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. 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.
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.
The Account also pays IDS Life an asset management fee equal, on an annual basis, to 1.25 percent of the average daily asset value, as defined, of the Account. A portion of this fee, equal to 0.95 percent of the average daily asset value, is paid by IDS Life to the Investment Adviser. The total fee may be adjusted upward to a maximum of 1.50 percent depending upon the performance of the Account's real property investments as measured against the FRC Property Index. The performance-related portion of the fee is calculated and recorded on an annual basis when the FRC Property Index is released each year for the preceding calendar year. No performance fee was paid by the Account in 1995 for 1994. The performance fee paid by the Account in 1994 for 1993 was $137,299. The performance fee paid by the Account in 1993 for 1992 was $87,287. Any performance fee adjustment will be paid to the Investment Adviser. For the years ended December 31, 1995, 1994 and 1993, the Account paid total asset management fees of $603,620, $765,557 and $773,849, respectively.
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.
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.
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 provides for monthly payments of base interest at a base rate of approximately 5.98 percent per annum for the first two loan years, approximately 7.97 percent per annum for the third loan year and approximately 5.00 percent per annum for each loan year thereafter. 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 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 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 1995, 1994 or 1993. 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.
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.
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.
1225 Connecticut leases approximately 80 percent of the available space of the property to one tenant under leases, all with terms of 12 years. For the year ended December 31, 1995, such tenant represented approximately 77 percent of total revenues.
Summary information for the Account of its investments in Unconsolidated Joint Ventures as of and for the years ended December 31, 1995 and 1994 is as follows:
The ten-year loan requires periodic payments of interest only and bears 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 provides 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 provides 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 will be used to offset, on a dollar-for-dollar basis, the amount of accrued interest payable. The loan is generally non-recourse to the Borrower and its partners.
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. For the year ended December 31, 1995, IDS Life cumulatively contributed $24,700,000 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, 1995, IDS Life's portion of the Contract Owners' Equity was $22,644,467, which represents 63% of total Contract Owners' Equity.
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 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 ($2,200,000 and $5,989,000 at December 31, 1995 and 1994, respectively) as cash equivalents with any remaining amounts reflected as short-term investments.
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments", requires entities with total assets exceeding $150 million at December 31, 1994 to disclose the SFAS 107 value of all financial assets and liabilities for which it is practicable to estimate. Value is defined in the Statement as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The ventures believe the carrying amount of its assets and liabilities (excluding current portion of long-term debt) approximates SFAS 107 value due to the relatively short maturity of these instruments. There is no quoted market value available for any of the ventures' other instruments. Based upon estimates of current market rates for debt with similar terms, the ventures discounted the scheduled loan payments to maturity. Based upon this calculation, the ventures believe that the carrying value of the mortgage notes payable approximate market value at December 31, 1995 and 1994.
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, 1995. Such note is incorporated herein by reference. 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
1996 . . . . . . . . . . $ -- 1997 . . . . . . . . . . -- 1998 . . . . . . . . . . -- 1999 . . . . . . . . . . -- 2000 . . . . . . . . . . --
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. 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
Minimum lease payments to be received in the future under the above operating lease agreements, are as follows: 1996 . . . . . . . . . . $ 21,306,282 1997 . . . . . . . . . . 20,488,269 1998 . . . . . . . . . . 18,517,784 1999 . . . . . . . . . . 16,734,147 2000 . . . . . . . . . . 14,709,466 Thereafter . . . . . . . 56,125,989 $147,881,937
Contingent rent (based on sales by property tenants) from the retail investments included in rental income is $1,058,000, $1,010,000 and $1,000,000 in 1995, 1994 and 1993, 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 $175,000 and $196,000 for the years ended December 31, 1995 and 1994, respectively. 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
Balance at the beginning of year........... $ 119,154,000 $ 119,650,000 $ 119,650,000
(C) - Reconciliation for depreciation is not applicable as real estate owned is stated at estimated market value. /TABLE Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Melinda S. Urion, 42: Director and Controller, IDS Life, since September 1991; Executive Vice President since March 1994; Vice President and Treasurer from September 1991 to March 1994; Senior Vice President and Chief Financial Officer, AEFC, since November 1995; Corporate Controller, AEFC, from April 1994 to November 1995; Vice President, AEFC, from September 1991 to November 1995; Chief Accounting Officer, AEFC, from July 1988 to September 1991.
Morris Goodwin Jr., 44: Vice President and Treasurer since March 1994; Vice President and Corporate Treasurer, AEFC, since July 1989; Chief Financial Officer and Treasurer, American Express Trust Company, from January 1988 to July 1989.
William A. Stoltzmann, 47: Vice President, General Counsel and Secretary since 1985.
The directors, executive officers and certain other officers of JMB Realty Corporation (JMB), the managing partner of the Investment Adviser, are listed below. Many of such persons are also officers and/or directors of numerous affiliated companies of JMB and/or partners of certain partnerships (herein collectively referred to as the Associate Partnerships) which are partners, directly or indirectly, in publicly offered real estate limited partnerships sponsored by JMB.
Neil G. Bluhm, 58, President and Director of JMB, is a director of Urban Shopping Centers, Inc., an affiliate of JMB engaged in the business of owning, managing and developing shopping centers, an officer and/or director of various other JMB affiliates and a partner of the Associate Partnerships. Until December 1994, he was also a Trustee of JMB Group Trust I, JMB Group Trust II, JMB Group Trust III, JMB Group Trust IV and JMB Group Trust V, which until that time has been advised by an affiliate of the Investment Adviser. Mr. Bluhm has been associated with JMB since August 1970. He is a member of the Bar of the State of Illinois and is a Certified Public Accountant. Burton E. Glazov, 57, Director of JMB, was until December 1990 also Executive Vice President of JMB. Mr. Glazov has been associated with JMB since June 1971. He is member of the Bar of the State of Illinois and is a Certified Public Accountant.
Stuart C. Nathan, 54, Executive Vice President and Director of JMB, is an officer and/or director of various JMB affiliates and a partner of the Associate Partnerships. Mr. Nathan has been associated with JMB since July 1972. He is also a director of Sportmart Inc., a retailer of sporting goods. He is member of the Bar of the State of Illinois.
John G. Schreiber, 49, Director of JMB, is also a director of Urban Shopping Centers, Inc., an affiliate of JMB engaged in the business of owning, managing and developing shopping centers, and was, until December 1990, Executive Vice President of JMB. Mr. Schreiber has been associated with JMB since December 1970. Mr. Schreiber is President of Schreiber Investments, Inc., a company which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Partners, an affiliate of the Blackstone Group, L.P. Mr. Schreiber also serves as a Trustee of Amli Residential Property Trust, a publicly-traded real estate investment trust that invests in multi-family properties. He is also a director of a number of investment companies advised or managed by T. Rowe Price Associates and its affiliates. He holds a master's degree in business administration from the Harvard University Graduate School of Business.
A. Lee Sacks, 62, 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.
The Account incurred asset management fees for the year ended December 31, 1995 of $603,620 of which $458,751 was paid to the Investment Adviser and the remainder to IDS Life. Asset management fees incurred for the year ended December 31, 1994 were $765,557, of which $614,775 was paid to the Investment Adviser and the remainder to IDS Life.
For the years ended December 31, 1995 and 1994, IDS Life was paid or reimbursed $482,896 and $502,607, respectively, for mortality and expense risk fee and $56,102 and $51,225, respectively, for personnel-related expenses incurred in the administration of the Account.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K