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FINANCIAL PLANNING
IDS Cash Reserve Certificate
(Icon of) Piggy Bank
Earn attractive rates with ready access to your cash reserves
IDS
An American Express company
AMERICAN
EXPRESS
Distributed by IDS Financial Services Inc.<PAGE>
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To our certificate holders
(Photo of) Stuart Sedlacek
President, IDS Certificate Company
From the president
I'd like to welcome those of you who have placed your trust in us
by investing in the IDS Cash Reserve Certificate. And to those who
are currently considering an investment, I thank you for your
interest and assure you of our commitment to safeguard your money
and help you build assets through regular saving.
The low interest rates of recent years have left their mark on the
economy and financial markets. Many investors have moved their
money out of savings institutions and money market accounts in
pursuit of higher returns elsewhere.
In this environment, it's important not to lose sight of a basic
principle: the foundation of a sound financial plan is having
solid cash reserves -- a primary reserve for short-term cash needs
and a secondary reserve for investment opportunities and
intermediate-term goals.
The key to building the cash reserves you need is to put money away
on a regular, disciplined basis, even if it's only a modest amount.
You'll be surprised how fast regular savings add up.
That's where the IDS Cash Reserve Certficate comes in. It's a
great way to establish your primary cash reserve for emergencies,
unexpected opportunities, or other short-term cash needs. Equally
important, it's a safe, liquid investment that yields a
competitive, money market return for your money. You can start
investing in an IDS Cash Reserve Certificate for as little as $50 a
month when you take advantage of an automatic deposit service. The
interest you earn on your certificate is guaranteed for three
months, and you pay no penalty when you withdraw your funds if you
time your withdrawal to be at the end of the certificate month.
No matter what the economic environment may be, you can count on
the safety and security of your IDS certificate. Even during the
Great Depression, when bank assets were frozen, IDS certificate
holders never lost a penny of principal or interest.
I invite you to learn more about the benefits of the IDS Cash
Reserve Certificate in the following pages and enclosed prospectus.
The prospectuys has recently been redesigned with the help of
investors like yourself. We've simplified the language and made it
easier to locate the facts you need. I hope you find the new
format more readable and informative.
Your IDS personal financial planner will be pleased to answer any
questions you may have--and show you how the IDS Cash Reserve
Certificate can become part of the foundation of your financial
plan.
Stuart Sedlacek
President, IDS Certificate Company<PAGE>
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Current annual interest rates for
_____________________________, 19_____,
for the initial term for a new purchase. Interest rates for future
terms may be higher or lower than these rates.
Simple interest rate ________________%
Effective annualized yield*_________________%
*Assuming monthly compounding.
These interest rates apply to the initial three-month term of your
certificate purchased for $__________. The rate may vary depending
on: the amount you invest, your geographic location and whether
the certificate is purchased for an IRA or a qualified retirement
plan account.
Rates for new purchases may change weekly. The interest rate that
will apply to your certificate will be the higher of the rate in
effect on the date of your application or that in effect on the
date your application is accepted by IDSC. However, if your
application bears a date more than seven days prior to IDSC's
receipt of your application, the rate will be the higher of the
rate in effect seven days prior to receipt and that in effect on
the date of acceptance. Please refer to the attached prospectus
for information as to how rates are set.
To our certificate holders
Earn competitive certificate rates with ready access to your money
with...
The IDS Cash Reserve Certificate
Guaranteed principal and interest
IDS Certificate Company (IDSC) guarantees that you will get back
every penny you put in--and we guarantee a specified interest rate
for every three months you hold your certificate.
A century of safety and stability
IDSC and its parent, IDS Financial Corporation (IDS), have never
missed a payment to certificate holders since IDS opened for
business in 1894.
The backing of quality investments
Though IDS certificates are not insured by the FDIC as bank
deposits are, federal law requires that we back our certificates
dollar for dollar with cash and qualified investments. In fact,
the carrying value of our investments exceeded as of Dec. 31, 1993,
the required carrying value of outstanding certificates by more
than $118 million.
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Yields that compare favorably with banks
We set our interest rates using a leading index of three-month bank
and thrift certificate of deposit rates. From May 1989 to February
1994, IDS Cash Reserve Certificate's annual effective yields were
generally higher than those of average three-month certificates of
deposit and money market deposit accounts.<PAGE>
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IDS Cash Reserve Certificate
Prospectus April 27, 1994
Earn attractive rates with ready access to your cash reserves.
IDS Cash Reserve Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with an initial
investment of at least $1,000 or monthly investments of at least
$50. Your principal and interest are guaranteed by IDSC. Your
certificate earns a fixed rate of interest, declared every three
months. Investments in the certificate may continue for
successive three-month terms up to a total of 20 years from the
issue date of the certificate. Unless you receive prior
authorization from IDSC, your total investment, excluding interest
earned, cannot exceed $1 million. Your interest rate will be
determined as described in "About this certificate."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OF ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS Cash
Reserve Certificate. It contains facts that can help you decide if
the certificate is the right investment for you. Read the
prospectus before you invest and keep it for future reference. No
one has the authority to change the terms and conditions of the IDS
Cash Reserve Certificate as described in the prospectus, or to bind
IDSC by any statement not in it.
IDS Certificate Company
IDS Tower 10
Minneapolis, MN 55440-0010
1-800-437-3463 (toll free) or
(612) 671-4737 (Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1112 (Minneapolis/St. Paul area)
An American Express Company<PAGE>
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INSIDE COVER:
Where to get information about IDSC
IDSC is subject to the reporting requirements of the Securities
Exchange Act of 1934. Reports and other information on IDSC are
filed with the Securities and Exchange Commission (SEC). Copies
can be obtained from the Public Reference Section of the SEC, 450
5th St., N.W., Washington, D.C. 20549, at prescribed rates. Or you
can inspect and copy information in person at the SEC's Public
Reference Section and at the following regional offices:
Northeast Regional Office
7 World Trade Center, Suite 1300
New York, NY 10048
Midwest Regional Office
Northwestern Atrium Center
500 West Madison St. Suite 1400
Chicago, IL 60611
Pacific Regional Office
5670 Wilshire Blvd., 11th Floor
Los Angeles, CA 90036
Initial interest rates
IDSC guarantees a fixed interest rate for each three-month term
during the life of the certificate. For your initial term, IDSC
guarantees that when the rate for new purchases takes effect, the
rate will be within a specified range of the average rate for
three-month certificates of deposit as published in the most recent
BANK RATE MONITORTM, North Palm Beach, FL 33408, as explained
under "About the certificate."
Here are the interest rates in effect on the date of this
prospectus, April 27, 1994:
Investment Simple Effective
amount interest rate* annualized yield**
$50 to $999 2.62% 2.65%
$1,000 to $24,999 2.82 2.85
$25,000 or more 3.02 3.06
*Rates may depend on factors described in "Interest" under "About
the certificate."
**Assuming monthly compounding.
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later three-month terms are set at the
discretion of IDSC and may also differ from the rates shown here.
We reserve the right to issue other securities with different
terms.<PAGE>
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Table of contents
About the certificate
Investment amounts and terms 4p
Face amount and principal 5p
Value at maturity 5p
Receiving cash during the term 5p
Interest 5p
Rates for new purchases 6p
How to invest and withdraw funds
Buying your certificate 9p
Additional investments 9p
Full and partial withdrawals 11p
When your certificate term ends 12p
Transfers to other IDS accounts 12p
Retirement plans: special policies 15p
Transfer of ownership 15p
For more information 15p
Taxes on your earnings
Retirement accounts 16p
Gifts to minors 16p
Foreign investors 19p
How your money is used and protected
Invested and guaranteed by IDSC 20p
Regulated by government 20p
Backed by our investments 21p
Investment policies 22p
How your money is managed
Relationship between IDSC and IDS 24p
Capital structure and certificates issued 24p
Investment management and services 25p
Distribution 26p
Employment of other American Express affiliates 27p
Directors and officers 27p
Auditors 30p
Financial information
Summary of selected financial information 31p
Management's discussion and analysis of
financial condition and results of operations
Report of independent auditors 40p
Financial statements 42p
Notes to financial statements 49p
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About the certificate
Investment amounts and terms
You can purchase this certificate with an initial investment of at
least $1,000 or monthly investments of at least $50 through
scheduled bank authorization or payroll deduction. Your total
investments over the life of the certificate may not exceed $1
million unless you receive prior authorization from IDSC.
The certificate may be used as an investment for your Individual
Retirement Account (IRA), 401(k) plan account or other qualified
retirement plan account. A minimum investment of $50 per month is
required for these types of accounts. If so used, the amount of
your contribution (investment) will be subject to any limitations
of the plan and applicable federal law.
Face amount and principal
The face amount of the certificate is the amount of your initial
investment, and will remain the same over the life of the
certificate.
The principal is the amount that is reinvested at the beginning of
each subsequent term, and is calculated as follows:
Principal equals Face Amount (initial investment)
plus At the end of a term, interest credited to
your account during the term
minus Any interest paid to you in cash
plus Any additional investments to your
certificate
minus Any withdrawals, fees and applicable
penalties.
For example: Assume your initial investment (face amount) of
$5,000 has earned $75 of interest during the term. You have not
taken any interest as cash, or made any withdrawals. You have
invested an additional $2,500 prior to the beginning of the next
term. Your principal for the next term will equal:
$5,000.00 Face Amount (initial investment)
plus $75.00 Interest credited to your account
minus ($0.00) Interest paid to you in cash
plus $2,500.00 Additional investment to your certificate
minus ($0.00) Withdrawals and applicable penalties
or fees
$7,575.00 Principal at the beginning of the next
term.
Value at maturity
Your certificate matures 20 years from its issue date. At
maturity, the value of your certificate will be the total of your
actual investment, plus credited interest not paid to you in cash,
less withdrawals, penalties and fees. When your certificate
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matures, you will receive a check for your principal, plus any
payments and credited interest, less any withdrawals, penalties and
fees. Bank authorizations will automatically be stopped at
maturity or full withdrawal.
Receiving cash during the term
If you need your money before your certificate matures, you may
withdraw part or all of its value at any time, less any penalties
that apply. Procedures for withdrawing money, as well as
conditions under which penalties apply, are described in "Full and
partial withdrawals" under "How to invest and withdraw funds."
Interest
Your investments earn interest from the date they are credited to
your account. Interest is compounded and credited at the end of
each certificate month (on the monthly anniversary of the issue
date).
IDSC declares and guarantees a fixed rate of interest for each
three-month term during the life of your certificate. We calculate
the amount of interest you earn each certificate month by:
o applying the interest rate then in effect to your balance
each day
o adding these daily amounts to get a monthly total
o subtracting interest accrued on any amount you withdraw
during the certificate month.
Interest is calculated on a 30-day month and 360-day year basis.
Rates for new purchases: When your application is accepted, you
will receive a confirmation showing the rate that your investment
will earn for the first term for accounts of $1,000 or more. IDSC
guarantees that this rate will be within a range from 30 basis
points (0.30%) below to 70 basis points (0.70%) above the average
interest rate published for 3-month CDs in the BANK RATE MONITOR
National IndexTM (the BRM Index). For example, if the average rate
most recently published is 2.75%, our rate in effect for that week
for amounts of $1,000 or more would be between 2.45% and 3.45%.
For accounts of less than $1,000, this rate will be within a range
of 100 basis points (1.00%) below to 0 basis points (0.0%) above
the average interest rate. (CD accounts offered by banks generally
are government insured.)
The BANK RATE MONITOR is a weekly magazine published in North Palm
Beach, FL 33408 by Advertising News Service Inc., an independent
national news organization that collects and disseminates
information about bank products and interest rates. Advertising
News Service Inc. has no connection with IDSC, IDS, or any of their
affiliates. The BRM Index used by IDSC is a 25-city index.
The BANK RATE MONITOR may be available in your local library. To
obtain information on the current BRM Index rates, call IDS
Certificate Service at
1-800-437-3463 or
TTY: 1-800-846-4293.
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Rates for new purchases are reviewed and may change weekly.
Normally, the rate you receive will be the higher of:
o the rate in effect on the date of your application
o the rate in effect on the date your application is accepted
by IDSC.
However if your application bears a date more than seven days
before its receipt by IDSC, the rate you receive will be the higher
of:
o the rate in effect on the date your application is accepted
by IDSC
o the rate in effect seven days prior to receipt.
Promotions and pricing flexibility: From time to time, IDSC may
sponsor or participate in promotions involving one or more of the
certificates and their respective terms. For example, we may offer
different rates to new clients, to existing clients, or to
individuals who purchase other IDS products or used services such
as the CD transfer service, a service IDS offers to help you
transfer your money from a bank CD account into IDS investments.
These promotions will generally be for a specified period of time.
If we offer a promotion, the rates for new purchases will be within
the range of rates described under "Rates for new purchases,"
above.
Rates for future terms: Interest on your certificate for future
three-month terms may be greater or less than the rates you receive
during the first three months. In setting future rates, a primary
consideration will be the prevailing investment climate, including
3-month CD rates as reflected in the BRM Index. Nevertheless, we
have complete discretion as to what interest shall be declared
beyond the initial three-month term. If the BRM Index is no longer
publicly available or feasible to use, IDSC may use another similar
index as a guide for setting rates.
Performance: From February 1989 through February 1994, IDS Cash
Reserve interest rates were higher than average bank and thrift 3-
month CD yields, as measured by the BRM Index:
Yield from May 1989 through February 1994
8% _____ IDS Cash Reserve Certificate
..... Money Market Deposit Account
6% ***** Certificate of Deposit - Three Month
4% Three lines comparing the rates for IDS Cash Reserve
Certificate versus money market deposit accounts and
2% three-month certificates of deposit, with IDS Cash
Reserve's line generally above the other two.
0%
1989 1990 1991 1992 1993 1994
This graph compares past interest rates offered on IDS Cash Reserve
Certificate to those of 3-month CDs and money market deposit
accounts and should not be considered a prediction of future
performance.
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How to invest and withdraw funds
Buying your certificate
Your IDS financial planner will help you fill out and submit an
application to open an account with us and purchase a certificate.
We will process the application at our corporate offices in
Minneapolis. When your application is accepted, you will receive a
confirmation of your purchase, indicating your account number and
applicable rate of interest for your first term, as described under
"Rates for new purchases."
Additional investments
You may make additional investments at any time. Additional
investments must be at least $50 and your total investment, less
withdrawals, may not exceed $1 million (unless you receive prior
authorization from IDSC to invest more). You will earn interest on
additional investments from the date we accept them. IDSC will
send a confirmation of additional investments.
IMPORTANT: When opening an account, you must provide IDSC with your
correct Taxpayer Identification Number (Social Security or Employer
Identification Number). See "Taxes on your earnings."
Purchase policies
o You have 15 days from the date of purchase to cancel your
investment without penalty by either writing or calling IDSC Client
Service at the address or phone number on the cover of this
prospectus. If you decide to cancel your certificate within this
15-day period you will not earn any interest.
o If you purchase a certificate with a personal check or other non-
guaranteed funds, IDS must convert your check to federal funds
(e.g., monies of member banks with the Federal Reserve Bank) before
your purchase will be accepted and you begin earning interest.
o IDSC has complete discretion to determine whether to accept an
application.
o If you make no investments for a period of at least 12
consecutive months and your principal is less than $1,000, we may
send you a notice of our intent to cancel the certificate. After
the notice, if an investment is not made within 30 days, your
certificate will be canceled, and we will send you a check for its
full value.
A number of special policies apply to purchases, withdrawals and
exchanges within IRAs, 401(k) plans and other qualified retirement
plans. See "Retirement plans: special policies."
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Three ways to make investments
1
By scheduled investment plan
Contact your financial planner to set up one of the following
scheduled plans for monthly investments:
o bank authorization (automatic deduction from your bank account)
o automatic payroll deduction
o direct deposit of Social Security check
o other plan approved by IDSC
To cancel a bank authorization, you must instruct IDSC in writing
or over the phone. We must receive notice at least three business
days before the date funds would normally be withdrawn from your
bank account.
2
By mail
For monthly or lump sum investments, send your check along with
your name and account number to:
Regular mail: Express mail:
IDS Certificate Company IDS Certificate Company
Client Service Client Service
IDS Tower 10 733 Marquette Ave.
Minneapolis, MN 55440-0010 Minneapolis, MN 55402
3
By wire
If you have an established account, you may wire money to:
Norwest Bank Minneapolis
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions:
Credit IDS Account #00-30-015 for personal account #
(your account number) for (your name).
If this information is not included, the order may be rejected and
all money received, less any costs IDS incurs, will be returned
promptly.
o Minimum amounts each wire investment: $1,000
o Wire orders can be accepted only on days when your bank, IDS,
IDSC and Norwest Bank Minneapolis are open for business.
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o Wire purchases are completed when wired payment is received and
we accept the purchase.
o Wire investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
credited that day. Otherwise your purchase will be processed the
next business day.
o IDSC and IDS are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
Full and partial withdrawals
You may withdraw your certificate for its full value at any time.
If you purchase this certificate for an IRA, 401(k), or other
retirement plan account, early withdrawals or cash payments of
interest taken prematurely may be subject to IRS penalty taxes.
o Complete withdrawal of your certificate is made by giving us
proper instructions.
To complete these transactions, see "Two ways to request a
withdrawal or transfer" section.
o You may make an unscheduled partial withdrawal of at least $100
at any time.
o Interest payments in cash may be sent to you at the end of each
month, quarterly, semiannually or annually.
o Scheduled partial withdrawals maybe sent to you monthly,
quarterly, semiannually or annually. The minimum withdrawal amount
is $50.
o Withdrawals before the end of the certificate month will result
in loss of interest on the amount withdrawn. You'll get the best
result by timing a withdrawal at the end of the certificate month.
o Withdrawals that reduce your certificate's principal below a
break point for a lower interest rate will cause the remaining
principal to earn the lower interest rate for the rest of the term
from the date of the withdrawal.
o Withdrawals on certificates purchased by bank authorization or
payroll deduction may cause the balance to fall below $1,000. The
remaining balance will earn the lower interest rate that applies to
balances of less than $1,000.
When your certificate term ends
Shortly before the end of your certificate's term we will send you
a notice indicating the interest rate that will apply to the new
term. Unless you tell us otherwise, your certificate will <PAGE>
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automatically continue for another term. The interest rate that
will apply to your new term will be the rate in effect on the day
the new term begins. This rate of interest will not be changed
during that term unless your certificate's principal falls below a
break point for a lower interest rate.
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate
recently purchased or added to by a check or money order that is
not guaranteed, we will wait for your check to clear. Please
expect a minimum of 10 days from the date of your payment before
IDSC mails a check to you. (A check may be mailed earlier if your
bank provides evidence that your check has cleared.)
o If your certificate is pledged as collateral, any withdrawal will
be delayed until we get approval from the secured party.
o Any payments to you may be delayed under applicable rules,
regulations or orders of the SEC.
Transfers to other IDS accounts
You may transfer part or all of your certificate for any other IDS
certificate or into another existing IDS account that has the same
registered ownership (subject to any terms and conditions that may
apply).
Two ways to request a withdrawal or transfer
1
By phone
Call between 7 a.m. and 6 p.m. Central time:
1-800-437-3463 (toll free) or
(612) 671-4737 (Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1112 (Minneapolis/St. Paul area)
o Maximum phone request: $50,000
o Transfers into an IDS account with the same ownership.
o We will honor any telephone request believed to be authentic and
will use reasonable procedures to confirm that they are, such as
asking identifying questions. As long as the procedures are
followed, neither IDSC nor IDS will be liable for any loss
resulting from fraudulent requests.
You may request that telephone withdrawals not be authorized from
your account by writing IDSC Client Service.
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2
By mail
Send your name, account number and request for a withdrawal or
transfer to:
Regular mail:
IDS Certificate Company
Client Service
IDS Tower 10
Minneapolis MN 55440-0010
Express mail:
IDS Certificate Company
Client Service
733 Marquette Avenue
Minneapolis MN 55402
Written requests are required for:
o Transactions over $50,000.
o Pension plans and custodial accounts where the minor has reached
the age at which custodianship should terminate.
o Transferring into an IDS account with a different ownership (all
current registered owners must sign the request).
o A telephone withdrawal request will not be allowed within 30-days
of a phoned-in address change.
Three ways to receive payment when you withdraw funds
1
By regular or express mail
o Mailed to address on record; please allow seven days for mailing
o Payable to name(s) you requested
o For express mail, you will pay charges that vary depending on the
courier you select. For a partial withdrawal leaving a remaining
balance of more than $1,000, these charges will be deducted from
the remaining balance. If the remaining balance is less than
$1,000, or it is a full withdrawal, charges are deducted from
proceeds of the withdrawal.
2
By wire
o Minimum wire withdrawal: $500
o Request that money be wired to your bank
o Bank account must be in same ownership as IDSC account
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PAGE 16
o Pre-authorization required. Complete the bank wire authorization
section in the application or use a form supplied by your IDS
financial planner. All registered owners must sign.
o Service fee, if any, is deducted from your balance (for partial
withdrawals) or from the proceeds of a full withdrawal.
3
Electronic transfer
o Only for preauthorized recurring payments
o No charge
o Deposited electronically in your bank account
o Three-five days from request to first deposit
Retirement plans: special policies
o If the certificate is purchased for a 401(k) plan or other
qualified retirement plan account, the terms and conditions of the
certificate apply to the plan as the holder of this certificate.
However, the terms of the plan, as interpreted by the plan trustee
or administrator, will determine how a participant's individual
account under the plan is administered. These terms may differ
from the terms of the certificate.
o The annual custodial fee for IRA or non-401(k) qualified
retirement plans may be deducted from your certificate account. It
may reduce the amount payable at maturity or the amount received
upon an early withdrawal.
o Retirement plan withdrawals may be subject to withdrawal
penalties or loss of interest even if they are not subject to
federal tax penalties.
o If you withdraw all funds from your last account in an IRA plan
at IDS, a $25 termination fee will apply.
o The IRA termination fee will be waived if withdrawal occurs upon
the holder's death.
Transfer of ownership
While the certificate is not negotiable, IDSC will transfer
ownership upon written notification to IDSC Client Service.
However, if you have purchased your certificate for an IRA, 401(k)
plan or other qualified retirement plan, you may be unable to
transfer or assign the certificate without losing the account's
favorable tax status. Please consult your tax adviser.
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PAGE 17
For more information
For information on purchases, withdrawals, exchanges, transfers of
ownership, proper instructions and other service questions
regarding your certificate, please consult your financial planner
or call IDSC's toll free client service number:
1-800-437-3463 or
TTY: 1-800-846-4293.
Taxes on your earnings
Interest on your certificate is taxable when credited to your
account. Each calendar year we provide certificate holders and the
IRS with reports of all earnings over $10 (Form 1099). Withdrawals
are reported to the certificate holder and the IRS on Form 1099-B,
Proceeds from Broker Transactions.
Retirement accounts
If you are using the certificate as an investment for an IRA,
401(k) plan account or other qualified retirement plan account,
income tax rules for your IRA or qualified plan apply. Generally,
you will pay no income taxes on your investment's earnings--and, in
many cases, on part or all of the investment itself--until you
begin to make withdrawals.
IDSC will withhold federal income taxes of 10% on IRA withdrawals
unless you tell us not to. IDSC is required to withhold federal
income taxes of 20% on most other qualified plan distributions,
unless the distribution is directly rolled over to another
qualified plan or IRA.
Withdrawals from retirement accounts are generally subject to a
penalty tax of 10% by the IRS if you make them before age 59-1/2,
unless you are disabled or if they are made by your beneficiary in
the event of your death. Other exceptions also may apply. Also,
withdrawals of principal during a certificate month may be subject
to the certificate's provision for loss of interest.
Consult your tax adviser to see how these rules apply to you before
you request a distribution from your plan or IRA.
Gifts to minors
The certificate may be given to a minor under either the Uniform
Gifts or Uniform Transfers to Minors Act (UGMA/UTMA), whichever
applies in your state. UGMAs/UTMAs are irrevocable. Generally,
under federal tax laws, income over $1,200 on property owned by
children under age 14 will be taxed at the parents' marginal tax
rate, while income on property owned by children 14 or older will
be taxed at the child's rate.
Your Taxpayer Identification Number (TIN) and backup withholding:
As with any financial account you open, you must list your current
and correct Taxpayer Identification Number (TIN)--either your
Social Security or Employer Identification Number. The TIN must be
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PAGE 18
certified under penalties of perjury on your application when you
open an account with IDSC.
If you don't provide the TIN to IDSC, or the TIN you report is
incorrect, you could be subject to backup withholding of 31% of
your interest earnings. You could also be subject to further
penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information.
You could also be subject to backup withholding because you failed
to report interest on your tax return as required.
To help you determine the correct TIN to use on various types of
accounts, please use this chart:
Use the Social Security or
For this type of account Employer Identification Number of
Individual or joint The individual or first person listed
on the account
Custodian account of a The minor
minor (Uniform Gifts/
Transfers to Minors Act)
A living trust The grantor-trustee (the person who
puts the money into the trust)
An irrevocable trust, The legal entity (not the personal
pension trust or estate representative or trustee, unless no
legal entity is designated in the
account title)
Sole proprietorship or The owner or partnership
partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial planner or
local IDS office for Federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Foreign investors
If you are not a citizen or resident of the United States, you must
supply IDSC with Form W-8, Certificate of Foreign Status when you
purchase your certificate, and you must resupply it every three
years. You must also supply a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an <PAGE>
PAGE 19
appropriately certified Form W-8 (or approved substitute). Also,
if you do not supply Form W-8 you will be subject to backup
withholding on interest payments and withdrawals.
Interest on the certificate is "portfolio interest" as defined in
U.S. Internal Revenue Code Section 871(h) if earned by a
nonresident alien. Even though your interest income is not taxed
by the U.S. government, it will be reported at year end to you and
to the U.S. government on a Form 1042S, Foreign Person's U.S.
Source Income Subject to Withholding. The United States
participates in various tax treaties with foreign countries, which
provide for sharing of tax information.
Estate tax: If you are a nonresident alien and you die while
owning a certificate, IDSC will need a statement from persons IDSC
believes are knowledgeable about your estate. The statement must
be in a form satisfactory to IDSC and must tell us that, on your
date of death, your estate did not include any property in the
United States for U.S. estate tax purposes. If we do not receive
the statement, we generally will not take action regarding your
certificate until we receive a transfer certificate from the IRS.
In general, a transfer certificate requires the opening of an
estate in the United States and provides assurance that the IRS
will not claim your IDS certificate to satisfy estate taxes.
IMPORTANT: This information is a brief and selective summary of
certain federal tax rules that apply to this certificate. Tax
matters are highly individual and complex, and you should consult a
qualified tax adviser about your personal situation.
How your money is used and protected
Invested and guaranteed by IDSC
The IDS Cash Reserve Certificate is issued and guaranteed by IDSC,
a wholly owned subsidiary of IDS Financial Corporation (IDS). We
are by far the largest issuer of face amount certificates in the
United States, with total assets of more than $2.9 billion and a
net worth in excess of $161 million on Dec. 31, 1993.
We back our certificates by investing the money received and
keeping the invested assets on deposit. Our investments generate
interest and dividends, out of which we pay:
o interest to certificate holders
o various expenses, including taxes, fees to IDS for advisory and
other services and distribution fees to IDS Financial Services Inc.
For a review of significant events relating to our business, see
"Management's discussion and analysis of financial condition and
results of operations."
Most banks and thrifts offer investments known as certificates of
deposit that are similar to our certificates in many ways. Early
withdrawals of bank Cds often result in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money you deposit to individuals, businesses <PAGE>
PAGE 20
and other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Cash Reserve Certificate is a security, its offer
and sale are subject to regulation under federal and state
securities laws. (It is a face-amount certificate--not a bank
product, an equity investment, a form of life insurance or an
investment trust.)
The federal Investment Company Act of 1940 requires us to keep
investments on deposit in a segregated custodial account to protect
all of our outstanding certificates. These investments back the
entire value of your certificate account. Their carrying value
must exceed the required carrying value of the outstanding
certificates by at least $250,000. As of Dec. 31, 1993, the
carrying value of these investments exceeded the required carrying
value of our outstanding certificates by more than $118 million.
Backed by our investments
Our investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1993:
29% preferred stocks
27% government agency bonds
25% corporate and other bonds
10% mortgages
7% municipal bonds
2% cash and cash equivalents
More than 95% of our securities portfolio (bonds and preferred
stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3B in the
financial statements.
Most of our investments are on deposit with IDS Trust Company
(formerly IDS Bank & Trust), Minneapolis, although we also maintain
separate deposits as required by certain states. IDS Trust Company
is a wholly owned subsidiary of IDS. Copies of our Dec. 31, 1993
schedule of Investments in Securities of Unaffiliated Issuers are
available upon request. For comments regarding the valuation,
carrying values and unrealized appreciation (depreciation) of
investment securities, see Notes 1, 2 and 3 to the financial
statements.
Investment policies
In deciding how to diversify the portfolio--among what types of
investments in what amounts--the officers and directors of IDSC use
their best judgment, subject to applicable law. The following
policies currently govern our investment decisions:
<PAGE>
PAGE 21
Purchasing securities on margin: We will not purchase any
securities on margin or participate on a joint basis or a joint-
and-several basis in any trading account in securities.
Commodities: We have not and do not intend to purchase or sell
commodities or commodity contracts.
Underwriting: We do not intend to engage in the public
distribution of securities issued by others. However, if we
purchase unregistered securities and later resell them, we may be
considered an underwriter under federal securities laws.
Borrowing money: From time to time we have established a line of
credit if management believed borrowing was necessary or desirable.
While a line of credit does not currently exist, it may be
established again in the future. We may pledge some of our assets
as security. We may occasionally use repurchase agreements as a
way to borrow money. Under these agreements, we sell debt
securities to our lender, and repurchase them at the sales price
plus an agreed-upon interest rate within a specified period of
time.
Real estate: We may invest directly in real estate, though we have
not generally done so in the past. We do invest in mortgage loans.
Lending securities: We may lend some of our securities to broker-
dealers and receive cash equal to the market value of the
securities as collateral. We invest this cash in short-term
securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan,
the borrower makes cash payments to us equal to all interest,
dividends and other distributions paid on the loaned securities. We
will try to vote these securities if a major event affecting our
investment is under consideration.
When-issued securities: Most of our investments are in debt
securities, some of which are purchased on a when-issued basis. It
may take as long as 45 days before these securities are issued and
delivered to us. We generally do not pay for these securities or
start earning on them until delivery. We have established
procedures to ensure that sufficient cash is available to meet
when-issued commitments.
Options: We buy or sell various types of options contracts for
hedging purposes or as a trading technique to facilitate securities
purchases or sales. We buy interest rate caps for hedging
purposes. These pay us a return if interest rates rise above a
specified level.
Restrictions: There are no restrictions on concentration of
investments in any particular industry or group of industries or on
rates of portfolio turnover.
<PAGE>
PAGE 22
How your money is managed
Relationship between IDSC and IDS
IDSC was originally organized as Investors Syndicate of America,
Inc., a Minnesota corporation, on Oct. 15, 1940, and began business
as an issuer of face amount investment certificates on Jan. 1,
1941. The company became a Delaware corporation on Dec. 31, 1977,
and changed its name to IDS Certificate Company on April 2, 1984.
Before IDSC was created, IDS, our parent company and organizer, had
issued similar certificates since 1894. IDSC and IDS have never
failed to meet their certificate payments.
During its many years in operation, IDS has become a leading
manager of investments in mortgages and securities. As of Dec. 31,
1993, IDS managed investments, including its own, of more than $99
billion. IDS Financial Services Inc. provides a broad range of
financial planning services for individuals and businesses through
its nationwide network of more than 175 offices and more than 7,500
financial planners. IDS financial planning services are
comprehensive, beginning with a detailed written analysis that's
tailored to your needs. Your analysis may address one or all of
these six essential areas: financial position, protection
planning, investment planning, income tax planning, retirement
planning and estate planning.
IDS itself is a wholly owned subsidiary of American Express
Company, a financial services company with executive offices at
American Express Tower, World Financial Center, New York, NY 10285.
American Express and its subsidiaries own or manage more than $400
billion in assets. American Express is a financial services
company engaged through subsidiaries in other business including:
o travel related services (including American Express Card and
Travelers Cheque operations through American Express Travel Related
Services Company, Inc. and its subsidiaries), and
o international banking services (through American Express Bank
Ltd. and its subsidiaries).
IDS Financial Services Inc. is not a bank, and the securities
offered by it, such as face amount certificates issued by IDSC, are
not backed or guaranteed by any bank, nor are they insured by the
FDIC.
Capital structure and certificates issued
IDSC has authorized, issued and has outstanding 150,000 shares of
common stock, par value of $10 per share. IDS owns all of the
outstanding shares.
As of Dec. 31, 1993, IDSC had issued (in face amount)
$12,314,170,599 of installment certificates and $11,517,014,625 of
single payment certificates.
<PAGE>
PAGE 23
Investment management and services
Under an Investment Advisory and Services Agreement, IDS acts as
our investment adviser and is responsible for:
o providing investment research,
o making specific investment recommendations
o executing purchase and sale orders according to our policy
of obtaining the best price and execution.
All these activities are subject to direction and control by our
board of directors and officers. Our agreement with IDS requires
annual renewal by our board, including a majority of directors who
are not interested persons of IDS or IDSC as defined in the federal
Investment Company Act of 1940.
For its services, we pay IDS a monthly fee, equal on an annual
basis to a percentage of the total book value of certain assets
(included assets).
Advisory and Services Fee Computation
Included Assets Percentage of Total Book Value
First $250 million 0.75%
Next 250 million 0.65
Next 250 million 0.55
Next 250 million 0.50
Any amount over $1 billion 0.45
Included assets are all assets of IDSC except mortgage loans, real
estate, and any other asset on which we pay an advisory or service
fee.
Advisory and services fees for the past three years were:
Percentage of
Year Total fees included assets
1993 $15,036,091 0.50%
1992 $17,851,271 0.50
1991 $19,787,451 0.49
Estimated advisory and services fees for 1994 are $13,867,000.
Other expenses payable by IDSC: The Investment Advisory and
Services Agreement provides that we will pay:
o costs incurred by us in connection with real estate and
mortgages,
o taxes,
o depository and custodian fees,
o brokerage commissions,
o fees and expenses for services not covered by other agreements
and provided to us at our request, or by requirement, by attorneys,
auditors, examiners and professional consultants who are not
officers or employees of IDS,
<PAGE>
PAGE 24
o fees and expenses of our directors who are not officers or
employees of IDS,
o provision for certificate reserves (interest accrued on
certificate holder accounts), and
o expenses of customer settlements not attributable to sales
function.
Distribution
Under a Distribution Agreement with IDS Financial Services Inc., we
pay for the distribution of this certificate as follows:
o 0.25% of the initial payment on the issue date of the
certificate, and
o 0.25% of the certificate's reserve at the beginning of the second
and subsequent quarters from issue date. This fee is not assessed
to your certificate account.
Total distribution fees paid to IDS Financial Services Inc. for all
series of certificates amounted to $26,541,948 during the year
ended Dec. 31, 1993. We expect to pay IDS Financial Services Inc.
distribution fees amounting to $27,258,000 during 1994.
See Note 1 to Financial Statements regarding deferral of
distribution fee expense.
IDS Financial Services Inc. pays commissions to its planners and
pays other selling expenses in connection with services to us. Our
board of directors, including a majority of directors who are not
interested persons of IDS Financial Services Inc. or IDSC, approved
this distribution agreement.
Employment of other American Express affiliates
IDS may employ Lehman Brothers Inc. or another affiliate of
American Express as executing broker for our portfolio transactions
only if:
o we receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar
services;
o the affiliate charges us commissions consistent with those
charged to comparable unaffiliated customers for similar
transactions; and
o the affiliate's employment is consistent with the terms of the
current Investment Advisory and Services Agreement and federal
securities laws.
Directors and officers
IDSC's directors, chairman, president and controller are elected
annually for a term of one year. The other executive officers are
appointed by the president.
We paid a total of $40,000 during 1993 to directors not employed by
IDS.
<PAGE>
PAGE 25
Board of Directors
David R. Hubers*
Age 51. Director since 1987.
President and chief executive officer of IDS since 1993. Senior
vice president and chief financial officer of IDS from 1984 to
1993.
Charles W. Johnson
Age 64. Director since 1989.
Former vice president and group executive, Industrial Systems, with
Honeywell Inc. Retired 1989.
Edward Landes
Age 74. Director since 1984.
Development consultant. Former sales manager - Supplies Division
and district manager - Data Processing Division of IBM Corporation.
Retired 1983.
John V. Luck, Ph.D.
Age 68. Director since 1987.
Former senior vice president - science and technology with
General Mills Inc. Employed with General Mills Inc. since 1970.
Retired 1987.
James A. Mitchell*
Age 52. Director since January 1994. Chairman of the board of
directors since February 1994.
Executive vice president - marketing and products of IDS since
February 1994. Senior vice president - insurance operations of IDS
and president and chief executive officer of IDS Life Insurance
Company from 1986 to 1994.
Harrison Randolph
Age 78. Director since 1968.
Gordon H. Ritz
Age 66. Director since 1968.
President, Con Rad Broadcasting Corp. Director, Sunstar Foods and
Mid-America Publishing.
Stuart A. Sedlacek*
Age 36. Director since January 1994. President since February
1994.
Vice president - assured assets of IDS since March 1994. Vice
President and portfolio manager from 1988 to 1994. Executive vice
president - assured assets of IDS Life Insurance Company since
March 1994.
* Interested Person of IDSC as that term is defined in Investment
Company Act of 1940.
<PAGE>
PAGE 26
Executive officers
Stuart A. Sedlacek
Age 36. President since February 1994.
Louis C. Fornetti
Age 44. Vice president since 1990.
Chief financial officer of IDS since 1993 and senior vice
president, corporate controller and director of IDS since 1988.
Morris Goodwin Jr.
Age 42. Vice president and treasurer since 1989.
Vice president and corporate treasurer of IDS since 1989. Chief
financial officer and treasurer of IDS Bank & Trust from 1988 to
1989.
Colleen Curran
Age 40. Secretary since 1990.
Secretary and assistant vice president of IDS since 1990. Senior
counsel to IDS since 1990. Counsel from 1985 to 1990.
Lorraine R. Hart
Age 42. Vice president - investments since February 1994.
Vice president - insurance investments of IDS since 1989. Vice
president, investments of IDS Life Insurance Company since 1992.
John M. Knight
Age 41. Controller since 1993.
Controller of certificate operations of IDS since 1989. Manager of
certificate operations from 1985 to 1989.
Bruce A. Kohn
Age 43. Vice president and general counsel since 1993.
Counsel to IDS since 1992. Associate counsel from 1987 to 1992.
F. Dale Simmons
Age 56. Vice president - real estate loan management since 1993.
Vice president of IDS since 1992. Senior portfolio manager of IDS
since 1989. Assistant vice president from 1987 to 1992.
The Officers and Directors as a group beneficially own less than 1%
of the common stock of American Express.
Auditors
A firm of independent auditors audits our financial statements at
the close of each fiscal year (Dec. 31). Copies of our annual
financial statements (audited) and semiannual financial statements
(unaudited) are available to any certificate holder upon request.
Ernst & Young, Minneapolis, has audited the financial statements
for each of the years in the three-year period ended Dec. 31, 1993.
These statements are included in this prospectus. Ernst & Young is
also the auditor for American Express, the parent company of IDS
and IDSC.
<PAGE>
PAGE 27
Other certificates issued by IDSC: Your IDS financial planner can
give you more information on four other certificates issued by
IDSC. These certificates offer a wide range of investment terms
and features.
IDS Flexible Savings Certificate - A single payment certificate
that permits additional investments and guarantees interest in
advance for a term of 6, 12, 18, 24, 20 or 36 months.
IDS Future Value Certificate - A single payment certificate that
guarantees interest in advance for four, five, six, seven, eight,
nine or ten-year maturity.
IDS Installment Certificate - An installment payment certificate
that declares interest in advance for a three-month period and
offers bonuses in the third through sixth years for regular
investments.
IDS Stock Market Certificate - A single payment certificate that
calculates all or part of your interest based on stock market
performance, as measured by a broad market index, with a guaranteed
return of principal.<PAGE>
PAGE 28
Summary of Selected Financial Information
- -------------------------------------------------------------------
The following selected financial information has been derived from
the audited financial statements and should be read in conjunction
with those statements and the related notes to financial
statements. Also see Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
comments.
<TABLE><CAPTION>
Year Ended Dec. 31, 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Investment income............. $ 236,859 $ 294,799 $ 351,970 $ 331,521 $ 248,472
Investment expenses........... 65,404 69,630 63,353 55,176 42,082
- -------------------------------------------------------------------------------------------
Net investment income before
provisions for certificate
reserves and income taxes... 171,455 225,169 288,617 276,345 206,390
Net provision for certificate
reserves.................... 123,516 178,175 258,443 271,267 208,219
- -------------------------------------------------------------------------------------------
Net investment income (loss)
before income taxes......... 47,939 46,994 30,174 5,078 (1,829)
Income tax benefit............ 3,365 11,666 20,537 28,588 26,040
- -------------------------------------------------------------------------------------------
Net investment income......... 51,304 58,660 50,711 33,666 24,211
- -------------------------------------------------------------------------------------------
Realized gain (loss) on
investments - net:
Securities of unaffiliated
issuers..................... (9,870) (9,498) (129) 2,178 1,672
Other - unaffiliated.......... (418) (500) (1,053) (851) -
- -------------------------------------------------------------------------------------------
Total gain (loss) on
investments................. (10,288) (9,998) (1,182) 1,327 1,672
Income tax expense (benefit).. (4,617) (3,399) (402) 451 569
- -------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments ................ (5,671) (6,599) (780) 876 1,103
Net income - wholly owned
subsidiary.................. 120 3 139 286 280
- -------------------------------------------------------------------------------------------
Net income ................... $ 45,753 $ 52,064 $ 50,070 $ 34,828 $ 25,594
- -------------------------------------------------------------------------------------------
Dividends declared:
Cash........................ $ 64,500 $ 83,750 $ 74,800 $ 47,000 $ 17,900
In-kind(a).................. - 64,558 25,466 - 1,500
- -------------------------------------------------------------------------------------------
Balance Sheet Data:
Total assets.................. $2,951,405 $3,444,985 $3,971,583 $4,168,586 $3,398,486
Certificate loans............. 67,429 77,347 88,570 99,192 110,608
Certificate reserves.......... 2,777,451 3,256,472 3,712,570 3,859,530 3,150,917
Stockholder's equity.......... 161,138 179,885 223,820 273,600 231,494
- -------------------------------------------------------------------------------------------
IDS Certificate Company (IDSC) is 100 percent owned by IDS Financial Corporation (IDS).
(a) Consisted of an investment security at amortized cost in 1992 and a reduction in the
note receivable from IDS in 1991 and 1989.
/TABLE
<PAGE>
PAGE 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
IDS Certificate Company's (IDSC) earnings are derived from the
after-tax yield on invested assets less investment expenses and
interest credited on certificate reserve liabilities. Significant
changes and trends occur largely due to interest rate changes and
the difference between rates of return on investments, rates of
interest credited to certificate holder accounts and the mix of
fully taxable and tax-advantaged investments in the IDSC portfolio.
In 1989 and 1990, total assets and certificate reserve liabilities
increased due to certificate sales exceeding certificate maturities
and surrenders. The increases in total assets in 1989 and 1990
also reflect capital contributions from its parent, IDS Financial
Corporation (IDS). (See Liquidity and Cash Flow Discussion)
Total assets and certificate reserve liabilities decreased in 1993,
1992 and 1991 due to certificate maturities and surrenders
exceeding certificate sales. The excess of certificate maturities
and surrenders over certificate sales in 1993, 1992 and 1991
resulted primarily from lower accrual rates declared by IDSC in
those years, reflecting lower interest rates available in the
marketplace.
1993 Compared to 1992
Gross investment income decreased 20 percent due to a lower balance
of invested assets and lower investment yields.
The 6.1 percent decrease in investment expenses resulted primarily
from lower distribution fees due to lower certificate sales, and
lower investment advisory and services fee due to a lower asset
base on which the fee is calculated. These decreases were
partially offset by higher amortization of interest rate caps. The
higher amortization reflects additional purchases and accelerated
amortization of certain interest rate caps in 1993.
Net provision for certificate reserves decreased 31 percent
reflecting lower accrual rates and a lower average balance of
certificate reserves.
The $7.1 million decrease in income tax benefit resulted primarily
from lower tax-advantaged income in 1993. The impact of the change
in Federal statutory income tax rate in 1993 was an increase in
income tax benefit of $.6 million of which $.4 million reflects the
increase in rate on the Dec. 31, 1992 balance of temporary
differences.
1992 Compared to 1991
Net investment income of $58.7 million in 1992 was 16 percent
higher than in 1991. The primary reason was an interest rate
environment in 1992, that resulted in slightly lower long-term<PAGE>
PAGE 30
investment yields than in 1991 while short-term rates declined
significantly. As a result, IDSC's investment yields decreased,
however, interest rates credited on certificate reserve liabilities
were significantly lower due to the short-term repricing nature of
certificate products.
Gross investment income decreased 16 percent due to a lower balance
of invested assets and lower investment yields.
The 10 percent increase in investment expenses resulted primarily
from higher amortization of premiums paid for interest rate caps
and index options used as hedges against changes in rates credited
on certificate liabilities. Distribution fees were lower due
primarily to lower certificate sales. Investment advisory and
services fee was lower due a lower asset base on which the fee is
calculated.
Net provision for certificate reserves decreased 31 percent
reflecting lower accrual rates and a lower average balance of
certificate reserves.
The decrease in income tax benefit resulted primarily from higher
pretax income and lower tax-advantaged income in 1992.
LIQUIDITY AND CASH FLOW
IDSC's principal sources of cash are reserve payments from sales of
face-amount certificates and cash flows from investments. In turn,
IDSC's principal uses of cash are payments to certificate holders
for matured and surrendered certificates, purchase of investments
and payments of dividends to IDS.
Although certificate sales volume decreased 18 percent in 1993,
total sales remained strong reflecting clients' ongoing desire for
safety of principal. Sales of single payment certificates totaled
$.9 billion compared to $1.1 billion during 1992, $1.4 billion
during 1991 and $1.6 billion during both 1990 and 1989.
IDSC, as an issuer of face-amount certificates, is affected
whenever there is a significant change in interest rates. In view
of the uncertainty in the investment markets and due to the
short-term repricing nature of certificate reserve liabilities,
IDSC continues to invest in securities with relatively short
maturities and in securities that provide for more immediate,
periodic interest/principal payments, resulting in improved
liquidity. To accomplish this, IDSC continues to invest much of
its cash flow in mortgage-backed securities and in sinking-fund
preferred stock.
IDSC's investment program is designed to maintain an investment
portfolio that will produce the highest possible after-tax yield
within acceptable risk standards with additional emphasis on
liquidity. The program considers investment securities as
investments acquired with the intent and ability to hold for the
foreseeable future and is designed to meet anticipated certificate
holder obligations. IDSC normally holds its portfolio securities<PAGE>
PAGE 31
until maturity or retirement, at which time the carrying values are
expected to be recovered.
At Dec. 31, 1993, securities carried at cost decreased to $2.4
billion from $2.9 billion at Dec. 31, 1992. These securities,
which comprise 85 percent of IDSC's total invested assets, are well
diversified. 96 percent are of investment grade and, other than
U.S. Government Agency mortgage-backed securities, no one issuer
represents more than two percent of these securities. See note 3
to Financial Statements for additional information on ratings and
diversification.
Gross unrealized gains and gross unrealized losses on investment
securities carried at cost were $119 million and $6.5 million,
respectively, at Dec. 31, 1993.
In 1993, in reaction to the changing interest rate environment,
IDSC continued to restructure a portion of its investment security
portfolio by selling $349 million of investment securities. The
sales included $253 million of mortgage-backed securities purchased
at a premium. These securities were sold to decrease exposure to
prepayment activity on the underlying pool of mortgages that could
have had a negative impact on future yields on these securities.
Cash flows of $897 million from operating activities, scheduled
maturities, and redemptions of investments in 1993, were more than
adequate to fund the net cash outflow of $603 million related to
certificate obligations.
During 1992, IDSC charged earnings with $23.7 million of
write-downs in the value of certain interest-only, mortgage-backed
securities that resulted from high prepayments due to refinancing
and additional payment activity on the underlying pool of mortgages
due to declining interest rates. At Dec. 31, 1992, the carrying
value of these securities was $30.2 million. During 1993,
additional write-downs of $.6 million were recorded and all of
these securities with a carrying value of $27.4 million were sold
for $14.3 million.
During 1993, IDSC's reserve for possible losses on its below
investment grade securities was reduced by $12.2 million from $14.2
million at Dec. 31, 1992 to $2.0 million at Dec. 31, 1993. The
reduction reflects sales and exchanges of certain of these issues
in 1993. IDSC does not generally invest in below investment grade
securities and is limited by regulation as to the amount of such
securities it can hold. IDSC's holdings in these securities result
principally from the downgrading of the securities subsequent to
purchase by IDSC. Management believes that reserves for possible
losses on securities owned at Dec. 31, 1993, are adequate, however,
future economic factors could impact the ratings of securities
owned and additional reserves for losses may need to be recognized.
Impact of New Accounting Standards
In May of 1993, the Financial Accounting Standards Board issued
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which IDSC will implement, effective Jan. 1,
1994. Under the new rules, debt securities that IDSC has both the<PAGE>
PAGE 32
positive intent and ability to hold to maturity will be carried at
amortized cost. Debt securities that IDSC does not have the
positive intent and ability to hold to maturity and all marketable
equity securities will be classified as available-for-sale and
carried at fair value. Unrealized gains and losses on securities
classified as available-for-sale will be carried as a separate
component of Stockholder's Equity. The effect of the new rules
will be to increase Stockholder's Equity by approximately $4
million,
net of taxes, as of Jan. 1, 1994.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
is expected to have no material impact on IDSC's results of
operations or financial condition.
Dividends
Cash dividends ranging from $17.9 million to $83.8 million were
declared during each of the years 1989 to 1993. In addition,
dividends-in-kind were declared consisting of an investment
security of $64.6 million in 1992 and a reduction in the notes
receivable from IDS of $25.5 million and $1.5 million in 1991 and
1989, respectively. As a result of projected adequate earnings in
1994 and capital in excess of regulatory requirements, IDSC
anticipates declaring regular cash dividends of approximately $50
million in 1994.
Capital Contributions
IDSC received capital contributions from IDS of $54.7 million in
Fund American Companies, Inc. preferred stock in 1990 and $18.5
million in cash and $85.9 million in Fund American Companies, Inc.
preferred stock in 1989. American Express Company made capital
contributions to several subsidiaries in 1989 and IDSC, through
IDS, was able to take advantage of this special opportunity. The
contributions benefited IDSC by providing support for the increased
certificate sales volumes in 1991, 1990 and 1989, allowing for
future growth and for payment of regular dividends.
Due to the decrease in IDSC's assets in 1992, IDSC felt its holding
in Fund American Companies, Inc. preferred stock was too large an
exposure to a single credit risk, resulting in IDSC's
dividend-in-kind of the issue to IDS. IDS subsequently contributed
capital to IDSC of $52.3 million. The contribution was necessary
in management of IDSC's regulatory capital requirements.
Ratios
The ratio of stockholder's equity to total assets less certificate
loans at Dec. 31, 1993, was 5.59 percent, compared to 5.34 percent
in 1992. IDSC intends to manage this ratio to five percent in
1994, which meets current regulatory requirements.
<PAGE>
PAGE 33
Annual Financial Information
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheet of IDS Certificate
Company, a wholly owned subsidiary of IDS Financial Corporation,
as of December 31, 1993 and 1992, and the related statements of
operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1993. These
financial statements are the responsibility of the management
of IDS Certificate Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of
December 31, 1993 and 1992 by correspondence with custodians and
brokers. 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
Certificate Company at December 31, 1993 and 1992, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
ERNST & YOUNG
Minneapolis, Minnesota
February 3, 1994
<PAGE>
PAGE 34
IDS Certificate Company
Responsibility for Preparation of Financial Statements
The management of IDS Certificate Company is responsible for the
preparation of the financial statements and related notes included
in the prospectus. The statements have been prepared in conformity
with generally accepted accounting principles appropriate in the
circumstances, and include amounts based on the best judgment of
management. Financial information included elsewhere in the
prospectus is consistent with these financial statements.
In recognition of its responsibility for the integrity and
objectivity of data in the financial statements, management
maintains a system of internal accounting controls. This system
includes an organizational structure with clearly defined lines of
responsibility and delegation of authority. To ensure the
effective administration of internal control, employees are
carefully selected and trained, written policies and procedures are
developed and disseminated, and appropriate communication channels
are provided to foster an environment conducive to the effective
functioning of controls.
The system is supported by an internal auditing function that
reports its findings to management throughout the year. IDS
Certificate Company's independent auditors are engaged to express
an opinion on the year-end financial statements. They objectively
and independently review the performance of management in carrying
out its responsibility for reporting operating results and
financial condition. With the coordinated support of the internal
auditors, they review and test the system of internal accounting
controls and the data contained in the financial statements.
<PAGE>
PAGE 35
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Assets
Qualified Assets (note 2) 1993 1992
- -----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Investments in unaffiliated issuers (note 3):
Cash and cash equivalents................... $ 54,059 $ 71,359
Bonds and notes...................................... 1,632,657 1,932,189
Preferred stocks..................................... 797,044 991,505
First mortgage loans on real estate.................. 281,865 233,796
Certificate loans - secured by certificate reserves.. 67,429 77,347
Other................................................ 2,218 150
Investments in and advances to affiliates.............. 4,812 2,787
- -----------------------------------------------------------------------------------------
Total investments...................................... 2,840,084 3,309,133
Receivables:
Dividends and interest............................... 40,432 50,441
Investment securities sold........................... 10,068 7,550
- -----------------------------------------------------------------------------------------
Total receivables...................................... 50,500 57,991
- -----------------------------------------------------------------------------------------
Other (notes 8 and 9).................................. 41,153 44,049
- -----------------------------------------------------------------------------------------
Total qualified assets................................. 2,931,737 3,411,173
- -----------------------------------------------------------------------------------------
Other Assets
- -----------------------------------------------------------------------------------------
Deferred distribution fees............................. 19,615 21,550
Deferred federal income taxes (note 7)................. - 11,281
Other.................................................. 53 981
- -----------------------------------------------------------------------------------------
Total other assets..................................... 19,668 33,812
- -----------------------------------------------------------------------------------------
Total assets........................................... $2,951,405 $3,444,985
- -----------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 36
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Liabilities 1993 1992
- ---------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Certificate Reserves (note 4):
Installment certificates:
Reserves to mature................................ $ 352,649 $ 358,345
Additional credits and accrued interest........... 18,555 18,067
Advance payments and accrued interest............. 1,943 2,277
Other............................................. 54 53
Fully paid certificates:
Reserves to mature................................ 2,243,416 2,701,724
Additional credits and accrued interest........... 160,440 175,651
Due to unlocated certificate holders................ 394 355
- ---------------------------------------------------------------------------------------
Total certificate reserves.......................... 2,777,451 3,256,472
- ---------------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities:
Due to IDS (note 6A).............................. 1,182 1,419
Due to IDS for federal income taxes............... 5,862 -
Due to affiliates (note 6B and 6C)................ 1,457 1,539
Payable for investment securities purchased....... - 160
Payable upon return of securities loaned ......... - 1,643
Accounts payable, accrued expenses and other...... 4,150 3,867
- ---------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities...... 12,651 8,628
Deferred federal income taxes (note 7).............. 165 -
- ---------------------------------------------------------------------------------------
Total liabilities................................... 2,790,267 3,265,100
- ---------------------------------------------------------------------------------------
Stockholder's Equity (notes 4B, 4C, and 5):
Common stock, $10 par - authorized and
issued 150,000 shares............................. 1,500 1,500
Additional paid-in capital.......................... 147,144 166,144
Retained earnings:
Appropriated for predeclared additional
credits/interest................................ 2,726 2,804
Appropriated for additional interest on
advance payments................................ 25 100
Unappropriated.................................... 9,743 9,337
- ---------------------------------------------------------------------------------------
Total stockholder's equity.......................... 161,138 179,885
- ---------------------------------------------------------------------------------------
Total liabilities and stockholder's equity.......... $2,951,405 $3,444,985
- ---------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 37
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Investment Income:
Interest income from investments:
Bonds and notes:
Unaffiliated issuers........................ $140,991 $178,071 $239,193
IDS......................................... - - 3,820
Mortgage loans on real estate:
Unaffiliated................................ 24,071 18,430 10,445
Affiliated.................................. 78 88 97
Certificate loans........................... 3,882 4,479 5,061
Dividends....................................... 67,115 92,599 92,374
Other........................................... 722 1,132 980
- ------------------------------------------------------------------------------------------
Total investment income......................... 236,859 294,799 351,970
- ------------------------------------------------------------------------------------------
Investment Expenses:
IDS and affiliated company fees (note 6):
Distribution.................................. 28,477 32,752 35,888
Investment advisory and services.............. 15,036 17,851 19,787
Depositary.................................... 201 225 279
Transfer agent................................ - 7 30
Options......................................... 9,419 10,323 1,266
Interest rate caps.............................. 11,667 7,649 5,077
Other........................................... 604 823 1,026
- ------------------------------------------------------------------------------------------
Total investment expenses....................... 65,404 69,630 63,353
- ------------------------------------------------------------------------------------------
Net investment income before provisions
for certificate reserves and income taxes..... $171,455 $225,169 $288,617
- ------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 38
<TABLE>
<CAPTION>
Statement of Operations (continued)
- ---------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Provision for Certificate Reserves (notes 4 and 9):
According to the terms of the certificates:
Provision for certificate reserves............ $ 20,555 $ 28,685 $ 21,402
Interest on additional credits................ 3,605 3,904 3,984
Interest on advance payments.................. 90 68 71
Additional credits/interest authorized by IDSC:
On fully paid certificates.................... 93,546 141,197 229,039
On installment certificates................... 6,704 5,270 5,058
On advance payments........................... - 89 96
- ---------------------------------------------------------------------------------------
Total provision before reserve recoveries....... 124,500 179,213 259,650
Reserve recoveries from terminations
prior to maturity.............................. (984) (1,038) (1,207)
- ---------------------------------------------------------------------------------------
Net provision for certificate reserves.......... 123,516 178,175 258,443
- ---------------------------------------------------------------------------------------
Net investment income before income taxes....... 47,939 46,994 30,174
Income tax benefit (note 7)..................... 3,365 11,666 20,537
- ---------------------------------------------------------------------------------------
Net investment income........................... 51,304 58,660 50,711
- ---------------------------------------------------------------------------------------
Realized loss on investments - net:
Securities of unaffiliated issuers............ (9,870) (9,498) (129)
Other-unaffiliated............................ (418) (500) (1,053)
- ---------------------------------------------------------------------------------------
Total loss on investments....................... (10,288) (9,998) (1,182)
- ---------------------------------------------------------------------------------------
Income tax expense (benefit) (note 7):
Current....................................... (19,508) 6,121 (777)
Deferred...................................... 14,891 (9,520) 375
- ---------------------------------------------------------------------------------------
Total income tax benefit........................ (4,617) (3,399) (402)
- ---------------------------------------------------------------------------------------
Net realized loss on investments................ (5,671) (6,599) (780)
- ---------------------------------------------------------------------------------------
Net income - wholly owned subsidiary............ 120 3 139
- ---------------------------------------------------------------------------------------
Net income ..................................... $ 45,753 $ 52,064 $ 50,070
- ---------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 39
<TABLE>
<CAPTION>
Statement of Stockholder's Equity
- ----------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Common Stock:
Balance at beginning and end of year............ $ 1,500 $ 1,500 $ 1,500
- ----------------------------------------------------------------------------------------
Additional Paid-in Capital:
Balance at beginning of year.................... $166,144 $206,393 $206,393
Contribution from IDS........................... - 52,309
Dividends declared:
Cash.......................................... (19,000) (28,000)
Investment security........................... - (64,558)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $147,144 $166,144 $206,393
- ----------------------------------------------------------------------------------------
Retained Earnings:
Appropriated for predeclared additional
credits/interest (note 4B):
Balance at beginning of year.................... $ 2,804 $ 4,247 $ 6,186
Transferred to unappropriated retained earnings. (78) (1,443) (1,939)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 2,726 $ 2,804 $ 4,247
- ----------------------------------------------------------------------------------------
Appropriated for additional interest on
advance payments (note 4C):
Balance at beginning of year.................... $ 100 $ 100 $ 100
Transferred to unappropriated retained earnings. (75) - -
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 25 $ 100 $ 100
- ----------------------------------------------------------------------------------------
Unappropriated (note 5):
Balance at beginning of year.................... $ 9,337 $ 11,580 $ 59,837
Net income ..................................... 45,753 52,064 50,070
Transferred from appropriated retained earnings. 153 1,443 1,939
Dividends declared:
Cash.......................................... (45,500) (55,750) (74,800)
Reduction in note receivable from IDS......... - - (25,466)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 9,743 $ 9,337 $ 11,580
- ----------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 40
<TABLE>
<CAPTION>
Statement of Cash Flows
- -------------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 45,753 $ 52,064 $ 50,070
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary.................... (120) (3) (139)
Certificate reserves..................................... 123,516 178,175 258,443
Interest income added to certificate loans............... (2,454) (2,743) (3,046)
Amortization of premium/discount-net..................... 27,494 30,136 22,809
Deferred federal income taxes............................ 11,446 (13,501) (1,786)
Deferred distribution fees............................... 1,935 1,277 984
Net loss on investments.................................. 10,288 9,998 1,182
Decrease in dividends and interest receivable............ 10,009 10,946 5,430
Decrease (increase) in other assets...................... 967 2,277 (3,152)
Increase (decrease) in other liabilities................. 4,979 (2,934) 1,088
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities................ 233,813 265,692 331,883
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Maturity and redemption of investments................... 663,151 968,647 645,084
Sale of investments...................................... 335,396 616,628 436,398
Certificate loan payments................................ 8,991 10,505 10,764
Purchase of investments.................................. (577,657)(1,147,562) (922,550)
Certificate loan fundings................................ (10,275) (12,610) (14,855)
Investment in subsidiary................................. (2,000) - -
- -------------------------------------------------------------------------------------------
Net cash provided by investing activities................ 417,606 435,608 154,841
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Reserve payments by certificate holders.................. 1,103,391 1,380,376 1,656,062
Proceeds from securities loaned to brokers............... 6,150 52,721 185,171
Proceeds from reverse repurchase agreements.............. 72,800 215,475 -
Capital contribution from IDS............................ - 52,309 -
Certificate maturities and cash surrenders............... (1,705,967)(2,007,880)(2,051,429)
Payments to brokers upon return of securities loaned..... (7,793) (53,550) (183,987)
Payments under reverse repurchase agreements............. (72,800) (215,475) -
Dividends paid........................................... (64,500) (83,750) (87,800)
- -------------------------------------------------------------------------------------------
Net cash used in financing activities.................... (668,719) (659,774) (481,983)
- -------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents..... (17,300) 41,526 4,741
Cash and cash equivalents beginning of year.............. 71,359 29,833 25,092
- -------------------------------------------------------------------------------------------
Cash and cash equivalents end of year.................... $ 54,059 $ 71,359 $ 29,833
- -------------------------------------------------------------------------------------------
Supplemental disclosures including non-cash transactions:
Cash received for income taxes........................... $ 26,606 $ 3,847 $ 15,985
Certificate maturities and surrenders through loan
reductions............................................... 13,656 16,071 17,759
Dividend-in-kind of preferred stock including related
deferred income tax of $516.............................. - 64,558 -
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 41
Notes to Financial Statements ($ in thousands unless indicated
otherwise)
- -------------------------------------------------------------------
1. Summary of Significant Accounting Policies
IDS Certificate Company (IDSC) is a wholly owned subsidiary of IDS
Financial Corporation (IDS), which is a wholly owned subsidiary of
American Express Company.
IDSC is in the business of issuing face-amount investment
certificates.
Described below are certain accounting policies that are important
to an understanding of the accompanying financial statements.
Basis of Financial Statement Presentation
The accompanying financial statements are presented on a historical
cost basis without adjustment of the net assets attributable to the
1984 acquisition of IDS by American Express Company. They include
only the accounts of IDSC. IDSC uses the equity method of
accounting for its investment in its wholly owned unconsolidated
subsidiary, which is the method prescribed by the Securities and
Exchange Commission (SEC) for issuers of face-amount certificates.
Certain amounts from prior years have been reclassified to conform
to the current year presentation.
Fair Values of Financial Instruments
The fair values of financial instruments disclosed in the notes to
financial statements are estimates based upon current market
conditions and perceived risks, and require varying degrees of
management judgment.
Preferred Stock Dividend Income
IDSC recognizes dividend income from cumulative redeemable
preferred stocks with fixed maturity amounts on an accrual basis
similar to that used for recognizing interest income on debt
securities.
Securities
Cash equivalents are carried at amortized cost, which approximates
fair value. IDSC has defined cash and cash equivalents as cash in
banks and highly liquid investments with a maturity of three months
or less at acquisition and are not interest rate sensitive.
IDSC's investment program considers investment securities as
long-term investments and is designed to meet contractual
investment certificate obligations. IDSC has the ability to hold
these securities to their maturities and has the intent to hold
them for the foreseeable future.
<PAGE>
PAGE 42
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
Marketable equity securities and other securities without fixed
maturity dates are carried at aggregate cost or market value,
whichever is lower. A valuation allowance is established for net
unrealized depreciation on marketable equity securities and is
charged against stockholder's equity. Bonds and notes, and
preferred stocks that either must be redeemed by the issuer or may
be redeemed by the issuer at the holder's request are carried at
amortized cost. The basis for determining realized gains and
losses on securities is the amortized cost of bonds and notes on a
"first-in, first-out" basis and the average cost of individual
issues of stocks. When there is a decline in value, that is other
than temporary, the securities are carried at estimated realizable
value.
First Mortgage Loans on Real Estate
Mortgage loans are carried at amortized cost, less reserves for
losses, which is the basis for determining any realized gains or
losses. When economic evaluations of the underlying real estate
indicate a loss on a loan is likely to occur, an allowance for such
loss is recorded. IDSC generally stops accruing interest on loans
for which interest is delinquent more than three months.
Certificates
Investment certificates may be purchased either with a lump-sum
payment or by installment payments. Certificate holders are
entitled to receive at maturity a definite sum of money. Payments
from certificate holders are credited to investment certificate
reserves. Investment certificate reserves accumulate at specified
percentage rates. Reserves also are maintained for advance
payments made by certificate holders, accrued interest thereon, and
for additional credits and accrued interest thereon. On
certificates allowing for the deduction of a surrender charge, the
cash surrender values may be less than accumulated investment
certificate reserves prior to maturity dates. Cash surrender
values on certificates allowing for no surrender charge are equal
to certificate reserves. The payment distribution, reserve
accumulation rates, cash surrender values, reserve values and other
matters are governed by the Investment Company Act of 1940 ("the
1940 Act").
Deferred Distribution Fee Expense
On certain series of certificates, distribution fees are deferred
and amortized over the estimated lives of the related certificates,
which is approximately 10 years. Upon surrender, unamortized
deferred distribution fees are charged against income.
Federal Income Taxes
IDSC's taxable income or loss is included in the consolidated
federal income tax return of American Express Company. IDSC
provides for income taxes on a separate return basis, except that,<PAGE>
PAGE 43
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
under an agreement between IDS and American Express Company, tax
benefits are recognized for losses to the extent they can be used
in the consolidated return. It is the policy of IDS and its
subsidiaries that IDS will reimburse a subsidiary for any tax
benefits recorded.
2. Deposit of Assets and Maintenance of Qualified Assets
A. Under the provisions of its certificates and the 1940 Act, IDSC
was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $2,767,057 and
$3,244,505 at Dec. 31, 1993 and 1992, respectively. IDSC had
qualified assets of $2,931,737 at Dec. 31, 1993 and $3,411,173 at
Dec. 31, 1992, including investment securities loaned to brokers of
$nil and $1,643 at Dec. 31, 1993 and 1992, respectively.
Qualified assets are valued in accordance with such provisions of
the Code of the District of Columbia as are applicable to life
insurance companies. Qualified assets for which no provision for
valuation is made in such Code are valued in accordance with rules,
regulations or orders prescribed by the SEC. These values are the
same as financial statement carrying values, except for securities
which are carried at the lower of aggregate cost or market in the
financial statements but are valued at cost for qualified asset and
deposit maintenance purposes.
B. Pursuant to provisions of the certificates, the 1940 Act, the
central depositary agreement and to requirements of various states,
qualified assets of IDSC were deposited as follows:
<TABLE>
<CAPTION>
Dec. 31, 1993
------------------------------------------
Required
Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits to meet certificate
liability requirements:
States............. $ 421 $ 393 $ 28
Central Depositary. 2,814,553 2,695,884 118,669
- ---------------------------------------------------------------------------------------
Total.............. $2,814,974 $2,696,277 $118,697
- ---------------------------------------------------------------------------------------
Dec. 31, 1992
------------------------------------------
Required
Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate
liability requirements:
States............. $ 425 $ 410 $ 15
Central Depositary. 3,273,053 3,163,184 109,869
- ---------------------------------------------------------------------------------------
Total.............. $3,273,478 $3,163,594 $109,884
- ---------------------------------------------------------------------------------------
/TABLE
<PAGE>
PAGE 44
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
The assets on deposit at Dec. 31, 1993 and 1992 consisted of
securities having a deposit value of $2,500,790 and $3,006,669,
respectively; mortgage loans of $276,711 and $228,107,
respectively; and other assets of $37,473 and $38,702,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan.
IDS Bank & Trust is the central depositary for IDSC. See note 6C.
3. Investments
A. Fair values of investments in securities with fixed maturities
represent market prices and estimated fair values when quoted
prices are not available. Estimated fair values are determined by
IDSC using established procedures, involving review of market
indexes, price levels of current offerings and comparable issues,
price estimates and market data from independent brokers and
financial files. The procedures are reviewed annually. IDSC's
Vice President - Investments reports to the Board of Directors on
an annual basis regarding such pricing sources and procedures to
provide assurance that fair value is being achieved.
The amortized cost and fair value of investments in securities with
fixed maturities carried at cost are:
<TABLE>
<CAPTION>
Dec. 31, 1993
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government direct
obligations.............. $ 421 $ 22 $ - $ 443
Corporate bonds and
obligations.............. 704,172 45,608 3,449 746,331
State and municipal
obligations.............. 179,394 15,687 - 195,081
Mortgage-backed
securities............... 750,719 16,934 2,415 765,238
Preferred stock............ 797,044 40,933 2,657 835,320
- ---------------------------------------------------------------------------------------
2,431,750 119,184 8,521 2,542,413
Reserve for losses......... (2,049) (2,049)
- ---------------------------------------------------------------------------------------
$2,429,701 $119,184 $ 6,472 $2,542,413
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 45
<TABLE><CAPTION>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------------------------
Dec. 31, 1992
- ---------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government direct
obligations.............. $ 425 $ 20 $ - $ 445
Corporate bonds and
obligations.............. 814,800 34,051 12,897 835,954
State and municipal
obligations.............. 194,317 16,848 9 211,156
Mortgage-backed
securities............... 936,857 20,975 13,659 944,173
Preferred stock............ 991,505 32,381 14,485 1,009,401
- ---------------------------------------------------------------------------------------
2,937,904 104,275 41,050 3,001,129
Reserve for losses......... (14,210) (14,210)
- ---------------------------------------------------------------------------------------
$2,923,694 $104,275 $26,840 $3,001,129
- ---------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains on fixed maturities amounted to $112,712 and
$77,435 at Dec. 31, 1993 and 1992, respectively.
IDSC's reserve for possible losses on its below investment grade
securities was $2,049 at Dec. 31, 1993 compared to $14,210 at Dec.
31, 1992. The decrease reflects sales and exchanges of certain of
these issues in 1993.
The amortized cost and fair value of investments in securities with
fixed maturities by contractual maturity, are shown below. Cash
flows will differ from contractual maturities because issuers may
have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Dec. 31, 1993
----------------------
Amortized Fair
Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less............................. $ 133,591 $ 135,839
Due from one to five years.......................... 679,639 719,175
Due from five to ten years.......................... 627,716 666,526
Due in more than ten years.......................... 240,085 255,635
- ---------------------------------------------------------------------------------------
1,681,031 1,777,175
Mortgage-backed securities.......................... 750,719 765,238
- ---------------------------------------------------------------------------------------
$2,431,750 $2,542,413
- ---------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in securities with fixed
maturities during 1993 and 1992 were $330,851 and $420,713,
respectively. Gross gains of $3,272 and $17,514 and gross losses
of $19,927 and $2,730 were realized on those sales during 1993 and
1992, respectively.<PAGE>
PAGE 46
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
B. Investments in securities with fixed maturities comprised 85
percent and 88 percent of IDSC's total invested assets at Dec. 31,
1993 and 1992, respectively. Securities are rated by Moody's and
Standard & Poors (S&P), or by IDS internal analysts, using criteria
similar to Moody's and S&P, when a public rating does not exist. A
summary of investments in securities with fixed maturities by
rating of investment is as follows:
Rating 1993 1992
- ------------------------------------------
Aaa/AAA...................... 35% 35%
Aa/AA........................ 4 4
Aa/A......................... 1 1
A/A.......................... 22 21
A/BBB........................ 3 6
Baa/BBB...................... 31 28
Below investment grade....... 4 5
- ------------------------------------------
100% 100%
- ------------------------------------------
Of the securities rated Aaa/AAA, 87 percent at Dec. 31, 1993 and 89
percent at Dec. 31, 1992, are U.S. Government Agency
mortgage-backed securities that are not rated by a public rating
agency. Approximately 23 percent at Dec. 31, 1993 and 25 percent
at Dec, 31, 1992 of other securities with fixed maturities are
rated by IDS internal analysts. No investment in any one issuer at
Dec. 31, 1993 and 1992, is greater than two percent and one
percent, respectively, of IDSC's total investment in securities
with fixed maturities.
At Dec. 31, 1993 and 1992, approximately ten percent and seven
percent, respectively, of IDSC's invested assets were first
mortgage loans on real estate. A summary of first mortgage loans
by region and by type of real estate is as follows:
Region 1993 1992 Property Type 1993 1992
- -------------------------------- --------------------------------------
South Atlantic....... 23% 21% Apartments................. 40% 46%
East North Central... 23 25 Retail/shopping centers.... 28 19
West North Central... 21 24 Industrial buildings....... 13 11
Middle Atlantic...... 14 16 Office buildings........... 10 12
West South Central... 8 6 Hotels/motels.............. 1 2
Mountain............. 6 3 Retirement homes........... 1 1
Pacific.............. 3 2 Residential................ - 3
New England.......... 2 3 Other...................... 7 6
- -------------------------------- --------------------------------------
100% 100% 100% 100%
- -------------------------------- --------------------------------------
<PAGE>
PAGE 47
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
The carrying amounts and fair values of first mortgage loans on
real estate are as follows at Dec. 31. The fair values are
estimated using discounted cash flow analysis, using market
interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
<TABLE>
<CAPTION>
Dec. 31, 1993
- ---------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
Residential................................ $ 53 $ 59
Commercial................................. 282,773 289,726
- -----------------------------------------------------------------------
282,826 289,785
Reserve for losses......................... (961) -
- -----------------------------------------------------------------------
Net first mortgage loans on real estate $281,865 $289,785
- -----------------------------------------------------------------------
Dec. 31, 1992
- ---------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
Residential................................ $ 6,638 $ 6,133
Commercial................................. 228,869 236,307
- -----------------------------------------------------------------------
235,507 242,440
Reserve for losses......................... (1,711) -
- -----------------------------------------------------------------------
Net first mortgage loans on real estate $233,796 $242,440
- -----------------------------------------------------------------------
</TABLE>
At Dec. 31, 1993 and 1992, commitments for fundings of first
mortgage loans, at market interest rates, aggregated $nil and $30.6
million, respectively. IDSC employs policies and procedures to
ensure the creditworthiness of the borrowers and that funds will be
available on the funding date. IDSC's first mortgage loan fundings
are restricted to 75 percent or less of the market value of the
real estate at the time of the loan funding. Management believes
there is no fair value for these commitments.
C. IDSC reserves freedom of action with respect to its acquisition
of restricted securities that offer advantageous and desirable
investment opportunities. In a private negotiation, IDSC may
purchase for its portfolio all or part of an issue of restricted
securities. Since IDSC would intend to purchase such securities
for investment and not for distribution, it would not be "acting as
a distributor" if such securities are resold by IDSC at a later
date.
The fair values of restricted securities are determined by the
Board of Directors using the procedures and factors described in
paragraph A of note 3.<PAGE>
PAGE 48
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
In the event IDSC were to be deemed to be a distributor of the
restricted securities, it is possible that IDSC would be required
to bear the costs of registering those securities under the
Securities Act of 1933, although in most cases such costs would be
borne by the issuer of the restricted securities.
D. IDSC will implement, effective Jan. 1, 1994, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the new rules,
debt securities that IDSC has both the positive intent and ability
to hold to maturity will be carried at amortized cost. Debt
securities that IDSC does not have the positive intent and ability
to hold to maturity and all marketable equity securities will be
classified as available-for-sale and carried at fair value.
Unrealized gains and losses on securities classified as available-
for-sale will be carried as a separate component of Stockholder's
Equity. The effect of the new rules will be to increase
Stockholder's Equity by approximately $4,304, net of taxes, as of
Jan. 1, 1994. The measurement of unrealized securities gains and
losses in Stockholder's Equity is affected by market conditions,
and therefore, subject to volatility. The new rules will not have a
material impact on IDSC's results of operations.
4. Certificate Reserves
Reserves maintained on outstanding certificates have been computed
in accordance with the provisions of the certificates and Section
28 of the 1940 Act. The average rates of accumulation on
certificate reserves at Dec. 31, 1993 and 1992 were:
<TABLE>
<CAPTION>
1993
------------------------------------
Average Average
Reserve Gross Additiona
Balance Accumulation Credit
at Dec. 31 Rate Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates..................... $ 57,958 3.49% 1.01%
Without guaranteed rates (A).............. 294,691 - 2.74
Additional credits and accrued interest... 18,555 3.09 -
Advance payments and accrued interest (C). 1,943 3.05 1.45
Other..................................... 54 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates..................... 291,923 3.30 1.07
Without guaranteed rates (A) and (D)...... 1,951,493 - 3.56
Additional credits and accrued interest... 160,440 3.37 -
Due to unlocated certificate holders...... 394 - -
- ---------------------------------------------------------------------------------------
$2,777,451
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 49
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1992
------------------------------------
Average Average
Reserve Gross Additiona
Balance Accumulation Credit
at Dec. 31 Rate Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates..................... $ 67,331 3.49% 2.26%
Without guaranteed rates (A).............. 291,014 - 3.26
Additional credits and accrued interest... 18,067 3.07 -
Advance payments and accrued interest (C). 2,277 3.02 2.48
Other..................................... 53 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates..................... 360,903 3.34 2.19
Without guaranteed rates (A) and (D)...... 2,340,821 - 4.49
Additional credits and accrued interest... 175,651 3.38 -
Due to unlocated certificate holders...... 355 - -
- ---------------------------------------------------------------------------------------
$3,256,472
- ---------------------------------------------------------------------------------------
</TABLE>
A. There is no minimum rate of accrual on these reserves.
Interest is declared periodically, quarterly or annually, in
accordance with the terms of the separate series of certificates.
B. On certain series of single payment certificates, additional
interest is predeclared for periods greater than one year. At Dec.
31, 1993, $2,726 of retained earnings had been appropriated for the
predeclared additional interest, which represents the difference
between certificate reserves on these series, calculated on a
statutory basis, and the reserves maintained per books.
C. Certain series of installment certificates guarantee accrual of
interest on advance payments at an average of 3.05 percent. IDSC
has increased the rate of accrual to 3.51 percent through April 30,
1995. An appropriation of retained earnings amounting to $25 has
been made, which represents the estimated additional accrual that
will result from the increase granted by IDSC.
D. IDS Stock Market Certificate enables the certificate holder to
participate in any relative rise in a major stock market index
without risking loss of principal. Generally the certificate has a
term of 12 months and may continue for up to 14 successive terms.
The reserve balance at Dec. 31, 1993 and 1992 was $402,801 and
$445,021, respectively.
E. The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1993 and 1992. Fair values
of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender
charges. The fair values for other certificate reserves is a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less any
applicable surrender charges.<PAGE>
PAGE 50
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
Reserves with terms of one year or less.... $2,409,668 $2,402,972
Other...................................... 367,783 384,484
- -----------------------------------------------------------------------
Total certificate reserves................. 2,777,451 2,787,456
Unapplied certificate transactions......... 1,064 1,064
Certificate loans and accrued interest..... (68,174) (68,174)
- -----------------------------------------------------------------------
Total $2,710,341 $2,720,346
- -----------------------------------------------------------------------
1992
------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
Reserves with terms of one year or less.... $2,939,259 $2,935,204
Other...................................... 317,213 326,646
- -----------------------------------------------------------------------
Total certificate reserves................. 3,256,472 3,261,850
Unapplied certificate transactions......... 1,586 1,586
Certificate loans and accrued interest..... (78,228) (78,228)
- -----------------------------------------------------------------------
Total $3,179,830 $3,185,208
- -----------------------------------------------------------------------
</TABLE>
5. Dividend Restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1 percent on such series
of certificates have been authorized by IDSC. This restriction has
been removed for 1994 and 1995 by action of IDSC on additional
credits in excess of this requirement.
6. Fees Paid to IDS and Affiliated Companies ($ not in thousands)
A. The basis of computing fees paid or payable to IDS for
investment advisory and services is:
The investment advisory and services agreement with IDS provides
for a graduated scale of fees equal on an annual basis to 0.75
percent on the first $250 million of total book value of assets of
IDSC, 0.65 percent on the next $250 million, 0.55 percent on the
next $250 million, 0.50 percent on the next $250 million and 0.45
percent on the amount in excess of $1 billion. The fee is payable
monthly in an amount equal to one-twelfth of each of the
percentages set forth above. Excluded from assets for purposes of
this computation are first-mortgage loans, real estate and any
other asset on which IDSC pays a service fee.<PAGE>
PAGE 51
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
B. The basis of computing fees paid or payable to IDS Financial
Services Inc. (an affiliate) for distribution services is:
Fees payable to IDS Financial Services Inc. on sales of IDSC's
certificates are based upon terms of agreements giving IDS
Financial Services Inc. the exclusive right to distribute the
certificates covered under the agreements. The agreements provide
for payment of fees over a period of time. The aggregate fees
payable under the agreements per $1,000 face amount of installment
certificates and $1,000 purchase price of single payments, and a
summary of the periods over which the fees are payable, shown by
series are:
<TABLE>
<CAPTION>
Number of
Certificate
Years Over
Aggregate Fees Payable Which
-------------------------- Subsequent
First Subsequent Years' Fees
Total Year Years Are Payable
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Installment certificates(a) $30.00 $ 6.00 $24.00 4
Single-payment certificates 60.00 60.00 - -
Future Value certificates.. 50.00 50.00 - -
- -----------------------------------------------------------------------
</TABLE>
Fees on Cash Reserve and Flexible Savings (formerly Variable Term)
certificates are paid at a rate of 0.25 percent of the purchase
price at time of issuance and 0.25 percent of the reserves
maintained for these certificates at the beginning of the second
and subsequent quarters from issue date.
Fees on the Investors Certificate are paid at an annualized rate of
1 percent of the reserves maintained for the certificates. Fees
are paid at the end of each term on certificates with a one, two or
three-month term. Fees are paid each quarter from date of issuance
on certificates with a six, 12, 24 or 36-month term.
Fees on the Stock Market Certificate are paid at a rate of 1.25
percent of the purchase price on the first day of the certificate's
term and 1.25 percent of the reserves maintained for these
certificates at the beginning of each subsequent term.
(a) At the end of the sixth through the 10th year, an additional
fee is payable of 0.5 percent of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.<PAGE>
PAGE 52
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
C. The basis of computing depositary fees paid or payable to IDS
Bank & Trust (an affiliate) is:
- -------------------------------------------------------------------
Maintenance charge per account..... 5 cents per $1,000 of
assets on deposit
Transaction charge................. $20 per transaction
Security loan activity:
Depositary Trust Company
receive/deliver................ $20 per transaction
Physical receive/deliver......... 25 per transaction
Exchange collateral.............. 15 per transaction
- -----------------------------------------------------------------------
A transaction consists of the receipt or withdrawal of securities
and commercial paper and/or a change in the security position. The
charges are payable quarterly except for maintenance, which is an
annual fee.
D. The basis for computing fees paid or payable to American
Express Service Corporation (an affiliate) in connection with the
American Express Savings certificate was:
Distribution Fees - Fees were paid at a rate of 0.25 percent of the
reserves maintained at the end of the first and subsequent
calendar quarters.
Transfer Agent Fees - Fees of $3.50 per certificate account were
paid each month.
E. The basis for computing fees paid or payable to American
Express Bank Ltd. (an affiliate) for the distribution of the IDS
Special Deposits certificate on an annualized basis is 0.80 percent
of the reserves maintained for the certificates on an amount from
$250,000 to $499,000, 0.65 percent on an amount from $500,000 to
$999,000 and 0.50 percent on an amount $1,000,000 or more. Fees
are paid at the end of each term on certificates with a one, two or
three-month term. Fees are paid at the end of each quarter from
date of issuance on certificates with a six, 12, 24 or 36-month
term.
<PAGE>
PAGE 53
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
7. Income Taxes
Income tax expense (benefit) as shown in the statement of
operations for the three years ended Dec. 31, consists of:
<TABLE><CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current............................. $(19,777) $ (1,571) $(19,137)
Deferred............................ 11,446 (13,501) (1,786)
- -----------------------------------------------------------------------
(8,331) (15,072) (20,923)
State............................... 349 7 (16)
- -----------------------------------------------------------------------
$ (7,982) $(15,065) $(20,939)
- -----------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) differs from that computed by using
the U.S. statutory rate of 35 percent for 1993 and 34 percent for
1992 and 1991. The principal causes of the difference in each year
are shown below:
<TABLE><CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax expense (benefit) at
U.S. statutory rate............... $ 13,178 $ 12,579 $ 9,857
Tax-exempt interest................. (4,929) (6,212) (9,340)
Dividend exclusion.................. (17,326) (22,317) (20,964)
Change in statutory rates........... (406) - -
Other, net.......................... 1,152 878 (476)
- -----------------------------------------------------------------------
Federal tax benefit $ (8,331) $(15,072) $(20,923)
- -----------------------------------------------------------------------
</TABLE>
Deferred income taxes result from the net tax effects of temporary
differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements that will result in differences between income
for tax purposes and income for financial statement purposes in
future years. Principal components of IDSC's deferred tax assets
and liabilities as of Dec. 31, are as follows:
<TABLE><CAPTION>
1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Certificate reserves................ $ 6,127 $ 8,351
Investments......................... 1,225 6,095
Investment reserves................. 1,487 5,654
Purchased/written call options...... - 273
- -----------------------------------------------------------------------
Total deferred tax assets 8,839 20,373
- -----------------------------------------------------------------------
Deferred tax liabilities:
Deferred distribution fees.......... 6,865 7,327
Dividends receivable................ 1,255 1,586
Return of capital dividends......... 463 46
Purchased/written call options...... 254 -
Other, net.......................... 167 133
- -----------------------------------------------------------------------
Total deferred tax liabilities 9,004 9,092
- -----------------------------------------------------------------------
Net deferred tax assets (liabilities) $ (165) $11,281
- -----------------------------------------------------------------------
/TABLE
<PAGE>
PAGE 54
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
8. Interest-Rate Caps
IDSC owns interest-rate caps with a notional amount of $1,170,000
and $900,000 at Dec. 31, 1993 and 1992, respectively. These caps
are quarterly reset caps and IDSC is to be reimbursed on the
notional amount to the extent the London Interbank Offering Rate
exceeds the reference rates specified in the cap agreements. These
reference rates range from 4 percent to 13 percent. The cost of
these caps is being amortized over the terms of the agreements
(three to seven years) on a straight line basis and is included in
other qualified assets.
The carrying amounts and fair values of interest rate caps
consisted of the following at Dec. 31, 1993 and 1992. Fair values
are determined using the procedures and factors described in
paragraph A of note 3.
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Carrying amount.................. $24,809 $26,551
Fair value....................... 6,916 13,480
</TABLE>
9. Options
IDSC offers a series of certificates which pay interest based upon
the relative change in a major stock market index between the
beginning and end of the certificates' term. The certificate
holders have the option of participating in the full amount of
increase in the index during the term (subject to a specified
maximum) or a lesser percentage of the increase plus a guaranteed
minimum rate of interest. As a means of hedging its obligations
under the provisions of these certificates, IDSC purchases and
writes call options on the major market index. The options are
cash settlement options, that is, there is no underlying security
to deliver at the time the contract is closed out. There is the
risk that the counterparties to the purchased call option contracts
may be unable to fulfill their obligations. IDSC employs policies
and procedures to ensure the adequacy of the creditworthiness of
counterparties. Following is a summary of open option contracts at
Dec. 31, 1993 and 1992.
<PAGE>
PAGE 55
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
---------------------------------------------
Face Average Index at
Amount Strike Price Dec. 31, 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Purchased call options $221,389 452 466
Written call options 207,540 497 466
- -----------------------------------------------------------------------
1992
---------------------------------------------
Face Average Index at
Amount Strike Price Dec. 31, 1992
- -----------------------------------------------------------------------
Purchased call options $185,387 417 436
Written call options 123,147 484 436
- -----------------------------------------------------------------------
</TABLE>
The option contracts are less than one year in term and are carried
at the aggregate of the amortized cost and underlying intrinsic
value of the contracts. These carrying amounts may be different
than fair value depending on market conditions and other factors.
The amortization of the cost of purchased and the proceeds of
written call options is included net in investment expenses and the
changes in the intrinsic value of the contracts are included net in
provision for certificate reserves, in the statement of operations.
The purchased options are included in other qualified assets and
the written options are included in other liabilities.
The carrying amounts and fair values of options consisted of the
following at Dec. 31, 1993 and 1992. Fair values are determined
using the procedures and factors described in paragraph A of note
3.
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased call options.......... $13,615 $14,509 $14,239 $13,571
Written call options............ 1,640 2,992 881 1,157
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 56
IDS Cash Reserve Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
Distributed by IDS Financial Services, Inc.<PAGE>
PAGE 57
The more you save, the more you'll earn
The interest rate on your certificate is guaranteed for three
months. Near the end of that term, we'll notify you of the
available rate for the next three months. Plus, you can qualify to
earn a higher interest rate, depending on the balance of your
account. Three rate tiers are available so the more you
accumulate, the more interest you'll earn! Interest on IDS Cash
Reserve Certificates is earned and compounded monthly.
Your money is available when you need it
You pay no withdrawal penalty for either a partial or complete
withdrawal of funds. You may, at any time, make a partial
withdrawal from your certificate if you withdraw at least $100 and
keep a balance of at least $1,000 in the certificate after the
withdrawal. Interest is paid through the end of the last completed
certificate month. Withdrawals before month end will result in
loss of interest on the amount withdrawn. You'll get the best
result by timing a withdrawal at the end of the certificate month.
An affordable way to build assets
You can start building your cash reserves right away, with
automatic monthly investments of as little as $50 per month.
Convenient service
Make deposits by mail or by authorizing monthly deposits from your
bank account or paycheck or by depositiing your Social Security
check. Use the mail or telephone to make withdrawals or transfer
your investment into another IDS certificate.<PAGE>
PAGE 58
IDS Certificate
IDS certificates for a range of investment needs
In addition to the IDS Cash Reserve Certificate, IDSC offers:
IDS Installment Certificate
(icon of) steps
A great way to build your cash reserves through affordable
systematic savings. You can start building your cash reserves
right away, with regular investments of as little as $50 per month.
It offers highly competitive yields and a bonus for regular savings
that can give a substantial boost to your total return. It
guarantees a specific interest rate for every three months you hold
your certificate.
IDS Flexible Savings Certificate
(icon of) George Washington
An investment you can tailor to your own needs, this certificate
guaranttes interest for a term of six months to three years. At
any time, you can add to your investment, up to 25% of the initial
or renewal amount, locking in your current guaranteed rate and
protecting yourself against falling market rates. Larger
investments may earn higher rates. In addition, you can withdraw
up to 10% of your principal without penalty. And you can time this
withdrawal to avoid loss of interest.
IDS Future Value Certificate
(icon of) sunrise
Do you want a specific sum of money you can count on to meet a
future goal, like college tuition or a retirement nest egg? You'll
know exactly how much you can expect, and when, with this
certificate. It guarantees interest for maturities of four through
10 years. Generally, rates will be higher than those paid on
shorter-term certificates. What's more, our interest rate tiers
reward you with even higher rates when you save more.
IDS Stock Market Certificate
(icon of) building
The security of guaranteed principal plus stock market returns is a
combination that's hard to beat. It's available through this
single payment certificate that lets you share in the growth of
U.S. industry without risking your money in a volatile market. The
certificate guarantees return of your principal but links your
return to stock market performance, as measured by a broad market
index. You decide whether part of your return will be guaranteed
or whether all of it will be tired to the market.
<PAGE>
PAGE 59
For more complete information including fees and expenses, contact
your IDS financial planner for a prospectus. Read it carefully
before you invest or send money.<PAGE>
PAGE 60
Quick telephone reference
IDS Certificate Service
Withdrawals, transfers, inquiries
National/Minnesota: 800-437-3463
Mpls./St. Paul area: 612-671-4737
TTY Service
For the hearing impaired
800-846-4293
IDS Infoline
Current rate information (automated response, TouchtoneR phones
only)
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 612-671-1630
Your IDS financial planner:
IDS Cash Reserve Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
