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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
POST-EFFECTIVE AMENDMENT NUMBER 12 TO
REGISTRATION STATEMENT NO. 2-95577
IDS FLEXIBLE SAVINGS CERTIFICATE
UNDER
THE SECURITIES ACT OF 1933
IDS CERTIFICATE COMPANY
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
6725
(Primary Standard Industrial Classification Code Number)
41-6009975
(I.R.S. Employer Identification No.)
IDS Tower 10, Minneapolis, MN 55440-0010, (612) 671-3131
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Bruce A. Kohn, IDS Tower 10, Minneapolis, MN 55440-0010
(612) 671-2221
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section
24f-2 of the Investment Company Act of 1940. Registrants' Rule
24f-2 Notices for its most recent fiscal year (December 31) will be
filed on or about February 25, 1994.
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PAGE 2
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
IDS FLEXIBLE SAVINGS CERTIFICATE
AND VARIATIONS
<TABLE>
<CAPTION>
Page
Item Caption in Number in
Number Prospectus Prospectus
<S> <C> <C>
Item 1. Forepart of the Cover
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to get information about 5-6
Outside Back Cover Pages IDSC; Table of Contents.
of Prospectus.
Item 3. Summary Informa- About the certificate Cover; 7-11
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and 21-22; 22-23
protected; Investment policies
Item 5. Determination of Not Applicable. -
Offering Price.
Item 6. Dilution. Not Applicable. -
Item 7. Selling Security Not Applicable. -
Holders
Item 8. Plan of How your money 23-26
Distribution. is managed.
Item 9. Description of About the Certificate; 7-11; 11-18; 18
Securities to Be How to invest and withdraw
Registered. funds;
Taxes on your earnings.
Item 10. Interests of Not Applicable. -
Named Experts and Counsel.
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PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Page
Item Caption in Number in
Number Prospectus Prospectus
Item 11. Information with Invested and guaranteed by 21; 21-22; 23-24;
Respect to the Registrant. IDSC; Regulated by government; 24; 26-29
Relationship between IDSC and
IDS; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers; 26-29
Commission Position on Also see Item 17 in
Indemnification for Part II.
Securities Act Liabilities.
</TABLE>
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IDS Flexible Savings Certificate
Prospectus - April 27, 1994
Earn guranteed, competitive rates for the term you choose.
IDS Flexible Savings Certificates are issued by IDS Certificate
Company (IDSC). You may purchase this certificate by selecting a
term of 6, 12, 18, 24, 30 or 36 months and an initial investment of
at least $1,000 but not more than $1 million (unless you receive
prior authorization to invest more). Your principal and interest
is guaranteed by IDSC. IDSC guarantees a fixed rate of interest
depending upon the term you select. You may make additional
investments during the term subject to certain limitations. You
may invest in successive terms up to a total of 20 years from the
issue date of the certificate. Your interest rate will be
determined as described in "About the 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 OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS Flexible
Savings 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
Flexible Savings 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
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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 Midwest Regional Office
7 World Trade Center, Suite 1300 Northwestern Atrium Center
New York, NY 10048 500 West Madison Street
Suite 1400
Chicago, IL 60611
Pacific Regional Office
5670 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90036
Initial interest rates
IDSC guarantees a fixed rate of interest for each term. For the
initial term, the rate will be within a specified range of certain
average certificates of deposit interest rates, as published in the
most recent BANK RATE MONITOR National IndexTM, 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:
Simple Effective
interest annualized
Term rate* yield**
6-month 3.35% 3.40%
12-month 3.69 3.75
18-month 3.93 4.00
24-month 4.17 4.25
30-month 4.22 4.30
36-month 4.41 4.50
*These are the rates for investments under $100,000. Rates may
depend on the 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 future 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.
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Table of contents
About the certificate
Investment amounts and terms 4p
Face amount and principal 4p
Value at maturity 5p
Receiving cash during the term 5p
Interest 5p
Rates for new purchases 6p
Promotions and pricing flexibility 7p
Additional Investments 8p
How to invest and withdraw funds
Buying your certificate 10p
Full and partial withdrawals 12p
When your certificate term ends 14p
Transfer to other IDS accounts 15p
Retirement plans: special policies 18p
Transfer of ownership 18p
For more information 18p
Taxes on your earnings
Retirement accounts 19p
Gifts to minors 19p
Foreign investors 22p
How your money is used and protected
Invested and guaranteed by IDSC 23p
Regulated by government 23p
Backed by our investments 24p
Investment policies 24p
How your money is managed
Relationship between IDSC and IDS 26p
Capital structure and certificates issued 26p
Investment management and services 27p
Distribution 28p
Employment of other American Express affiliates 29p
Directors and officers 29p
Auditors 32p
Financial information
Summary of selected financial information 33p
Management's discussion and analysis of
financial condition and results of operations 34p
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 may purchase the IDS Flexible Savings Certificate with a single
payment of at least $1,000 payable in U.S. currency. Unless you
receive prior authorization, your total amount paid in over the
life of the certificate, less withdrawals, cannot exceed $1
million.
After determining the amount you wish to invest, you select a term
of 6, 12, 18, 24, 30 or 36 months for which we will guarantee an
interest rate. Generally, you will be able to select any of the
terms offered. But if your certificate is nearing its 20-year
maturity, you will not be allowed to select a term that would carry
the certificate past its maturity date.
The certificate may be used as an investment for your Individual
Retirement Account (IRA), 401(k) plan account or other qualified
retirement plan account. 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. Any investment or withdrawal within 15 days of the
end of a term will be added on or deducted to determine principal
for the new term. 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.
Principal may change during a term as described in "Add-on feature"
and "Full and partial withdrawals."
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:
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PAGE 8
$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
You may continue to invest for successive terms for up to a total
of 20 years. Your certificate matures at 20 years from its issue
date. At maturity, the value of your certificate will be the total
of your purchase price, plus additional investments and any
credited interest not paid to you in cash, less any withdrawals and
penalties. Some fees may apply as described in "How to invest and
withdraw funds."
Receiving cash during the term
If you need your money before your certificate term ends, 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 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.
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Rates for new purchases
When your application is accepted, you will receive a confirmation
of your purchase showing the rate that your investment will earn.
IDSC guarantees that when rates for new purchases take effect, the
rates will be within a range based on the average interest rates
then published in the BANK RATE MONITOR National IndexTM (the BRM
Index). In the case of the 6-, 12-, 24-, and 30-month terms IDSC
guarantees that your rate for your initial term will be equal to or
up to 100 basis points (1%) above such rates for comparable length
certificates of deposit. In the case of the 18-month term, because
the BRM Index doesn't typically publish rates for comparable length
certificates of deposit, we guarantee that the rate for your
initial term will be within a range of 10-110 basis points above
the rates for the 12-month certificates of deposit. In the case of
the 36-month term, because the BRM Index doesn't typically publish
rates for comparable length certificates of deposit, we guarantee
that the rate for your initial term will be within 20-120 basis
points above the rates for the 30-month certificate of deposit.
For example, if the rate most recently published in the BRM Index
with respect to the 30-month certificate of deposit is 3.75% our
rates in effect for that week for 36-month terms would be between
3.95% and 4.95%.
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.
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 for your chosen term 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 before receipt.
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Except for specific promotions, active or retired IDS employees,
IDSC directors, IDS planners, their immediate families and any U.S.
employee of any affiliated company of IDSC are guaranteed an
initial rate 75 basis points above the rate offered to the general
public, reflecting the lower distribution costs associated with
such sales.
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 have purchased 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.
We also may offer different rates based on your amount invested,
maturity selected, geographic location and whether the certificate
is purchased for an IRA or a qualified retirement account.
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".
Rates for future terms: Interest on your certificate for future
terms may be greater or less than the rates you receive during your
first term. In setting future interest rates, a primary
consideration will be the prevailing investment climate, including
certificate of deposit yields as reflected in the BRM Index.
Nevertheless, we have complete discretion as to what interest rate
shall be declared beyond the initial term. At least six days in
advance of each term, we will send you notice of the rate that your
certificate will earn for that 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.
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Performance: From February 1989 through February 1994, IDS
Flexible Savings Certificate 1 year yields were higher than average
bank and thrift 1 year certificate of deposit yields and Super NOW
accounts, as measured by the BRM Index:
Yields from February 1989 through February 1994
8%
____ IDS Flexible Savings - 1 year
.... Certificate of deposit - 1 year
6%
4% Two lines comparing the yields for one-year IDS Flexible
Savings Certificate against those of one-year certificates
of deposit with Flexible's yield generally above the CD's
2%
89 90 91 92 93 94
o The graph compares past yields and should not be considered a
prediction of future performance.
Additional investments
You may make investments within 15 calendar days after the end of a
term (the "grace period"). Additional investments may be in any
amount so long as your total investment, less withdrawals, does 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.
Add-on feature: You may also add to your certificate during the
term. Additional investments may not exceed 25% of the
certificate's principal balance at the end of the grace period.
This principal includes the balance at the end of the previous
term, plus or minus any deposits or withdrawals during the grace
period.
Any add-on or withdrawal during the grace period will change the
principal amount used to determine the amount available for the 25%
add-on feature.
For example, suppose your original balance is $9,000. During the
grace period, you add $1,000. At any time during the current term,
you could add up to 25% of principal ($9,000 + $1,000 = $10,000),
or $2,500 to your certificate.
The interest rate for these additional investments is the rate then
in effect for your account. If your additional investment
increases the principal of your certificate so that your
certificate's principal has exceeded a break point for a higher
interest rate, the certificate will earn this higher interest rate
for the remainder of the term, from the date the additional
investment is accepted.<PAGE>
PAGE 12
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."
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 within the Federal Reserve Bank)
before your purchase will be accepted and you begin earning
interest. This could take up to two business days.
o IDSC has complete discretion to determine whether to accept an
application.
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."
Two ways to make additional investments
1
By mail
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
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2
By wire
For investment into 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 IDSC incurs, will be returned
promptly.
o Minimum amount you may wire: $1,000
o Wire orders can be accepted only on days when your bank, IDS,
IDSC and Norwest Bank Minneapolis are open for business.
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 or make a
partial withdrawal of $100 or more at any time. However:
o Full and partial withdrawals of principal are subject to
penalties, described below.
o You may not make a partial withdrawal if it would reduce your
certificate balance to less than $1,000. If you request such a
withdrawal, we will contact you for revised instructions.
o If a withdrawal reduces your account value to a point where we
pay a lower interest rate, you will earn the lower rate from the
date of the withdrawal.
o Scheduled partial withdrawals may be made monthly, quarterly,
semiannually, annually and at term end.
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. <PAGE>
PAGE 14
Penalties for early withdrawal during a term: When you request a
full or partial withdrawal, we pay the amount you request:
o first from interest credited during the current term
o then from the principal of your certificate.
Any additional investments or withdrawals during a term are added
to or deducted from the principal and are used in determining any
withdrawal charges.
Penalty exceptions: There is never a penalty for withdrawal of
interest. In addition, you may withdraw up to 10% of your
principal during the term without a withdrawal penalty. The
principal available for the 10% no-penalty withdrawal feature is
the balance in the certificate at the beginning of the term plus or
minus any deposits or withdrawals made during the grace period.
The following example demonstrates how this feature works:
Suppose your certificate balance is $1,000. During the grace
period, you add $500, bringing the principal to $1,500. At any
time during the term, you could withdraw up to $150 of principal
with no penalty.
Any additional investments or withdrawals following the grace
period will not change the principal amount used to determine the
amount available for the 10% no-penalty withdrawal feature.
Withdrawal penalties: For withdrawals during the term of more than
the interest credited that term and over 10% of the certificate's
principal, a 2% withdrawal penalty will be deducted from the
account's remaining balance.
For example, assume you invest $20,000 in a certificate and select
a two-year term. A little over a year later assume you have earned
$1,600 in interest. The following demonstrates how the withdrawal
charge is deducted:
When you withdraw a specific amount of money, we would have to
withdraw somewhat more from your account to cover the withdrawal
charge. For instance, suppose you request a $5,000 check. The
first $1,600 paid to you is interest earned that term, the next
$2,000 is 10% of principal, and not subject to the withdrawal
penalty, and the remaining $1,400 paid to you is principal over the
10% limit. We would send you a check for $5,000 and deduct a
withdrawal charge of $28.00 ($1,400 x 2%) from the remaining
balance of your certificate account. Your new balance would be
$16,572 ($21,600 - $5,028).
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PAGE 15
$20,000.00 Total investments
$1,600.00 Interest credited
$21,600.00 Total balance
$5,000.00 Requested check
($1,600.00) Credited interest withdrawn
($2,000.00) 10 percent of principal -- not subject to
penalty
___________
$1,400.00 Remaining portion of requested withdrawal --
subject to penalty
2.00% Withdrawal penalty percent
$28.00 Actual withdrawal penalty
$21,600.00 Balance prior to withdrawal
($5,000.00) Requested withdrawal check
($ 28.00) Withdrawal penalty
$16,572.00 Total balance after withdrawal
Additionally, if you withdraw during a certificate month, you will
not earn interest for the month on the amount withdrawn.
For more information on withdrawal charges, talk with your IDS
planner or call IDS Certificate Holder Service at 1-800-437-3463.
When your certificate term ends
Shortly before the end of the term you have selected for your
certificate, we will send you a notice indicating the interest rate
that will apply to the certificate for the new term. When your
certificate term ends we will automatically renew your certificate
for the same term unless you tell us otherwise. If you wish to
select a different term, you must notify us in writing before the
end of the grace period. You will not be allowed to select a term
that would carry the certificate past its maturity date.
The interest rates that will apply to your new term will be those
in effect on the day the new term begins. We will send you a
confirmation showing the rate of interest that will apply to the
new term you have selected. This rate of interest will not be
changed during that term.
If you want to withdraw your certificate without a withdrawal
charge, you must notify us within 15 calendar days following the
end of a term. However, you will lose any interest accrued since
the end of the term.
You may also add to your investment within the 15 calendar days
following the end of your term. see "Additional investments" under
"About the certificate."
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.<PAGE>
PAGE 16
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 A telephone withdrawal request will not be allowed within 30 days
of a phoned-in address change.
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.
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
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PAGE 17
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 Transfers to another IDS account with different ownership (all
current registered owners must sign the request).
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 if 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
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 A service fee, if any, may be 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 to five days from request to first deposit
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PAGE 18
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 We will waive withdrawal penalties on withdrawals for IRA
accounts of clients who have reached age 70 1/2.
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
o 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.
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, <PAGE>
PAGE 19
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 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
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
<PAGE>
PAGE 20
Custodian account of a minor The 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
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 <PAGE>
PAGE 21
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 Flexible Savings 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
and other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Flexible Savings 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.)
<PAGE>
PAGE 22
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:
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.
<PAGE>
PAGE 23
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.
How your certificate 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.
<PAGE>
PAGE 24
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 businesses 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.
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.<PAGE>
PAGE 25
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 a
service fee.
Advisory and services fees for the past three years:
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,
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.
<PAGE>
PAGE 26
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 27
Board of directors
David R. Hubers*
Age 51
Director since April 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 August 1989
Former vice president and group executive, Industrial Systems, with
Honeywell Inc. Retired 1989.
Edward Landes
Age 74
Director since May 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 April 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.
<PAGE>
PAGE 28
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.
Executive officers
Stuart A. Sedlacek*
Age 36
President since February 1994
Louis C. Fornetti
Age 44
Vice president since January 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 investment IDS since 1989. Vice
President, investment 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.
<PAGE>
PAGE 29
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.
IDSC has provisions in its bylaws relating to the indemnification
of its officers and directors against liability, as permitted by
law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
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.
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 Cash Reserve Certificate - A single payment certificate that
permits additional investments and guarantees interest in advance
for a three-month term.
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.
<PAGE>
PAGE 30
IDS Future Value Certificate - A single payment certificate that
guarantees interest in advance for a four, five, six, seven, eight,
nine or ten-year maturity.
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 stock market index, with
guaranteed return of principal.
<PAGE>
PAGE 31
<TABLE>
<CAPTION>
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.
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 32
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
investment yields than in 1991 while short-term rates declined
significantly. As a result,
<PAGE>
PAGE 33
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
until maturity or retirement, at which time the carrying values are
expected to be recovered.
<PAGE>
PAGE 34
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<PAGE>
PAGE 35
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 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 36
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 37
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 38
<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 $3,444,985
- -----------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 39
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Liabilities 1993 1992
- ---------------------------------------------------------------------------------------
($ 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 $3,444,985
- ---------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 40
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------
($ 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 $288,617
- ------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 41
<TABLE>
<CAPTION>
Statement of Operations (continued)
- ---------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------
($ 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 42
<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 43
<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 $516.............................. - 64,558 -
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 44
Notes to Financial Statements ($ 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 45
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 46
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 47
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 48
<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 49
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 50
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 51
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 52
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 53
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 54
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 55
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 56
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 57
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 58
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 59
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
IDS CASH RESERVE CERTIFICATE
AND VARIATIONS
<TABLE>
<CAPTION>
Page
Item Caption in Number in
Number Prospectus Prospectus
<S> <C> <C>
Item 1. Forepart of the Cover
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to get information about 62
Outside Back Cover Pages IDSC; Table of Contents.
of Prospectus.
Item 3. Summary Informa- About the certificate 64-66
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and 75-76; 76-77
protected; Investment policies
Item 5. Determination of Not Applicable. -
Offering Price.
Item 6. Dilution. Not Applicable. -
Item 7. Selling Security Not Applicable. -
Holders
Item 8. Plan of How your money 78-80
Distribution. is managed.
Item 9. Description of About the Certificate; 64-66
Securities to Be How to invest and withdraw 67-72
Registered. funds.
Taxes on your earnings. 73
Item 10. Interests of Not Applicable. -
Named Experts and Counsel.
<PAGE>
PAGE 60
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Page
Item Caption in Number in
Number Prospectus Prospectus
Item 11. Information with Invested and guaranteed by 75-76; 76; 78;
Respect to the Registrant. IDSC; Regulated by government; 78; 80-82
Relationship between IDSC and
IDS; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers 80-82
Commission Position on
Indemnification for
Securities Act Liabilities.
</TABLE>
<PAGE>
PAGE 61
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>
PAGE 62
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>
PAGE 63
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
<PAGE>
PAGE 64
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
<PAGE>
PAGE 65
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.
<PAGE>
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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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PAGE 69
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>
PAGE 70
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.
<PAGE>
PAGE 71
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
<PAGE>
PAGE 72
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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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
<PAGE>
PAGE 74
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 75
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 76
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:
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PAGE 77
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>
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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>
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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 80
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 81
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 82
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 83
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 84
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
IDS INSTALLMENT CERTIFICATE
AND VARIATIONS
<TABLE>
<CAPTION>
Page
Item Caption in Number in
Number Prospectus Prospectus
<S> <C> <C>
Item 1. Forepart of the Cover
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to get information about 87; 88
Outside Back Cover Pages IDSC; Table of Contents.
of Prospectus.
Item 3. Summary Informa- About the certificate 89-94
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and 102-103; 104-105
protected; Investment policies
Item 5. Determination of Not Applicable. -
Offering Price.
Item 6. Dilution. Not Applicable. -
Item 7. Selling Security Not Applicable. -
Holders
Item 8. Plan of How your money 105-107
Distribution. is managed.
Item 9. Description of About the Certificate; 89-94
Securities to Be How to invest and withdraw 94-99
Registered. funds.
Taxes on your earnings. 100
Item 10. Interests of Not Applicable. -
Named Experts and Counsel.
<PAGE>
PAGE 85
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Page
Item Caption in Number in
Number Prospectus Prospectus
Item 11. Information with Invested and guaranteed by 102-103; 103; 105
Respect to the Registrant. IDSC; Regulated by government; 105; 108-109
Relationship between IDSC and
IDS; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers 108-109
Commission Position on
Indemnification for
Securities Act Liabilities.
</TABLE>
<PAGE>
PAGE 86
IDS Installment Certificate
Prospectus
April 27, 1994
Earn attractive rates while you build your savings.
IDS Installment Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with monthly investments
of at least $50 but not more than $5,000 (unless you receive prior
authorization from IDSC to invest more). Your principal is
guaranteed by IDSC. Your certificate earns interest, which is
declared every three months, guaranteed for a three-month period
and compounded monthly. In addition, you may receive bonus
interest payments if you make regular investments for specified
periods. Your certificate matures 10 years from its issue date.
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 OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS
Installment 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 Installment 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>
PAGE 87
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 rate of interest for each three-month
period during the life of your certificate. The rate for your
first three months will be within a specified range of the average
rate for bank money market accounts published in the most recent
BANK RATE MONITOR National Index TM, North Palm Beach, FL 33408, as
explained under "About the certificate," below.
Here are the interest rates in effect on the date of this
prospectus, April 27, 1994:
Simple interest rate 2.96%
Effective annualized yield* 3.00%
* Assuming monthly compounding.
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later three-month periods 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>
PAGE 88
Contents
Table of contents
About the certificate
Investment amounts 4p
Face amount and principal 4p
Value at maturity 4p
Receiving cash during the term 4p
Interest 5p
Rates for new purchases 5p
Bonus payments 8p
Calculating your bonus 9p
How to invest and withdraw funds
Buying your certificate 13p
Full and partial withdrawals 15p
Transfers to other IDS accounts 16p
Retirement plans: special policies 19p
Transfer of ownership 20p
For more information 20p
Taxes on your earnings
Retirement accounts 21p
Gifts to minors 21p
Foreign investors 24p
How your money is used and protected
Invested and guaranteed by IDSC 25p
Regulated by government. 25p
Backed by our investments 26p
Investment policies 27p
How your money is managed
Relationship between IDSC and IDS 29p
Capital structure and certificates issued 29p
Investment management and services 30p
Distribution 31p
Employment of other American Express affiliates 32p
Directors and officers 32p
Auditors 35p
Annual financial information
Summary of selected financial information 36p
Management's discussion and analysis of
financial condition and results of operations 38p
Report of independent auditors 44p
Financial Statements 46p
Notes to financial statements 53p
<PAGE>
PAGE 89
About the certificate
Investment amounts
You may purchase the IDS Installment Certificate in scheduled
monthly installments of at least $50 but not more than $5,000
payable in U.S. currency. You may also make additional lump-sum
investments in any amount, as long as these investments plus your
scheduled payments over the life of the certificate do not total
more than $600,000.
The certificate may be used as an investment for your Individual
Retirement Account (IRA), 401(k) plan account or other qualified
retirement plan account. 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 your certificate is the total of your scheduled
monthly investments during its 10-year life. The minimum face
amount is $6,000, or the total of 120 monthly investments of $50
each. Your maximum face amount cannot exceed $600,000. Your
principal is the amount you actually invest over the life of the
certificate, less any withdrawals of your investments and penalties
and fees. It is guaranteed by IDSC.
Value at maturity
Your certificate matures 10 years from its issue date. At
maturity, you will receive a check for the value of your
certificate which will be the total of your actual investments,
plus credited interest not paid to you in cash and any bonus
payments, less withdrawals, penalties and fees.
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 payments 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 period 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.
<PAGE>
PAGE 90
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
three-month period. IDSC guarantees that this rate will be within
a range from 25 basis points (0.25%) below to 75 basis points
(0.75%) above the average interest rate for bank money market
deposit accounts then published in the BANK RATE MONITOR National
Index(trademark) (the BRM Index). For example, if the average rate
most recently published is 2.75%, our rate in effect for that week
would be between 2.50 and 3.50%. (Bank money market deposit
accounts 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:
800-437-3463 or
TTY: 800-846-4293.
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.
Active or retired IDS employees, IDSC directors, IDS planners,
their immediate families and any U.S. employee of any affiliated
company of IDSC are guaranteed an initial rate 75 basis points
above the rate offered to the general public, reflecting the lower
distribution costs associated with such sales.
Rates for future periods: Interest on your certificate for future
three-month periods may be greater or less than the rates you
receive during the first three months. In setting future interest
rates, a primary consideration will be the prevailing investment
climate, including bank money market deposit account average rates
as reflected in the BRM Index. Nevertheless, we have complete
discretion as to what interest shall be declared beyond the initial
<PAGE>
PAGE 91
three-month period. At least six days in advance of each three-
month period, we will send you notice of the rate that your
certificate will earn for that period. 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.
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 have purchased 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.
We also may offer different rates based on your amount invested,
maturity selected, geographic location and whether the certificate
is purchased for an IRA or a qualified retirement account.
These promotions will generally be for a specified period of time.
If we offer a promotion, rates will be within the range of rates
described under "Rates for new purchases," above.
Performance: From February 1989 through February 1994, IDS
Installment Certificate yields were generally higher than average
bank money market deposit accounts and Super Now accounts, as
measured by the BRM Index:
Yields from February 1989 through February 1994
____ IDS Installment Certificate
.... Money Market Deposit Accounts
**** Super Now Accounts
6%
4% Three lines comparing the yields for IDS Installment
Certificate against those of money market and Super
Now Accounts with Installment's yield generally above
the other two lines.
2%
89 90 91 92 93 94
* The graph compares past yields and should not be considered a
prediction of future performance. The certificate's yields reflect
its former policy, in effect through April 1992, of compounding
interest rates each calendar quarter. Monthly compounding is
reflected from May 1992 through February 1994.
Bonus payments
If you make regular investments over a period of 24 months or more,
IDSC will pay you a monthly bonus. Monthly payments must be made
during the certificate month to qualify for the bonus. Your bonus
<PAGE>
PAGE 92
will be a percentage of your weighted average monthly investment
(WAMI). This percentage will increase from year three through year
six if you continue to make regular investments:
<TABLE><CAPTION>
Minimum Totaling at Over this Monthly Percentage
number least this time bonus of WAMI*
of monthly minimum period during
investments amount period
<S> <C> <C> <C> <C>
20 $1,200 years 1-2 year 3 5%
additional 10 600 year 3 year 4 8
additional 10 600 year 4 year 5 10
additional 10 600 year 5 year 6 20
</TABLE>
* calculated from issue through the last month of the preceding
period
Bonus payments are credited to your account at the end of each
certificate month. They immediately become part of your balance
and begin to earn interest.
The illustrations below show the cumulative effect of bonus
payments on a hypothetical investment. Suppose you invest $100 per
month, receive interest at a constant rate of 2.96% (an effective
annual yield of 3.00%, assuming a Jan. 1 purchase) and make no
additional lump-sum investments and no withdrawals. (The rate and
yield are for illustration only and may not be in effect when you
purchase your certificate.) Your interest, balance and average
annual yield would increase as follows:
Installment Certificate
$8000 ***Amount paid in
...Interest
---Bonus
$6000
$4000
$2000 Graph shows the effect of cumulative interest and
bonus earned on an account from zero through 72
months.
6 12 18 24 30 36 42 48 54 60 66 72
<TABLE><CAPTION>
Installment Certificate example
Without bonus Added by bonus Total with bonus
Cumulative Cumulative Balance Cumulative Cumulative Balance Average
investments interest on bonus interest annual
investment on bonus yield*
<S> <C> <C> <C> <C> <C> <C> <C>
1st year end $1,200.00 $ 19.42 $1,219.42 $ 0.00 $ 0.00 $1,219.42 3.00%
2nd year end 2,400.00 75.42 2,475.42 0.00 0.00 2,475.42 3.00
3rd year end 3,600.00 169.11 3,769.11 60.00 0.97 3,830.08 4.06
4th year end 4,800.00 301.62 5,101.62 156.00 4.35 5,261.97 4.54
5th year end 6,000.00 474.11 6,474.11 276.00 11.10 6,761.21 4.72
6th year end 7,200.00 687.78 7,887.78 516.00 23.60 8,427.38 5.18
</TABLE> <PAGE>
PAGE 93
* Average from date of issue to end of year indicated.
Important: The increase in yield that you receive from bonus
payments may be more or less than in the example, depending upon
interest rates during the six years following issue of your
certificate. If actual interest rates are higher than in the
example, the effect of the bonus will be less. For example, at a
7.00% interest rate, bonus payments would raise the certificate's
average annual yield from issue through year six by 2.06%, compared
to 2.18% (5.18 - 3.00) in the example. If actual interest rates
are lower than in the example, the increase in the average annual
yield would be somewhat more than 2.18%.
Calculating your bonus
To determine your bonus we:
o first calculate your average monthly investment over the
life of your certificate, weighting it to reflect the
amount of time each dollar has been invested (your
weighted average monthly investment). Money invested
early is given more weight than money invested later.
o then calculate your monthly bonus as a specified
percentage of your weighted average monthly investment .
Here is an example to illustrate the two calculations: Suppose you
make 24 consecutive monthly investments -- $100 per month for the
first six months and $150 per month thereafter (a total of $3300).
Month Investment X Months held = Weighted value
1 $ 100 24 $ 2,400
2 100 23 2,300
3 100 22 2,200
4 100 21 2,100
5 100 20 2,000
6 100 19 1,900
7... 150 18... 2,700
24 150 1 150
SUM $3,300 300 $38,550
To weight each investment, we multiply it by the number of months
we hold it -- 24 months for the first $100 investment, 23 for the
second, etc. We hold your first $150 investment for 18 months, so
its weighted value is $150 x 18, or $2,700. We continue through
your final $150 investment, which has a weight of one.
Step 1 We add the weighted values: $2,400 +
$2,300+...+$150 = $38,550
We add the numbers of months held.:
24+23+22+...+1 = 300
Step 2 We divide the sum of weighted values by the sum of months
held: $38,550 (divided by) 300 = $128.50 -- your weighted
average monthly investment at the end of 24 months.
<PAGE>
PAGE 94
Step 3 We multiply your weighted average monthly investment by
the applicable bonus percentage (5% in the third year);
5% of $128.50 = $6.43 -- your bonus payment each month in
year 3, a total of $77.16 for the year.
This procedure is repeated in months 36, 48 and 60 to calculate
your weighted average monthly investment from issue through years
three, four and five, respectively. These weighted averages are
then multiplied by the applicable percentages -- 8%, 10% and 20% --
to determine monthly bonus payments for years 4, 5 and 6,
respectively.
Effect of partial withdrawals: If you withdraw part of your
principal, you will not receive credit toward a bonus for the
sum(s) you withdraw. The weighted sum of your investments will
decrease in proportion to the amount of principal you withdraw, and
your bonus will be reduced accordingly. Using the example above,
if you withdrew $1,000 before the end of the 24th month, your total
investment would decrease by 30.3%. We would adjust by 30.3%:
o the weighted sum of your investments, from $38,550 to
$26,869
o your weighted average monthly investment, to $89.56
($26,869 (divided by) 300), and
o your third-year bonus to $4.48 per month (5% of $89.56),
or $53.76 for the year.
Withdrawals may also affect your eligibility for bonus payments in
the third through sixth years. To remain eligible you must
maintain a balance at least equal to the amount you would have
accumulated if you had invested the required minimum of $600 per
year. You will become ineligible if withdrawals reduce your
balance below this level.
Other eligibility policies: If you have not made the required
regular investments specified earlier, you may not receive bonus
payments in the year bonuses would normally be paid. But you may
become eligible during the next bonus period by making the required
investments in the next year. For example, assume that you make
the required investments for the first 24 months and receive bonus
payments in the third year. But during the third year, you make
only three monthly investments. In that case, you would not
receive the bonus payments that would normally be made in the
fourth year. However, if you make all your regular monthly
investments in the fourth year, and your account principal balance
reaches the required equivalent of 48 investments of $50 per month
($2,400 at the end of the fourth year), then you would qualify for
bonus payments in year five, based on the new weighted average
monthly investment.
Interest rate from years seven through 10: From year seven until
your certificate matures, you will receive interest rates
comparable to a one-year fixed-rate investment. A rate will be
declared during the 72nd month and guaranteed for a three-month
period starting in the 73rd month. Thereafter, the rate will be
declared every three months and guaranteed for three-month periods.
<PAGE>
PAGE 95
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
showing the rate of interest for your first three months, as
described under "Rates for new purchases," above.
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."
Once your account is set up, there are several convenient ways to
make monthly investments.
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 within the Federal Reserve
Bank) before your purchase will be accepted and you begin
earning interest. This could take up to two business days.
o IDSC has the authority 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 $100, 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."
<TABLE><CAPTION>
Two ways to make monthly investments
<S> <C> <C>
1 Contact your financial planner To cancel a bank
By scheduled to set up one of the following authorization, you must
investment scheduled plans: instruct IDSC in writing or
plan over the phone. We must
o bank authorization (automatic receive notice at least
deduction from your bank three business days before
account) the date funds would
normally be withdrawn
o automatic payroll deduction from your bank account.<PAGE>
PAGE 96
Bank authorizations will
o direct deposit of Social automatically be stopped
Security check at maturity or full
withdrawal.
o other plan approved by IDSC
2
By mail
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
</TABLE>
Full and partial withdrawals
You may withdraw your certificate for its full value or make a
partial withdrawal of $100 or more at any time. However:
o Full and partial withdrawals of principal in the first
three years are subject to penalties, described below.
o You may not make a partial withdrawal if it would reduce
your certificate balance to less than $250. If you
request such a withdrawal, we will contact you for
revised instructions.
o As noted earlier, withdrawals during the first six years
will affect the amount of your bonus payments and may
make you ineligible for a bonus. See "Bonus payments."
Penalties for early withdrawal: If you withdraw money within three
years after the certificate was purchased, you will pay a penalty
of 2% of the principal withdrawn. (The 2% penalty is waived upon
death of the certificate holder.)
When you request a full or partial withdrawal, we pay the amount
you request:
o first from interest and bonus payments credited to your
account
o then from the principal of your certificate.
For example, suppose this is your balance at the end of the second
year:
Total investments $7,200.00
Interest and bonus credited $488.61
Total balance $7,688.61
<PAGE>
PAGE 97
If you request a $1,000 check, we would withdraw funds in this
order:
Credited interest and bonus $ 488.61
Withdrawal of principal $ 511.39
Total requested withdrawal $1,000.00
In addition, we would have to withdraw funds to cover the full
withdrawal penalty:
Principal withdrawn $511.39
Withdrawal penalty % 2%
Withdrawal penalty $ 10.23
The total transaction would be:
Beginning balance $7,688.61
Credited interest and bonus withdrawn ($488.61)
Principal withdrawn ($511.39)
Withdrawal penalty (also from principal) ($10.23)
Remaining balance $6,678.38
Loss of Interest: If you make a withdrawal at any time other than
the last day of the certificate month, you will lose interest
accrued on the withdrawal amount since the end of the last
certificate month.
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 purchase
before IDSC mails a check to you. (A check may be mailed
earlier if the 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 to any other IDS
certificate or into another existing IDS account (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) <PAGE>
PAGE 98
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1112 (Minneapolis/St. Paul area)
o Maximum phone request: $50,000
o Transferring into an IDS account with the same ownership.
o A telephone withdrawal request will not be allowed within 30
days of a phoned-in address change.
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.
2
By mail
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 Transfers to another IDS account with different
ownership. (All current registered owners must sign the
request.)
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 Ave.
Minneapolis, MN 55402
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<PAGE>
PAGE 99
o Payable to name(s) you requested
o For express mail, you will pay charges that vary
depending on the courier you select. Cost for partial
withdrawals is deducted from the remaining balance, or
from the proceeds for full withdrawals.
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
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 A service fee, if any, may be 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 to 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 We will waive withdrawal charges on withdrawals for IRA
accounts of clients who have reached age 70 1/2.
<PAGE>
PAGE 100
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.
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:
800-437-3463 or
TTY: 800-846-4293.
Taxes on your earnings
The bonus payments and interest on your certificate, including
interest on bonus payments, are 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.)
Consult your tax adviser to see how these rules apply to you before
you request a distribution from your plan or IRA.
<PAGE>
PAGE 101
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
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:
How to determine the correct TIN
For this type of account:
Individual or joint account
Custodian account of a minor
(Uniform Gifts/Transfers
to Minors Act)
A living trust
An irrevocable trust,
pension trust or estate
Sole proprietorship
or partnership
Corporate
Association, club or
tax-exempt organization
<PAGE>
PAGE 102
Use the Social Security or
Employer Identification Number of:
The individual or first person listed on the account
The minor
The grantor-trustee
(the person who puts the money into the trust)
The legal entity
(not the personal representative or trustee, unless no legal entity
is designated in the account title)
The owner or partnership
The corporation
The 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 both a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an
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.
<PAGE>
PAGE 103
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 Installment 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
withdrawal of bank CDs often results in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money you deposit to individuals, businesses
and other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Installment 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.
<PAGE>
PAGE 104
Backed by our investments
Our investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1993:
Type of investment Net amount invested
Preferred stocks 29%
Government agency bonds 27
Corporate and other bonds 25
Mortgages 10
Municipal bonds 7
Cash and cash equivalents 2
More than 95% of our securities portfolio (bonds and preferred
stocks) are 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:
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.
<PAGE>
PAGE 105
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.
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.
<PAGE>
PAGE 106
IDS itself is a wholly owned subsidiary of American Express, 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 ExpressR 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.
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<PAGE>
PAGE 107
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 a
service fee.
Advisory and services fees for past three years:
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,
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 6% of the first 60 monthly scheduled payments, or the
equivalent, received during the first five years after the
issue date of the certificate; and
o 0.5 % of the average daily certificate balance during the
sixth through the 10th year.
This fee is not assessed to your certificate account.
<PAGE>
PAGE 108
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.
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.
<PAGE>
PAGE 109
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.
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.
<PAGE>
PAGE 110
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.
IDSC has provisions in its bylaws relating to the indemnification
of its officers and directors against liability, as permitted by
law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
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.
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 Cash Reserve Certificate - A single payment certificate that
permits additional investments and guarantees interest in advance
for a three-month term.
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.
<PAGE>
PAGE 111
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 112
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
IDS FUTURE VALUE CERTIFICATE
AND VARIATIONS
<TABLE><CAPTION>
Page
Item Caption in Number in
Number Prospectus Prospectus
<S> <C> <C>
Item 1. Forepart of the Cover
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to get information about 114;116
Outside Back Cover Pages IDSC; Table of Contents.
of Prospectus.
Item 3. Summary Informa- About the certificate Cover, 117
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and 128-129;
protected; Investment policies 129-130
Item 5. Determination of Not Applicable. -
Offering Price.
Item 6. Dilution. Not Applicable. -
Item 7. Selling Security Not Applicable. -
Holders
Item 8. Plan of How your money 130-131
Distribution. is managed.
Item 9. Description of About the Certificate; 117
Securities to Be How to invest and withdraw 120-125
Registered. funds.
Taxes on your earnings. 126
Item 10. Interests of Not Applicable. -
Named Experts and Counsel.
<PAGE>
PAGE 113
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Page
Item Caption in Number in
Number Prospectus Prospectus
Item 11. Information with Invested and guaranteed by 128; 128-129; 130-131;
Respect to the Registrant. IDSC; Regulated by government; 131; 133-134
Relationship between IDSC and
IDS; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers 133-134
Commission Position on
Indemnification for
Securities Act Liabilities.
</TABLE>
<PAGE>
PAGE 114
IDS Future Value Certificate
Prospectus April 27, 1994
Earn attractive rates with an assured amount at the maturity date
you select
IDS Future Value Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with any amount from
$1,000 to $1 million (unless you receive prior authorization from
IDSC to invest more). Your certificate earns a fixed interest rate
for maturities of four through ten years. At maturity, IDSC
guarantees you will receive your principal plus interest less any
withdrawals or penalties. Your interest rate will be determined as
described in "Interest" under "About the 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 OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS Future
Value 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
Future Value 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>
PAGE 115
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 for the maturity you choose:
o a fixed rate of interest
o the rate will be within a specified range of the average quoted
U.S. Treasury bond yields for comparable maturities
Here are the interest rates in effect on the date of this
prospectus, April 27, 1994:
Future Value
of $1.00
Simple Effective invested today
interest annualized payable at
Maturity rate* yield** maturity
_________________________________________________________________
4 year 6.13% 6.30% $1.28
5 year 6.37 6.55 1.37
6 year 6.51 6.70 1.48
7 year 6.70 6.90 1.60
8 year 6.79 7.00 1.72
9 year 6.88 7.10 1.85
10 year 6.98 7.20 2.01
__________________________________________________________________
*This is the rate in effect for investments under $25,000. Rates
may depend on the factors described in "Interest" under "About the
certificate."
**Assuming monthly compounding.
<PAGE>
PAGE 116
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later periods are set at the
discretion of IDSC and may also differ from the rates shown here.
This investment is intended to be held to maturity. We reserve the
right to issue other securities with different terms.
<PAGE>
PAGE 117
Table of contents
About the certificate
Investment amounts 4p
Maturities 4p
Face amount and future value 4p
Value at maturity 4p
Receiving cash before maturity 5p
Interest 5p
Rates for new purchases 6p
How to invest and withdraw funds
Buying your certificate 8p
Full and partial withdrawals 10p
Retirement plans: special policies 15p
Transfer of ownership 16p
For more information 16p
Taxes on your earnings
Retirement accounts 17p
Gifts to minors 17p
Foreign investors 20p
How your money is used and protected
Invested and guaranteed by IDSC 21p
Regulated by government 21p
Backed by our investments 22p
Investment policies 23p
How your money is managed
Relationship between IDSC and IDS 25p
Capital structure and certificates issued 26p
Investment management and services 26p
Distribution 28p
Employment of other American Express affiliates 29p
Directors and officers 29p
Auditors 30p
Annual Financial information
Summary of selected financial information 33p
Management's discussion and analysis of 34p
financial condition and results of operations
Report of independent auditors 40p
Financial statements 42p
Notes to financial statements 49p
<PAGE>
PAGE 118
About the certificate
Investment amounts
You may purchase the IDS Future Value Certificate with a single
payment of at least $1,000 but not more than $1 million payable in
U.S. currency. Your investment may exceed $1 million only if 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. If so used, the amount of your
contribution (investment) will be subject to any limitations of the
plan and applicable federal law.
Maturities
You may choose a maturity term in one-year increments from four to
ten years. We guarantee your interest rate in advance for the
maturity you select.
Face amount and future value
Both the face amount and future value of your certificate are
determined when you purchase your certificate. The face amount is
the amount of your initial investment. The future value is the
face amount plus the interest to be credited at maturity. Your
future value is guaranteed by IDSC when you hold your certificate
to maturity. For example, if you purchase this certificate with
$10,000 at 7% interest with a seven-year maturity, the face amount
would be equal to $10,000. Over the term of the certificate,
$6,300 of interest would accrue and be credited at maturity. The
face amount would remain at $10,000 and the future value payable to
you at maturity would be $16,300.
Value at maturity
When your certificate matures, you will receive a check for the
value of your certificate, which is the future value less any
withdrawal, discounts or fees.
Receiving cash before maturity
Interest on this investment is credited and paid at maturity.
However, if you unexpectedly find that you need your money prior to
maturity, you may withdraw all or part of your certificate subject
to a discounting formula. Partial withdrawals cannot be made
within one year of purchase. Procedures for withdrawing money, as
well as discount rates which apply, are described in "Full and
partial withdrawals" under "How to invest and withdraw funds."
<PAGE>
PAGE 119
Interest
Your certificate accrues interest from the issue date. Interest is
compounded at the end of each certificate month (on the monthly
anniversary of the issue date). Interest is credited to your
certificate at maturity. We calculate the amount of interest you
earn each certificate month by applying the interest rate on your
certificate to your balance each day and adding these daily amounts
to get a monthly total. Interest is calculated on a 30-day month
and 360-day year basis.
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 have purchased 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.
We also may offer different rates based on your amount invested,
maturity selected, geographic location and whether the certificate
is purchased for an IRA or a qualified retirement account. These
rates for new purchases will always be within the 1% range of rates
described below.
Rates for new purchases
When your application is accepted, you will receive a confirmation
of your purchase showing the rate that your investment will earn.
This rate will not be changed during the term of your certificate.
IDSC guarantees that this rate will be within a range 50 basis
points (0.50%) below to 50 basis points above the average quoted
yields of certain U.S. Treasury bonds. The average is determined
by taking the average yields for representative over-the-counter
quotations for U.S. Treasury bonds for transactions of $1 million
or more with maturities in the same calendar year as the
certificate. For example, if yield quotations for U.S. Treasury
bonds maturing in 1999, or five years, were 5.86%, 5.77%, 5.96% and
6.04%, the average would be 5.90%. Our rate for the 5-year
maturity certificate would be between 5.40% and 6.40%. U.S.
Treasury bond yields are published daily in a table in The Wall
Street Journal, The New York Times and other leading newspapers.
Rates for new purchases are reviewed and may change weekly.
Normally, the rate you receive for your chosen maturity 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 before receipt.
<PAGE>
PAGE 120
Active or retired IDS employees, IDSC directors, IDS planners,
their immediate families and any U.S. employee of any affiliated
company of IDSC are guaranteed an initial rate 75 basis points
above the rate offered to the general public, reflecting the lower
distribution costs associated with such sales.
Performance: From February 1989 through February 1994, IDS Future
Value Certificate yields for a 5-year term were higher than average
5-year bank and thrift certificate of deposit yields as measured by
THE BANK RATE MONITOR National IndexTM (the BRM Index).
Yields from February 1989 through February 1994
8%
____IDS Future Value Certificate
****Certificates of Deposit
6%
4% Two lines comparing the yields for IDS Future Value
Certificate against that of a Certificate of Deposit
with Future Value's yield generally above the other
line.
2%
89 90 91 92 93 94
The BANK RATE MONITOR National IndexTM is an index of rates and
annual effective yields offered on various length certificates of
deposit by large banks and thrifts in large metropolitan areas.
The frequency of compounding varies among the banks and thrifts.
Certificates of deposit in the BRM Index are government-insured
fixed-rate time deposits.
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 graph compares past yields and should not be considered a
prediction of future performance.
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 showing the date of issue, verifying <PAGE>
PAGE 121
the maturity you selected, the applicable rate of interest as
described under "Rates for new purchases", and the future value of
your certificate.
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 within the Federal Reserve Bank)
before your purchase will be accepted and you begin earning
interest. This could take up to two business days.
o IDSC has the authority to determine whether to accept an
application.
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."
Two ways to invest
1
By mail
Send your check along with your application 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
2
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 personal account number)
for (your name).<PAGE>
PAGE 122
If this information is not included, the order may be rejected and
all money received less any costs IDSC incurs, will be returned
promptly.
o Minimum amount you may wire: $1000
o Wire orders can be accepted only on days when your bank, IDS,
IDSC and Norwest Bank Minneapolis are open for business.
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
If you need your money before maturity, you may withdraw your
certificate for its full value or make a partial withdrawal of $500
or more after the first year. However:
o Interest on full and partial withdrawals of principal is subject
to discounting, described below.
o You may not make a partial withdrawal if it would reduce your
certificate balance to less than $1,000. If you request such a
withdrawal, we will contact you for revised instructions.
o If a withdrawal reduces your account value to a point where we
pay a lower interest rate, you will earn the lower rate from the
time of withdrawal until maturity.
Return of principal: You will always receive an amount no less
than your original investment (the "face amount") and no more than
your face amount plus accrued interest. This is still true of the
total amount you will receive even if you make a series of partial
withdrawals.
Discount rate: If you request a full or partial withdrawal, the
amount you receive will be calculated by discounting your
certificate's future value at maturity over the time remaining
until it would have matured. The discount rate is an average of
the rates on comparable term zero coupon bonds rated "A" by Moody's
Investors Services, Inc., as determined by a survey of no fewer
than three major, unaffiliated Wall Street fixed-income brokers.
The discount rate will differ for certificates purchased by active
or retired IDS employees, IDSC directors, IDS planners, their
immediate families and any U.S. employee of any affiliated company
of IDSC.
<PAGE>
PAGE 123
If the discount rate at the time of withdrawal is higher than your
interest rate, you will lose interest. The loss of interest would
be more substantial the earlier you withdraw the money from your
certificate.
Examples:
To help you understand the way the withdrawal value is calculated,
here are some examples. Assume for all examples the following:
The face amount will be $10,000. Maturity is 10 years. Interest
rate is 6.50%, and the yield is 6.69%. The future value payable at
maturity is $19,122. The withdrawal will occur in year six. The
face amount plus accrued interest in year six is $14,754.
The following chart shows withdrawal values in each year assuming
discount rates of 5.5%, 7.5%, and 9.5%. The examples assume the
withdrawal occurs in year six.
*Note that in this scenario, if you withdraw from your certificate
in any year and the discount rate is at 5.5%, you will receive the
face amount plus accrued interest.
The following table provides information for a withdrawal in year
six:
___________________________________________________________________
Rate Environment Discount Rate Withdrawal Value
Interest rates generally 7.5% $14,179
unchanged from time of ($19,122 discounted at
purchase 7.5% for the four
years remaining until
maturity)
Interest rates are higher 9.5% $13,096
at withdrawal than when ($19,122 discounted at
purchased 9.5% for the four
years remaining until
maturity)
Interest rates are lower 5.5% $14,754
at withdrawal than when (The amount you
purchased receive is equal to
your face amount plus
accrued interest)
___________________________________________________________________
In the above examples, you would never receive less than your
$10,000 original investment or more than $14,754, which is the face
amount plus accrued interest.
Because the discount rate can change periodically, the withdrawal
value of your account changes periodically as well. Should an
emergency arise and you need to know your withdrawal value, it is
readily available by contacting your IDS planner or calling IDSC
toll free at 1-800-437-3463.
<PAGE>
PAGE 124
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate
recently purchased 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.
Two ways to request a withdrawal
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 A telephone withdrawal request will not be allowed within 30 days
of a phoned-in address change.
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.
2
By mail
Send your name, account number and request for a withdrawal to:
Regular mail:
IDS Certificate Company
Client Service
IDS Tower 10
Minneapolis MN 55440-0010
<PAGE>
PAGE 125
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.
Two 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 if 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
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 A service fee, if any, may be deducted from your balance (for
partial withdrawals) or from the proceeds of a full withdrawal.
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.
<PAGE>
PAGE 126
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 contact your tax adviser.
For more information
For information on purchases, withdrawals, 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.
<PAGE>
PAGE 127
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.)
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
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 minor The 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)
<PAGE>
PAGE 128
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 both a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an
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 paid 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.
<PAGE>
PAGE 129
How your money is used and protected
Invested and guaranteed by IDSC
The IDS Future Value 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
withdrawal of bank CDs often results in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money you deposit to individuals, businesses
and other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Future Value 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
<PAGE>
PAGE 130
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:
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.
<PAGE>
PAGE 131
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.
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, 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). <PAGE>
PAGE 132
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.
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, and
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:
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.
<PAGE>
PAGE 133
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,
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 5% of the purchase price for the distribution of this
certificate. 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 134
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 135
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 136
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 Cash Reserve Certificate - A single payment certificate that
permits additional investments and guarantees interest in advance
for a three-month term.
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 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 137
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
IDS STOCK MARKET CERTIFICATE - US
AND VARIATIONS
<TABLE><CAPTION>
Page
Item Caption in Number in
Number Prospectus Prospectus
<S> <C> <C>
Item 1. Forepart of the Cover
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to get information about 140;141
Outside Back Cover Pages IDSC; Table of Contents.
of Prospectus.
Item 3. Summary Informa- About the certificate Cover; 142-152
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and 160-161
protected; Investment policies
Item 5. Determination of Not Applicable. -
Offering Price.
Item 6. Dilution. Not Applicable. -
Item 7. Selling Security Not Applicable. -
Holders
Item 8. Plan of How your money 163-165
Distribution. is managed.
Item 9. Description of About the Certificate; 142-152
Securities to Be How to invest and withdraw 152-154
Registered. funds.
Taxes on your earnings. 155
Item 10. Interests of Not Applicable. -
Named Experts and Counsel.
<PAGE>
PAGE 138
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Page
Item Caption in Number in
Number Prospectus Prospectus
Item 11. Information with Invested and guaranteed by 160-161; 161; 163;
Respect to the Registrant. IDSC; Regulated by government; 163-164; 166-168
Relationship between IDSC and
IDS; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers 166-168
Commission Position on
Indemnification for
Securities Act Liabilities.
</TABLE>
<PAGE>
PAGE 139
IDS Stock Market Certificate
Prospectus April 27, 1994
Potential for stock market growth with safety of principal
IDS Stock Market Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with a single investment
of at least $1,000 but not more than $1 million (unless you receive
prior authorization from IDSC to invest more). As long as you stay
within this limit, you can make additional investments at the end
of a term. Your principal is guaranteed by IDSC. You can
participate in any increase of the stock market based on the S&P
500 Index while protecting your principal. In addition, you decide
whether part of your return will be guaranteed or whether all of it
will be tied to the market. You can keep your certificate for up
to 14 terms.
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 OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS Stock
Market 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
Stock Market Certificate as described in the prospectus, or to bind
IDSC by any statement not in it.
Issuer: Distributor:
IDS Certificate Company IDS Financial Services Inc.
IDS Tower 10 IDS Tower 10
Minneapolis, MN 55440-0010 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)
American Express companies <PAGE>
PAGE 140
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 and participation rates
IDSC guarantees return of your principal. The interest on your
certificate is linked to stock market performance as measured by
the Standard & Poor's 500 Stock Index (S&P 500 Index) as explained
under "About the certificate" below.
Here are the interest rates and market participation percentages in
effect on the date of this prospectus, April 27, 1994:
Maximum Market participation Minimum
return percentage interest
10% 100% (full) None
10% 25% (partial) 2.5%
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later 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 provisions.<PAGE>
PAGE 141
Table of contents
About the certificate
Investment amounts 4p
Face amount and principal 4p
Certificate term 5p
Value at maturity 5p
Receiving cash before end of the term 5p
Interest 5p
Promotions and pricing flexibility 8p
Historical data on the S&P 500 Index 8p
Calculation of return 12p
About the S&P 500 Index 15p
Opportunities at the end of a term 16p
How to invest and withdraw funds
Buying your certificate 18p
Full and partial withdrawals 20p
Transfers to other IDS accounts 21p
Retirement plans: special policies 21p
Transfer of ownership 24p
For more information 24p
Taxes on your earnings
Retirement accounts 25p
Gifts to minors 26p
Foreign investors 28p
How your money is used and protected
Invested and guaranteed by IDSC 29p
Regulated by government 29p
Backed by our investments 30p
Investment policies 31p
How your money is managed
Relationship between IDSC and IDS 33p
Capital structure and certificates issued 33p
Investment management and services 34p
Distribution 35p
About American Express Bank International 36p
Employment of other American Express affiliates 37p
Directors and officers 37p
Auditors 40p
Annual Financial information
Summary of selected financial information 41p
Management's discussion and analysis of 42p
financial condition and results of operations
Report of independent auditors 44p
Financial statements 50p
Notes to financial statements 57p
<PAGE>
PAGE 142
About the certificate
Investment amounts
You may purchase the IDS Stock Market Certificate with a single
investment of at least $1,000 but not more than $1 million payable
in U.S. currency. You may also make additional lump-sum
investments in any amount at the end of any term as long as your
total amount paid in is not more than the $1 million.
The certificate may be used as an investment for your Individual
Retirement Account (IRA), 401(k) plan account or other qualified
retirement plan account. 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 your certificate is the amount of your initial
investment. Your principal is the value of your certificate at the
beginning of each subsequent term. Your principal is guaranteed by
IDSC. It consists of the amount you actually invest plus interest
and any additional investment you make less withdrawals, penalties
and any interest paid to you in cash.
For example: Assume your initial investment (face amount) of
$10,000 has earned a return of 7.25%. Interest is credited to your
account at the end of 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:
$10,000.00 Face Amount (initial investment)
plus 725.00 Interest credited to your account at the
end of the term
plus 5.00 Interim interest (See "Interim interest")
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
$13,230.00 Principal at the beginning of the next
term.
Certificate term
Your first certificate term is a 12-month period that begins on the
Wednesday after your application is accepted and ends the Tuesday
before the one-year anniversary of its acceptance. For example, if
your application is accepted on a Wednesday, your first term would
begin the next Wednesday. Your certificate will earn interest at
the interim interest rate then in effect until the term begins. It
will not earn any participation interest until the term begins. If
you choose to continue to receive participation interest,
subsequent terms are 12-month periods that begin on the Wednesday
following the 14-day grace period at the end of the prior 12-month <PAGE>
PAGE 143
term. You may begin your next term on any Wednesday during the
14-day period by providing prior written instructions to IDSC. If
you choose to receive fixed interest, subsequent terms will be up
to 12 months as described in "Fixed interest" under "Interest"
below.
Value at maturity
Your certificate matures after 14 terms, and you will receive a
check for its value. At maturity, the value of your certificate
will be the total of your actual investments, plus credited
interest not paid to you in cash, less any withdrawals and
withdrawal penalties. Certain other fees may apply.
Receiving cash before end of term
If you need money before your certificate term ends, 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
You may select from two types of participation interest for your
first term. The two types are 1) full participation, or 2) partial
participation together with minimum interest. Both of these
options have an upper limit which is the maximum annual return
explained below. After your first term, you may choose not to
participate in any market movement and receive a fixed rate of
interest.
Full participation interest: With this option you participate 100%
in any percentage increase in the S&P 500 Index up to the maximum
return. You earn interest only if the value of the S&P 500 Index
is higher on the last day of your term than it was on the first day
of your term. Thus, your return is linked to stock market
performance. The S&P 500 Index is frequently used to measure the
relative performance of the stock market. For a more detailed
discussion of the Index, see "About the S&P 500 Index".
Partial participation and minimum interest: This option allows you
to participate in a certain part (market participation rate) of any
increase in the S&P 500 Index together with a rate of interest
guaranteed in advance for each term (minimum interest). Your
return is composed of two parts:
1. A percentage of any increase in the S&P 500 Index, and
2. A rate of interest guaranteed in advance for each term.
Together, they cannot exceed the maximum return.
The market participation rate and the minimum interest rate on the
date of this prospectus are listed on the inside cover under
"Initial interest and participation rates."
<PAGE>
PAGE 144
Fixed interest: After your first term, this option allows you to
stop participating in the market entirely for one or more terms.
You may choose to receive a fixed rate of interest for any term
after the first term. During the term when you are receiving fixed
interest, you can change from your fixed interest selection to
again participate in the market. If you make the change from fixed
interest to participation interest, your next term would begin on
the Wednesday following our receipt of notice of your new
selection. In this way, you may have a term (during which you
would earn fixed interest) that is less than 12 months. You may
not change from participation interest to fixed interest during a
term.
Maximum annual return: This is the cap, or upper limit, of your
return. Your total return including both participation and minimum
interest for a term for which you have chosen participation
interest will be limited to this maximum return percentage.
Determining the S&P 500 index value: The stock market closes at 3
p.m. Central time and the S&P 500 Index value is available at
approximately 4:30 p.m. This is the value we currently use to
determine participation interest. Occasionally, Standard & Poor's
Corporation (S&P) makes minor adjustments to the closing value
after 4:30 p.m. and the value we use may not be exactly the one
that is published the next business day. In the future, we may use
a later time cut-off if it becomes feasible to do so. If the stock
market is not open or the S&P 500 Index is unavailable as of the
last day of your term, the preceding business day for which a value
is available will be used instead.
Interim interest: When we accept your application, we pay interim
interest to your account for the time before your first term
begins. We also pay interim interest for the 14-day period between
terms unless you write to ask us to begin your next term earlier.
You may withdraw this interest in cash at any time before it
becomes part of your certificate's principal without a withdrawal
penalty. If it is not withdrawn, the interest will become part of
your certificate's principal at the start of the next succeeding
term. For example, the interest you earn between the end of the
first and the beginning of the second term will become part of the
principal at the start of your third term. Interim interest rates
for the time before your first term begins will be within a range
10 to 110 basis points (0.10% to 1.10%) above the average interest
rate published for 12-month certificates of deposit in the BANK
RATE MONITORTM National Index (the BRM Index). 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.
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 has no connection with IDSC, IDS or any of their
affiliates. The BRM Index used by IDSC is a 25-city index.
<PAGE>
PAGE 145
The BANK RATE MONITOR may be available in your local library. To
obtain information or current BRM Index rates, call IDS Certificate
Service at 1-80-437-3463 or TTY: 1-800-846-4293.
Earning interest: Participation interest is calculated, credited
and compounded at the end of your certificate term. Minimum and
fixed interest accrue daily and are credited and compounded at the
end of your certificate term. Both minimum and fixed interest are
calculated on a 30-day month and 360-day year basis. Interim
interest accrues and is credited daily.
Rates for future periods: After the initial term, the maximum
return, market participation percentage or minimum interest rate on
your certificate may be greater or less than those shown on the
front of this prospectus. In setting future interest rates, a
primary consideration will be the prevailing investment climate.
Rates are reviewed weekly, and we have complete discretion as to
what interest rate will be declared.
To find out what your certificate's new maximum return, market
participation percentage and minimum interest rate will be for your
next term, please consult the following:
IDS clients: o Your local IDS planner, or
o Our service representatives at 1-800-437-3463
AEBI clients: o Your AEBI relationship manager
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 have purchased 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.
We also may offer different rates based on your amount invested,
maturity selected, geographic location and whether the certificate
is purchased for an IRA or a qualified retirement account.
<PAGE>
PAGE 146
Historical Data on the S&P 500 Index
The following chart illustrates the month-end closing values of the
index from Dec. 31, 1982 through Feb. 28, 1994. The values of the
S&P 500 Index are reprinted with the permission of S&P.
S&P 500 Index values - December 1982 to February 1994
40%
Chart shows 12-month Moving Price Return of the
S&P from a high of 40% to a low of -20%
20%
____ S&P 500
0%
- -20%
83 84 85 86 87 88 89 90 91 92 93 94
S&P 500 Index Average Annual Return
Beginning date Period held Average annual
Dec. 31, in years return
___________________________________________________________________
1983 10 10.96%
1988 5 10.93
1992 1 7.07
The next chart illustrates, on a moving 12-month basis, the price
return of the S&P 500 Index measured for every 12-month period
beginning with the period ended Dec. 31, 1983. The price return is
the percentage return for each period using month-end closing
prices of the S&P 500 Index. Dividends and other distributions on
the securities comprising the S&P 500 Index are not included in
calculating the price return.
S&P 500 Index values - December 1982 to February 1994
400
300 Chart shows closing values of the S&P from just above
100 to a 1993 end above 400
200
____S&P 500
100
83 84 85 86 87 88 89 90 91 92 93 94
<PAGE>
PAGE 147
Using the same data on price returns described above, the next
graph expands on the information in the preceding chart by
illustrating the distribution of all of the 12-month price returns
of the S&P 500 Index beginning with the 12-month period ending Dec.
31, 1983. The graph also shows the number of times these price
returns fell within certain ranges.
Distributions of 12-month Returns
20
Chart shows the distribution of all of the 12-month
price returns of the S&P 500 from 1/1/83 through
2/28/94 with a high of just over 20 and a low between
0 and 5
15
10
5
- -20% -15 -10 -5 0 5 10 15 20 25 30
The last chart illustrates, on a moving weekly basis, the actual
12-month return of the IDS Stock Market Certificate at full and
partial participation compared to the price return of the NYSE
Composite IndexR through October 1992 and the S&P 500 Index after
October 1992. For non-guaranteed funds received before Nov. 3,
1992, and guaranteed funds received before Nov. 4, 1992, IDS Stock
Market Certificate participation interest was based on the NYSE
Composite IndexR rather than the S&P 500 Index.
Actual 12-month return
30%
25%
20% Chart shows actual returns of the certificate at full
and 25% participation with the full participation
generally tracking the market indexes over the period
and 25% level of participation tracking at the 25%
level of return.
15%
10% ----Market Index
****Stock Market Full Participation
5% ....Stock Market 25% Participation
0%
1/91 4/91 7/91 10/91 1/92 4/92 7/92 10/92 1/93 4/93 10/93 2/94
<PAGE>
PAGE 148
The NYSE Composite IndexR is a registered service mark of the New
York Stock Exchange, Inc. (NYSE) and is a composite covering price
movements of all common stocks listed on the NYSE. Because the IDS
Stock Market Certificate was first available on Jan. 24, 1990, the
performance reflects the returns on the one-year anniversary date,
falling on a Wednesday, of each of the weeks shown.
The recent historical experience of an index should not be taken as
an indication of future performance of the stock market or the
certificate. No assurance can be given that an index will not
decline or that certificate holders will receive interest on their
accounts beyond any minimum interest or fixed interest selected.
Calculation of return
The increase or decrease in the S&P 500 Index, as well as the
actual return paid to you, is calculated as follows:
Rate of return on S&P 500 Index
Term ending value of S&P 500 Index minus
Term beginning value of S&P 500 Index divided by
Term beginning value of S&P 500 Index equals
Rate of return on S&P 500 Index
The actual return paid to you will depend on your interest
participation selection.
For example, assume:
Term ending value of S&P 500 Index 458
Term beginning value of S&P 500 Index 422
Maximum return 10%
Minimum return 2.5%
Partial participation rate 25%
458 Term ending value of S&P 500 Index
minus 422 Term beginning value of S&P 500 Index
equals 36 Difference between beginning and ending values
36 Difference between beginning and ending values
divided by 422 Term beginning value of S&P 500 Index
equals 8.53% Percent increase - full participation return
8.53% Percent increase or decrease
times 25.00% Partial participation rate
equals 2.13%
plus 2.50% 2.50% minimum interest rate
equals 4.63% Partial participation return
In both cases in the example, the return would be less than the 10%
maximum.
Maximum Return and Partial Participation Minimum Rate History - The
following table illustrates the maximum annual returns and partial
participation minimum rates that have been in effect since the
Stock Market Certificate was introduced.
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Partial
Maximum participation
Purchase date annual return minimum rate
Jan. 24, 1990 18.00% 5.00%
Feb. 4, 1992 18.00 4.00
May 5, 1992 15.00 4.00
Aug. 25, 1992 12.00 3.00
Nov. 10, 1992 10.00 2.50
Examples
To help you understand the way this certificate works, here are
some hypothetical examples. The following are three different
examples of market scenarios and how they affect the certificate's
return. Assume for all examples that you purchased the certificate
with a $10,000 original investment. Also assume that the partial
participation rate is 25%, the minimum interest rate for partial
participation is 2.5%, and the maximum total return for full and
partial participation is 10%.
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C>
1. If the Market and the S&P 500 Index value rise
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 8% Increase in the S&P 500 Index Index 459
Full participation interest Partial participation interest and Minimum interest
$10,000 Original investment $10,000 Original investment
+ 800 (8% x $10,000) + 250 2.5% (Minimum interest rate) x $10,000
Participation interest + 200 25% x 8% x $10,000 participation interest
$10,800 Ending balance $10,450 Ending balance
(8% total return) (4.5% total return)
- ------------------------------------------------------------------------------------------
2. If the Market and the S&P 500 Index value fall
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 4% Decrease in the S&P 500 Index Index 408
Full participation interest Partial participation interest and Minimum interest
$10,000 Original investment $10,000 Original investment
+ 0 Participation interest + 250 2.5% (Minimum interest rate) x $10,000
$10,000 Ending balance + 0 Participation interest
(0% Total return) $10,250 Ending balance
(2.5% Total return)
- ----------------------------------------------------------------------------------------
3. If the Market and the S&P 500 Index value rise above maximum return
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 16% Increase in the S&P 500 Index Index 493
Full participation interest Partial participation interest and Minimum interest
$10,000 Original investment $10,000 Original investment
+ 1,000 (10% x $10,000) + 250 2.5% (Minimum interest rate) x $10,000
Maximum interest + 400 (25% x 16% x $10,000) Participation interest
$11,000 Ending balance $10,650 Ending balance
(10% Total return) (6.5% Total return)
</TABLE>
About the S&P 500 Index
The description in this prospectus of the S&P 500 Index including
its make-up, method of calculation and changes in its components
are derived from publicly available information regarding the S&P
500 Index. IDS Certificate Company (IDSC) does not assume any
responsibility for the accuracy or completeness of such
information.
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The S&P 500 Index is composed of 500 common stocks, most of which
are listed on the New York Stock Exchange. The S&P 500 Index is
published by S&P and is intended to provide an indication of the
pattern of common stock movement. S&P chooses the 500 stocks to be
included in the S&P 500 Index with the aim of achieving a
distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of
the New York Stock Exchange. Changes in the S&P 500 Index are
reported daily in the financial pages of many major newspapers.
"Standard & Poor's ", "S&P ", "S&P 500 ", "Standard & Poor's 500",
and "500" are trademarks of McGraw-Hill, Inc. and have been
licensed for use by IDSC. The certificate is not sponsored,
endorsed, sold or promoted by S&P. S&P makes no representation or
warranty, express or implied, to the owners of the certificate or
any member of the public regarding the advisability of investing in
securities generally or in the certificate particularly or the
ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to IDSC is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard
to IDSC or the certificate. S&P has no obligation to take the
needs of IDSC or the owners of the certificate into consideration
in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the certificate to be
issued or in the determination or calculation of the equation by
which the certificate is to be converted into cash. S&P has no
obligation or liability in connection with the administration,
marketing or trading of the certificate.
S&P does not guarantee the accuracy and/or the completeness of the
S&P 500 Index or any data included therein and S&P shall have no
liability for any errors, omissions, or interruptions therein. S&P
makes no warranty, express or implied, as to the results to be
obtained by IDSC, owners of the certificate, or any person or
entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any
data included therein. Without limiting any of the foregoing, in
no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even
if notified of the possibility of such damages.
If for any reason the Index were to become unavailable or not
reasonably feasible to use, we would use a comparable stock market
index for determining participation interest. If this were to
occur, you would be sent a notice indicating the comparable index
that will be used and be given the option to surrender your
certificate, if desired, and receive your principal, without being
assessed a surrender charge.
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Opportunities at the end of a term
Grace period: When your certificate term ends, you have 14 days
before a new term automatically begins. During this 14-day grace
period you can:
o change your interest selection,
o add money to your certificate,
o withdraw part or all of your money without a withdrawal
penalty or loss of interest, or
o receive your interest in cash.
Fixed interest only: The grace period does not apply if you made
the change from fixed interest back to participation interest
during a term as discussed in "Fixed interest" under "Interest"
above. Instead, your new 12-month term will begin on the Wednesday
following our receipt of your notice of your new interest
selection.
New term: If you do not make changes, your certificate will
continue with your current selections when the new term begins 14
days later. You will earn interim interest during this 14-day
grace period. If you don't want to wait 14 days before starting
your next market participation term, you must give us written
instructions before your current term ends. Or, you may phone in
your instructions and follow up the call with written verification.
You can tell us to start your next term on any Wednesday during the
grace period following our receipt of your notice. Your notice may
also tell us to change your interest selection, add to your
certificate or withdraw part of your money. Any additional
payments received during the current term will be applied at the
end of the current term. By starting your new term early and
waiving the 14-day grace period, you are choosing to start your
next term without knowing the ending value of your current term.
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 showing the acceptance date, the date your term begins
and the interest selection you have made detailing your market
participation percentage and/or the guaranteed minimum interest
rate for your first term. After your term begins, we will send you
notice of the value of the S&P Index on the day your term began.
The rates in effect on the date we accept your application are the
rates that apply to your certificate. If you ask for a printed
certificate, one will be promptly sent to you following acceptance
of your application.
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IMPORTANT: When opening an account, you must provide IDSC with
your correct Taxpayer Identification Number (Social Security Number
or Employer Identification Number). See "Taxes on your earnings."
Purchase policies:
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 within the Federal Reserve Bank)
before your purchase will be accepted and you begin earning
interest. This could take up to two business days.
o IDSC has the authority to determine whether to accept an
application.
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."
Two ways to make additional investments at term end
1
By mail
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
2
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 IDSC incurs will be returned
promptly.
o Minimum amount you may wire: $1,000
o Wire orders can be accepted only on days when your bank, IDS,
IDSC and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received and
we accept the purchase.
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PAGE 153
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 or make a
partial withdrawal of $100 or more at any time. However:
o Full and partial withdrawals of principal during a term are
subject to penalties, described below.
o You may not make a partial withdrawal if it would reduce your
certificate balance to less than $1,000. If you request such a
withdrawal, we will contact you for revised instructions.
Penalties for withdrawal during a term: If you withdraw money
during a term, you will pay a penalty of 2% of the principal
withdrawn. (The 2% penalty is waived upon death of the certificate
holder or if it is for an IRA and you have reached age 70 1/2.)
When you request a full or partial withdrawal during a term, we pay
you from the principal of your certificate.
Loss of interest: If you make a withdrawal at any time other than
at the end of the term, you will lose interest accrued on the
withdrawal amount since minimum and participation interest is
credited only at the end of a term. However, accrued fixed and
interim interest will be paid to the date of the withdrawal.
Following are examples describing a $2,000 withdrawal during a term
for participation and fixed interest:
Participation interest
$10,000.00 Account balance
0.00 Interest (interest is credited at the end of
the term)
( 2,000.00) Withdrawal of principal
(40.00) 2% withdrawal penalty
$ 7,960.00 Balance after withdrawal.
You will forfeit any accrued interest on the
withdrawal amount.
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PAGE 154
Fixed interest
$10,000.00 Account balance
100.00 Interest credited to date
(100.00) Withdrawal of credited interest
(1,900.00) Withdrawal of principal
(38.00) 2% withdrawal penalty (on $1,900
principal withdrawn)
$ 8,062.00 Balance after withdrawal.
Retirement plans: In addition, you may be subject to IRS penalties
for early withdrawals if your certificate is in an IRA, 401(k) or
other qualified retirement plan account.
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 to any other IDS
certificate or into another existing IDS account (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 A telephone withdrawal request will not be allowed within 30 days
of a phoned-in address change.
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PAGE 155
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.
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 Ave.
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 Transfers to another IDS account with different ownership. (All
current registered owners must sign the request.)
Two 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 if it is a full withdrawal, charges are deducted from
proceeds of the withdrawal.
<PAGE>
PAGE 156
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
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 A service fee, if any, may be deducted from your balance (for
partial withdrawals) or from the proceeds of a full withdrawal.
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 We will waive withdrawal penalties on withdrawals for IRA
accounts of clients who have reached age 70 1/2.
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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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
Participation and minimum interest on your certificate is taxable
when credited to your account. Fixed and interim interest are
fully taxable as earned. 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.
Revised proposed regulations: The IRS has issued revised proposed
regulations governing the tax treatment of debt instruments which
provide for variable rates of interest, including interest based on
the price of property that is actively traded or on an index of the
prices of such property. Under these revised proposed regulations,
the IDS Stock Market Certificate is likely to constitute a debt
instrument that would be treated as a variable rate debt instrument
(VRDI) rather than a contingent debt instrument (CDI). If the
Stock Market Certificate constitutes a VRDI, then the income earned
on the certificate will be treated as original issue discount and
reported when credited to the holder's account. If the certificate
is not treated as a VRDI, but rather is treated as a CDI, then the
holder may have taxable income to report, even though the holder
has not received any cash distributions. Furthermore, the timing
and character of the income may be different from that of a VRDI.
IDSC cannot guarantee whether the revised proposed regulations will
be adopted as final in this present form or will again be modified.
As always, you should consult your tax adviser for information
regarding the tax implications of your certificate.
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.
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PAGE 158
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.)
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
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 minor The 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)
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PAGE 159
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 both a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an
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.
It is most likely that interest on the certificate is "portfolio
interest" as defined in U.S. Internal Revenue Code Section 871(h)
if earned by a nonresident alien. However, if the certificate is
treated as a CDI, part of the earned income may be treated as
capital gain instead of portfolio interest. Even though your
interest income or capital gain 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.
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How your money is used and protected
Invested and guaranteed by IDSC
The IDS Stock Market 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
withdrawal of bank Cds often results in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money deposited to individuals, businesses and
other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Stock Market 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:
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PAGE 161
Type of investment Net amount invested
preferred stocks 29%
government agency bonds 27
corporate and other bonds 25
mortgages 10
municipal bonds 7
cash and cash equivalents 2
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:
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.
<PAGE>
PAGE 162
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.
How your certificate 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.
<PAGE>
PAGE 163
IDS itself is a wholly owned subsidiary of American Express, 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.
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<PAGE>
PAGE 164
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,
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 1.25% of the initial investment on the first day of the
certificate's term, and
o 1.25% of the certificate's reserve at the beginning of each
subsequent term.
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.
<PAGE>
PAGE 165
Selling Agent Agreement with American Express Bank International:
In turn, under a Selling Agent Agreement with American Express Bank
International, IDS Financial Services Inc. compensates AEBI for its
services as Selling Agent of this certificate as follows:
o A fee equal to 1.0% per term of the principal amount of each
certificate.
Such payments will be made quarterly in arrears.
These fees are not assessed to your certificate account.
About American Express Bank International
American Express Bank International (AEBI) is an Edge Act
Corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act. It is a wholly owned subsidiary of American
Express Bank Ltd. (AEB Ltd.) As an Edge Act corporation, AEBI is
subject to the provisions of Section 25(a) of the Federal Reserve
Act and Regulation K of the Board of Governors of the Federal
Reserve System (the FRS). It is supervised and regulated by the
FRS.
AEBI has an extensive international high net-worth client base that
is served by a marketing staff in New York and Florida. The
banking and financial products offered by AEBI include checking,
money-market and time deposits, credit services, check collection
services, foreign exchange, funds transfer, investment advisory
services and securities brokerage services. As of Dec. 31, 1993,
AEBI had total assets of $545 million and total equity of $151
million.
Although AEBI is a banking entity, the Stock Market Certificate is
not a bank product, nor is it backed or guaranteed by AEBI, by AEB
Ltd. or by any bank, nor is it guaranteed or insured by the FDIC or
any other federal agency. AEBI is registered where necessary as a
securities broker-dealer.
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.
<PAGE>
PAGE 166
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.
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.
<PAGE>
PAGE 167
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.
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.
<PAGE>
PAGE 168
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.
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 Cash Reserve Certificate - A single payment certificate that
permits additional investments and guarantees interest in advance
for a three-month term.
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.
<PAGE>
PAGE 169
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
IDS STOCK MARKET CERTIFICATE - AEBI
AND VARIATIONS
<TABLE><CAPTION>
Page
Item Caption in Number in
Number Prospectus Prospectus
<S> <C> <C>
Item 1. Forepart of the Cover
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to get information about 173;174
Outside Back Cover Pages IDSC; Table of Contents.
of Prospectus.
Item 3. Summary Informa- About the certificate Cover, 175-184
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and 190-191
protected; Investment policies
Item 5. Determination of Not Applicable. -
Offering Price.
Item 6. Dilution. Not Applicable. -
Item 7. Selling Security Not Applicable. -
Holders
Item 8. Plan of How your money 192-195
Distribution. is managed.
Item 9. Description of About the Certificate; 175-184
Securities to Be How to invest and withdraw 184-189
Registered. funds.
Taxes on your earnings. 189-190
Item 10. Interests of Not Applicable. -
Named Experts and Counsel.
<PAGE>
PAGE 170
PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Page
Item Caption in Number in
Number Prospectus Prospectus
Item 11. Information with Invested and guaranteed by 190; 190; 192-193;
Respect to the Registrant. IDSC; Regulated by government; 193; 196-198
Relationship between IDSC and
IDS; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers 196-198
Commission Position on
Indemnification for
Securities Act Liabilities.
</TABLE>
<PAGE>
PAGE 171
IDS Stock Market Certificate
Prospectus April 27, 1994
Potential for stock market growth with safety of principal
IDS Stock Market Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with a single investment
of at least $1,000 but not more than $1 million (unless you receive
prior authorization from IDSC to invest more). As long as you stay
within this limit, you can make additional investments at the end
of a term. Your principal is guaranteed by IDSC. You can
participate in any increase of the stock market based on the S&P
500 Index while protecting your principal. In addition, you decide
whether part of your return will be guaranteed or whether all of it
will be tied to the market. You can keep your certificate for up
to 14 terms.
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 OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS Stock
Market 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
Stock Market Certificate as described in the prospectus, or to bind
IDSC by any statement not in it.
Issuer: Distributor:
IDS Certificate Company IDS Financial Services Inc.
IDS Tower 10 IDS Tower 10
Minneapolis, MN 55440-0010 Minneapolis, MN 55440-0010
1-800-437-3463 (toll free) or
(612) 671-4737 (Minneapolis/ Selling Agent:
St. Paul area) American Express
TTY numbers: Bank International
1-800-846-4293 (toll free) or American Express Tower
(612) 671-1112 (Minneapolis/ World Financial Center
St. Paul area) New York, NY 10285-2300
American Express companies
<PAGE>
PAGE 172
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 and participation rates
IDSC guarantees return of your principal. The interest on your
certificate is linked to stock market performance as measured by
the Standard & Poor's 500 Stock Index (S&P 500 Index) as explained
under "About the certificate," below.
Here are the interest rates and market participation percentages in
effect on the date of this prospectus, April 27, 1994:
Maximum return Market participation percentage Minimum interest
10% 100% (full) None
10% 25% (partial) 2.5%
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later 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 provisions.
<PAGE>
PAGE 173
Table of contents
About the certificate
Investment amounts 4p
Face amount and principal 4p
Certificate term 4p
Value at maturity 5p
Receiving cash before end of the term 5p
Interest 5p
Promotions and pricing flexibility 8p
Historical data on the S&P 500 Index 8p
Calculation of return 12p
About the S&P 500 Index 15p
Opportunities at the end of a term 16p
How to invest and withdraw funds
Buying your certificate 18p
Full and partial withdrawals 20p
Transfers to other IDS accounts 21p
Transfer of ownership 24p
For more information 24p
Taxes on your earnings
Foreign investors 25p
How your money is used and protected
Invested and guaranteed by IDSC 26p
Regulated by government 26p
Backed by our investments 27p
Investment policies 28p
How your money is managed
Relationship between IDSC and IDS 31p
Capital structure and certificates issued 32p
Investment management and services 32p
Distribution 35p
About American Express Bank International 36p
Employment of other American Express affiliates 37p
Directors and officers 37p
Auditors 40p
Annual Financial information
Summary of selected financial information 41p
Management's discussion and analysis of 42p
financial condition and results of operations
Report of independent auditor's 48p
Financial statements 50p
Notes to financial statements 57p
<PAGE>
PAGE 174
About the certificate
Investment amounts
You may purchase the IDS Stock Market Certificate with a single
investment of at least $1,000 but not more than $1 million payable
in U.S. currency. You may also make additional lump-sum
investments in any amount at the end of any term as long as your
total amount paid in is not more than the $1 million.
Face amount and principal
The face amount of your certificate is the amount of your initial
investment. Your principal is the value of your certificate at the
beginning of each subsequent term. Your principal is guaranteed by
IDSC. It consists of the amount you actually invest plus interest
and any additional investment you make less withdrawals, penalties
and any interest paid to you in cash.
For example: Assume your initial investment (face amount) of
$10,000 has earned a return of 7.25%. Interest is credited to your
account at the end of 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:
$10,000.00 Face Amount (initial investment)
plus 725.00 Interest credited to your account at the
end of the term
plus 5.00 Interim interest (See "Interim interest")
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
$13,230.00 Principal at the beginning of the next
term.
Certificate term
Your first certificate term is a 12-month period that begins on the
Wednesday after your application is accepted and ends the Tuesday
before the one-year anniversary of its acceptance. For example, if
your application is accepted on a Wednesday, your first term would
begin the next Wednesday. Your certificate will earn interest at
the interim interest rate then in effect until the term begins. It
will not earn any participation interest until the term begins. If
you choose to continue to receive participation interest,
subsequent terms are 12-month periods that begin on the Wednesday
following the 14-day grace period at the end of the prior 12-month
term. You may begin your next term on any Wednesday during the 14-
day period by providing prior written instructions to IDSC. If you
choose to receive fixed interest, subsequent terms will be up to 12
months as described in "Fixed interest" under "Interest" below.
<PAGE>
PAGE 175
Value at maturity
Your certificate matures after 14 terms, and you will receive a
check for its value. At maturity, the value of your certificate
will be the total of your actual investments, plus credited
interest not paid to you in cash, less any withdrawals and
withdrawal penalties. Certain other fees may apply.
Receiving cash before end of the term
If you need money before your certificate term ends, 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
You may select from two types of participation interest for your
first term. The two types are 1) full participation, or 2) partial
participation together with minimum interest. Both of these
options have an upper limit which is the maximum annual return
explained below. After your first term, you may choose not to
participate in any market movement and receive a fixed rate of
interest.
Full participation interest: With this option you participate 100%
in any percentage increase in the S&P 500 Index up to the maximum
return. You earn interest only if the value of the S&P 500 Index
is higher on the last day of your term than it was on the first day
of your term. Thus, your return is linked to stock market
performance. The S&P 500 Index is frequently used to measure the
relative performance of the stock market. For a more detailed
discussion of the Index, see "About the S&P 500 Index."
Partial participation and minimum interest: This option allows you
to participate in a certain part (market participation rate) of any
increase in the S&P 500 Index together with a rate of interest
guaranteed in advance for each term (minimum interest). Your
return is composed of two parts:
1. A percentage of any increase in the S&P 500 Index, and
2. A rate of interest guaranteed in advance for each term.
Together, they cannot exceed the maximum return.
The market participation rate and the minimum interest rate on the
date of this prospectus are listed on the inside cover under
"Initial interest and participation rates."
Fixed interest: After your first term, this option allows you to
stop participating in the market entirely for one or more terms.
You may choose to receive a fixed rate of interest for any term
after the first term. During the term when you are receiving fixed
interest, you can change from your fixed interest selection to
again participate in the market. If you make the change from fixed
<PAGE>
PAGE 176
interest to participation interest, your next term would begin on
the Wednesday following our receipt of notice of your new
selection. In this way, you may have a term (during which you
would earn fixed interest) that is less than 12 months. You may
not change from participation interest to fixed interest during a
term.
Maximum annual return: This is the cap, or upper limit, of your
return. Your total return including both participation and minimum
interest for a term for which you have chosen participation
interest will be limited to this maximum return percentage.
Determining the S&P 500 Index value: The stock market closes at 3
p.m. Central time and the S&P 500 Index value is available at
approximately 4:30 p.m. This is the value we currently use to
determine participation interest. Occasionally, Standard & Poor's
Corporation (S&P) makes minor adjustments to the closing value
after 4:30 p.m. and the value we use may not be exactly the one
that is published the next business day. In the future, we may use
a later time cut-off if it becomes feasible to do so. If the stock
market is not open or the S&P 500 Index is unavailable as of the
last day of your term, the preceding business day for which a value
is available will be used instead.
Interim interest: When we accept your application, we pay interim
interest to your account for the time before your first term
begins. We also pay interim interest for the 14-day period between
terms unless you write to ask us to begin your next term earlier.
You may withdraw this interest in cash at any time before it
becomes part of your certificate's principal without withdrawal
penalty. If it is not withdrawn, the interest will become part of
your certificate's principal at the start of the next succeeding
term. For example, the interest you earn between the end of the
first and the beginning of the second term will become part of the
principal at the start of your third term. Interim interest rates
for the time before your first term begins will be within a range
10 to 110 basis points (0.10% to 1.10%) above the average interest
rate published for 12-month certificates of deposit in the BANK
RATE MONITORTM National Index (the BRM Index). 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.
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 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 or current BRM Index rates, call IDS Certificate
Service at 1-800-437-3463 or TTY: 1-800-846-4293.
Earning interest: Participation interest is calculated, credited
and compounded at the end of your certificate term. Minimum and
fixed interest accrue daily and are credited and compounded at the <PAGE>
PAGE 177
end of your certificate term. Both minimum and fixed interest are
calculated on a 30-day month and 360-day year basis. Interim
interest accrues and is credited daily.
Rates for future periods: After the initial term, the maximum
return, market participation percentage or minimum interest rate on
your certificate may be greater or less than those shown on the
front of this prospectus. In setting future interest rates, a
primary consideration will be the prevailing investment climate.
Rates are reviewed weekly, and we have complete discretion as to
what interest rate will be declared.
To find out what your certificate's new maximum return, market
participation percentage and minimum interest rate will be for your
next term, please consult the following:
IDS clients: o Your local IDS planner, or
o Our service representatives at 1-800-437-3463
AEBI clients: o Your AEBI relationship manager
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 have purchased 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. We also may offer different rates
based on your amount invested, maturity selected, geographic
location and whether the certificate is purchased for an IRA or a
qualified retirement account.
Historical Data on the S&P 500 Index
The following chart illustrates the month-end closing values of the
index from Dec. 31, 1982 through Feb. 28, 1994. The values of the
S&P 500 Index are reprinted with the permission of S&P.
S&P 500 Index values - December 1982 to February 1994
40%
Chart shows 12-month Moving Price Return of the
S&P from a high of 40% to a low of -20%
20%
____ S&P 500
0%
- -20%
83 84 85 86 87 88 89 90 91 92 93 94<PAGE>
PAGE 178
S&P 500 Index Average Annual Return
Beginning date Period held Average annual
Dec. 31, in years return
___________________________________________________________________
1983 10 10.96%
1988 5 10.93
1992 1 7.07
The next chart illustrates, on a moving 12-month basis, the price
return of the S&P 500 Index measured for every 12-month period
beginning with the period ended Dec. 31, 1983. The price return is
the percentage return for each period using month-end closing
prices of the S&P 500 Index. Dividends and other distributions on
the securities comprising the S&P 500 Index are not included in
calculating the price return.
S&P 500 Index values - December 1982 to February 1994
400
300 Chart shows closing values of the S&P from just above
100 to a 1993 end above 400
200
____S&P 500
100
83 84 85 86 87 88 89 90 91 92 93 94
<PAGE>
PAGE 179
Using the same data on price returns described above, the next
graph expands on the information in the preceding chart by
illustrating the distribution of all of the 12-month price returns
of the S&P 500 Index beginning with the 12-month period ending Dec.
31, 1983. The graph also shows the number of times these price
returns fell within certain ranges.
Distributions of 12-month Returns
20
Chart shows the distribution of all of the 12-month
price returns of the S&P 500 from 1/1/83 through
2/28/94 with a high of just over 20 and a low between
0 and 5
15
10
5
- -20% -15 -10 -5 0 5 10 15 20 25 30
The last chart illustrates, on a moving weekly basis, the actual
12-month return of the IDS Stock Market Certificate at full and
partial participation compared to the price return of the NYSE
Composite IndexR through October 1992 and the S&P 500 Index after
October 1992. For non-guaranteed funds received before Nov. 3,
1992, and guaranteed funds received before Nov. 4, 1992, IDS Stock
Market Certificate participation interest was based on the NYSE
Composite IndexR rather than the S&P 500 Index.
Actual 12-month return
30%
25%
20% Chart shows actual returns of the certificate at full
and 25% participation with the full participation
generally tracking the market indexes over the period
and 25% level of participation tracking at the 25%
level of return.
15%
10% ----Market Index
****Stock Market Full Participation
5% ....Stock Market 25% Participation
0%
1/91 4/91 7/91 10/91 1/92 4/92 7/92 10/92 1/93 4/93 10/93 2/94
<PAGE>
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The NYSE Composite IndexR is a registered service mark of the New
York Stock Exchange, Inc. (NYSE) and is a composite covering price
movements of all common stocks listed on the NYSE. Because the IDS
Stock Market Certificate was first available on Jan. 24, 1990, the
performance reflects the returns on the one-year anniversary date,
falling on a Wednesday, of each of the weeks shown.
The recent historical experience of an index should not be taken as
an indication of future performance of the stock market or the
certificate. No assurance can be given that an index will not
decline or that certificate holders will receive interest on their
accounts beyond any minimum interest or fixed interest selected.
Calculation of return
The increase or decrease in the S&P 500 Index, as well as the
actual return paid to you, is calculated as follows:
Rate of return on S&P 500 Index
Term ending value of S&P 500 Index minus
Term beginning value of S&P 500 Index divided by
Term beginning value of S&P 500 Index equals
Rate of return on S&P 500 Index
The actual return paid to you will depend on your interest
participation selection.
For example, assume:
Term ending value of S&P 500 Index 458
Term beginning value of S&P 500 Index 422
Maximum return 10%
Minimum return 2.5%
Partial participation rate 25%
458 Term ending value of S&P 500 Index
minus 422 Term beginning value of S&P 500 Index
equals 36 Difference between beginning and ending values
36 Difference between beginning and ending values
divided by 422 Term beginning value of S&P 500 Index
equals 8.53% Percent increase - full participation return
8.53% Percent increase or decrease
times 25.00% Partial participation rate
equals 2.13%
plus 2.50% 2.50% minimum interest rate
equals 4.63% Partial participation return
In both cases in the example, the return would be less than the 10%
maximum.
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Maximum Return and Partial Participation Minimum Rate History - The
following table illustrates the maximum annual returns and partial
participation minimum rates that have been in effect since the
Stock Market Certificate was introduced.
Partial
Maximum participation
Purchase date annual return minimum rate
Jan. 24, 1990 18.00% 5.00%
Feb. 4, 1992 18.00 4.00
May 5, 1992 15.00 4.00
Aug. 25, 1992 12.00 3.00
Nov. 10, 1992 10.00 2.50
Examples: To help you understand the way this certificate works,
here are some hypothetical examples. The following are three
different examples of market scenarios and how they affect the
certificate's return. Assume for all examples that you purchased
the certificate with a $10,000 original investment. Also assume
that the partial participation rate is 25%, the minimum interest
rate for partial participation is 2.5%, and the maximum total
return for full and partial participation is 10%.
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C>
1. If the Market and the S&P 500 Index value rise
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 8% increase in the S&P 500 Index Index 459
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 800 (8% x $10,000) + 250 2.5% (minimum interest rate) x $10,000
Participation interest + 200 25% x (8% x $10,000) participation interest
$10,800 Ending balance $10,450 Ending balance
(8% total return) (4.5% total return)
- ------------------------------------------------------------------------------------------
2. If the Market and the S&P 500 Index value fall
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 4% decrease in the S&P 500 Index Index 408
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 0 Participation interest + 250 2.5% (Minimum interest rate) x $10,000
$10,000 Ending balance + 0 Participation interest
(0% total return) $10,250 Ending balance
(2.5% total return)
- ----------------------------------------------------------------------------------------
3. If the Market and the S&P 500 Index value rise above maximum return
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 16% increase in the S&P 500 Index Index 493
Full Participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 1,000 (10% x $10,000) + 250 2.5% (Minimum interest rate) x $10,000
Maximum interest + 400 (25% x 16% x $10,000) participation interest
$11,000 Ending balance $10,650 Ending balance
(10% Total return) (6.5% total return)
</TABLE> <PAGE>
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About the S&P 500 Index
The description in this prospectus of the S&P 500 Index including
its make-up, method of calculation and changes in its components
are derived from publicly available information regarding the S&P
500 Index. IDS Certificate Company (IDSC) does not assume any
responsibility for the accuracy or completeness of such
information.
The S&P 500 Index is composed of 500 common stocks, most of which
are listed on the New York Stock Exchange. The S&P 500 Index is
published by S&P and is intended to provide an indication of the
pattern of common stock movement. S&P chooses the 500 stocks to be
included in the S&P 500 Index with the aim of achieving a
distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of
the New York Stock Exchange. Changes in the S&P 500 Index are
reported daily in the financial pages of many major newspapers.
"Standard & Poor's ", "S&P ", "S&P 500 ", "Standard & Poor's 500",
and "500" are trademarks of McGraw-Hill, Inc. and have been
licensed for use by IDSC. The certificate is not sponsored,
endorsed, sold or promoted by S&P. S&P makes no representation or
warranty, express or implied, to the owners of the certificate or
any member of the public regarding the advisability of investing in
securities generally or in the certificate particularly or the
ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to IDSC is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard
to IDSC or the certificate. S&P has no obligation to take the
needs of IDSC or the owners of the certificate into consideration
in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the certificate to be
issued or in the determination or calculation of the equation by
which the certificate is to be converted into cash. S&P has no
obligation or liability in connection with the administration,
marketing or trading of the certificate.
S&P does not guarantee the accuracy and/or the completeness of the
S&P 500 Index or any data included therein and S&P shall have no
liability for any errors, omissions, or interruptions therein. S&P
makes no warranty, express or implied, as to the results to be
obtained by IDSC, owners of the certificate, or any person or
entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any
data included therein. Without limiting any of the foregoing, in
no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even
if notified of the possibility of such damages.
<PAGE>
PAGE 183
If for any reason the Index were to become unavailable or not
reasonably feasible to use, we would use a comparable stock market
index for determining participation interest. If this were to
occur, you would be sent a notice indicating the comparable index
that will be used and be given the option to surrender your
certificate, if desired, and receive your principal, without being
assessed a surrender charge.
Opportunities at the end of a term
Grace period: When your certificate term ends, you have 14 days
before a new term automatically begins. During this 14-day grace
period you can:
o change your interest selection,
o add money to your certificate,
o withdraw part or all of your money without a withdrawal
penalty or loss of interest, or
o receive your interest in cash.
Fixed interest only: The grace period does not apply if you made
the change from fixed interest back to participation interest
during a term as discussed in "Fixed interest" under "Interest"
above. Instead, your new 12-month term will begin on the Wednesday
following our receipt of your notice of your new interest
selection.
New term: If you do not make changes, your certificate will
continue with your current selections when the new term begins 14
days later. You will earn interim interest during this 14-day
grace period. If you don't want to wait 14 days before starting
your next market participation term, you must give us written
instructions before your current term ends. Or, you may phone in
your instructions and follow up the call with written verification.
You can tell us to start your next term on any Wednesday during the
grace period following our receipt of your notice. Your notice may
also tell us to change your interest selection, add to your
certificate or withdraw part of your money. Any additional
payments received during the current term will be applied at the
end of the current term. By starting your new term early and
waiving the 14-day grace period, you are choosing to start your
next term without knowing the ending value of your current term.
How to invest and withdraw funds
Buying your certificate
An AEBI relationship manager 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 <PAGE>
PAGE 184
Minneapolis. When your application is accepted, you will receive a
confirmation showing the acceptance date, the date your term begins
and the interest selection you have made detailing your market
participation percentage and/or the guaranteed minimum interest
rate for your first term. After your term begins, we will send you
notice of the value of the S&P Index on the day your term began.
The rates in effect on the date we accept your application are the
rates that apply to your certificate. If you ask for a printed
certificate, one will be promptly sent to you following acceptance
of your application.
IMPORTANT: When opening an account, you must provide IDSC with a
Form W-8 or approved substitute. See "Taxes on your earnings."
Purchase policies:
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 within the Federal Reserve Bank)
before your purchase will be accepted and you begin earning
interest. This could take up to two business days.
o IDSC has the authority to determine whether to accept an
application.
Two ways to make additional investments at term end
1
By mail
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
2
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 IDSC incurs will be returned
promptly.
o Minimum amount you may wire: $1,000
<PAGE>
PAGE 185
o Wire orders can be accepted only on days when your bank, IDS,
IDSC and Norwest Bank Minneapolis are open for business.
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 or make a
partial withdrawal of $100 or more at any time. However:
o Full and partial withdrawals of principal during a term are
subject to penalties, described below.
o You may not make a partial withdrawal if it would reduce your
certificate balance to less than $1,000. If you request such a
withdrawal, we will contact you for revised instructions.
Penalties for withdrawal during a term: If you withdraw money
during a term, you will pay a penalty of 2% of the principal
withdrawn.
When you request a full or partial withdrawal during a term, we pay
you from the principal of your certificate.
Loss of interest: If you make a withdrawal at any time other than
at the end of the term, you will lose interest accrued on the
withdrawal amount since minimum and participation interest is
credited only at the end of a term. However, accrued fixed and
interim interest will be paid to the date of the withdrawal.
Following are examples describing a $2,000 withdrawal during a term
for participation and fixed interest:
Participation interest
Account balance $10,000
Interest (interest is credited at 0.00
the end of the term)
Withdrawal of principal ( 2,000.00)
2% withdrawal penalty (40.00)
Balance after withdrawal. $ 7,960.00
You will forfeit any accrued
interest on the withdrawal amount.
<PAGE>
PAGE 186
Fixed interest
Account balance $10,000.00
Interest credited to date 100.00
Withdrawal of credited interest (100.00)
Withdrawal of principal (1,900.00)
2% withdrawal penalty (on $1,900 (38.00)
principal withdrawn)
Balance after withdrawal. $ 8,062.00
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 to any other IDS
certificate or into another existing IDS account (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 A telephone withdrawal request will not be allowed within 30 days
of a phoned-in address change.
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.
<PAGE>
PAGE 187
You may request that telephone withdrawals not be authorized from
your account by writing IDSC Client Service.
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 Ave.
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 Transfers to another IDS account with different ownership. (All
current registered owners must sign the request.)
Two 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 if 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
<PAGE>
PAGE 188
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 A service fee, if any, may be deducted from your balance (for
partial withdrawals) or from the proceeds of a full withdrawal.
Transfer of ownership
While the certificate is not negotiable, IDSC will transfer
ownership upon written notification to IDSC Client Service.
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
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 both a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an
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.
It is most likely that the interest on the certificate is
"portfolio interest" as defined in U.S. Internal Revenue Code
Section 871(h) if earned by a nonresident alien. However, if the
certificate is treated as a contingent debt instrument (CDI), part
of the income may be treated as capital gain instead of portfolio
interest. Even though your interest income or capital gain 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 <PAGE>
PAGE 189
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 Stock Market 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
withdrawal of bank Cds often results in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money deposited to individuals, businesses and
other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Stock Market 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 <PAGE>
PAGE 190
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:
Type of investment Net amount invested
preferred stocks 29%
government agency bonds 27
corporate and other bonds 25
mortgages 10
municipal bonds 7
cash and cash equivalents 2
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:
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.
<PAGE>
PAGE 191
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.
How your certificate 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.
<PAGE>
PAGE 192
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, 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 CardR 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.
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.
<PAGE>
PAGE 193
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,
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 1.25% of the initial investment on the first day of the
certificate's term, and
o 1.25% of the certificate's reserve at the beginning of each
subsequent term.<PAGE>
PAGE 194
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.
Selling Agent Agreement with American Express Bank International:
In turn, under a Selling Agent Agreement with American Express Bank
International, IDS Financial Services Inc. compensates AEBI for its
services as Selling Agent of this certificate as follows:
o A fee equal to 1.0% per term of the principal amount of each
certificate.
Such payments will be made quarterly in arrears.
These fees are not assessed to your certificate account.
About American Express Bank International
American Express Bank International (AEBI) is an Edge Act
Corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act. It is a wholly owned subsidiary of American
Express Bank Ltd. (AEB Ltd.) As an Edge Act corporation, AEBI is
subject to the provisions of Section 25(a) of the Federal Reserve
Act and Regulation K of the Board of Governors of the Federal
Reserve System (the FRS). It is supervised and regulated by the
FRS.
AEBI has an extensive international high net-worth client base that
is served by a marketing staff in New York and Florida. The
banking and financial products offered by AEBI include checking,
money-market and time deposits, credit services, check collection
services, foreign exchange, funds transfer, investment advisory
services and securities brokerage services. As of Dec. 31, 1993,
AEBI had total assets of $545 million and total equity of $151
million.
Although AEBI is a banking entity, the Stock Market Certificate is
not a bank product, nor is it backed or guaranteed by AEBI, by AEB
Ltd. or by any bank, nor is it guaranteed or insured by the FDIC or
any other federal agency. AEBI is registered where necessary as a
securities broker-dealer.
<PAGE>
PAGE 195
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 196
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 197
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 198
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item
Number
Item 13. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and
distribution of the securities being registered are to be
borne by the registrant.
Item 14. Indemnification of Directors and Officers.
None.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits to this Post-Effective Amendment
No. 10 to Registration Statement No. 2-95577 are
incorporated herein by reference or attached hereto:
1. (a) Copy of Distribution Agreement dated November
18, 1988, between Registrant and IDS Financial
Services Inc., filed electronically as Exhibit
1(a) to the Registration Statement for the
American Express International Investment
Certificate (now called, the IDS Investors
Certificate), is incorporated herein by
reference.
(b) Form of the Distribution Agreement for the
American Express Savings Certificate between
the Registrant and American Express Service
Corporation, filed electronically as Exhibit
1(b) to the Registration Statement for the
American Express International Investment
Certificate (now called, the IDS Investors
Certificate), is incorporated herein by
reference.
(c)(c)Selling Agent Agreement dated June 1, 1990,
between American Express Bank International and
IDS Financial Services Inc. for the IDS
Investors and IDS Stock Market Certificates,
filed electronically as Exhibit 1(c) to the
Post-Effective Amendment No. 5 to Registration
Statement No. 33-26844, is incorporated herein
by reference.
(d) Marketing Agreement dated October 10, 1991,
between Registrant and American Express Bank
Ltd., filed electronically as Exhibit 1(d) to
Post-Effective Amendment No. 31 to Registration
Statement 2-55252, is incorporated herein by
reference.<PAGE>
PAGE 199
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. (a) Continued
2. Not Applicable.
3. (a) Certificate of Incorporation, dated December
31, 1977, filed electronically as Exhibit 3(a)
to Post-Effective Amendment No. 2 to
Registration Statement No. 2-95577, is
incorporated herein by reference.
(b) Certificate of Amendment, dated February 9,
l984, filed electronically as Exhibit 3(b) to
Post-Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(c) By-Laws, dated December 31, 1977, filed
electronically as Exhibit 3(c) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
4. Forms of certificate for Cash Reserve Certificate,
Future Value Certificate, Installment Investment
Certificate, Series D-1 Investment Certificate and
Variable Term Certificate filed electronically as
Exhibit 4 to Post-Effective Amendment No. 2 to
Registration Statement No. 2-95577 are incorporated
herein by reference. Form of Certificate for IDS
Stock Market Certificate filed electronically as
Exhibit 4 to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-22503, is incorporated
herein by reference.
5. Not applicable.
6 through 9. -- None.
10. (a) Investment Advisory and Services Agreement
between Registrant and IDS/American Express
Inc., dated January 12, 1984, filed
electronically as Exhibit 10(a) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(b) Depository and Custodial Agreement, between IDS
Certificate Company and IDS Trust Company dated
September 30, 1985, filed electronically as
Exhibit 10(b) to Post-Effective Amendment No. 2
to Registration Statement No. 2-95577, is
incorporated herein by reference.
<PAGE>
PAGE 200
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. (a) Continued
(c) Loan Agreement between Registrant and Investors
Syndicate Development Corporation, dated
October 13, 1970, filed electronically as
Exhibit 10(c) to Post-Effective Amendment No. 2
to Registration Statement No. 2-95577, is
incorporated herein by reference.
(d) Agreement for the servicing of Residential
Mortgage Loans between ISA and Advance Mortgage
Company, Ltd., dated August 31, 1980, filed
electronically as Exhibit 10(d) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(e) Agreement for the servicing of Commercial
Mortgage Loans, between ISA and FBS Mortgage
Corporation, dated October 1, 1980, filed
electronically as Exhibit 10(e) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(f) Agreement by and between Registrant and
Investors Diversified Services, Inc. (now IDS
Financial Services Inc.) providing for the
purchase by IDS of a block of portfolio
securities from Registrant, filed as Exhibit -
10.5 to the September 30, 1981 quarterly report
on Form 10-Q of Alleghany Corporation, is
incorporated herein by reference.
(g) Transfer Agent Agreements for the servicing of
the American Express Savings Certificate filed
electronically as Exhibit 10(g) to Pre-
Effective Amendment No. 1 to Registration
Statement No. 33-25385, are incorporated herein
by reference.
(h) Foreign Deposit Agreement dated November 21,
1990, between Registrant and IDS Bank & Trust,
filed electronically as Exhibit 10(h) to Post-
Effective Amendment No. 5 to Registration
Statement No. 33-26844, is incorporated herein
by reference.
11 through 24. -- None.
<PAGE>
PAGE 201
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. (a) Continued
25. (a) Officers' Power of Attorney, dated
February 1, 1994 filed electronically, as
Exhibit 25(a) to Post-Effective Amendment
No. 34 to Registration Statement 2-55252
is incorporated herein by reference.
(b) Directors' Power of Attorney, dated
February 1, 1994 filed electronically as
Exhibit 25(b) to Post-Effective Amendment
No. 34 to Registration Statement 2-55252,
is incoporated herein by reference.
26 through 28. None.
(b) The financial statement schedules for IDS
Certificate Company filed electronically
as Exhibit 16(b) in Post-Effective
Amendment No. 35 to Registration Statement
No. 2-55252 for Series D-1 Investment
Certificate, are incorporated be reference
herewith.
Item 17. Undertakings.
Without limiting or restricting any liability on the part
of the other, IDS Financial Services Inc., as
underwriter, will assume any actionable civil liability
which may arise under the Federal Securities Act of 1933,
the Federal Securities Exchange Act of 1934 or the
Federal Investment Company Act of 1940, in addition to
any such liability arising at law or in equity, out of
any untrue statement of a material fact made by its
agents in the due course of their business in selling or
offering for sale, or soliciting applications for,
securities issued by the Company or any omission on the
part of its agents to state a material fact necessary in
order to make the statements so made, in the light of the
circumstances in which they were made, not misleading (no
such untrue statements or omissions, however, being
admitted or contemplated), but such liability shall be
subject to the conditions and limitations described in
said Acts. IDS Financial Services Inc. will also assume
any liability of the Company for any amount or amounts
which the Company legally may be compelled to pay to any
purchaser under said Acts because of any untrue
statements of a material fact, or any omission to state a
material fact, on the part of the agents of IDS Financial
Services Inc. to the extent of any actual loss to, or
expense of, the Company in connection therewith. The By-
Laws of the Registrant contain a provision relating to
Indemnification of Officers and Directors as permitted by
applicable law.
<PAGE>
PAGE 202
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis and State of Minnesota, on the 20th day of April
1994.
IDS CERTIFICATE COMPANY
By /s/ Stuart A. Sedlacek*
Stuart A. Sedlacek, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed below by the following persons in the
capacities on April 20, 1994.
Signature Capacity
/s/ Stuart A. Sedlacek* ** President and Director
Stuart A. Sedlacek
/s/ Morris Goodwin* Principal Financial Officer
Morris Goodwin and Treasurer
/s/ John M. Knight* Controller and
John M. Knight Principal Accounting Officer
/s/ David R. Hubers** Director
David R. Hubers
/s/ Charles W. Johnson** Director
Charles W. Johnson
/s/ Edward Landes** Director
Edward Landes
/s/ John V. Luck** Director
John V. Luck
Signatures continued on next page.
<PAGE>
PAGE 203
Signatures continued from previous page.
Signature Capacity
/s/ James A. Mitchell** Director
James A. Mitchell
/s/ Harrison Randolph** Director
Harrison Randolph
/s/ Gordon H. Ritz** Director
Gordon H. Ritz
*Signed pursuant to Officers' Power of Attorney dated February 1,
1994 filed electronically as Exhibit 25(a) to Post-Effective
Amendment No. 34 to Registration Statement 2-55252 for Series D-1
Investment Certificate by:
______________________.
Bruce A. Kohn
**Signed pursuant to Directors' Power of Attorney dated February 1,
1994 filed electronically as Exhibit 25(a) to Post-Effective
Amendment No. 34 to Registration Statement 2-55252 for Series D-1
Investment Certificate by:
_________________________.
Bruce A. Kohn
<PAGE>
PAGE 204
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 12 TO REGISTRATION
STATEMENT NO. 2-95577
Cover Page
Explanatory Note
Cross-reference sheet
Prospectus
Auditors' Report
Financial Statements
Part II Information
Signatures
<PAGE>
<PAGE>
PAGE 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Auditors" and to the use of our report dated February 3, 1994 in
the Post-Effective Amendment number 12 to Registration Statement
Number 2-95577 on Form S-1 and related Prospectus of IDS
Certificate Company for the registration of its IDS Flexible
Savings Certificate, IDS Cash Reserve Certificate, IDS Installment
Certificate, IDS Future Value Certificate and IDS Stock Market
Certificate.
Our audits also included the financial statement schedules of IDS
Certificate Company listed in Item 16(b). These schedules are the
responsibility of the management of IDS Certificate Company. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements as a
whole, present fairly in all material respects the information set
forth therein.
ERNST & YOUNG
Minneapolis, Minnesota
April 21, 1994
