 31, 1997, occupancy of the
portion of Southridge Mall owned by N/S Associates was approximately 97%,
including temporary tenants under short-term leases.
For the year ended December 31, 1997, the Account recognized net unrealized
depreciation on its investment in unconsolidated joint ventures of $169,246
primarily a result of a net decrease in the value of N/S Associates (comprised
of a decrease in value of Northridge Mall off set by a slight increase in value
at Southridge Mall). In addition, Monmouth Associates and 1225 Investment
Corporation had a slight decrease in value due to a reduction of its current
assets.
The Account paid asset management and mortality expense risk fees of $783,731
and $1,011,135 for the years ended December 31, 1997 and 1996, respectively.
Distributions from unconsolidated joint ventures increased from $2,358,370
in 1997 compared to $1,729,576 in 1996. The increase was primarily due to the
Account's share of Monmouth Associates' distributions of $1,115,200. The
increase was partially offset by decreased distributions from N/S
Associates and 1225 Investment Corporation.
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, 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 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, 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 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 increase in earnings for 1995. The increase is due primarily
to (I) an increase in interest earned which is 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 Northridge Malls due to
lower occupancy.
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.
Liquidity and Capital Resources
For the Year Ended December 31, 1997 Compared to the Year Ended December 31,
1996 At December 31, 1997, the Account had cash of approximately $83,000 as
compared to approximately $103,000 at December 31, 1996. The Account financed a
portion of the contract terminations during 1996 through additional investments
made by IDS Life Insurance Company (IDS Life). The Account had experienced net
contract terminations in 6 consecutive 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 purchases of accumulation units by IDS Life, as
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.
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.
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. 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, 1997, Monmouth Associates funded approximately $25,905,000
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 no greater than $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, 1997 was approximately
85 percent. However, the mall shops and outparcel space are approximately 90
percent leased. Leasing and occupancy at the shopping center had been adversely
affected by tenant bankruptcies occurring in 1996.
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
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 $1,710,000 in
1998 for tenant improvement, asbestos removal and other capital items at
Northridge and Southridge Malls. Actual amounts expended in 1998 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 $1,629,000 for tenant
improvements, asbestos removal and other capital projects in 1997.
At December 31, 1997, real property investments (through two unconsolidated
joint ventures, N/S Associates and 1225 Connecticut), one land sale-leaseback
investment (Monmouth Associates), and short-term investments represented 50.9
percent, 30.3 percent and 18.5 percent of total assets, respectively. At
December 31, 1996, real property investments, mortgage loan and land
sale-leaseback investments and short-term investments represented 42.4 percent,
26.9 percent and 30.7 percent of total assets, respectively.
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.
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
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.
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, 1997, Monmouth Associates funded approximately $25,905,000
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, 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 no greater than $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.
The renovation is nearing completion with tenant improvement work 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 of 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
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.
At December 31, 1996, real property investments (through two unconsolidated
joint ventures, N/S Associates and 1225 Connecticut) and mortgage loan and land
sale-leaseback investments (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.
<PAGE>
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, 1997 and 1996
Statements of Operations, years ended December 31, 1997, 1996 and 1995
Statements of Changes in Contract Owners' Equity, years ended December 31, 1997,
1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and
1995 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, 1997 and 1996 Combined Statements of
Operations, years ended December 31, 1997,
1996 and 1995
Combined Statements of Partners' Capital Accounts, years ended December 31,
1997, 1996 and 1995
Combined Statements of Cash Flows, years ended December 31, 1997,
1996 and 1995
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>
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, 1997 and 1996 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1997 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 20, 1998
<PAGE>
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<S> <C> <C>
December 31, December 31,
1997 1996
------------------ ----------------
Assets:
Cash $82,887 $102,737
Investments in securities, at value (Note 2)
(identified cost of $5,282,201 and $10,254,310
at December 31, 1997 and December 31, 1996,
respectively) 5,282,201 10,254,310
Investments in unconsolidated joint ventures,
at fair value (cost of $36,218,770 and
$36,299,366 at December 31, 1997 and
December 31, 1996, respectively) 23,134,763 23,384,605
Other assets -- 4,277
------------------ ----------------
Total assets
$28,499,851 $33,745,929
================== ================
Liabilities:
Payable to IDS Life for:
Operating expenses 72,008 42,340
Contract terminations 22,567 4,793
Accrued mortality and expense risk fee 28,961 32,991
Accrued asset management fee 36,200 41,239
Liabilities related to wholly-owned
real estate property (Note 5):
Accounts payable and other liabilities -- 79,090
------------------ ----------------
Total liabilities $ 159,736 $200,453
================== ================
Contract Owners' Equity:
Net assets applicable to Variable Annuity
contracts in accumulation period $28,340,115 $33,545,476
================== ================
Accumulation units outstanding 27,339,211 34,144,955
================== ================
Net asset value per accumulation unit $ 1.04 $ 0.98
================== ================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
For the years ended
December 31, December 31, December 31,
1997 1996 1995
------------------ ------------------ ------------------
Income:
<S> <C> <C> <C>
Interest income $ 467,504 $ 385,026 $ 264,581
Account's equity in earnings of
unconsolidated joint ventures 2,277,775 2,167,460 1,924,741
Rental income -- 1,887,995 2,379,439
Realized loss on payoff of participation in mortgage loan -- (24,533) --
Unrealized depreciation of participation
in mortgage loan -- (147,608) (27,817)
Unrealized appreciation of investment in
wholly-owned real estate property -- -- 138,764
Unrealized depreciation of investments
in unconsolidated joint ventures (169,246) (1,206,750) (3,999,782)
Realized loss on sale of wholly-owned
real estate property -- (725,436) --
Other income 54,114 -- --
------------------ ------------------ ------------------
Total income 2,630,147 2,336,154 679,926
------------------ ------------------ ------------------
Expenses:
Asset management fee 435,406 561,742 603,620
Mortality and expense risk fee 348,325 449,393 482,896
Professional services 54,147 42,133 39,715
Amortization of deferred organizational
and borrowing costs -- 19,602 25,851
Salaries 52,055 17,562 28,218
Revolving loan interest -- -- 94,124
Other operating expenses 22,009 17,823 27,884
Operating expenses related to wholly-owned
real estate property:
Interest -- 551,434 741,811
Utilities -- 139,334 153,416
Repairs and maintenance -- 158,047 219,829
Property and other taxes -- 160,633 186,440
Salaries -- 174,075 181,540
Management fees -- 89,712 118,983
Other -- 108,155 154,120
------------------ ------------------ ------------------
Total expenses 911,942 2,489,645 3,058,447
------------------ ------------------ ------------------
Net income (loss) $ 1,718,205 $ (153,491) $ (2,378,521)
================== ================== ==================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
<TABLE>
For the
years ended
---------------------------------------------------------------
December 31, 1997 December 31, 1996 December 31,1995
---------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $1,718,205 $ (153,491) $(2,378,521)
Contract purchase proceeds 17,038 2,049,160 24,922,267
Contract termination payments (6,940,604) (4,256,658) (22,631,012)
---------------------------------------------------------------
Decrease in net assets (5,205,361) (2,360,989) (87,266)
Contract owners' equity at
beginning of year 33,545,476 35,906,465 35,993,731
---------------------------------------------------------------
Contract owners' equity at end
of year 28,340,115 33,545,476 35,906,465
===============================================================
Accumulation Unit Activity
Units purchased with proceeds
from sale of contracts 17,026 2,063,252 23,170,080
Units redeemed for contract
terminations (6,822,770) (4,272,226) (21,054,331)
---------------------------------------------------------------
Net increase(decrease) in units (6,805,744) (2,208,974) 2,115,749
Units outstanding at beginning
of year 34,144,955 36,353,929 34,238,180
---------------------------------------------------------------
Units outstanding at end of year 27,339,211 34,144,955 36,353,929
===============================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
For the years ended
<TABLE>
December 31, December 31, December 31,
1997 1996 1995
--------------- ------------------ -------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net Income (loss) $ 1,718,205 $ (153,491) $(2,378,521)
--------------- ------------------ -------------------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Account's equity in earnings of
unconsolidated joint ventures (2,277,775) (2,167,460) (1,924,741)
Change in accrued interest on
participation in mortgage loan -- (5,400) 5,400
Amortization of organizational and borrowing costs -- 19,602 25,851
Change in cumulative discount amortization
on short-term investments 9,879 (10,926) --
Change in unrealized depreciation of investments
in unconsolidated joint ventures 169,246 1,206,750 3,999,782
Change in unrealized depreciation (appreciation)
of participation in mortgage loan -- 147,608 27,817
Loss on participation of 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 4,277 38,858 (8,628)
Change in payable to IDS Life for operating expenses 29,668 (34,279) 18,219
Change in accrued mortality and expense risk fees (4,030) (7,429) 284
Change in accrued asset management fees (5,039) (9,286) 354
Change in payables and other liabilities related
to wholly-owned real estate property (79,090) (165,847) 32,740
Change in payable to IDS Life for revolving
loan interest -- -- (9,224)
--------------- ------------------ -------------------
Total adjustments to net income (loss) (2,152,864) (237,840) 2,029,090
--------------- ------------------ -------------------
Net cash used in operating activities (434,659) (391,331) (349,431)
--------------- ------------------ -------------------
Cash flows from investing activities:
Net sales (purchases) of short-term securities 4,962,230 (10,243,384) --
Sale of wholly owned property -- 15,574,443 (163,781)
Distributions received from joint ventures 2,358,371 1,726,577 1,504,514
--------------- ------------------ -------------------
Net cash provided by investing activities 7,320,601 7,057,636 1,340,733
Cash flows from financing activities:
Proceeds from sales of contracts 17,038 2,349,160 24,627,492
Payments for contract terminations (6,922,830) (4,523,183) (22,369,833)
Decrease in mortgage payable -- (7,770,339) (81,940)
Change in payable to IDS Life for revolving loan -- -- (2,100,000)
Contributions to Monmouth renovation-joint venture -- -- (685,151)
Payment for participation in Mortgage Loan -- 2,794,065 --
--------------- ------------------ -------------------
Net cash used in financing activities (6,905,792) (7,150,297) (609,432)
--------------- ------------------ -------------------
Net increase (decrease) in cash (19,850) (483,992) 381,870
Balance of cash at beginning of year 102,737 586,729 204,859
--------------- ------------------ -------------------
Balance of cash at end of year $ 82,887 $ 102,737 $ 586,729
=============== ================== ===================
Supplemental cash flow disclosure:
Cash paid for mortgage and revolving
loan interest $ -- $ 551,434 $ 835,935
=============== ================== ===================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
December 31, 1997
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 will be
periodically reviewed by JMB Annuity Advisers (the Investment Adviser).
Additionally, 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. 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.
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, 1997, 1996
and 1995, the Account paid IDS Life a mortality and expense risk fee of
$348,325, $449,393 and $482,896, 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 The National
Council of Real Estate Investment Fiduciaries (NCREIF) Property Index. The
performance-related portion of the fee is calculated and recorded on an annual
basis when the NCREIF Property Index is released each year for the preceding
calendar year. Any performance fee adjustment will be paid to the Investment
Adviser. There were no performance fees for the years 1997, 1996 or 1995. For
the years ended December 31, 1997, 1996 and 1995, the Account paid total asset
management fees of $435,406, $561,742 and $603,620, 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 1997, 1996 or
1995.
The Account pays for all operational expenses incurred on its behalf. For the
years ended December 31, 1997, 1996 and 1995, IDS Life was reimbursed $11,019,
$35,385 and $56,102, respectively, for personnel-related expenses incurred in
the administration of the Account.
The Account also pays custodian fees to American Express Trust Company, an
affiliate of American Express Financial Corporation (AEFC).
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 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 contain approximately 1,297,000 square feet of gross leasable area, of
which N/S Associates owns approximately 449,000 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 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.
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 of $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 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 thereafter. 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 1997, 1996 or 1995. 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 $29,100,000, including accrued and deferred interest
of approximately $1,300,000. As of December 31, 1997, Monmouth Associates had
funded approximately $25,905,000, 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 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 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.
1225 Connecticut leases approximately 87 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, 1997, such tenant represented approximately 74 percent 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 2000. The lease provides for a fixed
rent payment of $577,560 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.
Unconsolidated Joint Ventures - Summary Information
Summary information for the Account of its investments in Unconsolidated Joint
Ventures as of and for the years ended December 31, 1997 and 1996 is as follows:
As of and for As of and for
the year ended the year ended
Dec. 31, 1997 Dec. 31, 1996
Account's investment in Unconsolidated
Joint Ventures $ 23,134,763 $ 23,384,605
Account's share of net investment income from
Unconsolidated Joint Ventures $ 2,277,775 $ 2,167,460
Net depreciation in
Unconsolidated Joint Ventures $ (169,246) $ (1,206,750)
Total net investment income of Unconsolidated
Joint Ventures $27,218,000 $ 27,455,000
Total assets of Unconsolidated Joint Ventures $336,828,000 $343,717,000
Total liabilities of Unconsolidated
Joint Ventures $50,215,000 $ 52,691,000
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, completed in 1989, is located on approximately 17 acres and
consists of approximately 200,800 square feet of gross leasable area. 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
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.
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. The Account also paid to IDS
Life and the Investment Adviser their respective 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.
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, 1997, IDS Life had
cumulatively contributed $26,700,000 toward the purchase of accumulation units.
IDS 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, 1997, IDS Life's portion of the Contract Owners' Equity was
$25,877,976, which represents 91% of total Contract Owners' Equity.
7. Year 2000 Issue (Unaudited)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Account. The Account has no computer systems of its own but is
dependent upon the systems maintained by AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes
has been conducted to identify the major systems that could be affected by the
Year 2000 issue. Steps are being taken to resolve any potential problems
including modification to existing software and the purchase of new software.
These measures are scheduled to be completed and tested on a timely basis.
AEFC's goal is to complete internal remediation and testing of each system by
the end of 1998 and to continue compliance efforts through 1999.
The Year 2000 readiness of unaffiliated investment managers and other third
parties whose system failures could have an impact on the Account's
operations is currently being evaluated. The potential materiality of
any such impact is not known at this time.
<PAGE>
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, 1997
Part 1 - Participation in Mortgage Part 2 - Interest Earned on
Loan on Real Estate at Close of Year Participation in
Mortgage
<TABLE>
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>
1997 $ -- $ -- $ -- $ -- $ --
============== ============= ======= ============== ==============
1996 $ -- $ -- $ -- $ -- $ 256,843
============== ============== ======== ============== ============
1995 $2,966,206 $2,875,853 $ -- $ (5,400) $ 264,581
========== ========== ======= ============= ============
</TABLE>
(A) - Reconciliation of the carrying value of the participation in the mortgage
loan:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at the beginning of year........... $ -- $2,966,206 $2,994,023
Changes during year:
Unrealized depreciation.................. -- (147,608) (27,817)
Loan repayment........................... -- (2,794,065) --
Realized loss............................ -- (24,533) --
-------- -------- -----
Balance at end of year..................... -- -- 2,966,206
------- ------- ---------
</TABLE>
<PAGE>
Schedule IV
IDS LIFE ACCOUNT RE
of
IDS LIFE INSURANCE COMPANY
Real Estate Owned and Rental Income
December 31, 1997
Part 1 - Real Estate Owned at End of Year (A)
Apartment Complex:
<TABLE>
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>
1997 $ -- $ -- $ -- $ --$ --$ --
============== ================ ========== ============================================
1996 $ -- $16,295,602 $136,544 $ -- $(16,432,146)$ --
============== =========== ======== =========== ============================
1995 $7,770,339 $15,993,057 $163,781 $138,764$ -- $16,295,602
========== =========== ======== ========================== ===========
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
1997 $ -- $ -- $ -- $ --
======= ============== ============= ==========
1996 $ -- $1,760,141 $1,381,391 $378,750
======= ========== ========== ========
1995 $4,016 $2,379,439 $1,756,139 $623,300
====== ========== ========== ========
</TABLE>
(A) Reconciliation of real estate owned:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at the beginning of period.......... $ -- $ 16,295,602 $15,993,057
Additions (deductions) during the year:
Improvements, etc......................... -- 136,544 163,781
Unrealized appreciation................... -- -- 138,764
Carrying value of real estate sold........ -- (16,432,146) --
----- ------------ -----
Balance at end of year...................... $ -- $ -- $16,295,602
====== ================ ===========
</TABLE>
(B) Reserve for depreciation is not applicable as real estate owned is stated at
estimated fair market value.
<PAGE>
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, 1997 and 1996 and the results of their combined operations and combined cash
flows for each of the years in the three year period ended December 31, 1997, 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 20, 1998
<PAGE>
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, 1997 and 1996
Assets
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Investments in real estate $323,264,000 $323,484,000
Cash and cash equivalents (note 1) 9,459,000 14,603,000
Rents, interest, and other receivables 2,219,000 2,966,000
Other assets 1,886,000 2,664,000
-------------- ---------
$336,828,000 $343,717,000
Liabilities and Partners' Capital Accounts
Mortgage notes payable (note 3) $42,000,000 $ 42,000,000
Accounts payable and other accrued expenses 8,215,000 10,691,000
------------ ----------
Total liabilities 50,215,000 52,691,000
---------- ----------
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 18,228,000 15,951,000
Cumulative share of net unrealized depreciation (13,084,000) (12,915,000)
Cumulative cash distributions (14,865,000) (12,507,000)
------------ ------------
23,135,000 23,385,000
Venture partners:
Capital contributions 379,954,000 379,954,000
Cumulative net investment income 216,261,000 191,319,000
Cumulative share of net unrealized depreciation (157,694,000) (155,581,000)
Cumulative cash distributions (175,043,000) (148,051,000)
------------- -------------
263,478,000 267,641,000
Total partners' capital accounts 286,613,000 291,026,000
----------- -----------
$336,828,000 $343,717,000
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
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, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
Investment income:
<S> <C> <C> <C>
Rental income 37,824,000 38,715,000 38,008,000
Interest 9,890,000 9,827,000 7,685,000
--------- --------- ---------
47,714,000 48,542,000 45,693,000
Investment expenses:
Mortgage and other interest 3,412,000 3,412,000 4,250,000
Real estate taxes 5,919,000 6,639,000 7,401,000
Property operating expenses 11,026,000 10,934,000 13,789,000
General and administrative 139,000 102,000 183,000
------- ------- -------
20,496,000 21,087,000 25,623,000
---------- ---------- ----------
Net investment income 27,218,000 27,455,000 20,070,000
========== ========== ==========
Unrealized depreciation on investments
in real estate (note 1) (2,282,000) (8,650,000) (65,938,000)
=========== =========== ============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
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, 1997, 1996 and 1995
<TABLE>
Combined IDS Life Venture
Total Account RE Partners
<S> <C> <C> <C>
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
------------ ---------- -----------
Net investment income 27,218,000 2,277,000 24,941,000
Net unrealized depreciation on investments
in real estate (2,282,000) (169,000) (2,113,000)
Cash distributions and dividends (29,349,000) (2,358,000) (26,991,000)
Balance at December 31, 1997 $286,613,000 $23,135,000 $263,478,000
------------ ----------- ------------
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
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, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net increase (decrease) in net assets resulting
<S> <C> <C> <C>
from operations $24,937,000 $18,805,000 $(45,868,000)
Provision for uncollectible accrued interest -- -- 3,576,000
Unrealized loss on investments 2,282,000 8,650,000 65,938,000
Adjustments to reconcile net investment income to net cash provided by operating
activities represented by changes in:
Rents, interest and other receivables 747,000 (212,000) 135,000
Other assets 778,000 (253,000) (2,129,000)
Accounts payable and accrued expenses (391,000) (802,000) (1,713,000)
--------- --------- -----------
Net cash provided by operations 28,353,000 26,188,000 19,939,000
---------- ---------- ----------
Cash flows from investing activities:
Net (purchases) sales of short-term investments -- -- 7,589,000
Additions to investments in real estate, net of
related accounts payable and accrued expenses (4,147,000) (5,093,000) (16,748,000)
----------- ----------- ------------
Net cash provided by (used in)
investing activities (4,147,000) (5,093,000) (9,159,000)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on mortgages payable -- -- (30,929,000)
Cash distributions to partners (25,000,000) (14,250,000) (13,000,000)
Cash contributions -- -- 9,830,000
Proceeds from mortgage note payable -- -- 35,000,000
Cash dividends paid to shareholders (4,350,000) (5,150,000) (4,500,000)
----------- ----------- -----------
Net cash used in financing activities (29,350,000) (19,400,000) (3,599,000)
------------ ------------ -----------
Net increase in cash and cash
equivalents (5,144,000) 1,695,000 7,181,000
Cash and cash equivalents beginning
of year1 14,603,000 12,908,000 5,727,000
---------- ---------- ---------
Cash and cash equivalents end
of year 9,459,000 14,603,000 12,908,000
========= ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest 3,412,000 3,412,000 3,759,000
========= ========= =========
Non-cash investing and financing activities:
Unrealized depreciation on
investments in real estate (2,282,000) (8,650,000) (65,938,000)
=========== =========== ============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
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, 1997, 1996, and 1995
(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 ($0 and $12,084,000 at December 31, 1997 and 1996, respectively) as cash
equivalents with any remaining amounts reflected as short-term investments.
Investments in real estate are stated at estimated market 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, 1997, 1996 and 1995.
<PAGE>
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.
(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, 1997. Such
note is incorporated herein by reference.
<PAGE>
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, 1997 and
1996:
<TABLE>
1997 1996
8.35% mortgage note, secured by Southridge Mall; payable in monthly installments
of $244,000 (interest only) until
<S> <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:
1998 . . . . . . . . . . $ --
1999 . . . . . . . . . . --
2000 . . . . . . . . . . --
2001 . . . . . . . . . . 7,000,000
2002 . . . . . . . . . . 35,000,000
Thereafter. . . . . . . $ --
(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>
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:
1998 . . . . . . . . . . $20,406,724
1999 . . . . . . . . . . 18,824,571
2000 . . . . . . . . . . 17,086,220
2001 . . . . . . . . . . 14,761,601
2002 . . . . . . . . . . 13,683,666
Thereafter . . . . . . . 59,720,462
$144,483,244
Contingent rent (based on sales by property tenants) from the retail investments
included in rental income is $748,000, $578,000 and $1,058,000 in 1997, 1996
and 1995, 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. However, in
April 1992, Monmouth Associates put these loans on non-accural, based on the
uncertainty as to the collectibility of such contingent interest.
(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 $1,057,000 and $1,132,000 for the periods
ended December 31, 1997 and 1996, 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 $197,000 and $188,000 for the years ended December 31, 1997 and
1996, respectively.
<PAGE>
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 1998, the Investment Adviser authorized and paid a
cash distribution to the partners aggregating $4,000,000. Each
partner received its proportionate share based on its respective
ownership percentage.
(b) 1225 Investment Corporation
In February 1998, 1225 Investment Corporation paid a dividend of
$1,100,000 ($19.95 per share) to the shareholders of record as of
December 31, 1997.
(c) Monmouth Associates
In February 1998, the Investment Advisor 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.
<PAGE>
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, 1997
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:
<TABLE>
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>
1997 $ 109,556,000 $ 160,033,000 $ -- $ 785,000 $ 9,354,000
1996 $ 109,556,000 $ 160,033,000 $ -- $ 772,000 $ 9,159,000
1995 $ 108,000,000 $ 158,373,000 $ -- $ 742,000 $ 6,994,000
</TABLE>
(A) - Reconciliation of the carrying value of the participation in the mortgage
loan:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at the beginning of year...........$109,556,000 $ 108,000,000 $ 119,154,000
Changes during year:
Additional fundings...................... -- 1,556,000 17,317,000
Unrealized depreciation.................. -- -- (28,471,000)
---------- ------- ------------
Balance at end of year.....................$109,556,000 $ 109,556,000 $ 108,000,000
============ ============= =============
</TABLE>
<PAGE>
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, 1997
Part 1 - Real Estate Owned at End of Year (C)
<TABLE>
Amount at
Cost of which carried
Amount of improvements, Unrealized at close of
encumbrances Initial Cost etc. Depreciation period (A)
Retail properties:
Northridge Mall,
<S> <C> <C> <C> <C> <C>
Milwaukee, WI $ -- $108,107,000 $ 16,242,000 $(87,149,000) $ 37,200,000
Southridge Mall,
Greendale, WI $ 35,000,000 $115,401,000 $ 17,483,000 $(21,884,000) $111,000,000
Office Building:
1225 Connecticut Ave.,
Washington, D.C. $ 7,000,000 $ 54,775,000 $ 8,146,000 $ (10,413,000) $ 52,508,000
Ground Lease:
Monmouth Mall,
Eatontown, NJ $ -- $ 13,000,000 $ -- $ -- $ 13,000,000
----------- ------------ ----------- ----------- ------------
$ 42,000,000 $291,283,000 $ 41,871,000 $(119,446,000) $213,708,000
============ ============ ============ ============== ============
</TABLE>
Part 2 - Rental Income
Rents due
and accrued
at end of
period
Retail Properties:
Northridge Mall,
Milwaukee, WI $ 74,000
Southridge Mall,
Greendale, WI $ 185,000
Office Building:
1225 Connecticut Ave.,
Washington, D.C. $ --
$ 259,000
(A) Reconciliation of real estate owned:
<TABLE>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Balance at the beginning of period..........$213,928,000 $220,270,000 $254,500,000
Additions (deductions), including
unrealized depreciation................... (220,000) (6,342,000) (34,230,000)
--------- ----------- ------------
Balance at end of year......................$213,708,000 $213,928,000 $220,270,000
============ ============ ============
</TABLE>
(B) - Reconciliation for depreciation is not applicable as real estate owned is
stated at estimated
market value.
<PAGE>
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 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 since February 1984; president since
March 1994; Executive vice president, Marketing and Products, 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 and president of IDS
Life Variable Annuity Funds A & B.
Paul F. Kolkman, born in 1946: Director since May 1984; executive vice president
since March 1994; vice president, Finance, 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;
director since July 1984; 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, AEFC, since May 1994; senior
vice president, 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.
Jeffrey S. Horton, born in 1961: Vice president and treasurer since December
1997; vice president and corporate treasurer, AEFC, since December 1997;
controller, American Express Technologies - Financial Services, AEFC, from July
1997 to December 1997; controller, Risk Management Products, AEFC, from May 1994
to July 1997; director of finance and analysis, Corporate Treasury, AEFC, from
June 1990 to May 1994.
William A. Stoltzmann, born in 1948: 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.
<PAGE>
The directors and executive 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, 60, 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. Mr. Malkin has
been associated with JMB since October 1969. He is a Certified Public
Accountant.
Neil G. Bluhm, 60, President and Director of JMB, is a principal of Walton
Street Real Estate Fund I, L.P., 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. 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.
Burton E. Glazov, 59, 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 a member of the Bar of the State of Illinois and is a Certified Public
Accountant.
Stuart C. Nathan, 56, 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 a
member of the Bar of the State of Illinois.
John G. Schreiber, 51, 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 Advisors, L.P. , 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, 64, 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, 49, 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.
Gary Nickele, 45, Executive Vice President and General Counsel of JMB, is an
officer and/or director of various JMB affiliates. 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 50, 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>
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, 1998, IDS Life owned 26,700,000
accumulation units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Account incurred asset management fees for the year ended December 31, 1997
of $435,406 of which $330,908 was paid to the Investment Adviser and the
remainder to IDS Life. Asset management fees incurred for the year ended
December 31, 1996 were $561,742, of which $426,924 was paid to the Investment
Adviser and the remainder to IDS Life.
For the years ended December 31, 1997 and 1996, IDS Life was paid or reimbursed
$348,325 and $449,393, respectively, for mortality and expense risk fee and
$76,733 and $35,385, 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, 1997.
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, 1997 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.
(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.
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>
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 27, 1998 By /S/ James A. Mitchell
Date James A. Mitchell, Chairman of the
Board and Chief Executive Officer
March 27, 1998 By /S/ Jeffrey S. Horton
Date Jeffrey S. Horton, Vice
President and Treasurer
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 27, 1998 By /S/ David R. Hubers
Date David R. Hubers, Director
March 27, 1998 By /S/ Richard W. Kling
Date Richard W. Kling, President
March 27, 1998 By /S/ Paul F. Kolkman
Date Paul F. Kolkman, Executive
Vice President
March 27, 1998 By /S/ Pamela J. Moret
Date Pamela J. Moret, Executive
Vice President, Variable Assets
March 27, 1998 By /S/ James A. Mitchell
Date James A. Mitchell, Chairman of the
Board and Chief Executive Officer
March 27, 1998 By /S/ Jeffrey S. Horton
Date Jeffrey S. Horton, Vice
President and Treasurer
<PAGE>
IDS Life Account RE
File No. 33-13375
EXHIBIT INDEX
Exhibit 27.1: Financial Data Schedule.
Exhibit 99.1: Copies of pages 50-51 & 54-55 of Form S-1.
Exhibit 99.2: Copies of pages 18-35 of Form S-1.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE RESGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<MULTIPLIER>1
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> YEAR
<CASH> 82887
<SECURITIES> 5282201
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5365088
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28499851
<CURRENT-LIABILITIES> 159736
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 28340115
<TOTAL-LIABILITY-AND-EQUITY> 28499851
<SALES> 0
<TOTAL-REVENUES> 2630147
<CGS> 0
<TOTAL-COSTS> 458847
<OTHER-EXPENSES> 348325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1718205
<INCOME-TAX> 1718205
<INCOME-CONTINUING> 1718205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1718205
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
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 next valuation date
after 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 sent 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 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.
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>
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 ventures 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.
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, 1997, Monmouth Associates had funded $25,905,000 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 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 no greater than $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.
The renovation is nearing completion with tenant improvement work and retainage
work remaining. The occupancy of mall shops and outparcel space at the shopping
center as of December 31, 1997 was approximately 85 percent. However, the mall
shops and outparcel space are approximately 90 percent leased.
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 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 1,013,000 square feet of gross leasable area, of which N/S
Associates owns approximately 394,000 square feet. The remaining 619,000 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 165,000 square feet), J.C. Penney (approximately 153,000 square
feet), Sears (approximately 148,000 square feet) and Boston Store (approximately
153,000 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 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 $1,875,000 for the 1997 tax year and are estimated to be
approximately $1,800,000 for the 1998 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. In 1997, real estate taxes decreased as a result of the
removal of the public school funding from the property tax bill.
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 75 percent leased and
occupied by 90 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 $11 to $199 per square foot. The current
average annual base rent for mall space is approximately $18.96 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
1993 87% $22.30
1994 80% $22.65
1995 90% $22.78
1996 80% $19.86
1997 72% $18.96
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,
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 1998 N/S Associates has currently budgeted approximately $401,000 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. 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.
The following is a schedule of expiration of leases (exclusive of storage space
and assuming no renewals or cancellations) as of Dec. 31 1997:
Year of Number Annual
Expiration of Square
of Leases Tenants Feet
- -------------------------------
1998.......... 34 90,172
1999.......... 24 55,034
2000.......... 10 13,110
2001.......... 12 20,239
2002.......... 11 16,607
2003.......... 5 17,780
2004.......... 5 14,335
2005.......... 4 13,754
2006.......... 6 16,629
2007.......... 2 6,759
2008.......... 5 21,763
- -------------------------------
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
1,250,000 square feet of gross leasable area, of which N/S Associates owns
approximately 430,000 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 820,000 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 210,000
square feet), Boston Store (approximately 219,000 square feet), Sears
(approximately 215,000 square feet) and J.C. Penney (approximately 176,000
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 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 7,223
automobiles.
Real estate taxes on the portion of the shopping center owned by N/S Associates
were approximately $3,502,000 for the 1997 tax year and are estimated to be
approximately $3,511,000 for the 1998 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.
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 97 percent
leased and occupied by 99 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 had been extended from 2001 until 2015
and the tenant space had 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 was
responsible for paying the costs of asbestos removal for the tenant space, which
is complete as of December 31, 1997. 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 $11 to $225 per square foot. The current average
annual base rent for mall space is approximately $20.87 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 Base Rent
Year Occupancy Rate Per Square Foot
1993 90% $21.20
1994 91% $20.90
1995 95% $20.40
1996 90% $23.79
1997 95% $20.87
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 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 1998, N/S Associates has currently budgeted
approximately $1,309,000 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.
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) as of Dec. 31 1997:
Year of Number
Expiration of Square
of Leases Tenants Feet
- -------------------------------
1998.......... 24 66,192
1999.......... 7 19,570
2000.......... 20 42,859
2001.......... 23 50,787
2002.......... 10 17,690
2003.......... 9 32,651
2004.......... 8 27,154
2005.......... 9 21,072
2006.......... 9 25,367
2007.......... 5 13,374
2008.......... 7 21,245
2009.......... 1 7,507
2015.......... 1 85,247
- -------------------------------
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), Stern's
(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 Stern's, 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 completed its merger with Macy's. 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 $60,000
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 $2,356,000 for the 1997 tax year and are
budgeted to be approximately $2,426,000 for the 1998 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.
The mall shops and outparcel space at the shopping center are currently 90
percent leased by 155 tenants with current annual base rents ranging from
approximately $2 to $225 per square foot and a current average annual base rent
of approximately $23.64 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 85 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
1993 81% $19.95
1994 67% $21.40
1995 69% $24.76
1996 75% $24.90
1997 85% $23.64
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 $199,045 12 years
The Limited Too 3,952 92,872 12 years
Lerner New York 7,045 140,900 12 years
Express/Bath & Body Works 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 $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, 1997 fundings of $25,905,000 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, 1997. The renovation of the shopping center
included, among other things, the addition of a food court and cinema and the
re-merchandising of approximately 300,000 square feet of space was substantially
completed in 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 (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 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.
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.
1225 Connecticut Avenue
Washington, D.C.
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 95 percent 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 100 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
five years are as follows:
Average Annual
Average Annual Base Rent
Year Occupancy Rate Per Square Foot
1993 95% $28.60
1994 96% $32.60
1995 100% $30.29
1996 100% $33.69
1997 98% $35.34
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 87 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. Effective March 16, 1998 Ernst and Young entered
into a Fifth Amendment to occupy an additional 9,909 square feet of space. As a
result, the Ernst & Young leases generally are as follows:
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 177,242 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 177,242 square
feet of space, not including the ground floor and retail space.
The real estate and vault taxes on 1225 Connecticut were approximately $859,000
for the tax year ended September 30, 1997. Such taxes are expected to be
approximately $848,000 for the tax year ended September 30, 1998. 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 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.
1225 Connecticut leases approximately 87% of the available space of the property
to one tenant under leases, all with terms of 12 years. For the year ended
December 31, 1997 such tenant represented approximately 74% 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 2000. The lease provides for a fixed rent payment
of $577,560 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)as of December 31, 1997:
Year of
Expiration Number of Square
of Leases Tenants Feet
- --------------------------------------
1998.......... 2 5,666
2000.......... 2 17,384
2001.......... 1 3,026
2005.......... 1 5,263
2007.......... 9 188,929
- --------------------------------------
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.
