<PAGE>
PAGE 1
1994 Prospectus
IDS Investors Certificate
Provides high fixed rates with capital preservation
IDS
An American Express company
AMERICAN
EXPRESS
<PAGE>
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A glimpse of IDS
Assets Under Management*
(graph showing progression from $1,500 in 1894 to $99.7 billion in
1993)
*Volatility between years prior to 1950 has not been illustrated.
The IDS group of companies (IDS), headquartered in Minneapolis,
Minnesota, helps clients meet their long-term goals with an array
of investment products. In fact, IDS has been helping people reach
their financial goals since 1894 when it first introduced the
investment certificate as a way for clients to save money
systematically.
That long-standing commitment was affirmed in 1984, when IDS became
an American Express company. Through its affiliation with American
Express, IDS has increased its ability to compete in global markets
and find new ways to serve its clients. In return, IDS has become
one of the best-performing companies in the American Express
family. Its expertise in financial markets has added an important
dimension to American Express services.
In 1993, IDS' strength was reflected in many ways--
o A record net income of $357.9 million, a 20.7 percent increase
over 1992 before an accounting change (29.4 percent after an
accounting change), on . . .
o Record revenues of $3.0 billion, a 9.8 percent increase over
1992.
o The IDS group of companies owned or managed $99.7 billion in
assets, a 19.7 percent increase over 1992.
Current Annual Interest Rates for ______________________, 19_______
These rates will apply to your initial term if you purchase today.
Interest rates for future terms may be greater or less than these
rates.
Actual
Simple Compound Effective
Interest Yield for Annualized
Term Rate the Term* Yield**
1-month % % %
2-month % % %
3-month % % %
6-month % % %
12-month % % %
24-month % % %
36-month % % %
- ---------------------------------------------------------------
*Assuming monthly compounding for the number of months in the term.
**Assuming monthly compounding for 12 months.
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These interest rates apply to certificates purchased for
$___________. Rates may vary depending on the amount you invest
and the term you select.
Rates for new purchases may change daily. The interest rate that
will apply to your certificate is the rate applicable to your
chosen term and amount invested on the date your application is
accepted by the Issuer. Please refer to the attached prospectus
for information as to how rates are set.<PAGE>
PAGE 4
IDS Investors Certificate
Prospectus/April 27, 1994
This prospectus describes the IDS Investors Certificate issued by
IDS Certificate Company ("the Issuer" or "IDSC") and distributed by
IDS Financial Services Inc. American Express Bank International
(AEBI) has an arrangement with IDS Financial Services Inc. under
which the certificate is offered to AEBI's clients who are neither
citizens nor residents of the United States. The certificate is
currently available through AEBI offices located in California,
Florida and New York.
When buying this certificate you select a term of 1, 2, 3, 6, 12,
24 or 36 certificate months for which the Issuer guarantees a
specific rate of interest. Rates may vary depending upon the
amount and term of your investment. The Issuer also guarantees the
principal of your certificate (page 12). At the end of a term, you
may withdraw the value of the certificate or leave it invested in
the certificate for another term. You also may have interest
earned on the certificate during its term credited to your
certificate or paid to you. Investments in the certificate may
continue for successive terms up to a total of 20 years from the
issue date of the certificate.
The terms "you" and "your" shall be used throughout the prospectus
to refer to persons who are eligible to buy this certificate. You
may purchase the certificate with a single investment of any amount
from $250,000 to $5 million. Unless you receive prior
authorization from the Issuer, you may not invest more than $5
million in any one or more certificates, in the aggregate,
exclusive of interest.
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.
The prospectus gives you facts about the IDS Investors Certificate
and describes its terms and conditions. You should read it to
decide if the certificate is the right investment for you. Keep it
with your investment records for future reference.
Issuer: Distributor:
IDS Certificate Company IDS Financial Services Inc.
IDS Tower 10 IDS Tower 10
Minneapolis, MN 55440-0010 Minneapolis, MN 55440-0010
Selling Agent:
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300
American Express companies
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<TABLE>
<CAPTION>
Annual Interest Rates as of April 27, 1994*
______________________________________________________________________
Simple Actual Compound Effective
Interest Yield for the Annualized
Term Rate Term** Yield***
<S> <C> <C> <C>
1-month % % %
2-month
3-month
6-month
12-month
24-month
36-month
______________________________________________________________________
*Rates may vary depending on the amount invested and term selected.
**Assuming monthly compounding for the number of months in the term
and a $1 million purchase.
***Assuming monthly compounding for 12 months and a $1 million
purchase.
These rates are the rates in effect on the date of this prospectus.
The Issuer reviews and may change its rates daily. The Issuer
guarantees that the simple interest rate it declares, will be
within a specified range of average interbank-offered rates for
dollar deposits of a comparable term in the London market,
published as the London Interbank Offered Rates (LIBOR)(page 4).
The interest rate that will be paid for the first term of your
certificate is the rate in effect for your chosen term on the date
your application is accepted in Minneapolis, Minn., U.S.A.
Interest rates on your certificate for future terms are declared at
the discretion of the Issuer and may be greater or less than the
rates shown above. You may obtain the current interest rates by
calling your AEBI representative.
AVAILABLE INFORMATION ABOUT THE ISSUER
The Issuer is subject to the reporting requirements of the
Securities Exchange Act of 1934. Reports and other information on
the Issuer are filed with the Securities and Exchange Commission
(SEC) and can be inspected and copied at the public reference
section of the SEC, Washington, D.C. and also 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 Street
Suite 1400
Chicago, IL 60611<PAGE>
PAGE 6
Pacific Regional Office
5670 Wilshire Boulevard
11th Floor
Los Angeles, CA 90036
You can obtain copies from the Public Reference Section of the SEC,
450 5th St., N.W., Washington, D.C. 20549 at prescribed rates.
The Issuer is not responsible for any information except for the
information in this prospectus, including any supplements, in any
reports filed with the SEC or in any supplemental sales material
authorized for use in the sale of the certificate.
No person has authority to change the terms of the certificate or
to bind the Issuer by any statement not in this prospectus.
The Issuer reserves the right to issue other securities with
different terms.
The Issuer pays a distribution fee to IDS Financial Services Inc.,
the principal underwriter of the IDS certificates, who in turn,
pays a fee to AEBI. These fees are not assessed to your
certificate account (page 12).
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TABLE OF CONTENTS
About the Certificate
Investment Amounts and Terms................................p. 4
Rates of Interest...........................................p. 4
Additional Investments......................................p. 5
Earning Interest............................................p. 5
Determining the Face Amount and Principal
of the Certificate........................................p. 6
Tax Treatment of Your Investment............................p. 6
Using the IDS Investors Certificate
Buying Certificates.........................................p. 6
Good Funds Policy...........................................p. 7
Receiving Cash..............................................p. 7
Penalties for Withdrawal During a Term......................p. 8
When a Certificate Term Ends................................p. 8
Transferring Certificate Ownership..........................p. 9
Giving Instructions and Written Notification................p. 9
How the Issuer Protects Your Investment
Issuer of the Certificate...................................p.10
Governmental Regulation.....................................p.10
Certificates Protected by the Issuer's Investments..........p.10
Policies Followed in Making Investments.....................p.11
Agreements for Services
Relationship Between AEBI, the Issuer and Others............p.12
Employment of Other American Express Company Affiliates.....p.13
Additional Information About the Issuer and Its Affiliates.......p.13
Financial Information............................................p.18
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ABOUT THE CERTIFICATE
Investment Amounts and Terms
The IDS Investors Certificate is a security purchased with a single
investment. You may invest any amount from $250,000 to $5 million
payable in U.S. currency. Your total investment over the life of
the certificate, excluding interest added and less withdrawals
(i.e., surrenders), cannot exceed $5 million. Unless you receive
prior authorization from the Issuer, you may not invest more than
$5 million in any one or more certificates, in the aggregate,
exclusive of interest.
After determining the amount you wish to invest, you select a term
of 1, 2, 3, 6, 12, 24 or 36 certificate months for which the Issuer
will guarantee an interest rate. A certificate month is the
monthly anniversary of the issue date.
Rates of Interest
Rates for New Purchases - The Issuer guarantees that the rate in
effect for your initial term will be within a 100 basis point (1
percent) range of certain average interest rates for comparable
length dollar deposits available on an interbank basis in the
London market, and generally referred to as the London Interbank
Offered Rates (LIBOR). Initial rates for specific terms are
determined as follows:
1-month Within a range 75 basis points below to 25 basis
points above the 1-month LIBOR rate.
2-months Within a range 75 basis points below to 25 basis
points above the 1-month LIBOR rate. (A 2-month
LIBOR rate is not published.)
3-months Within a range 75 basis points below to 25 basis
points above the 3-month LIBOR rate.
6-months Within a range 90 basis points below to 10 basis
points above the 6-month LIBOR rate.
12-months Within a range equal to or up to 100 basis points
below the 12-month LIBOR rate.
24-months Within a range 50 basis points below to 50 points
above the 12-month LIBOR rate. (A 24-month LIBOR
rate is not published.)
36-months Within a range 50 basis points below to 50 points
above the 12-month LIBOR rate. (A 36-month LIBOR
rate is not published.)
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PAGE 9
For example, if the LIBOR rate published on the date rates are
determined with respect to a 6-month deposit is 4.50 percent, the
rate declared on a 6-month IDS Investors Certificate would be
between 3.60 percent and 4.60 percent. If the LIBOR rate published
for a given week with respect to 12-month certificates is 5.50
percent, the Issuer's rates in effect that week for the 24- and 36-
month IDS Investors Certificates would be between 5.00 percent and
6.00 percent. When your application is accepted, you will be sent
a confirmation showing the rate that your investment will earn for
the first term.
LIBOR is the interbank-offered rates for dollar deposits at which
major commercial banks will lend for specific terms in the London
market. Generally, LIBOR rates quoted by major London banks will
be the same. However, market conditions, including movements in
the U.S. prime rate and the internal funding position of each bank,
may result in minor differences in the rates offered by different
banks. LIBOR is a generally accepted and widely quoted interest-
rate benchmark. The average LIBOR rate used by the Issuer is
published in The Wall Street Journal.
Rates for new purchases are reviewed and may change daily. The
guaranteed rate in effect for your chosen term on the day your
application is accepted at the Issuer's Minneapolis, Minnesota,
U.S.A. corporate office will apply to your certificate. The
interest rates printed in the front of this prospectus may or may
not be in effect on the date your application to invest is
accepted. Rates for new purchases may vary depending on the amount
you invest, but will always be within the 100 basis point range
described above. You may obtain the current interest rates by
calling your AEBI representative.
Interest rates for the term you have selected will not change once
the term has begun.
Rates for Future Terms - Interest on your certificate for future
terms may be more or less than the rates for your first term. The
prevailing investment climate, including the LIBOR rates, will be a
primary consideration in deciding rates for subsequent terms.
Nevertheless, the Issuer has complete discretion as to what
interest rates it will declare beyond the initial term. The Issuer
will send you notice at the end of each term of the rate your
certificate will earn for the new term. You have 15 days to
surrender your certificate without a surrender charge or loss of
interest. If LIBOR is no longer publicly available or feasible to
use for any term, the Issuer will use another similar index as a
guide for setting rates.
Additional Investments
You may add to your investment within the 15 days following the end
of your term. A $25,000 minimum additional investment is required,
payable in U.S. currency. Your confirmation will show the
applicable rate. However, unless you receive prior approval from <PAGE>
PAGE 10
the Issuer, your investment may not bring the aggregate net
investment of any one or more certificates held by you (excluding
any interest added during the life of the certificate and less
withdrawals) over $5 million. Additional investments of at least
$25,000 may be made by bank wire.
The Issuer must receive your additional investment within the 15
days following the end of your current term, except that additional
investments for 1-month terms must be received by the end of the
current term. If you wish, you may make the investment just before
the end of the expiring term to ensure that your principal will be
increased as of the first day of the new term. Interest accrues
from the first day of the new term or the day your additional
investment is accepted, whichever is later, at the rate then in
effect for your account.
The interest rate for these additional investments is the rate then
in effect for your account. Additional investments earn interest
from the date the Issuer accepts them. 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 Issuer accepts the
additional investment.
Earning Interest
At the end of each certificate month, interest is compounded and
credited to your account. A certificate month is the monthly
anniversary of the issue date. Interest may be paid to you monthly
in cash if you maintain a principal balance of at least $500,000.
The amount of interest you earn each certificate month is
determined by applying the interest rate then in effect to the
daily balance of your certificate, and subtracting from that total
the interest accrued on any amount withdrawn during the month.
Interest is calculated on a 360-day year basis. This means
interest is calculated on the basis of a 30-day month even though
terms are determined on a calendar month.
Determining the Face Amount and Principal of the Certificate
The amount of your initial investment is called the face amount.
The face amount remains the same as long as you own the
certificate. The principal of the certificate is the face amount
adjusted as described in this paragraph, and generally changes each
term. The principal at the beginning of the first term is the face
amount. At the end of each term, any interest earned and credited
during the term, and not paid to you in cash, is added to the
principal; any additional investment or withdrawal during the first
15 days of the term is also added or deducted to determine the
principal for the new term. A withdrawal at any other time is
taken first from interest credited during that term. The amount of
any withdrawal in excess of the interest credited will reduce
principal by such excess amount, including any applicable surrender
charge. Your principal is guaranteed by the Issuer.
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PAGE 11
Tax Treatment of Your Investment
Interest paid on your certificate is "portfolio interest" as
defined in U.S. Internal Revenue Code Section 871(h) if earned by a
nonresident alien who has supplied the Issuer with Form W-8,
Certificate of Foreign Status (revised as of November 1992). Form
W-8 must be supplied with both a current mailing address and an
address of foreign residency, if different. The Issuer will not
accept purchases of certificates by nonresident aliens without an
appropriately certified Form W-8 (or approved substitute). The
Form W-8 must be resupplied every three calendar years. If you
have supplied a Form W-8 that certifies that you are a nonresident
alien, the interest income 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. We are required to attach
your Form W-8 to the forms sent to the Internal Revenue Service
(IRS). Your interest income will be reported to the IRS even
though it is not taxed by the U.S. government. The United States
participates in various tax treaties with foreign countries. Those
treaties provide that tax information may be shared upon request
between the United States and such foreign governments.
Withholding Taxes - If you fail to provide a Form W-8 as required
above, you will be subject to backup withholding on interest
payments and surrenders.
Estate Tax - In the event of the death of a nonresident alien who
owns a certificate, IDSC generally will not act on instructions
with regard to the certificate unless IDSC first receives a
statement, in a form satisfactory to IDSC, from persons that it
reasonably believes are knowledgeable about and responsible for the
deceased person's estate. The statement must inform IDSC that, on
the date of death, the estate did not include any property in the
United States for U.S. estate tax purposes. If such a statement is
not provided, IDSC generally will not act on instructions with
regard to the certificate unless IDSC first receives 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 the IDS certificate to
satisfy estate taxes.
USING THE IDS INVESTORS CERTIFICATE
Buying Certificates
This certificate is available only to AEBI's clients who are
neither citizens nor residents of the United States. The
certificate is available through AEBI offices located in
California, Florida and New York. An AEBI representative will help
you prepare your purchase application. The Issuer will process the
application at its corporate office in Minneapolis, Minn., U.S.A.,
and has the authority to determine whether to accept an
application.
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PAGE 12
If you buy a certificate you will receive a confirmation of your
purchase showing the applicable rate of interest that will apply to
the amount invested and term you have selected. The interest rate
in effect on the date your application is accepted is the interest
rate that will apply to your certificate. This rate of interest
will not be changed during that term. The Issuer does not issue
physical certificates representing the certificate. The purchase
and surrender of all or a portion of a certificate are recorded in
registers maintained by the Issuer. Each such transaction will be
documented by a confirmation notice sent to each certificate
holder.
Purchases and additional investments must be made using U.S.
currency; foreign currency drafts or wires will not be accepted.
Bank Wire Purchase of Certificates - You may wish to lock in a
specific interest rate by using a bank wire to purchase a
certificate. Your AEBI representative can instruct you about how
to use this procedure. Using this procedure will allow you to
start earning interest at the earliest possible time. The minimum
that may be wired to purchase a new certificate is $250,000.
Wire orders will be accepted only in U.S. currency and only on days
your bank, the Issuer and Norwest Bank Minneapolis are open for
business. The payment must be received by the Issuer before 12
noon Central U.S.A. time to be credited that day. Otherwise, it
will be processed the next business day. The wire purchase will
not be made until the wired amount is received and the purchase is
accepted by the Issuer. Any delays that may occur in wiring the
funds, including delays in processing by the banks, are not the
responsibility of the Issuer. Wire orders may be rejected if they
do not contain complete information.
While the Issuer does not charge a service fee for incoming wires,
you must pay any charge assessed by your bank for the wire service.
If a wire order is rejected, all money received will be returned
promptly less any costs incurred in rejecting it.
Good Funds Policy
If you request a partial or complete surrender of your certificate
recently purchased or added to using non-guaranteed funds, e.g. a
personal check, that portion of the surrender check will be delayed
until reasonable assurance has been received that your check has
cleared (good payment has been collected). This means you should
allow up to 14 days in such cases before expecting payment in the
case of purchases made from funds drawn on U.S. financial
institutions. More time may be necessary in the case of funds
drawn on foreign financial institutions. AEBI or the Issuer may
require additional proof of having good funds.
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PAGE 13
Receiving Cash
You may receive all or part of your money at any time, subject to
any applicable penalty, either by making withdrawals (page 9) or
holding your certificate to maturity.
Partial Withdrawal - To withdraw only part of your money, less any
penalties, contact your AEBI representative or send written notice.
Partial withdrawals during a term must be for at least $10,000 and
must not reduce your certificate to less than $250,000. If you
request a partial withdrawal that would bring your certificate to
less than $250,000, you will be contacted for revised instructions.
Complete Withdrawal - To withdraw the full value of your
certificate, less any penalties, contact your AEBI representative
or send written notice, as described on page 9.
Surrenders will automatically be wired to your AEBI bank account
unless you notify AEBI or the Issuer to the contrary. Bank wire
surrenders can be made only on days your bank, the Issuer and
Norwest Bank Minneapolis, are open for business. Any delays that
may occur in wiring surrender proceeds, including delays in
processing by the banks, are not the Issuer's responsibility.
If you ask that a surrender be sent by express mail to the address
of record as reflected on your application, the cost will be
deducted from the surrender amount.
A surrender may subject your account to loss of interest or
surrender charge depending upon the timing of your withdrawal.
Interest Payments in Cash - You may receive your interest in cash
monthly if the principal balance of your certificate account is at
least $500,000. This payment will automatically be wired to your
AEBI bank account unless you notify AEBI or the Issuer to the
contrary. To receive your interest in cash, simply contact your
AEBI representative or send written notice. If your principal
balance is less than $500,000 or if you have not made a withdrawal
during the month, interest will automatically be compounded monthly
and added to the principal at the end of the term, if not withdrawn
earlier.
Maturity - Interest is guaranteed on your certificate for each term
at the rate in effect at the beginning of the term. You may
continue to invest for successive terms for up to a total of 20
years. At 20 years from the issue date of the certificate, the
certificate matures. If you hold your certificate to maturity, you
will receive an amount equal to the purchase price plus additional
investments plus any interest not paid to you in cash, less
withdrawals and penalties. If your certificate is nearing
maturity, you will not be allowed to select a new term that would
carry the certificate past its maturity date.
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PAGE 14
Penalties for Withdrawal During a Term
There is never a penalty for withdrawal of interest. When you
request a withdrawal during a term, the surrender proceeds are paid
first from interest credited during the current term, and then from
the principal of your certificate. Any additional investments or
withdrawals during a term are added to or deducted from your
certificate's principal and are used in determining any surrender
charges. For more information on how principal is determined each
term, see page 6.
For mid-term withdrawals of more than the interest credited that
term, a 2 percent surrender charge will be deducted from the
account's remaining balance.
For example, assume you invest $1 million in a certificate and
select a six-month term. Four months later, assume you have earned
$27,000 in interest. The following demonstrates how the surrender
charge is deducted:
When you withdraw a specific amount of money, the Issuer would have
to withdraw somewhat more from your account to cover the surrender
charge. For instance, suppose you request a $100,000 check. The
first $27,000 paid to you is interest earned that term, and the
remaining $73,000 paid to you is principal. The Issuer would send
you a check for $100,000 and deduct a surrender charge of $1,460 (2
percent of $73,000) from the remaining balance of your certificate.
Your new balance would be $925,540.
Additionally, if you withdraw during a certificate month, you will
not earn interest on the amount withdrawn for that month.
When a Certificate Term Ends
At the end of the term you have selected for your certificate, the
Issuer will send you notice of the end of the term and provide the
interest rate that will apply to the certificate for the new term.
Your certificate will automatically continue for another term of
the same length if you don't notify your AEBI representative or
your written notice is not received by the Issuer within 15 days
after the end of your term. In that notice, you may select a
different term. To obtain the rate applicable to your next term,
you also may contact your AEBI representative.
The interest rates that will apply to your new term will be those
in effect on the day the new term begins. You will be sent a
confirmation showing the rate of interest that will apply for the
new term you have selected and for the amount invested. This rate
of interest will not be changed during that term.
Making Withdrawals - You also may choose to cash in all or part of
your certificate within the 15 days following the end of your term.
You must notify your AEBI representative or written notice of the
withdrawal must be received by the Issuer within these 15 days in
order to avoid a surrender charge or loss of interest.
<PAGE>
PAGE 15
You also may add to your investment within the 15 days following
the end of your term. For more information, see page 5.
Bank Authorization Cancellation - If you wish to cancel a bank
authorization that is making automatic investments to your
certificate, you must instruct AEBI in writing or over the phone.
AEBI must receive notice at least three business days prior to the
date the bank authorization would normally be withdrawn from your
account.
Transferring Certificate Ownership
While this certificate is not a negotiable instrument, it may be
transferred or assigned on the Issuer's records if proper written
notice is received by the Issuer. Ownership may only be assigned
or transferred to individuals or an entity who, for U.S. tax
purposes, is considered to be neither a citizen nor resident of the
United States. You may also pledge the certificate to AEBI or
another American Express affiliate as collateral security. Your
AEBI representative can help you transfer ownership.
Giving Instructions and Written Notification
Your AEBI representative will be happy to handle instructions
concerning your account. Written instructions may be provided to
either your AEBI office or directly to the Issuer.
Proper written notice to AEBI or the Issuer must:
'be addressed to your AEBI office or the Issuer's corporate office,
in which case it must identify your AEBI office,
'include your account number and sufficient information for the
Issuer to carry out your request, and
'be signed and dated by all registered owners.
The Issuer will acknowledge your written instructions. If your
instructions are incomplete or unclear, you will be contacted for
revised instructions.
In the absence of any other written mandate or instructions you
have provided to AEBI, you may elect in writing, on your initial or
any subsequent purchase application, to authorize AEBI to act upon
the sole verbal instructions of any one of the named owners, and in
turn to instruct the Issuer with regard to any and all actions in
connection with the certificate referenced in the application as it
may be modified from time to time by term changes, renewals,
additions or withdrawals. The individual providing verbal
instructions must be a named owner of the certificate involved. In
providing such authorization you agree that neither the Issuer nor
AEBI will be liable for any loss, liability, cost or expense <PAGE>
PAGE 16
arising in connection with implementing such instructions,
reasonably believed by AEBI, the Issuer or their representatives to
be genuine. You may revoke such authority at any time by providing
proper written notice to your AEBI office.
All amounts payable to or by the Issuer in connection with this
certificate are payable at the Issuer's corporate office unless you
are advised otherwise.
HOW THE ISSUER PROTECTS YOUR INVESTMENT
Issuer of the Certificate
IDS Certificate Company, an American Express company, issues the
IDS Investors Certificate. The Issuer is 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.
The Issuer's gross income is derived principally from interest and
dividends generated by investments. Net income is determined by
deducting the following expenses from gross income:
'provision for certificate reserves (interest accrued on the
certificate holder accounts), and
'other expenses, including taxes and fees paid for services
rendered in connection with the IDS Investors Certificate and other
certificate products issued by the Issuer, including those paid to
IDS for advisory and other services, and distribution and selling
agent fees paid to IDS Financial Services Inc. and AEBI,
respectively.
For a review of significant events relating to the Issuer's
business, see Management's Discussion and Analysis of Financial
Condition and Results of Operations (page 19).
Governmental Regulation
The IDS Investors Certificate is a security. Its offer and sale
are subject to regulation under United States federal and state
securities laws. It is not a bank product, an equity investment, a
form of life insurance or an investment trust. Any payments from
the Issuer may be deferred under applicable rules, regulations or
orders of the SEC.
IDS Financial Services Inc. is not a bank, and the securities it
offers, such as face amount certificates issued by the Issuer,
mutual funds and limited partnerships, are not backed or guaranteed
by any bank, nor are they insured by the FDIC.
<PAGE>
PAGE 17
Certificates Protected by the Issuer's Investments
The federal Investment Company Act of 1940 requires the Issuer to
keep investments on deposit in a segregated custodial account to
protect all of its outstanding certificates. These investments
back the entire value of your certificate account. The carrying
value of investments on our investments on deposit, determined in
accordance with generally accepted accounting principles, must
exceed the required carrying value of the outstanding certificates
by at least $250,000. At Dec. 31, 1993, the carrying value of
these investments exceeded the required carrying value of
outstanding certificates by more than $118 million.
The Issuer's investment portfolio is of high quality and consists
of a variety of types of investments. As of Dec. 31, 1993, this
was the composition of the Issuer's portfolio:
___________________________________________________________________
Investment Portfolio Summary 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
___________________________________________________________________
The Issuer has more than 95 percent of issues in its security
portfolio (bonds and preferred stocks) rated as investment grade.
For additional information regarding security ratings, please refer
to note 3B to the Financial Statements.
Most banks and thrifts offer investments known as certificates of
deposit which are similar to the Issuer's certificates in many
ways. The Issuer backs its certificates by investing the money
received and keeping the invested assets on deposit. The carrying
value of these assets must exceed the required carrying value of
our outstanding certificates. 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.
Most investments are on deposit with IDS Trust Company, formerly
IDS Bank & Trust, Minneapolis, Minnesota, U.S.A., although separate
deposits are maintained as required by certain states. IDS Trust
Company is a wholly owned subsidiary of IDS.
Copies of the Issuer's Dec. 31, 1993, schedule of Investments in
Securities of Unaffiliated Issuers are available from the Issuer
upon request.
For comments regarding the valuation, carrying values and
unrealized appreciation (depreciation) of investment securities,
see notes one, two and three to the Financial Statements.
<PAGE>
PAGE 18
Policies Followed in Making Investments
The diversification, type and extent of investments are determined
in the best judgment of the officers and directors of the Issuer,
subject to applicable law. The following policies currently govern
the Issuer's investment decisions:
Concentration - There are no restrictions on concentration of
investments in any particular industry or group of industries.
Portfolio Turnover - There are no restrictions on rates of
portfolio turnover.
Purchasing Securities on Margin - Securities will not be purchased
on a margin or joint basis or a joint-and-several basis in any
trading account in securities.
Commodities - There will be no purchases or sales of commodities or
commodity contracts.
Underwriting - The Issuer does not intend to engage in the public
distribution of securities issued by others. However, if such
securities are purchased and later resold, the Issuer may be
considered an "underwriter" under federal securities laws.
Borrowing Money - From time to time the Issuer 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. Some assets may be pledged as
security. From time to time we 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 - The Issuer may invest directly in real estate, though
it has not generally done so in the past. The Issuer does invest
in mortgage loans.
Lending Securities - Securities may be loaned to broker-dealers and
cash received equal to the market value of the securities as
collateral. This cash is invested in short-term securities. If
the market value of the securities goes up, the borrower pays
additional cash. During the course of the loan, the borrower makes
cash payments equal to all interest, dividends and other
distributions paid on the loaned securities. The Issuer tries to
vote these securities if a major event affecting an investment is
under consideration.
When-Issued Securities - Most of the Issuer's 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. Generally these securities are not paid for
nor are earnings received on them until delivery. There are
procedures to ensure that sufficient cash is available to meet
when-issued commitments.
<PAGE>
PAGE 19
Options - The Issuer buys or sells 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 specific level.
AGREEMENTS FOR SERVICES
Relationship Between AEBI, the Issuer and Others
Investment Advisory and Services Agreement - Under this agreement,
IDS Financial Corporation (IDS), the Issuer's parent company, acts
as investment adviser to the Issuer and:
'provides investment research,
'makes specific investment recommendations, and
'executes purchase and sell orders.
All these activities are subject to direction and control by the
Issuer's Board of Directors and officers.
The policy on all portfolio transactions is to obtain the best
price and execution. IDS is responsible for effecting all
portfolio transactions in accordance with this policy.
The Investment Advisory and Services Agreement with IDS, which
governs services for the IDS Investors Certificate as well as other
services provided by the Issuer, requires annual renewal by the
Issuer's Board of Directors, including a majority of directors who
are not interested persons as defined in the federal Investment
Company Act of 1940.
Advisory Fees - The current Investment Advisory and Services
Agreement with IDS provides for a graduated scale of fees equal on
an annual basis to a percentage of the total book value of certain
assets, as shown:
0.75% of first $250 million
0.65 of next 250 million
0.55 of next 250 million
0.50 of next 250 million
0.45 of any amount in excess of $1 billion
The fee is payable monthly in an amount equal to one-twelfth of
each of the percentages listed above. Excluded from assets for
this computation are mortgage loans, real estate, and any other
asset on which a service fee is paid.
<PAGE>
PAGE 20
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 the Issuer - The Investment Advisory and
Services Agreement provides that the Issuer will pay:
'fees, costs, expenses and allowances payable or incurred in
connection with the acquisition, management, servicing or
disposition of real estate mortgages and real estate,
'taxes,
'depository and custodian fees,
'brokerage commissions,
'fees and expenses for services not covered by other agreements and
provided at the Issuer's request, or by requirement, by attorneys,
auditors, examiners, and professional consultants who are not
officers or employees of IDS,
'fees and expenses of the Issuer's directors who are not officers
or employees of IDS,
'provision for certificate reserves (interest accrued on
certificate holder accounts), and
'expenses of customer settlements not attributable to sales
function.
Distribution Agreement with IDS Financial Services Inc. - Under a
Distribution Agreement with IDS Financial Services Inc., the Issuer
pays an annualized fee equal to 1 percent of the amount outstanding
for the distribution of this certificate. Payments are made at the
end of each term on certificates with a 1-, 2- or 3-month term.
Payments are made each quarter from issuance date on certificate
with a 6-, 12-, 24- or 36-month term.
The Issuer's Board of Directors, including a majority of directors
who are not interested persons, approved this Agreement with
respect to the distribution of the certificate.
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. IDS Financial Services Inc. is expected to be
paid distribution fees amounting to $27,258,000 during 1994.
<PAGE>
PAGE 21
See note one to Financial Statements regarding deferral of
distribution fee expense.
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 An annualized fee ranging from 0.50 percent to 0.80 percent of
the reserve balance of each certificate, depending on the
amount outstanding for each such certificate.
Such payments will be made periodically in arrears.
These fees are not assessed to your certificate account.
Employment of Other American Express Company Affiliates
IDS may employ Lehman Brothers Inc. or another affiliate of
American Express Company as executing broker for the Issuer's
portfolio transactions only if:
'it is determined that the prices and executions are at least as
favorable as those offered by qualified independent brokers
performing similar services,
'the affiliate charges commissions consistent with those charged to
comparable unaffiliated customers for similar transactions, and
'the affiliate's employment is consistent with the terms of the
current Investment Advisory and Services Agreement and federal
securities laws.
ADDITIONAL INFORMATION ABOUT THE ISSUER AND ITS AFFILIATES
History of the Issuer and IDS
The Issuer 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.
Until IDSC was created in 1940, IDS issued similar certificates and
had done so since 1894. IDSC and IDS have never failed to meet
their certificate payments. Even during the Great Depression, when
bank assets were frozen, IDS continued to provide gold in exchange
for matured investment certificates.
During its many years of operation, IDS built extensive facilities
for handling substantial investments in securities and mortgages.
As of Dec. 31, 1993, IDS was managing investments, including its
own, of more than $99 billion. IDS is a wholly owned subsidiary of
American Express Company.
<PAGE>
PAGE 22
The Issuer 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.
Capital Structure and Certificates Issued
The Issuer has authorized, issued and 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, the Issuer had issued (in face amount)
$12,314,170,599 of installment certificates and $11,517,014,625 of
single payment certificates.
The Issuer's Directors, Management, Staff and Affiliations
The Issuer's directors and President are elected annually for a
term of one year. The other executive officers are appointed by
the President. All executive officers are also officers or
employees of IDS.
All the Issuer's executive officers and directors have been
employed by IDS and its associated companies for five years or
more.
A total of $40,000 was paid during 1993 to directors not employed
by IDS.
PRINCIPAL OFFICERS AND DIRECTORS
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.
<PAGE>
PAGE 23
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.
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
<PAGE>
PAGE 24
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 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.
IDSC has provisions in its bylaws relating to the indemnification
of its officers and directors against liability, as permitted by <PAGE>
PAGE 25
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 of the Issuer
A firm of independent auditors audits the Issuer's financial
statements at the close of each fiscal year (Dec. 31). Copies of
the annual financial statements (audited) and semiannual financial
statements (unaudited) are available from the Issuer 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 Company.
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 FRB). It is supervised and regulated by the
FRB.
AEBI has an extensive international high net-worth client base that
is serviced by a marketing staff in California, 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 IDS Investors 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.
About American Express Company
American Express Company is a financial services company
principally engaged through subsidiaries in the following
businesses in addition to IDS:
'travel related services (including American ExpressTM Card and
Travelers Cheque operations through American Express Travel Related
Services Company, Inc. and its subsidiaries),
<PAGE>
PAGE 26
'investment and asset management services (including Lehman
Brothers Holdings Inc. and its subsidiaries),
'information processing, communication and related services
(through American Express Information Services Company), and
'international banking services (through American Express Bank Ltd.
and its subsidiaries).
American Express Company's executive offices are located at
American Express Tower, World Financial Center, New York, NY.
Additional Information About
IDS Investors Certificate
Issuer
IDS Certificate Company
Executive Offices
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Independent Auditors
Ernst & Young
1400 Pillsbury Center
Minneapolis, Minnesota 55402
Central Depository
IDS Bank & Trust
1200 Northstar Center West
Minneapolis, Minnesota 55402
Investment Manager
IDS Financial Corporation
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Distributor
IDS Financial Services Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Selling Agent
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300<PAGE>
PAGE 27
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PAGE 28
</TABLE>
<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 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
IDS Certificate Company's (IDSC) earnings are derived from the
after-tax yield on invested assets less investment expenses and
interest credited on certificate reserve liabilities. Significant
changes and trends occur largely due to interest rate changes and
the difference between rates of return on investments, rates of
interest credited to certificate holder accounts and the mix of
fully taxable and tax-advantaged investments in the IDSC portfolio.
In 1989 and 1990, total assets and certificate reserve liabilities
increased due to certificate sales exceeding certificate maturities
and surrenders. The increases in total assets in 1989 and 1990
also reflect capital contributions from its parent, IDS Financial
Corporation (IDS). (See Liquidity and Cash Flow Discussion)
Total assets and certificate reserve liabilities decreased in 1993,
1992 and 1991 due to certificate maturities and surrenders
exceeding certificate sales. The excess of certificate maturities
and surrenders over certificate sales in 1993, 1992 and 1991
resulted primarily from lower accrual rates declared by IDSC in
those years, reflecting lower interest rates available in the
marketplace.
1993 Compared to 1992
Gross investment income decreased 20 percent due to a lower balance
of invested assets and lower investment yields.
The 6.1 percent decrease in investment expenses resulted primarily
from lower distribution fees due to lower certificate sales, and
lower investment advisory and services fee due to a lower asset
base on which the fee is calculated. These decreases were
partially offset by higher amortization of interest rate caps. The
higher amortization reflects additional purchases and accelerated
amortization of certain interest rate caps in 1993.
Net provision for certificate reserves decreased 31 percent
reflecting lower accrual rates and a lower average balance of
certificate reserves.
The $7.1 million decrease in income tax benefit resulted primarily
from lower tax-advantaged income in 1993. The impact of the change
in Federal statutory income tax rate in 1993 was an increase in
income tax benefit of $.6 million of which $.4 million reflects the
increase in rate on the Dec. 31, 1992 balance of temporary
differences.
1992 Compared to 1991
Net investment income of $58.7 million in 1992 was 16 percent
higher than in 1991. The primary reason was an interest rate
environment in 1992, that resulted in slightly lower long-term
investment yields than in 1991 while short-term rates declined
significantly. As a result,
<PAGE>
PAGE 30
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 31
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 32
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 33
Annual Financial Information
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheet of IDS Certificate
Company, a wholly owned subsidiary of IDS Financial Corporation,
as of December 31, 1993 and 1992, and the related statements of
operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1993. These
financial statements are the responsibility of the management
of IDS Certificate Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of
December 31, 1993 and 1992 by correspondence with custodians and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Certificate Company at December 31, 1993 and 1992, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
ERNST & YOUNG
Minneapolis, Minnesota
February 3, 1994
<PAGE>
PAGE 34
IDS Certificate Company
Responsibility for Preparation of Financial Statements
The management of IDS Certificate Company is responsible for the
preparation of the financial statements and related notes included
in the prospectus. The statements have been prepared in conformity
with generally accepted accounting principles appropriate in the
circumstances, and include amounts based on the best judgment of
management. Financial information included elsewhere in the
prospectus is consistent with these financial statements.
In recognition of its responsibility for the integrity and
objectivity of data in the financial statements, management
maintains a system of internal accounting controls. This system
includes an organizational structure with clearly defined lines of
responsibility and delegation of authority. To ensure the
effective administration of internal control, employees are
carefully selected and trained, written policies and procedures are
developed and disseminated, and appropriate communication channels
are provided to foster an environment conducive to the effective
functioning of controls.
The system is supported by an internal auditing function that
reports its findings to management throughout the year. IDS
Certificate Company's independent auditors are engaged to express
an opinion on the year-end financial statements. They objectively
and independently review the performance of management in carrying
out its responsibility for reporting operating results and
financial condition. With the coordinated support of the internal
auditors, they review and test the system of internal accounting
controls and the data contained in the financial statements.
<PAGE>
PAGE 35
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Assets
Qualified Assets (note 2) 1993 1992
- -----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Investments in unaffiliated issuers (note 3):
Cash and cash equivalents................... $ 54,059 $ 71,359
Bonds and notes...................................... 1,632,657 1,932,189
Preferred stocks..................................... 797,044 991,505
First mortgage loans on real estate.................. 281,865 233,796
Certificate loans - secured by certificate reserves.. 67,429 77,347
Other................................................ 2,218 150
Investments in and advances to affiliates.............. 4,812 2,787
- -----------------------------------------------------------------------------------------
Total investments...................................... 2,840,084 3,309,133
Receivables:
Dividends and interest............................... 40,432 50,441
Investment securities sold........................... 10,068 7,550
- -----------------------------------------------------------------------------------------
Total receivables...................................... 50,500 57,991
- -----------------------------------------------------------------------------------------
Other (notes 8 and 9).................................. 41,153 44,049
- -----------------------------------------------------------------------------------------
Total qualified assets................................. 2,931,737 3,411,173
- -----------------------------------------------------------------------------------------
Other Assets
- -----------------------------------------------------------------------------------------
Deferred distribution fees............................. 19,615 21,550
Deferred federal income taxes (note 7)................. - 11,281
Other.................................................. 53 981
- -----------------------------------------------------------------------------------------
Total other assets..................................... 19,668 33,812
- -----------------------------------------------------------------------------------------
Total assets........................................... $2,951,405 $3,444,985
- -----------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 36
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Liabilities 1993 1992
- ---------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Certificate Reserves (note 4):
Installment certificates:
Reserves to mature................................ $ 352,649 $ 358,345
Additional credits and accrued interest........... 18,555 18,067
Advance payments and accrued interest............. 1,943 2,277
Other............................................. 54 53
Fully paid certificates:
Reserves to mature................................ 2,243,416 2,701,724
Additional credits and accrued interest........... 160,440 175,651
Due to unlocated certificate holders................ 394 355
- ---------------------------------------------------------------------------------------
Total certificate reserves.......................... 2,777,451 3,256,472
- ---------------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities:
Due to IDS (note 6A).............................. 1,182 1,419
Due to IDS for federal income taxes............... 5,862 -
Due to affiliates (note 6B and 6C)................ 1,457 1,539
Payable for investment securities purchased....... - 160
Payable upon return of securities loaned ......... - 1,643
Accounts payable, accrued expenses and other...... 4,150 3,867
- ---------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities...... 12,651 8,628
Deferred federal income taxes (note 7).............. 165 -
- ---------------------------------------------------------------------------------------
Total liabilities................................... 2,790,267 3,265,100
- ---------------------------------------------------------------------------------------
Stockholder's Equity (notes 4B, 4C, and 5):
Common stock, $10 par - authorized and
issued 150,000 shares............................. 1,500 1,500
Additional paid-in capital.......................... 147,144 166,144
Retained earnings:
Appropriated for predeclared additional
credits/interest................................ 2,726 2,804
Appropriated for additional interest on
advance payments................................ 25 100
Unappropriated.................................... 9,743 9,337
- ---------------------------------------------------------------------------------------
Total stockholder's equity.......................... 161,138 179,885
- ---------------------------------------------------------------------------------------
Total liabilities and stockholder's equity.......... $2,951,405 $3,444,985
- ---------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 37
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Investment Income:
Interest income from investments:
Bonds and notes:
Unaffiliated issuers........................ $140,991 $178,071 $239,193
IDS......................................... - - 3,820
Mortgage loans on real estate:
Unaffiliated................................ 24,071 18,430 10,445
Affiliated.................................. 78 88 97
Certificate loans........................... 3,882 4,479 5,061
Dividends....................................... 67,115 92,599 92,374
Other........................................... 722 1,132 980
- ------------------------------------------------------------------------------------------
Total investment income......................... 236,859 294,799 351,970
- ------------------------------------------------------------------------------------------
Investment Expenses:
IDS and affiliated company fees (note 6):
Distribution.................................. 28,477 32,752 35,888
Investment advisory and services.............. 15,036 17,851 19,787
Depositary.................................... 201 225 279
Transfer agent................................ - 7 30
Options......................................... 9,419 10,323 1,266
Interest rate caps.............................. 11,667 7,649 5,077
Other........................................... 604 823 1,026
- ------------------------------------------------------------------------------------------
Total investment expenses....................... 65,404 69,630 63,353
- ------------------------------------------------------------------------------------------
Net investment income before provisions
for certificate reserves and income taxes..... $171,455 $225,169 $288,617
- ------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 38
<TABLE>
<CAPTION>
Statement of Operations (continued)
- ---------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Provision for Certificate Reserves (notes 4 and 9):
According to the terms of the certificates:
Provision for certificate reserves............ $ 20,555 $ 28,685 $ 21,402
Interest on additional credits................ 3,605 3,904 3,984
Interest on advance payments.................. 90 68 71
Additional credits/interest authorized by IDSC:
On fully paid certificates.................... 93,546 141,197 229,039
On installment certificates................... 6,704 5,270 5,058
On advance payments........................... - 89 96
- ---------------------------------------------------------------------------------------
Total provision before reserve recoveries....... 124,500 179,213 259,650
Reserve recoveries from terminations
prior to maturity.............................. (984) (1,038) (1,207)
- ---------------------------------------------------------------------------------------
Net provision for certificate reserves.......... 123,516 178,175 258,443
- ---------------------------------------------------------------------------------------
Net investment income before income taxes....... 47,939 46,994 30,174
Income tax benefit (note 7)..................... 3,365 11,666 20,537
- ---------------------------------------------------------------------------------------
Net investment income........................... 51,304 58,660 50,711
- ---------------------------------------------------------------------------------------
Realized loss on investments - net:
Securities of unaffiliated issuers............ (9,870) (9,498) (129)
Other-unaffiliated............................ (418) (500) (1,053)
- ---------------------------------------------------------------------------------------
Total loss on investments....................... (10,288) (9,998) (1,182)
- ---------------------------------------------------------------------------------------
Income tax expense (benefit) (note 7):
Current....................................... (19,508) 6,121 (777)
Deferred...................................... 14,891 (9,520) 375
- ---------------------------------------------------------------------------------------
Total income tax benefit........................ (4,617) (3,399) (402)
- ---------------------------------------------------------------------------------------
Net realized loss on investments................ (5,671) (6,599) (780)
- ---------------------------------------------------------------------------------------
Net income - wholly owned subsidiary............ 120 3 139
- ---------------------------------------------------------------------------------------
Net income ..................................... $ 45,753 $ 52,064 $ 50,070
- ---------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 39
<TABLE>
<CAPTION>
Statement of Stockholder's Equity
- ----------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- ----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Common Stock:
Balance at beginning and end of year............ $ 1,500 $ 1,500 $ 1,500
- ----------------------------------------------------------------------------------------
Additional Paid-in Capital:
Balance at beginning of year.................... $166,144 $206,393 $206,393
Contribution from IDS........................... - 52,309
Dividends declared:
Cash.......................................... (19,000) (28,000)
Investment security........................... - (64,558)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $147,144 $166,144 $206,393
- ----------------------------------------------------------------------------------------
Retained Earnings:
Appropriated for predeclared additional
credits/interest (note 4B):
Balance at beginning of year.................... $ 2,804 $ 4,247 $ 6,186
Transferred to unappropriated retained earnings. (78) (1,443) (1,939)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 2,726 $ 2,804 $ 4,247
- ----------------------------------------------------------------------------------------
Appropriated for additional interest on
advance payments (note 4C):
Balance at beginning of year.................... $ 100 $ 100 $ 100
Transferred to unappropriated retained earnings. (75) - -
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 25 $ 100 $ 100
- ----------------------------------------------------------------------------------------
Unappropriated (note 5):
Balance at beginning of year.................... $ 9,337 $ 11,580 $ 59,837
Net income ..................................... 45,753 52,064 50,070
Transferred from appropriated retained earnings. 153 1,443 1,939
Dividends declared:
Cash.......................................... (45,500) (55,750) (74,800)
Reduction in note receivable from IDS......... - - (25,466)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 9,743 $ 9,337 $ 11,580
- ----------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 40
<TABLE>
<CAPTION>
Statement of Cash Flows
- -------------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- -------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 45,753 $ 52,064 $ 50,070
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary.................... (120) (3) (139)
Certificate reserves..................................... 123,516 178,175 258,443
Interest income added to certificate loans............... (2,454) (2,743) (3,046)
Amortization of premium/discount-net..................... 27,494 30,136 22,809
Deferred federal income taxes............................ 11,446 (13,501) (1,786)
Deferred distribution fees............................... 1,935 1,277 984
Net loss on investments.................................. 10,288 9,998 1,182
Decrease in dividends and interest receivable............ 10,009 10,946 5,430
Decrease (increase) in other assets...................... 967 2,277 (3,152)
Increase (decrease) in other liabilities................. 4,979 (2,934) 1,088
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities................ 233,813 265,692 331,883
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Maturity and redemption of investments................... 663,151 968,647 645,084
Sale of investments...................................... 335,396 616,628 436,398
Certificate loan payments................................ 8,991 10,505 10,764
Purchase of investments.................................. (577,657)(1,147,562) (922,550)
Certificate loan fundings................................ (10,275) (12,610) (14,855)
Investment in subsidiary................................. (2,000) - -
- -------------------------------------------------------------------------------------------
Net cash provided by investing activities................ 417,606 435,608 154,841
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Reserve payments by certificate holders.................. 1,103,391 1,380,376 1,656,062
Proceeds from securities loaned to brokers............... 6,150 52,721 185,171
Proceeds from reverse repurchase agreements.............. 72,800 215,475 -
Capital contribution from IDS............................ - 52,309 -
Certificate maturities and cash surrenders............... (1,705,967)(2,007,880)(2,051,429)
Payments to brokers upon return of securities loaned..... (7,793) (53,550) (183,987)
Payments under reverse repurchase agreements............. (72,800) (215,475) -
Dividends paid........................................... (64,500) (83,750) (87,800)
- -------------------------------------------------------------------------------------------
Net cash used in financing activities.................... (668,719) (659,774) (481,983)
- -------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents..... (17,300) 41,526 4,741
Cash and cash equivalents beginning of year.............. 71,359 29,833 25,092
- -------------------------------------------------------------------------------------------
Cash and cash equivalents end of year.................... $ 54,059 $ 71,359 $ 29,833
- -------------------------------------------------------------------------------------------
Supplemental disclosures including non-cash transactions:
Cash received for income taxes........................... $ 26,606 $ 3,847 $ 15,985
Certificate maturities and surrenders through loan
reductions............................................... 13,656 16,071 17,759
Dividend-in-kind of preferred stock including related
deferred income tax of $516.............................. - 64,558 -
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 41
Notes to Financial Statements ($ in thousands unless indicated
otherwise)
- -------------------------------------------------------------------
1. Summary of Significant Accounting Policies
IDS Certificate Company (IDSC) is a wholly owned subsidiary of IDS
Financial Corporation (IDS), which is a wholly owned subsidiary of
American Express Company.
IDSC is in the business of issuing face-amount investment
certificates.
Described below are certain accounting policies that are important
to an understanding of the accompanying financial statements.
Basis of Financial Statement Presentation
The accompanying financial statements are presented on a historical
cost basis without adjustment of the net assets attributable to the
1984 acquisition of IDS by American Express Company. They include
only the accounts of IDSC. IDSC uses the equity method of
accounting for its investment in its wholly owned unconsolidated
subsidiary, which is the method prescribed by the Securities and
Exchange Commission (SEC) for issuers of face-amount certificates.
Certain amounts from prior years have been reclassified to conform
to the current year presentation.
Fair Values of Financial Instruments
The fair values of financial instruments disclosed in the notes to
financial statements are estimates based upon current market
conditions and perceived risks, and require varying degrees of
management judgment.
Preferred Stock Dividend Income
IDSC recognizes dividend income from cumulative redeemable
preferred stocks with fixed maturity amounts on an accrual basis
similar to that used for recognizing interest income on debt
securities.
Securities
Cash equivalents are carried at amortized cost, which approximates
fair value. IDSC has defined cash and cash equivalents as cash in
banks and highly liquid investments with a maturity of three months
or less at acquisition and are not interest rate sensitive.
IDSC's investment program considers investment securities as
long-term investments and is designed to meet contractual
investment certificate obligations. IDSC has the ability to hold
these securities to their maturities and has the intent to hold
them for the foreseeable future.
<PAGE>
PAGE 42
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
Marketable equity securities and other securities without fixed
maturity dates are carried at aggregate cost or market value,
whichever is lower. A valuation allowance is established for net
unrealized depreciation on marketable equity securities and is
charged against stockholder's equity. Bonds and notes, and
preferred stocks that either must be redeemed by the issuer or may
be redeemed by the issuer at the holder's request are carried at
amortized cost. The basis for determining realized gains and
losses on securities is the amortized cost of bonds and notes on a
"first-in, first-out" basis and the average cost of individual
issues of stocks. When there is a decline in value, that is other
than temporary, the securities are carried at estimated realizable
value.
First Mortgage Loans on Real Estate
Mortgage loans are carried at amortized cost, less reserves for
losses, which is the basis for determining any realized gains or
losses. When economic evaluations of the underlying real estate
indicate a loss on a loan is likely to occur, an allowance for such
loss is recorded. IDSC generally stops accruing interest on loans
for which interest is delinquent more than three months.
Certificates
Investment certificates may be purchased either with a lump-sum
payment or by installment payments. Certificate holders are
entitled to receive at maturity a definite sum of money. Payments
from certificate holders are credited to investment certificate
reserves. Investment certificate reserves accumulate at specified
percentage rates. Reserves also are maintained for advance
payments made by certificate holders, accrued interest thereon, and
for additional credits and accrued interest thereon. On
certificates allowing for the deduction of a surrender charge, the
cash surrender values may be less than accumulated investment
certificate reserves prior to maturity dates. Cash surrender
values on certificates allowing for no surrender charge are equal
to certificate reserves. The payment distribution, reserve
accumulation rates, cash surrender values, reserve values and other
matters are governed by the Investment Company Act of 1940 ("the
1940 Act").
Deferred Distribution Fee Expense
On certain series of certificates, distribution fees are deferred
and amortized over the estimated lives of the related certificates,
which is approximately 10 years. Upon surrender, unamortized
deferred distribution fees are charged against income.
Federal Income Taxes
IDSC's taxable income or loss is included in the consolidated
federal income tax return of American Express Company. IDSC
provides for income taxes on a separate return basis, except that,
<PAGE>
PAGE 43
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
under an agreement between IDS and American Express Company, tax
benefits are recognized for losses to the extent they can be used
in the consolidated return. It is the policy of IDS and its
subsidiaries that IDS will reimburse a subsidiary for any tax
benefits recorded.
2. Deposit of Assets and Maintenance of Qualified Assets
A. Under the provisions of its certificates and the 1940 Act, IDSC
was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $2,767,057 and
$3,244,505 at Dec. 31, 1993 and 1992, respectively. IDSC had
qualified assets of $2,931,737 at Dec. 31, 1993 and $3,411,173 at
Dec. 31, 1992, including investment securities loaned to brokers of
$nil and $1,643 at Dec. 31, 1993 and 1992, respectively.
Qualified assets are valued in accordance with such provisions of
the Code of the District of Columbia as are applicable to life
insurance companies. Qualified assets for which no provision for
valuation is made in such Code are valued in accordance with rules,
regulations or orders prescribed by the SEC. These values are the
same as financial statement carrying values, except for securities
which are carried at the lower of aggregate cost or market in the
financial statements but are valued at cost for qualified asset and
deposit maintenance purposes.
B. Pursuant to provisions of the certificates, the 1940 Act, the
central depositary agreement and to requirements of various states,
qualified assets of IDSC were deposited as follows:
<TABLE>
<CAPTION>
Dec. 31, 1993
------------------------------------------
Required
Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits to meet certificate
liability requirements:
States............. $ 421 $ 393 $ 28
Central Depositary. 2,814,553 2,695,884 118,669
- ---------------------------------------------------------------------------------------
Total.............. $2,814,974 $2,696,277 $118,697
- ---------------------------------------------------------------------------------------
Dec. 31, 1992
------------------------------------------
Required
Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate
liability requirements:
States............. $ 425 $ 410 $ 15
Central Depositary. 3,273,053 3,163,184 109,869
- ---------------------------------------------------------------------------------------
Total.............. $3,273,478 $3,163,594 $109,884
- ---------------------------------------------------------------------------------------
/TABLE
<PAGE>
PAGE 44
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
The assets on deposit at Dec. 31, 1993 and 1992 consisted of
securities having a deposit value of $2,500,790 and $3,006,669,
respectively; mortgage loans of $276,711 and $228,107,
respectively; and other assets of $37,473 and $38,702,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan.
IDS Bank & Trust is the central depositary for IDSC. See note 6C.
3. Investments
A. Fair values of investments in securities with fixed maturities
represent market prices and estimated fair values when quoted
prices are not available. Estimated fair values are determined by
IDSC using established procedures, involving review of market
indexes, price levels of current offerings and comparable issues,
price estimates and market data from independent brokers and
financial files. The procedures are reviewed annually. IDSC's
Vice President - Investments reports to the Board of Directors on
an annual basis regarding such pricing sources and procedures to
provide assurance that fair value is being achieved.
The amortized cost and fair value of investments in securities with
fixed maturities carried at cost are:
<TABLE>
<CAPTION>
Dec. 31, 1993
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government direct
obligations.............. $ 421 $ 22 $ - $ 443
Corporate bonds and
obligations.............. 704,172 45,608 3,449 746,331
State and municipal
obligations.............. 179,394 15,687 - 195,081
Mortgage-backed
securities............... 750,719 16,934 2,415 765,238
Preferred stock............ 797,044 40,933 2,657 835,320
- ---------------------------------------------------------------------------------------
2,431,750 119,184 8,521 2,542,413
Reserve for losses......... (2,049) (2,049)
- ---------------------------------------------------------------------------------------
$2,429,701 $119,184 $ 6,472 $2,542,413
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 45
Notes to Financial Statements (continued)
- -----------------------------------------
<TABLE>
<CAPTION>
Dec. 31, 1992
- ---------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government direct
obligations.............. $ 425 $ 20 $ - $ 445
Corporate bonds and
obligations.............. 814,800 34,051 12,897 835,954
State and municipal
obligations.............. 194,317 16,848 9 211,156
Mortgage-backed
securities............... 936,857 20,975 13,659 944,173
Preferred stock............ 991,505 32,381 14,485 1,009,401
- ---------------------------------------------------------------------------------------
2,937,904 104,275 41,050 3,001,129
Reserve for losses......... (14,210) (14,210)
- ---------------------------------------------------------------------------------------
$2,923,694 $104,275 $26,840 $3,001,129
- ---------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains on fixed maturities amounted to $112,712 and
$77,435 at Dec. 31, 1993 and 1992, respectively.
IDSC's reserve for possible losses on its below investment grade
securities was $2,049 at Dec. 31, 1993 compared to $14,210 at Dec.
31, 1992. The decrease reflects sales and exchanges of certain of
these issues in 1993.
The amortized cost and fair value of investments in securities with
fixed maturities by contractual maturity, are shown below. Cash
flows will differ from contractual maturities because issuers may
have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Dec. 31, 1993
----------------------
Amortized Fair
Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less............................. $ 133,591 $ 135,839
Due from one to five years.......................... 679,639 719,175
Due from five to ten years.......................... 627,716 666,526
Due in more than ten years.......................... 240,085 255,635
- ---------------------------------------------------------------------------------------
1,681,031 1,777,175
Mortgage-backed securities.......................... 750,719 765,238
- ---------------------------------------------------------------------------------------
$2,431,750 $2,542,413
- ---------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in securities with fixed
maturities during 1993 and 1992 were $330,851 and $420,713,
respectively. Gross gains of $3,272 and $17,514 and gross losses
of $19,927 and $2,730 were realized on those sales during 1993 and
1992, respectively.<PAGE>
PAGE 46
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
B. Investments in securities with fixed maturities comprised 85
percent and 88 percent of IDSC's total invested assets at Dec. 31,
1993 and 1992, respectively. Securities are rated by Moody's and
Standard & Poors (S&P), or by IDS internal analysts, using criteria
similar to Moody's and S&P, when a public rating does not exist. A
summary of investments in securities with fixed maturities by
rating of investment is as follows:
Rating 1993 1992
- ------------------------------------------
Aaa/AAA...................... 35% 35%
Aa/AA........................ 4 4
Aa/A......................... 1 1
A/A.......................... 22 21
A/BBB........................ 3 6
Baa/BBB...................... 31 28
Below investment grade....... 4 5
- ------------------------------------------
100% 100%
- ------------------------------------------
Of the securities rated Aaa/AAA, 87 percent at Dec. 31, 1993 and 89
percent at Dec. 31, 1992, are U.S. Government Agency
mortgage-backed securities that are not rated by a public rating
agency. Approximately 23 percent at Dec. 31, 1993 and 25 percent
at Dec, 31, 1992 of other securities with fixed maturities are
rated by IDS internal analysts. No investment in any one issuer at
Dec. 31, 1993 and 1992, is greater than two percent and one
percent, respectively, of IDSC's total investment in securities
with fixed maturities.
At Dec. 31, 1993 and 1992, approximately ten percent and seven
percent, respectively, of IDSC's invested assets were first
mortgage loans on real estate. A summary of first mortgage loans
by region and by type of real estate is as follows:
Region 1993 1992 Property Type 1993 1992
- -------------------------------- --------------------------------------
South Atlantic....... 23% 21% Apartments................. 40% 46%
East North Central... 23 25 Retail/shopping centers.... 28 19
West North Central... 21 24 Industrial buildings....... 13 11
Middle Atlantic...... 14 16 Office buildings........... 10 12
West South Central... 8 6 Hotels/motels.............. 1 2
Mountain............. 6 3 Retirement homes........... 1 1
Pacific.............. 3 2 Residential................ - 3
New England.......... 2 3 Other...................... 7 6
- -------------------------------- --------------------------------------
100% 100% 100% 100%
- -------------------------------- --------------------------------------
<PAGE>
PAGE 47
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
The carrying amounts and fair values of first mortgage loans on
real estate are as follows at Dec. 31. The fair values are
estimated using discounted cash flow analysis, using market
interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
<TABLE>
<CAPTION>
Dec. 31, 1993
- ---------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
Residential................................ $ 53 $ 59
Commercial................................. 282,773 289,726
- -----------------------------------------------------------------------
282,826 289,785
Reserve for losses......................... (961) -
- -----------------------------------------------------------------------
Net first mortgage loans on real estate $281,865 $289,785
- -----------------------------------------------------------------------
Dec. 31, 1992
- ---------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
Residential................................ $ 6,638 $ 6,133
Commercial................................. 228,869 236,307
- -----------------------------------------------------------------------
235,507 242,440
Reserve for losses......................... (1,711) -
- -----------------------------------------------------------------------
Net first mortgage loans on real estate $233,796 $242,440
- -----------------------------------------------------------------------
</TABLE>
At Dec. 31, 1993 and 1992, commitments for fundings of first
mortgage loans, at market interest rates, aggregated $nil and $30.6
million, respectively. IDSC employs policies and procedures to
ensure the creditworthiness of the borrowers and that funds will be
available on the funding date. IDSC's first mortgage loan fundings
are restricted to 75 percent or less of the market value of the
real estate at the time of the loan funding. Management believes
there is no fair value for these commitments.
C. IDSC reserves freedom of action with respect to its acquisition
of restricted securities that offer advantageous and desirable
investment opportunities. In a private negotiation, IDSC may
purchase for its portfolio all or part of an issue of restricted
securities. Since IDSC would intend to purchase such securities
for investment and not for distribution, it would not be "acting as
a distributor" if such securities are resold by IDSC at a later
date.
The fair values of restricted securities are determined by the
Board of Directors using the procedures and factors described in
paragraph A of note 3.<PAGE>
PAGE 48
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
In the event IDSC were to be deemed to be a distributor of the
restricted securities, it is possible that IDSC would be required
to bear the costs of registering those securities under the
Securities Act of 1933, although in most cases such costs would be
borne by the issuer of the restricted securities.
D. IDSC will implement, effective Jan. 1, 1994, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the new rules,
debt securities that IDSC has both the positive intent and ability
to hold to maturity will be carried at amortized cost. Debt
securities that IDSC does not have the positive intent and ability
to hold to maturity and all marketable equity securities will be
classified as available-for-sale and carried at fair value.
Unrealized gains and losses on securities classified as available-
for-sale will be carried as a separate component of Stockholder's
Equity. The effect of the new rules will be to increase
Stockholder's Equity by approximately $4,304, net of taxes, as of
Jan. 1, 1994. The measurement of unrealized securities gains and
losses in Stockholder's Equity is affected by market conditions,
and therefore, subject to volatility. The new rules will not have a
material impact on IDSC's results of operations.
4. Certificate Reserves
Reserves maintained on outstanding certificates have been computed
in accordance with the provisions of the certificates and Section
28 of the 1940 Act. The average rates of accumulation on
certificate reserves at Dec. 31, 1993 and 1992 were:
<TABLE>
<CAPTION>
1993
------------------------------------
Average Average
Reserve Gross Additiona
Balance Accumulation Credit
at Dec. 31 Rate Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates..................... $ 57,958 3.49% 1.01%
Without guaranteed rates (A).............. 294,691 - 2.74
Additional credits and accrued interest... 18,555 3.09 -
Advance payments and accrued interest (C). 1,943 3.05 1.45
Other..................................... 54 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates..................... 291,923 3.30 1.07
Without guaranteed rates (A) and (D)...... 1,951,493 - 3.56
Additional credits and accrued interest... 160,440 3.37 -
Due to unlocated certificate holders...... 394 - -
- ---------------------------------------------------------------------------------------
$2,777,451
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 49
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1992
------------------------------------
Average Average
Reserve Gross Additiona
Balance Accumulation Credit
at Dec. 31 Rate Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates..................... $ 67,331 3.49% 2.26%
Without guaranteed rates (A).............. 291,014 - 3.26
Additional credits and accrued interest... 18,067 3.07 -
Advance payments and accrued interest (C). 2,277 3.02 2.48
Other..................................... 53 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates..................... 360,903 3.34 2.19
Without guaranteed rates (A) and (D)...... 2,340,821 - 4.49
Additional credits and accrued interest... 175,651 3.38 -
Due to unlocated certificate holders...... 355 - -
- ---------------------------------------------------------------------------------------
$3,256,472
- ---------------------------------------------------------------------------------------
</TABLE>
A. There is no minimum rate of accrual on these reserves.
Interest is declared periodically, quarterly or annually, in
accordance with the terms of the separate series of certificates.
B. On certain series of single payment certificates, additional
interest is predeclared for periods greater than one year. At Dec.
31, 1993, $2,726 of retained earnings had been appropriated for the
predeclared additional interest, which represents the difference
between certificate reserves on these series, calculated on a
statutory basis, and the reserves maintained per books.
C. Certain series of installment certificates guarantee accrual of
interest on advance payments at an average of 3.05 percent. IDSC
has increased the rate of accrual to 3.51 percent through April 30,
1995. An appropriation of retained earnings amounting to $25 has
been made, which represents the estimated additional accrual that
will result from the increase granted by IDSC.
D. IDS Stock Market Certificate enables the certificate holder to
participate in any relative rise in a major stock market index
without risking loss of principal. Generally the certificate has a
term of 12 months and may continue for up to 14 successive terms.
The reserve balance at Dec. 31, 1993 and 1992 was $402,801 and
$445,021, respectively.
E. The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1993 and 1992. Fair values
of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender
charges. The fair values for other certificate reserves is a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less any
applicable surrender charges.<PAGE>
PAGE 50
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
Reserves with terms of one year or less.... $2,409,668 $2,402,972
Other...................................... 367,783 384,484
- -----------------------------------------------------------------------
Total certificate reserves................. 2,777,451 2,787,456
Unapplied certificate transactions......... 1,064 1,064
Certificate loans and accrued interest..... (68,174) (68,174)
- -----------------------------------------------------------------------
Total $2,710,341 $2,720,346
- -----------------------------------------------------------------------
1992
------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
Reserves with terms of one year or less.... $2,939,259 $2,935,204
Other...................................... 317,213 326,646
- -----------------------------------------------------------------------
Total certificate reserves................. 3,256,472 3,261,850
Unapplied certificate transactions......... 1,586 1,586
Certificate loans and accrued interest..... (78,228) (78,228)
- -----------------------------------------------------------------------
Total $3,179,830 $3,185,208
- -----------------------------------------------------------------------
</TABLE>
5. Dividend Restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1 percent on such series
of certificates have been authorized by IDSC. This restriction has
been removed for 1994 and 1995 by action of IDSC on additional
credits in excess of this requirement.
6. Fees Paid to IDS and Affiliated Companies ($ not in thousands)
A. The basis of computing fees paid or payable to IDS for
investment advisory and services is:
The investment advisory and services agreement with IDS provides
for a graduated scale of fees equal on an annual basis to 0.75
percent on the first $250 million of total book value of assets of
IDSC, 0.65 percent on the next $250 million, 0.55 percent on the
next $250 million, 0.50 percent on the next $250 million and 0.45
percent on the amount in excess of $1 billion. The fee is payable
monthly in an amount equal to one-twelfth of each of the
percentages set forth above. Excluded from assets for purposes of
this computation are first-mortgage loans, real estate and any
other asset on which IDSC pays a service fee.<PAGE>
PAGE 51
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
B. The basis of computing fees paid or payable to IDS Financial
Services Inc. (an affiliate) for distribution services is:
Fees payable to IDS Financial Services Inc. on sales of IDSC's
certificates are based upon terms of agreements giving IDS
Financial Services Inc. the exclusive right to distribute the
certificates covered under the agreements. The agreements provide
for payment of fees over a period of time. The aggregate fees
payable under the agreements per $1,000 face amount of installment
certificates and $1,000 purchase price of single payments, and a
summary of the periods over which the fees are payable, shown by
series are:
<TABLE>
<CAPTION>
Number of
Certificate
Years Over
Aggregate Fees Payable Which
-------------------------- Subsequent
First Subsequent Years' Fees
Total Year Years Are Payable
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Installment certificates(a) $30.00 $ 6.00 $24.00 4
Single-payment certificates 60.00 60.00 - -
Future Value certificates.. 50.00 50.00 - -
- -----------------------------------------------------------------------
</TABLE>
Fees on Cash Reserve and Flexible Savings (formerly Variable Term)
certificates are paid at a rate of 0.25 percent of the purchase
price at time of issuance and 0.25 percent of the reserves
maintained for these certificates at the beginning of the second
and subsequent quarters from issue date.
Fees on the Investors Certificate are paid at an annualized rate of
1 percent of the reserves maintained for the certificates. Fees
are paid at the end of each term on certificates with a one, two or
three-month term. Fees are paid each quarter from date of issuance
on certificates with a six, 12, 24 or 36-month term.
Fees on the Stock Market Certificate are paid at a rate of 1.25
percent of the purchase price on the first day of the certificate's
term and 1.25 percent of the reserves maintained for these
certificates at the beginning of each subsequent term.
(a) At the end of the sixth through the 10th year, an additional
fee is payable of 0.5 percent of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.<PAGE>
PAGE 52
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
C. The basis of computing depositary fees paid or payable to IDS
Bank & Trust (an affiliate) is:
- -------------------------------------------------------------------
Maintenance charge per account..... 5 cents per $1,000 of
assets on deposit
Transaction charge................. $20 per transaction
Security loan activity:
Depositary Trust Company
receive/deliver................ $20 per transaction
Physical receive/deliver......... 25 per transaction
Exchange collateral.............. 15 per transaction
- -----------------------------------------------------------------------
A transaction consists of the receipt or withdrawal of securities
and commercial paper and/or a change in the security position. The
charges are payable quarterly except for maintenance, which is an
annual fee.
D. The basis for computing fees paid or payable to American
Express Service Corporation (an affiliate) in connection with the
American Express Savings certificate was:
Distribution Fees - Fees were paid at a rate of 0.25 percent of the
reserves maintained at the end of the first and subsequent
calendar quarters.
Transfer Agent Fees - Fees of $3.50 per certificate account were
paid each month.
E. The basis for computing fees paid or payable to American
Express Bank Ltd. (an affiliate) for the distribution of the IDS
Special Deposits certificate on an annualized basis is 0.80 percent
of the reserves maintained for the certificates on an amount from
$250,000 to $499,000, 0.65 percent on an amount from $500,000 to
$999,000 and 0.50 percent on an amount $1,000,000 or more. Fees
are paid at the end of each term on certificates with a one, two or
three-month term. Fees are paid at the end of each quarter from
date of issuance on certificates with a six, 12, 24 or 36-month
term.
<PAGE>
PAGE 53
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
7. Income Taxes
Income tax expense (benefit) as shown in the statement of
operations for the three years ended Dec. 31, consists of:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current............................. $(19,777) $ (1,571) $(19,137)
Deferred............................ 11,446 (13,501) (1,786)
- -----------------------------------------------------------------------
(8,331) (15,072) (20,923)
State............................... 349 7 (16)
- -----------------------------------------------------------------------
$ (7,982) $(15,065) $(20,939)
- -----------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) differs from that computed by using
the U.S. statutory rate of 35 percent for 1993 and 34 percent for
1992 and 1991. The principal causes of the difference in each year
are shown below:
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax expense (benefit) at
U.S. statutory rate............... $ 13,178 $ 12,579 $ 9,857
Tax-exempt interest................. (4,929) (6,212) (9,340)
Dividend exclusion.................. (17,326) (22,317) (20,964)
Change in statutory rates........... (406) - -
Other, net.......................... 1,152 878 (476)
- -----------------------------------------------------------------------
Federal tax benefit $ (8,331) $(15,072) $(20,923)
- -----------------------------------------------------------------------
</TABLE>
Deferred income taxes result from the net tax effects of temporary
differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements that will result in differences between income
for tax purposes and income for financial statement purposes in
future years. Principal components of IDSC's deferred tax assets
and liabilities as of Dec. 31, are as follows:
<TABLE>
<CAPTION>
1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Certificate reserves................ $ 6,127 $ 8,351
Investments......................... 1,225 6,095
Investment reserves................. 1,487 5,654
Purchased/written call options...... - 273
- -----------------------------------------------------------------------
Total deferred tax assets 8,839 20,373
- -----------------------------------------------------------------------
Deferred tax liabilities:
Deferred distribution fees.......... 6,865 7,327
Dividends receivable................ 1,255 1,586
Return of capital dividends......... 463 46
Purchased/written call options...... 254 -
Other, net.......................... 167 133
- -----------------------------------------------------------------------
Total deferred tax liabilities 9,004 9,092
- -----------------------------------------------------------------------
Net deferred tax assets (liabilities) $ (165) $11,281
- -----------------------------------------------------------------------
/TABLE
<PAGE>
PAGE 54
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
8. Interest-Rate Caps
IDSC owns interest-rate caps with a notional amount of $1,170,000
and $900,000 at Dec. 31, 1993 and 1992, respectively. These caps
are quarterly reset caps and IDSC is to be reimbursed on the
notional amount to the extent the London Interbank Offering Rate
exceeds the reference rates specified in the cap agreements. These
reference rates range from 4 percent to 13 percent. The cost of
these caps is being amortized over the terms of the agreements
(three to seven years) on a straight line basis and is included in
other qualified assets.
The carrying amounts and fair values of interest rate caps
consisted of the following at Dec. 31, 1993 and 1992. Fair values
are determined using the procedures and factors described in
paragraph A of note 3.
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Carrying amount.................. $24,809 $26,551
Fair value....................... 6,916 13,480
</TABLE>
9. Options
IDSC offers a series of certificates which pay interest based upon
the relative change in a major stock market index between the
beginning and end of the certificates' term. The certificate
holders have the option of participating in the full amount of
increase in the index during the term (subject to a specified
maximum) or a lesser percentage of the increase plus a guaranteed
minimum rate of interest. As a means of hedging its obligations
under the provisions of these certificates, IDSC purchases and
writes call options on the major market index. The options are
cash settlement options, that is, there is no underlying security
to deliver at the time the contract is closed out. There is the
risk that the counterparties to the purchased call option contracts
may be unable to fulfill their obligations. IDSC employs policies
and procedures to ensure the adequacy of the creditworthiness of
counterparties. Following is a summary of open option contracts at
Dec. 31, 1993 and 1992.
<PAGE>
PAGE 55
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
---------------------------------------------
Face Average Index at
Amount Strike Price Dec. 31, 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Purchased call options $221,389 452 466
Written call options 207,540 497 466
- -----------------------------------------------------------------------
1992
---------------------------------------------
Face Average Index at
Amount Strike Price Dec. 31, 1992
- -----------------------------------------------------------------------
Purchased call options $185,387 417 436
Written call options 123,147 484 436
- -----------------------------------------------------------------------
</TABLE>
The option contracts are less than one year in term and are carried
at the aggregate of the amortized cost and underlying intrinsic
value of the contracts. These carrying amounts may be different
than fair value depending on market conditions and other factors.
The amortization of the cost of purchased and the proceeds of
written call options is included net in investment expenses and the
changes in the intrinsic value of the contracts are included net in
provision for certificate reserves, in the statement of operations.
The purchased options are included in other qualified assets and
the written options are included in other liabilities.
The carrying amounts and fair values of options consisted of the
following at Dec. 31, 1993 and 1992. Fair values are determined
using the procedures and factors described in paragraph A of note
3.
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased call options.......... $13,615 $14,509 $14,239 $13,571
Written call options............ 1,640 2,992 881 1,157
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 56
Form W-8
Certificate of Foreign Status
(Rev.February 1991)
Department of the Treasury
Internal Revenue Service
Please print or type
Name of Beneficial Owner (if joint account, also give joint owner's
name)
U.S. taxpayer identification number (if any)
Permanent Address (See Specific instructions)(include apt. or suite
no.)
City, province or state, postal code and country
Current Mailing Address, if different (Include apt. or suite no.,
or P.O. box if mail is not delivered to street address.)
City, town, or post office, state, and ZIP code (if foreign
address, enter city, province or state, postal code and country.)
List account information here (Optional, see Specific
Instructions.) Account number(s) Account type
Notice of Change in Status. - To notify the payer, mortgage
interest recipient, broker or barter exchange that you no longer
qualify for exemption, check
here........................................__
If you check this box, reporting will begin on the account(s)
listed.
Please Sign Here
Certification. - (Check applicable box(es)). Under penalties of
perjury, I certify that:
__ For INTEREST PAYMENTS, I am not a U.S. citizen or resident (or I
am filing for a foreign corporation, partnership, estate, or
trust); AND
__ For BROKER TRANSACTIONS or BARTER EXCHANGES, I am an exempt
foreign person as defined in the instructions below.
Signature ______________________________ Date _____________________
General Instructions
(Section references are to the Internal Revenue Code unless
otherwise noted.)
Purpose of Form. - Use Form W-8 or a substitute form containing a
substantially similar statement to tell the payer, mortgage
interest recipient, middleman, broker, or barter exchange that you
are a nonresident alien individual, foreign entity, or exempt
foreign person not subject to certain U.S. information return
reporting or backup withholding rules.
Caution: Form W-8 does not exempt the payee from the 30% (or lower
treaty) withholding rates.
Nonresident Alien Individual. - For income tax purposes, the term
nonresident alien individual means an individual who is neither a
U.S. citizen nor resident. Generally, an alien is considered to be
a U.S. resident if:
<PAGE>
PAGE 57
o The individual was a lawful permanent resident of the United
States at any time during the calendar year, that is, the alien
held an immigrant visa (a "green card"), or
o The individual was physically present in the United States on:
(1) at least 31 days during the calendar year, and
(2) 183 days or more during the current year and the two preceding
calendar years (counting all the days of physical presence in
the current year, one-third the number of days of presence in
the first preceding year, and only one-sixth of the number of
days in the second preceding year).
See Pub. 519, U.S. Tax Guide for Aliens, for more information on
resident and nonresident alien status.
Exempt Foreign Person. - For purposes of this form, you are an
exempt foreign person for a calendar year in which:
o You are a nonresident alien individual or a foreign corporation,
partnership, estate or trust, and
o You are not engaged, or plan to be engaged during the year, in a
U.S. trade or business that has effectively connected gains from
the broker or barter exchange, or your country has a tax treaty
with the U.S. that exempts your transactions from U.S. taxes.
Who May Not File. - If you are a nonresident alien individual
married to a U.S. citizen or resident and have made an election
under section 6013(g) or (h), you are treated as a U.S. resident
and may not use Form W-8.
When To File. - Form W-8 or substitute form should be filed before
a payment is made. Otherwise, the payer may have to withhold and
send 20% of the payment to the Internal Revenue Service (see Backup
Withholding below). This certificate generally remains in effect
for three calendar years. However, the payer may require you to
file a new certificate each time a payment is made to you.
Where To File. - File this form with the payer of the qualifying
income who is the withholding agent (see Withholding Agent on page
2). You may wish to keep a copy for your own records.
Backup Withholding. - A U.S. taxpayer identification number or Form
W-8 or substitute form must be given to the payers of certain
income. I a taxpayer identification number or Form W-8 or
substitute form is not provided or the wrong taxpayer
identification number is provided, these payers may have to
withhold 20% of each payment or transaction. This is called
"backup withholding."
Reportable payments subject to backup withholding rules are:
o Interest payments under section 6049(a).
o Dividend payments under sections 6042(a) and 6044.
o Other payments (i.e., royalties and payments from broker and
barter exchanges) under sections 6041, 6041(a), 6045, 6050A and
6050N.<PAGE>
PAGE 58
If backup withholding occurs, an exempt foreign person who is a
nonresident alien individual may get a refund by filing Form
1040NR, U.S. Nonresident Alien Income Tax Return, with the Internal
Revenue Service Center, Philadelphia, PA 19255, even if filing the
return is not otherwise required.
U.S. Taxpayer Identification Number. - The Internal Revenue law
requires that certain income be reported to the Internal Revenue
Service using a U.S. taxpayer identification number (TIN). This
number can be a Social Security number assigned to individuals by
the Social Security Administration or an employer identification
number assigned to businesses and other entities by the Internal
Revenue Service.
Payments to account holders who are foreign persons (nonresident
alien individuals, foreign corporations, partnerships, estates or
trusts) generally are not subject to U.S. reporting requirements.
also, foreign persons are not generally required to have a U.S.
taxpayer identification number, nor are they subject to any backup
withholding because they do not furnish such a number to a payer or
broker.
However, foreign persons with income effectively connected with a
trade or business in the United States (income subject to regular
(graduated) income tax), must have a TIN. To apply for a TIN, use
Form SS-4, Application for Employer Identification Number, or Form
SS-5, Application for a Social Security Card, available from Social
Security Administration district offices.
Special Rules
Mortgage Interest. - For purposes of the reporting rules, mortgage
interest is interest paid on a mortgage to a person engaged in a
trade or business originating mortgages in the course of that trade
or business. A mortgage interest recipient is one who receives
interest on a mortgage that was acquired in the course of a trade
or business.
Mortgage interest is not subject to backup withholding rules, but
is subject to reporting requirements under section 6050H.
Generally, however, the reporting requirements do not apply if the
payer of record is a nonresident alien individual who pays interest
on a mortgage not secured by real property in the United States.
Use Form W-8 or substitute statement to notify the mortgage
interest recipient that the payer is a nonresident alien
individual.
Portfolio Interest. - Generally, portfolio interest paid to a
nonresident alien individual or foreign partnership, estate or
trust is not subject to backup withholding rules. However, if
interest is paid on portfolio investments to a beneficial owner
that is neither a financial institution nor a member of a clearing
organization, Form W-8 or substitute form is required.
Registered obligations not targeted to foreign markets qualify as
portfolio interest not subject to 30% withholding but require the
filing of Form W-8 or substitute form.
<PAGE>
PAGE 59
See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign
Corporations, for registered obligations targeted to foreign
markets and when Form W-8 or substitute form is not required on
these payments.
See Instructions to withholding Agents for reporting rule on
portfolio interest.
Bearer Obligations. - The interest from bearer obligations targeted
to foreign markets is treated as portfolio interest and is not
subject to 30% withholding. Form W-8 or substitute form is not
required.
Broker or Barter Exchanges. - Income from broker or barter
exchanges is subject to reporting rules and backup withholding
unless Form W-8 or substitute form is filed to notify the broker or
barter exchange that you are an exempt foreign person as defined on
page 1.
A broker includes a dealer, barter exchange, and any other person
who, in the ordinary course of a trade or business, regularly acts
as a middleman with respect to property or services.
A barter exchange is any organization of members providing property
or services who jointly contract to trade or barter such property
or services.
A person also includes any governmental unit, agency or
instrumentality thereof.
Specific Instructions
U.S. Taxpayer Identification Number. - If you have a U.S. taxpayer
identification number, enter your number in this space (see the
discussion earlier).
Permanent Address. - Enter your complete address in the country
where you reside permanently for income tax purposes.
If you are: Show the address of:
An individual...................Your permanent residence
A partnership or corporation....Principal office
An estate or trust..............Permanent residence or principal
office of any fiduciary
Also show your current mailing address if it differs from your
permanent address.
Account Information (optional). - If you have more than one account
(savings, certificate of deposit, pension, IRA, etc.) with the same
payer, list all account numbers and types on one Form W-8 or
substitute form unless your payer requires you to file a separate
certificate for each account.
<PAGE>
PAGE 60
If you have more than one payer, file a separate Form W-8 with each
payer.
Signature. - If only one foreign person owns the account(s) listed
on this form, that foreign person should sign the Form W-8.
If each owner of a joint account is a foreign person, each should
sign a separate Form W-8.
Notice of Change in Status. - If you become a U.S. citizen or
resident after you have filed Form W-8 or substitute form, or you
cease to be an exempt foreign person, you must notify the payer in
writing within 30 days of your change in status.
To notify the payer, you may check the box in the space provided on
this form or use the method prescribed by the payer.
Reporting will then begin on the account(s) listed and backup
withholding may also begin unless you certify to the payer that:
(1) The U.S. taxpayer identification number you have given is
correct, and
(2) The Internal Revenue Service has not notified you that you are
subject to backup withholding because you failed to report certain
income.
You may use Form W-9, Request for Taxpayer Identification Number
and Certificate, to make these certifications.
If an account is no longer active, you do not have to notify a
payer of you change in status unless you also have another account
with the same payer that is still active.
False Certificate. - If you file a false certificate when you are
not entitled to the exemption from withholding or reporting, you
may be subject to fines and/or imprisonment under U.S. perjury
laws.
Instructions to Withholding Agents
Withholding Agent. - Generally, the person responsible for payment
of the items discussed above to a nonresident alien individual or
foreign entity is the withholding agent (see Pub. 515).
Retention of Statements. - Form W-8 or substitute statement must be
retained in the records of the withholding agent for at least four
years following the end of the last calendar year during which the
payment if paid or collected.
Portfolio Interest. - Although registered obligations not targeted
to foreign markets are not subject to 30% withholding, you must
file Form 1042S, Foreign Person's U.S. Source Income Subject to
Withholding, to report the interest payment. Both Form 1042S and a
copy of Form W-8 or substitute form must be attached to Form 1042,
Annual Withholding Tax Return for U.S. Source Income of Foreign
Persons.<PAGE>
PAGE 61
1994 Prospectus
IDS Investors Certificate
Selling Agent:
American Express Bank International
Region offices
375 Park Avenue
Suite 1404
New York, NY 10022
(212) 415-9500
1221 Brickell Avenue
8th Floor
Miami, FL 33131
(305) 350-7750
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210
(310) 858-2924
1200 3rd Avenue
Suite 1630
San Diego, CA 92101
(619) 239-5421
