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IDS
Cash Reserve
Certificate
(Icon of) Piggy Bank
Earn attractive rates with ready access to you cash reserves.
Distributed by
American Express
Financial Advisors Inc.
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To our certificate holders
(Photo of) Stuart Sedlacek, President, IDS Certificate Company
From the president
I'd like to welcome new and prospective investors to the IDS Cash
Reserve Certificate. I thank you for your interest and trust in
us, and want to assure you that we are committed to safeguarding
your investment and helping you reach your financial goals through
regular saving.
In today's changing interest rate environment, it is now more
important than ever, to incorporate sound financial planning into
your investment decisions. The foundation of a sound financial
plan is having solid cash reserves -- a primary reserve for short-
term cash needs and a secondary reserve for investment
opportunities and intermediate-term goals.
The key to building the cash reserves you need is to put money away
on a regular, disciplined basis, even if it's only a modest amount.
You'll be surprised how fast regular savings add up.
That's where the IDS Cash Reserve Certificate comes in. It's a
great way to establish your primary cash reserve for emergencies,
unexpected opportunities, or other short-term cash needs. Equally
important, it's a safe, liquid investment that yields a
competitive, money market return for your money. You can start
investing in an IDS Cash Reserve Certificate for as little as $50 a
month when you take advantage of an automatic deposit service. The
interest you earn on your certificate is guaranteed for three
months, and you pay no penalty when you withdraw your funds if you
time your withdrawal to be at the end of the certificate month.
No matter what the economic environment may be, you can count on
the safety and security of your IDS certificate. For over 100
years, IDS Certificate Company and its parent have carefully and
prudently managed their certificate business. Even during the
Great Depression, when bank assets were frozen, IDS certificate
holders never lost a penny of principal or interest.
I invite you to learn more about the benefits of the IDS Cash
Reserve Certificate in the following pages and enclosed prospectus.
Your American Express financial advisor will be pleased to answer
any questions you may have -- and show you how the IDS Cash Reserve
Certificate can become part of the foundation of your financial
plan.
Stuart Sedlacek
President
IDS Certificate Company
(This brochure is not part of the prospectus.)
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Current annual interest rates for
______________________________, 19_____, for the initial term for a
new purchase. Interest rates for future terms may be higher or
lower than these rates.
Simple interest rate____________________%
Effective annualized yield*___________________%
*Assuming monthly compounding.
These interest rates apply to the initial three-month term of your
certificate purchased for $___________. The rate may vary
depending on: the amount you invest, your geographic location and
whether the certificate is purchased for an IRA or a qualified
retirement plan account.
Rates for new purchases may change weekly. The interest rate that
will apply to your certificate will be the higher of the rate in
effect on the date of your application or that in effect on the
date your application is accepted by IDSC. However, if your
application bears a date more than seven days prior to IDSC's
receipt of your application, the rate will be the higher of the
rate in effect seven days prior to receipt and that in effect on
the date of acceptance. Please refer to the attached prospectus
for information as to how rates are set.
(This brochure is not part of the prospectus.)
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To our certificate holders
Earn competitive certificate rates with ready access to your money
with...
The IDS Cash Reserve Certificate
Guaranteed principal and interest -- IDS Certificate Company (IDSC)
gurantees that you will get back every penny you put in -- and IDSC
guarantees a specified interest rate for every three months you
hold your certificate.
A century of safety and stability -- IDSC and its parent, American
Express Financial Corporation, have nere missed a paymennt to
certificate holders since we opened for business in 1894.
The backing of quality investments -- Though IDS certificates are
not insured by the FDIC as bank deposits are, federal law requires
that we back our certificates dollar for dollar with cash and
qualified investments. In fact, he amortized cost of our
investments exceeded as of Dec. 31, 1994, the required carrying
value of outstanding certificates by more than $121 million.
Yields that compare favorably with banks -- We set our interest
rates using a leading national index of three-month bank and thrift
certificate of deposit rates. From May 1990 to February 1995, IDS
Cash Reserve Certificate's annual effective yields were generally
higher than those of average three-month certificates of deposit
and money market deposit accounts.
(This brochure is not part of the prospectus.)
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IDS Cash Reserve Certificate
Prospectus April 26, 1995
Earn attractive rates with ready access to your cash reserves.
IDS Cash Reserve Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with an initial
investment of at least $1,000 or monthly investments of at least
$50. Your principal and interest are guaranteed by IDSC. Your
certificate earns a fixed rate of interest, declared every three
months. Investments in the certificate may continue for
successive three-month terms up to a total of 20 years from the
issue date of the certificate. Unless you receive prior
authorization from IDSC, your total investment, excluding interest
earned, cannot exceed $1 million. Your interest rate will be
determined as described in "About the certificate."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OF ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This certificate is backed by IDSC's investments on deposit rather
than guaranteed or insured by the government or someone else. See
"Invested and guaranteed by IDSC" and "Regulated by government"
under "How your money is used and protected."
This prospectus describes terms and conditions of your IDS Cash
Reserve Certificate. It contains facts that can help you decide if
the certificate is the right investment for you. Read the
prospectus before you invest and keep it for future reference. No
one has the authority to change the terms and conditions of the IDS
Cash Reserve Certificate as described in the prospectus, or to bind
IDSC by any statement not in it.
IDS Certificate Company
IDS Tower 10
Minneapolis, MN 55440-0010
1-800-437-3133
(612) 671-3800
(Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1630
(Minneapolis/St. Paul area)
An American Express Company
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INSIDE COVER:
Where to get information about IDSC
IDSC is subject to the reporting requirements of the Securities
Exchange Act of 1934. Reports and other information on IDSC are
filed with the Securities and Exchange Commission (SEC). Copies
can be obtained from the Public Reference Section of the SEC, 450
5th St., N.W., Washington, D.C. 20549, at prescribed rates. Or you
can inspect and copy information in person at the SEC's Public
Reference Section and at the following regional offices:
Northeast Regional Office
7 World Trade Center, Suite 1300
New York, NY 10048
Midwest Regional Office
Northwestern Atrium Center
500 West Madison St. Suite 1400
Chicago, IL 60611
Pacific Regional Office
5670 Wilshire Blvd., 11th Floor
Los Angeles, CA 90036
Initial interest rates
IDSC guarantees a fixed interest rate for each three-month term
during the life of the certificate. For your initial term, IDSC
guarantees that when the rate for new purchases takes effect, the
rate will be within a specified range of the average rate for
three-month certificates of deposit as published in the most recent
BANK RATE MONITOR Top 25 Market AverageTM, North Palm Beach, FL
33408, as explained under "About the certificate."
Here are the interest rates in effect on the date of this
prospectus, April 26, 1995:
Investment Simple Effective
amount interest rate* annualized yield**
$50 to $999 3.55% 3.60%
$1,000 to $24,999 4.46 4.55
$25,000 or more 4.66 4.76
*Rates may depend on factors described in "Rates for new purchases"
under "About the certificate."
**Assuming monthly compounding.
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later three-month terms are set at the
discretion of IDSC and may also differ from the rates shown here.
We reserve the right to issue other securities with different
terms.
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Contents
About the certificate......
Investment amounts and terms...... p
Face amount and principal...... p
Value at maturity...... p
Receiving cash during the term...... p
Interest......
p
Rates for new purchases...... p
How to invest and withdraw funds......
Buying your certificate...... p
Additional investments...... p
Full and partial withdrawals...... p
When your certificate term ends p
Transfers to other accounts...... p
Retirement plans: special policies...... p
Transfer of ownership...... p
For more information...... p
Taxes on your earnings......
Retirement accounts p
Gifts to minors p
Foreign investors...... p
How your money is used and protected
Invested and guaranteed by IDSC...... p
Regulated by government...... p
Backed by our investments...... p
Investment policies...... p
How your money is managed
Relationship between IDSC and American
Express Financial Corporation...... p
Capital structure and certificates issued...... p
Investment management and services...... p
Distribution......
p
Employment of other American Express affiliates...p
Directors and officers...... p
Auditors...... p
Financial information......
Summary of selected financial information...... p
Management's discussion and analysis of
financial condition and results of operations....p
Report of independent auditors...... p
Financial statements...... p
Notes to financial statements...... p
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About the certificate
Investment amounts and terms
You can purchase this certificate with an initial investment of at
least $1,000 or monthly investments of at least $50 through
scheduled bank authorization or payroll deduction. Your total
investments over the life of the certificate may not exceed $1
million unless you receive prior authorization from IDSC.
The certificate may be used as an investment for your Individual
Retirement Account (IRA), 401(k) plan account or other qualified
retirement plan account. A minimum investment of $50 per month is
required for these types of accounts. If so used, the amount of
your contribution (investment) will be subject to any limitations
of the plan and applicable federal law.
Face amount and principal
The face amount of the certificate is the amount of your initial
investment, and will remain the same over the life of the
certificate.
The principal is the amount that is reinvested at the beginning of
each subsequent term, and is calculated as follows:
Principal equals Face Amount (initial investment)
plus At the end of a term, interest credited to
your account during the term
minus Any interest paid to you in cash
plus Any additional investments to your
certificate
minus Any withdrawals, fees and applicable
penalties.
For example: Assume your initial investment (face amount) of
$5,000 has earned $75 of interest during the term. You have not
taken any interest as cash, or made any withdrawals. You have
invested an additional $2,500 prior to the beginning of the next
term. Your principal for the next term will equal:
$5,000.00 Face Amount (initial investment)
plus $75.00 Interest credited to your account
minus ($0.00) Interest paid to you in cash
plus $2,500.00 Additional investment to your certificate
minus ($0.00) Withdrawals and applicable penalties
or fees
$7,575.00 Principal at the beginning of the next
term.
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Value at maturity
Your certificate matures 20 years from its issue date. At
maturity, the value of your certificate will be the total of your
actual investment, plus credited interest not paid to you in cash,
less withdrawals, penalties and fees. When your certificate
matures, you will receive a check for your principal, plus any
credited interest, less any withdrawals, penalties and fees. Bank
authorizations will automatically be stopped at maturity or full
withdrawal.
Receiving cash during the term
If you need your money before your certificate matures, you may
withdraw part or all of its value at any time, less any penalties
that apply. Procedures for withdrawing money, as well as
conditions under which penalties apply, are described in "Full and
partial withdrawals" under "How to invest and withdraw funds."
Interest
Your investments earn interest from the date they are credited to
your account. Interest is compounded and credited at the end of
each certificate month (on the monthly anniversary of the issue
date).
IDSC declares and guarantees a fixed rate of interest for each
three-month term during the life of your certificate. We calculate
the amount of interest you earn each certificate month by:
o applying the interest rate then in effect to your
balance each day
o adding these daily amounts to get a monthly total
o subtracting interest accrued on any amount you withdraw
during the certificate month.
Interest is calculated on a 30-day month and 360-day year basis.
Rates for new purchases
When your application is accepted, you will receive a confirmation
showing the rate that your investment will earn for the first term.
For accounts of $1,000 to $24,999.99 IDSC guarantees that this rate
will be within a range from 20 basis points (0.20%) below to 80
basis points (0.80%) above the average interest rate published for
3-month CDs in the BANK RATE MONITOR Top 25 Market AverageTM (the
BRM Average). For example, if the average rate most recently
published is 4.00%, our rate in effect for that week for amounts of
$1,000 to $24,999.99 would be between 3.80% to 4.80%. For accounts
of $25,000 or more, this rate will be within a range from 0 basis
points (0.0%) below to 100 basis points (1.00%) above the same
index rate. For accounts of less than $1,000, this rate will be
within a range of 90 basis points (0.90%) below to 10 basis points
(0.10%) above the average interest rate.
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The BANK RATE MONITOR is a weekly magazine published in North Palm
Beach, FL 33408 by Advertising News Service Inc., an independent
national news organization that collects and disseminates
information about bank products and interest rates. Advertising
News Service Inc. has no connection with IDSC, American Express
Financial Corporation, or any of their affiliates.
The BRM Average is an index of rates and annual effective yields
offered on various length certificates of deposit by large banks
and thrifts in 25 metropolitan areas. The frequency of compounding
varies among the banks and thrifts. Certificates of deposit in the
BRM Average are government insured fixed-rate time deposits.
The BANK RATE MONITOR may be available in your local library. To
obtain information on the current BRM Average rates, call the
Client Service Organization at the number listed on the back cover.
1-800-437-3133
TTY 1-800-846-4293.
Rates for new purchases are reviewed and may change weekly.
Normally, the rate you receive will be the higher of:
o the rate in effect on the date of your application
o the rate in effect on the date your application is
accepted by IDSC.
However if your application bears a date more than seven days
before its receipt by IDSC, the rate you receive will be the higher
of:
o the rate in effect on the date your application is
accepted by IDSC
o the rate in effect seven days prior to receipt.
Except for specific promotions, IDSC guarantees an initial rate 25
basis points above the rate offered to the general public on this
IDS certificate if it is purchased by using the CD transfer service
offered by American Express Financial Advisors Inc. to help you
transfer money from a bank or thrift CD account to American Express
Financial Advisors Inc. investments. To be eligible for this rate,
you must transfer at least $10,000 from a CD account to IDSC to
purchase one or more IDS Cash Reserve Certificates and/or IDS
Flexible Savings Certificates, and this rate will only apply to
those certificates.
Promotions and pricing flexibility: From time to time, IDSC may
sponsor or participate in promotions involving one or more of the
certificates and their respective terms. For example, we may offer
different rates to new clients, to existing clients, or to
individuals who purchase or use other products or services offered
by American Express Financial Advisors Inc. or its affiliates.
These promotions will generally be for a specified period of time.
If we offer a promotion, the rates for new purchases will be within
the range of rates described under "Rates for new purchases,"
above.
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Rates for future terms: Interest on your certificate for future
three-month terms may be greater or less than the rates you receive
during the first three months. In setting future rates, a primary
consideration will be the prevailing investment climate, including
3-month CD rates as reflected in the BRM Average. Nevertheless, we
have complete discretion as to what interest shall be declared
beyond the initial three-month term. If the BRM Average is no
longer publicly available or feasible to use, IDSC may use another
similar index as a guide for setting rates.
Performance: From February 1990 through February 1995, IDS Cash
Reserve interest rates were generally higher than average bank and
thrift 3-month CD yields, as measured by the BRM Average (prior to
January 13, 1993, rates were measured by the BRM National Index, an
average of CD yields in 10 cities).
Yield from May 1990 through February 1995
8% _____ IDS Cash Reserve Certificate
..... Money Market Deposit Account
6% ***** Certificate of Deposit - Three Month
4% Three lines comparing the rates for IDS Cash Reserve
Certificate versus money market deposit accounts and
2% three-month certificates of deposit, with IDS Cash
Reserve's line generally above the other two.
0%
1990 1991 1992 1993 1994 1995
*This graph compares past interest rates offered on IDS Cash
Reserve Certificate to those of 3-month CDs and money market
deposit accounts and should not be considered a prediction of
future performance.
How to invest and withdraw funds
Buying your certificate
Your American Express financial advisor will help you fill out and
submit an application to open an account with us and purchase a
certificate. We will process the application at our corporate
offices in Minneapolis. When your application is accepted, you
will receive a confirmation of your purchase, indicating your
account number and applicable rate of interest for your first term,
as described under "Rates for new purchases." See "Purchase
policies" below.
Additional investments
You may make additional investments at any time. Additional
investments must be at least $50 and your total investment, less
withdrawals, may not exceed $1 million (unless you receive prior
authorization from IDSC to invest more). You will earn interest on
additional investments from the date we accept them. IDSC will
send a confirmation of additional investments.
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Important: When opening an account, you must provide IDSC with your
correct Taxpayer Identification Number (Social Security or Employer
Identification Number). See "Taxes on your earnings."
Purchase policies
o You have 15 days from the date of purchase to cancel your
investment without penalty by either writing or calling the
Client Service Organization at the address or phone number on
the back of this prospectus. If you decide to cancel your
certificate within this 15-day period you will not earn any
interest.
o If you purchase a certificate with a personal check or other
non-guaranteed funds, American Express Financial Corporation
must convert your check to federal funds (e.g., monies of
member banks with the Federal Reserve Bank) before your
purchase will be accepted and you begin earning interest.
o IDSC has complete discretion to determine whether to accept
an application and sell a certificate.
o If you make no investments for a period of at least 12
consecutive months and your principal is less than $1,000, we
may send you a notice of our intent to cancel the
certificate. After the notice, if an investment is not made
within 60 days your certificate will be canceled, and we will
send you a check for its full value.
A number of special policies apply to purchases, withdrawals and
exchanges within IRAs, 401(k) plans and other qualified retirement
plans. See "Retirement plans: special policies."
Three ways to make investments
1
By scheduled investment plan
Contact your financial advisor to set up one of the following
scheduled plans for monthly investments:
o bank authorization (automatic deduction from your bank
account)
o automatic payroll deduction
o direct deposit of Social Security check
o other plan approved by IDSC
To cancel a bank authorization, you must instruct IDSC in writing
or over the phone. We must receive notice at least three business
days before the date funds would normally be withdrawn from your
bank account.
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2
By mail
For monthly or lump sum investments, send your check along with
your name and account number to:
Regular mail: Express mail:
IDS Certificate Company IDS Certificate Company
Client Service Organization Client Service Organization
IDS Tower 10 733 Marquette Ave.
Minneapolis, MN 55440-0010 Minneapolis, MN 55402
3
By wire
If you have an established account, you may wire money to:
Norwest Bank Minneapolis
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions:
Credit IDS Account #00-30-015 for personal account # (your
account number) for (your name).
If this information is not included, the order may be rejected and
all money received, less any costs American Express Financial
Corporation incurs, will be returned promptly.
o Minimum amounts each wire investment: $1,000
o Wire orders can be accepted only on days when your bank,
American Express Financial Corporation, IDSC and Norwest Bank
Minneapolis are open for business.
o Wire purchases are completed when wired payment is received
and we accept the purchase.
o Bank wire purchases are not sent until the next business day.
o Wire investments must be received and accepted in the
Minneapolis headquarters on a business day before 3 p.m.
Central time to be credited that day. Otherwise your
purchase will be processed the next business day.
o IDSC, American Express Financial Corporation and its other
subsidiaries are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
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Full and partial withdrawals
You may withdraw your certificate for its full value at any time.
If you purchase this certificate for an IRA, 401(k), or other
retirement plan account, early withdrawals or cash payments of
interest taken prematurely may be subject to IRS penalty taxes.
o Complete withdrawal of your certificate is made by giving us
proper instructions.
To complete these transactions, see "Two ways to request a
withdrawal or transfer."
o You may make an unscheduled partial withdrawal of at least
$100 at any time.
o Interest payments in cash may be sent to you at the end of
each month, quarterly, semiannually or annually.
o Scheduled partial withdrawals may be sent to you monthly,
quarterly, semiannually or annually. The minimum withdrawal
amount is $50.
o Withdrawals before the end of the certificate month will
result in loss of interest on the amount withdrawn. You'll
get the best result by timing a withdrawal at the end of the
certificate month.
o You may not otherwise make a partial withdrawal if it would
reduce your certificate balance to less than $1,000. If you
request such a withdrawal, we will contact you for revised
instructions.
o Withdrawals that reduce your certificate's principal below a
break point for a lower interest rate will cause the
remaining principal to earn the lower interest rate for the
rest of the term from the date of the withdrawal.
o Withdrawals on certificates purchased by bank authorization
or payroll deduction may cause the balance to fall below
$1,000. The remaining balance will earn the lower interest
rate that applies to balances of less than $1,000.
When your certificate term ends
Shortly before the end of your certificate's term we will send you
a notice indicating the interest rate that will apply to the new
term. Unless you tell us otherwise, your certificate will
automatically continue for another term. The interest rate that
will apply to your new term will be the rate in effect on the day
the new term begins. This rate of interest will not be changed
during that term unless your certificate's principal falls below a
break point for a lower interest rate.
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Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate
recently purchased or added to by a check or money order that
is not guaranteed, we will wait for your check to clear.
Please expect a minimum of 10 days from the date of your
payment before IDSC mails a check to you. (A check may be
mailed earlier if your bank provides evidence that your check
has cleared.)
o If your certificate is pledged as collateral, any withdrawal
will be delayed until we get approval from the secured party.
o Any payments to you may be delayed under applicable rules,
regulations or orders of the SEC.
Transfers to other accounts
You may transfer part or all of your certificate for any other IDSC
certificate or into another existing American Express Financial
Advisors Inc. account that has the same registered ownership
(subject to any terms and conditions that may apply).
Two ways to request a withdrawal or transfer
1
By phone
Call between 8 a.m. and 6 p.m. your local time:
1-800-437-3133
(612) 671-3800 (Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1630 (Minneapolis/St. Paul area)
o Maximum phone request: $50,000
o Transfers into an American Express Financial Advisors Inc.
account with the same ownership.
o We will honor any telephone request believed to be authentic
and will use reasonable procedures to confirm that they are,
such as asking identifying questions. As long as the
procedures are followed, neither IDSC nor American Express
Financial Corporation or its other subsidiaries will be
liable for any loss resulting from fraudulent requests.
You may request that telephone withdrawals not be authorized from
your account by writing the Client Service Organization.
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2
By mail
Send your name, account number and request for a withdrawal or
transfer to:
Regular mail:
IDS Certificate Company
Client Service Organization
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
IDS Certificate Company
Client Service Organization
733 Marquette Ave.
Minneapolis, MN 55402
Written requests are required for:
o Transactions over $50,000
o Pension plans and custodial accounts where the minor has
reached the age at which custodianship should terminate.
o Transferring into an American Express Financial Advisors Inc.
account with a different ownership (all current registered
owners must sign the request).
o A telephone withdrawal request will not be allowed within 30
days of a phoned-in address change.
Three ways to receive payment when you withdraw funds
1
By regular or express mail
o Mailed to address on record; please allow seven days for
mailing
o Payable to name(s) you requested
o For express mail, you will pay charges that vary depending on
the courier you select. For a partial withdrawal leaving a
remaining balance of more than $1,000, these charges will be
deducted from the remaining balance. If the remaining
balance is less than $1,000, or it is a full withdrawal,
charges are deducted from proceeds of the withdrawal.
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2
By wire
o Minimum wire withdrawal: $500
o Request that money be wired to your bank
o Bank account must be in same ownership as IDSC account
o Pre-authorization required. Complete the bank wire
authorization section in the application or use a form
supplied by your American Express financial advisor. All
registered owners must sign.
o Service fee, if any, is deducted from your balance (for
partial withdrawals) or from the proceeds of a full
withdrawal.
3
Electronic transfer
o Only for preauthorized recurring payments
o No charge
o Deposited electronically in your bank account
o Three to five days from request to first deposit
Retirement plans: special policies
o If the certificate is purchased for a 401(k) plan or other
qualified retirement plan account, the terms and conditions
of the certificate apply to the plan as the owner of this
certificate. However, the terms of the plan, as interpreted
by the plan trustee or administrator, will determine how a
participant's individual account under the plan is
administered. These terms may differ from the terms of the
certificate.
o If your certificate is held in a Custodial Retirement Plan
(or Keogh plan), special rules may apply at maturity. If no
other investment instructions are provided directing how to
handle your certificate at maturity, the full value of the
certificate will automatically transfer to a new or existing
cash management account according to the rules outlined in
the Custodial Retirement Plan document.
o The annual custodial fee for IRA or non-401(k) qualified
retirement plans may be deducted from your certificate
account. It may reduce the amount payable at maturity or the
amount received upon an early withdrawal.
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PAGE 18
o Retirement plan withdrawals may be subject to withdrawal
penalties or loss of interest even if they are not subject to
federal tax penalties.
o If you withdraw all funds from your last account in an IRA
plan, a $25 termination fee will apply.
o The IRA termination fee will be waived if withdrawal occurs
upon the holder's death.
Transfer of ownership
While the certificate is not negotiable, IDSC will transfer
ownership upon written notification to our Client Service
Organization. However, if you have purchased your certificate for
an IRA, 401(k) plan or other qualified retirement plan, you may be
unable to transfer or assign the certificate without losing the
account's favorable tax status. Please consult your tax advisor.
For more information
For information on purchases, withdrawals, exchanges, transfers of
ownership, proper instructions and other service questions
regarding your certificate, please consult your financial advisor
or call IDSC's toll free client service number:
1-800-437-3133
TTY: 1-800-846-4293.
Taxes on your earnings
Interest on your certificate is taxable when credited to your
account. Each calendar year we provide the certificate holder and
the IRS with reports of all earnings over $10 (Form 1099).
Withdrawals are reported to the certificate holder and the IRS on
Form 1099-B, Proceeds from Broker Transactions.
Retirement accounts
If you are using the certificate as an investment for an IRA,
401(k) plan account or other qualified retirement plan account,
income tax rules for your IRA or qualified plan apply. Generally,
you will pay no income taxes on your investment's earnings--and, in
many cases, on part or all of the investment itself--until you
begin to make withdrawals.
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IDSC will withhold federal income taxes of 10% on IRA withdrawals
unless you tell us not to. IDSC is required to withhold federal
income taxes of 20% on most other qualified plan distributions,
unless the distribution is directly rolled over to another
qualified plan or IRA.
Withdrawals from retirement accounts are generally subject to a
penalty tax of 10% by the IRS if you make them before age 59-1/2,
unless you are disabled or if they are made by your beneficiary in
the event of your death. Other exceptions also may apply. Also,
withdrawals of principal during a certificate month may be subject
to the certificate's provision for loss of interest.
Consult your tax advisor to see how these rules apply to you before
you request a distribution from your plan or IRA.
Gifts to minors
The certificate may be given to a minor under either the Uniform
Gifts or Uniform Transfers to Minors Act (UGMA/UTMA), whichever
applies in your state. UGMAs/UTMAs are irrevocable. Generally,
under federal tax laws, income over $1,200 on property owned by
children under age 14 will be taxed at the parents' marginal tax
rate, while income on property owned by children 14 or older will
be taxed at the child's rate.
Your Taxpayer Identification Number (TIN) and backup withholding:
As with any financial account you open, you must list your current
and correct Taxpayer Identification Number (TIN)--either your
Social Security or Employer Identification Number. The TIN must be
certified under penalties of perjury on your application when you
open an account with IDSC.
If you don't provide the TIN to IDSC, or the TIN you report is
incorrect, you could be subject to backup withholding of 31% of
your interest earnings. You could also be subject to further
penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information.
You could also be subject to backup withholding because you failed
to report interest on your tax return as required.
To help you determine the correct TIN to use on various types of
accounts, please use this chart:
Use the Social Security or
For this type of account Employer Identification Number of
Individual or joint account The individual or first person listed
on the account
<PAGE>
PAGE 20
Custodian account of a The minor
minor (Uniform Gifts/
Transfers to Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the trust)
An irrevocable trust, The legal entity (not the personal
pension trust or estate representative or trustee, unless no
legal entity is designated in the
account title)
Sole proprietorship or The owner or partnership
partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors Inc. office for Federal
Form W-9, "Request for Taxpayer Identification Number and
Certification."
Foreign investors
If you are not a citizen or resident of the United States, you must
supply IDSC with Form W-8, Certificate of Foreign Status when you
purchase your certificate, and you must resupply it every three
years. You must also supply a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an
appropriately certified Form W-8 (or approved substitute). Also,
if you do not supply Form W-8 you will be subject to backup
withholding on interest payments and withdrawals.
Interest on the certificate is "portfolio interest" as defined in
U.S. Internal Revenue Code Section 871(h) if earned by a
nonresident alien. Even though your interest income is not taxed
by the U.S. government, it will be reported at year end to you and
to the U.S. government on a Form 1042S, Foreign Person's U.S.
Source Income Subject to Withholding. The United States
participates in various tax treaties with foreign countries, which
provide for sharing of tax information.
Estate tax: If you are a nonresident alien and you die while
owning a certificate, IDSC will need a statement from persons IDSC
believes are knowledgeable about your estate. The statement must
be in a form satisfactory to IDSC and must tell us that, on your
date of death, your estate did not include any property in the
United States for U.S. estate tax purposes. If we do not receive
the statement, we generally will not take action regarding your <PAGE>
PAGE 21
certificate until we receive a transfer certificate from the IRS.
In general, a transfer certificate requires the opening of an
estate in the United States and provides assurance that the IRS
will not claim your IDS certificate to satisfy estate taxes.
Important: This information is a brief and selective summary of
certain federal tax rules that apply to this certificate. Tax
matters are highly individual and complex, and you should consult a
qualified tax advisor about your personal situation.
How your money is used and protected
Invested and guaranteed by IDSC
The IDS Cash Reserve Certificate is issued and guaranteed by IDSC,
a wholly owned subsidiary of American Express Financial
Corporation. We are by far the largest issuer of face amount
certificates in the United States, with total assets of more than
$3.0 billion and a net worth in excess of $141 million on Dec. 31,
1994.
We back our certificates by investing the money received and
keeping the invested assets on deposit. Our investments generate
interest and dividends, out of which we pay:
o interest to certificate holders
o various expenses, including taxes, fees to American Express
Financial Corporation for advisory and other services and
distribution fees to American Express Financial Advisors Inc.
For a review of significant events relating to our business, see
"Management's discussion and analysis of financial condition and
results of operations." Our certificates are not rated by a
national rating agency.
Most banks and thrifts offer investments known as certificates of
deposit (CDs) that are similar to our certificates in many ways.
Early withdrawals of bank CDs often result in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money you deposit to individuals, businesses
and other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Cash Reserve Certificate is a security, its offer
and sale are subject to regulation under federal and state
securities laws. (It is a face-amount certificate--not a bank
product, an equity investment, a form of life insurance or an
investment trust.)
The federal Investment Company Act of 1940 requires us to keep
investments on deposit in a segregated custodial account to protect
all of our outstanding certificates. These investments back the <PAGE>
PAGE 22
entire value of your certificate account. Their amortized cost
must exceed the required carrying value of the outstanding
certificates by at least $250,000. As of Dec. 31, 1994, the
amortized cost of these investments exceeded the required carrying
value of our outstanding certificates by more than $121 million.
Backed by our investments
Our investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1994:
Net amount
Type of investment invested
Corporate and other bonds 31%
Government agency bonds 27
Preferred stocks 23
Mortgages 9
Municipal bonds 5
Cash and cash equivalents 5
More than 95% of our securities portfolio (bonds and preferred
stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3B in the
financial statements.
Most of our investments are on deposit with American Express Trust
Company (formerly IDS Bank & Trust), Minneapolis, although we also
maintain separate deposits as required by certain states. American
Express Trust Company is a wholly owned subsidiary of American
Express Financial Corporation. Copies of our Dec. 31, 1994
schedule of Investments in Securities of Unaffiliated Issuers are
available upon request. For comments regarding the valuation,
carrying values and unrealized appreciation (depreciation) of
investment securities, see Notes 1, 2 and 3 to the financial
statements.
Investment policies
In deciding how to diversify the portfolio--among what types of
investments in what amounts--the officers and directors of IDSC use
their best judgment, subject to applicable law. The following
policies currently govern our investment decisions:
Purchasing securities on margin: We will not purchase any
securities on margin or participate on a joint basis or a joint-
and-several basis in any trading account in securities.
Commodities: We have not and do not intend to purchase or sell
commodities or commodity contracts.
Underwriting: We do not intend to engage in the public
distribution of securities issued by others. However, if we
purchase unregistered securities and later resell them, we may be
considered an underwriter under federal securities laws.
<PAGE>
PAGE 23
Borrowing money: From time to time we have established a line of
credit if management believed borrowing was necessary or desirable.
While a line of credit does not currently exist, it may be
established again in the future. We may pledge some of our assets
as security. We may occasionally use repurchase agreements as a
way to borrow money. Under these agreements, we sell debt
securities to our lender, and repurchase them at the sales price
plus an agreed-upon interest rate within a specified period of
time.
Real estate: We may invest directly in real estate, though we have
not generally done so in the past. We do invest in mortgage loans.
Lending securities: We may lend some of our securities to broker-
dealers and receive cash equal to the market value of the
securities as collateral. We invest this cash in short-term
securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan,
the borrower makes cash payments to us equal to all interest,
dividends and other distributions paid on the loaned securities. We
will try to vote these securities if a major event affecting our
investment is under consideration.
When-issued securities: Most of our investments are in debt
securities, some of which are purchased on a when-issued basis. It
may take as long as 45 days before these securities are issued and
delivered to us. We generally do not pay for these securities or
start earning on them until delivery. We have established
procedures to ensure that sufficient cash is available to meet
when-issued commitments.
Financial transactions: We buy or sell various types of options
contracts for hedging purposes or as a trading technique to
facilitate securities purchases or sales. We buy interest rate
caps for hedging purposes. These pay us a return if interest rates
rise above a specified level. If approved by the SEC, IDSC may
enter into other financial transactions, including futures and
other derivatives, for the purpose of managing the interest rate
exposures associated with IDSC's assets or liabilities.
Derivatives are financial instruments whose performance is derived,
at least in part, from the performance of an underlying asset,
security or index. A small change in the value of the underlying
asset, security or index may cause a sizable gain or loss in the
fair value of the derivative.
Restrictions: There are no restrictions on concentration of
investments in any particular industry or group of industries or on
rates of portfolio turnover.
<PAGE>
PAGE 24
How your money is managed
Relationship between IDSC and American Express Financial
Corporation
IDSC was originally organized as Investors Syndicate of America,
Inc., a Minnesota corporation, on Oct. 15, 1940, and began business
as an issuer of face amount investment certificates on Jan. 1,
1941. The company became a Delaware corporation on Dec. 31, 1977,
and changed its name to IDS Certificate Company on April 2, 1984.
Before IDSC was created, American Express Financial Corporation
(formerly known as IDS Financial Corporation) had issued similar
certificates since 1894. As of Jan. 1, 1995 IDS Financial Services
Inc. became American Express Financial Corporation. IDSC and
American Express Financial Corporation have never failed to meet
their certificate payments.
During its many years in operation, American Express Financial
Corporation has become a leading manager of investments in
mortgages and securities. As of Dec. 31, 1994, American Express
Financial Corporation managed investments, including its own, of
more than $105 billion. American Express Financial Advisors Inc.,
a wholly owned subsidiary of American Express Financial
Corporation, provides a broad range of financial planning services
for individuals and businesses through its nationwide network of
more than 175 offices and more than 7,800 financial advisors.
American Express Financial Corporation financial planning services
are comprehensive, beginning with a detailed written analysis
that's tailored to your needs. Your analysis may address one or
all of these six essential areas: financial position, protection
planning, investment planning, income tax planning, retirement
planning and estate planning.
American Express Financial Corporation itself is a wholly owned
subsidiary of American Express Company, a financial services
company with executive offices at American Express Tower, World
Financial Center, New York, NY 10285. American Express Company is
a financial services company engaged through subsidiaries in other
business including:
o travel related services (including American Express(trademark) Card and
Travelers Cheque operations through American Express Travel
Related Services Company, Inc. and its subsidiaries), and
o international banking services (through American Express Bank
Ltd. and its subsidiaries).
American Express Financial Advisors Inc. is not a bank, and the
securities offered by it, such as face amount certificates issued
by IDSC, are not backed or guaranteed by any bank, nor are they
insured by the FDIC.
<PAGE>
PAGE 25
Capital structure and certificates issued
IDSC has authorized, issued and has outstanding 150,000 shares of
common stock, par value of $10 per share. American Express
Financial Corporation owns all of the outstanding shares.
As of Dec. 31, 1994, IDSC had issued (in face amount)
$12,727,756,065 of installment certificates and $13,016,532,575 of
single payment certificates.
Investment management and services
Under an Investment Advisory and Services Agreement, American
Express Financial Corporation acts as our investment advisor and is
responsible for:
o providing investment research,
o making specific investment recommendations
o executing purchase and sale orders according to our
policy of obtaining the best price and execution.
All these activities are subject to direction and control by our
board of directors and officers. Our agreement with American
Express Financial Corporation requires annual renewal by our board,
including a majority of directors who are not interested persons of
American Express Financial Corporation or IDSC as defined in the
federal Investment Company Act of 1940.
For its services, we pay American Express Financial Corporation a
monthly fee, equal on an annual basis to a percentage of the total
book value of certain assets (included assets).
Advisory and Services Fee Computation
Included Assets Percentage of Total Book Value
First $250 million 0.75%
Next 250 million 0.65
Next 250 million 0.55
Next 250 million 0.50
Any amount over $1 billion 0.45
Included assets are all assets of IDSC except mortgage loans, real
estate, and any other asset on which we pay an advisory or service
fee.
Advisory and services fees for the past three years were:
Percentage of
Year Total fees included assets
1994 $13,565,432 0.51%
1993 $15,036,091 0.50
1992 $17,851,271 0.50
Estimated advisory and services fees for 1995 are $15,074,000.
<PAGE>
PAGE 26
Other expenses payable by IDSC: The Investment Advisory and
Services Agreement provides that we will pay:
o costs incurred by us in connection with real estate and
mortgages,
o taxes,
o depository and custodian fees,
o brokerage commissions,
o fees and expenses for services not covered by other
agreements and provided to us at our request, or by
requirement, by attorneys, auditors, examiners and
professional consultants who are not officers or employees of
American Express Financial Corporation,
o fees and expenses of our directors who are not officers or
employees of American Express Financial Corporation,
o provision for certificate reserves (interest accrued on
certificate holder accounts), and
o expenses of customer settlements not attributable to sales
function.
Distribution
Under a Distribution Agreement with American Express Financial
Advisors Inc., we pay for the distribution of this certificate as
follows:
o 0.25% of the initial payment on the issue date of the
certificate, and
o 0.25% of the certificate's reserve at the beginning of the
second and subsequent quarters from issue date. This fee is
not assessed to your certificate account.
Total distribution fees paid to American Express Financial Advisors
Inc. for all series of certificates amounted to $34,534,747 during
the year ended Dec. 31, 1994. We expect to pay American Express
Financial Advisors Inc. distribution fees amounting to $33,700,000
during 1995.
See Note 1 to Financial Statements regarding deferral of
distribution fee expense.
American Express Financial Advisors Inc. pays commissions to its
financial advisors and pays other selling expenses in connection
with services to us. Our board of directors, including a majority
of directors who are not interested persons of American Express
Financial Advisors Inc. or IDSC, approved this distribution
agreement.
Employment of other American Express affiliates
American Express Financial Corporation may employ an affiliate of
American Express Company as executing broker for our portfolio
transactions only if:
<PAGE>
PAGE 27
o we receive prices and executions at least as favorable as
those offered by qualified independent brokers performing
similar services;
o the affiliate charges us commissions consistent with those
charged to comparable unaffiliated customers for similar
transactions; and
o the affiliate's employment is consistent with the terms of
the current Investment Advisory and Services Agreement and
federal securities laws.
Directors and officers
IDSC's directors, chairman, president and controller are elected
annually for a term of one year. The other executive officers are
appointed by the president.
We paid a total of $37,000 during 1994 to directors not employed by
American Express Financial Corporation.
Board of Directors
David R. Hubers*
Age 52
Director since April 1987
President and chief executive officer of American Express Financial
Corporation since 1993. Senior vice president and chief financial
officer of American Express Financial Corporation from 1984 to
1993.
Charles W. Johnson
Age 65
Director since August 1989
Former vice president and group executive, Industrial Systems, with
Honeywell Inc. Retired 1989.
Edward Landes
Age 75
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 69
Director since April 1987
Former senior vice president - Science and Technology with General
Mills, Inc. Employed with General Mills Inc. since 1970. Retired
1987.
<PAGE>
PAGE 28
James A. Mitchell*
Age 54
Director since January 1994
Chairman of the board of directors since February, 1994. Executive
vice president - marketing and products of American Express
Financial Corporation since February 1994. Senior vice president -
insurance operations of American Express Financial Corporation and
president and chief executive officer of IDS Life Insurance Company
from 1986 to 1994.
Harrison Randolph
Age 79
Director since 1968
Gordon H. Ritz
Age 67
Director since 1968
President, Con Rad Broadcasting Corp. Director, Sunstar Foods and
Mid-America Publishing.
Stuart A. Sedlacek*
Age 37
Director since January 1994
President since February 1994. Vice president - assured assets of
American Express Financial Corporation 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 37
President since February 1994
Louis C. Fornetti
Age 45
Vice president since January 1990
Chief financial officer of American Express Financial Corporation
since 1993 and senior vice president, corporate controller and
director of American Express Financial Corporation since 1988.
<PAGE>
PAGE 29
Morris Goodwin Jr.
Age 43
Vice president and treasurer since 1989.
Vice president and corporate treasurer of American Express
Financial Corporation since 1989. Chief financial officer and
treasurer of American Express Trust Company from 1988 to 1989.
Colleen Curran
Age 42
Secretary since 1990
Secretary and assistant vice president of American Express
Financial Corporation since 1990. Senior counsel to American
Express Financial Corporation since 1990. Counsel from 1985 to
1990.
Lorraine R. Hart
Age 43
Vice president-investments since February 1994.
Vice President - insurance investments of American Express
Financial Corporation since 1989. Vice president, investments of
IDS Life Insurance Company since 1992.
Jay C. Hatlestad
Age 37
Vice president and controller of IDS Certificate Company since
1994.
Manager of investment accounting of IDS Life Insurance Company from
1986 to 1994.
Bruce A. Kohn
Age 44
Vice president and general counsel since 1993.
Counsel to American Express Financial Corporation since 1992.
Associate counsel from 1987 to 1992.
F. Dale Simmons
Age 57
Vice president - Real Estate Loan Management since 1993.
Vice president of American Express Financial Corporation since
1992. Senior portfolio manager of American Express Financial
Corporation 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 Company.
IDSC has provisions in its bylaws relating to the indemnification
of its officers and directors against liability, as permitted by
law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or <PAGE>
PAGE 30
persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of
the SEC such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
Auditors
A firm of independent auditors audits our financial statements at
the close of each fiscal year (Dec. 31). Copies of our annual
financial statements (audited) and semiannual financial statements
(unaudited) are available to any certificate holder upon request.
Ernst & Young LLP, Minneapolis, has audited the financial
statements for each of the years in the three-year period ended
Dec. 31, 1994. These statements are included in this prospectus.
Ernst & Young LLP is also the auditor for American Express Company,
the parent company of American Express Financial Corporation and
IDSC.
Other certificates issued by IDSC: Your American Express financial
advisor can give you more information on four other certificates
issued by IDSC. These certificates offer a wide range of
investment terms and features.
IDS Flexible Savings Certificate - A single payment certificate
that permits additional investments and on which IDSC guarantees
interest in advance for a term of 6, 12, 18, 24, 30 or 36 months.
IDS Future Value Certificate - A single payment certificate on
which IDSC guarantees interest in advance for four, five, six,
seven, eight, nine or ten-year maturity.
IDS Installment Certificate - An installment payment certificate on
which IDSC declares interest in advance for a three-month period
and offers bonuses in the third through sixth years for regular
investments.
IDS Stock Market Certificate - A single payment certificate that
calculates all or part of your interest based on stock market
performance, as measured by a broad market index, with IDSC's
guarantee of return of principal.
<PAGE>
PAGE 31
Summary of selected financial information
The following selected financial information has been derived from
the audited financial statements and should be read in conjunction
with those statements and the related notes to financial
statements. Also see Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
comments.
<TABLE><CAPTION>
Year Ended Dec. 31, 1994 1993 1992 1991 1990
($ thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Investment income $207,975 $236,859 $294,799 $351,970 $331,521
Investment expenses 58,690 65,404 69,630 63,353 55,176
Net investment income before provisions
for certificate reserves and income taxes 149,285 171,455 225,169 288,617 276,345
Net provision for certificate reserves 107,288 123,516 178,175 258,443 271,267
Net investment income before income taxes 41,997 47,939 46,994 30,174 5,078
Income tax benefit 2,663 3,365 11,666 20,537 28,588
Net investment income 44,660 51,304 58,660 50,711 33,666
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers (7,514) (9,870) (9,498) (129) 2,178
Other - unaffiliated 1,638 (418) (500) (1,053) (851)
Total gain (loss) on investments (5,876) (10,288) (9,998) (1,182) 1,327
Income tax benefit (expense) 2,047 4,617 3,399 402 (451)
Net realized gain (loss) on investments (3,829) (5,671) (6,599) (780) 876
Net income - wholly owned subsidiary 241 120 3 139 286
Net income $41,072 $45,753 $52,064 $50,070 $34,828
Dividends declared:
Cash $40,200 $64,500 $83,750 $74,800 $47,000
In-kind(a) - - 64,558 25,466 -
Balance Sheet Data:
Total assets $3,040,857 $2,951,405 $3,444,985 $3,971,583 $4,168,586
Certificate loans 58,203 67,429 77,347 88,570 99,192
Certificate reserves 2,887,405 2,777,451 3,256,472 3,712,570 3,859,530
Stockholder's equity 141,852 161,138 179,885 223,820 273,600
</TABLE>
IDS Certificate Company (IDSC) is 100% owned by American Express
Financial Corporation (Parent) formerly IDS Financial Corporation.
(a) Consisted of an investment security at amortized cost in 1992
and a reduction in the note receivable from Parent in 1991.
<PAGE>
PAGE 32
Management's discussion and analysis of financial condition and
results of operations
Results of operations:
IDS Certificate Company's (IDSC) earnings are derived primarily
from the after-tax yield on invested assets less investment
expenses and interest credited on certificate reserve liabilities.
Changes in earnings' trends occur largely due to changes in the
margin between rates of return on investments and rates of interest
credited to certificate holder accounts and also, the mix of fully
taxable and tax-advantaged investments in the IDSC portfolio.
During the years 1991 through 1993, total assets and certificate
reserve liabilities decreased due to certificate maturities and
surrenders exceeding certificate sales. The excess of certificate
maturities and surrenders over certificate sales in 1993, 1992 and
1991 primarily reflected lower accrual rates declared by IDSC in
those years, which in turn, reflected lower interest rates
available in the marketplace.
During 1994, total assets and certificate reserves increased due to
certificate sales exceeding certificate maturities and surrenders.
The excess of certificate sales over certificate maturities and
surrenders resulted primarily from higher accrual rates declared by
IDSC during the last six months of 1994, reflecting rising interest
rates in the marketplace. The increase in total assets in 1994 was
tempered by $23 million of net unrealized depreciation on
investment securities classified as available for sale, net of
deferred taxes of $13 million.
1994 Compared to 1993:
Gross investment income decreased 12% due primarily to a lower
average balance of invested assets.
The 10% decrease in investment expenses resulted primarily from
lower amortization of the cost of interest rate caps and $2.3
million of reimbursement under cap agreements in 1994. Lower
amortization of deferred distribution fees, and lower investment
advisory and services fees due to a lower average asset base on
which the fee is calculated contributed also, to the decrease in
investment expenses.
Net provision for certificate reserves decreased 13% reflecting
lower accrual rates during the first six months of the year and a
lower average balance of certificate reserves.
The decrease in income tax benefit resulted primarily from lower
tax-advantaged income.
1993 Compared to 1992:
Gross investment income decreased 20% due to a lower average
balance of invested assets and lower investment yields.
<PAGE>
PAGE 33
The 6.1% decrease in investment expenses resulted primarily from
lower amortization of deferred distribution fees, and lower
investment advisory and services fee due to a lower average asset
base on which the fee is calculated. These decreases were
partially offset by higher amortization of the cost 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% 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.
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 the Parent.
Certificate sales volume increased 86% in 1994, reflecting higher
accrual rates and clients' ongoing desire for safety of principal.
Sales of certificates totaled $1.1 billion compared to $.6 billion
in 1993 and $.7 billion during 1992.
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 intermediate-
term bonds.
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 to meet anticipated certificate holder
obligations.
Effective Jan.1, 1994, IDSC adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the SFAS 115,
debt securities that IDSC has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities
IDSC does not have the positive intent to hold to maturity, as well
as all marketable equity securities, are classified as available
for sale and carried at fair value. The available-for-sale
classification does not mean that IDSC expects to sell these <PAGE>
PAGE 34
securities, but that under SFAS No. 115 positive intent criteria,
these securities are available to meet possible liquidity needs
should there be significant changes in market interest rates or
certificate holder demand. See notes 1 and 3 to the financial
statements for additional information relating to SFAS No. 115.
At Dec. 31, 1994, securities classified as held to maturity and
securities classified as available for sale were $1.3 billion and
$1.2 billion, respectively. These securities, which comprise 84%
of IDSC's total invested assets, are well diversified. Of these
securities, 96% are of investment grade and, other than U.S.
Government Agency mortgage-backed securities, no one issuer
represents more than 1% of these securities. See note 3 to
financial statements for additional information on ratings and
diversification.
In 1994, in reaction to the rising interest rate environment, IDSC
continued to restructure a portion of its investment security
portfolio by selling $275 million of available-for sale securities.
Gross gains of $.4 million and gross losses of $10.1 million were
realized on the sales.
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. At Dec. 31, 1994, IDSC held no investments in
interest-only or principal-only mortgage-backed securities.
During 1994, IDSC's reserve for possible losses on its below
investment grade securities was reduced from $2.0 million at Dec.
31, 1993, to $1.0 million. The reduction reflects sales and
exchanges of certain of these issues in 1994. 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 reviews these securities on a case-by-case basis to
determine whether it is appropriate to hold them in IDSC's
portfolio. Management believes that reserves for possible losses
on securities owned at Dec. 31, 1994, are adequate, however, future
economic factors could impact the ratings of securities owned and
additional reserves for losses may need to be recognized.
Derivative financial instruments:
IDSC enters into transactions involving interest rate caps, and
purchased and written call options to manage its exposure to rising
interest rates. IDSC does not enter into such transactions for
trading purposes. There is a possibility that the value of these
instruments will change due to fluctuations in a factor from which
the instrument derives its value. IDSC is not subject to this
market risk because these instruments are largely used to hedge
such risks, and therefore, the cash flow and income effects of the <PAGE>
PAGE 35
instruments are inverse to the effects of of the underlying
transactions. See note 8 to financial statements for additional
information regarding derivative financial instruments.
Impact of new accounting standards:
The Financial Accounting Standards Board's SFAS No. 114 "Accounting
by Creditors for Impairment of a Loan," and SFAS No. 118
"Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures", are effective Jan. 1, 1995. These
statements apply to collateralized and uncollateralized loans
except for large groups of homogeneous loans. A loan is considered
impaired if, based on current information, it is probable that
principal and interest due under the loan agreement will not be
collected. The amount of impairment is the excess of the loan's
carrying value over the present value of expected future cash flows
discounted at the loan's effective rate, or if more practical, the
loan's observable market price, or the fair value of collateral if
the loan is collateral dependent. The new rules are not expected
to have a material impact on IDSC's results of operations or
financial condition.
Capital Contributions:
To manage its regulatory capital requirements, IDSC received a
capital contribution from the Parent of $3.0 million in 1994.
Due to the decrease in IDSC's assets in 1992, IDSC felt its holding
in Fund America 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 Parent. Parent subsequently contributed
capital to IDSC of $52 million. The contribution was necessary to
manage IDSC's regulatory capital requirements.
Ratios:
The ratio of stockholder's equity, excluding net unrealized holding
gains and losses on investment securities, to total assets less
certificate loans at Dec. 31, 1994, was 5.54%, compared to 5.59%
in 1993. IDSC intends to maintain a ratio of at least 5.0% in
1995, which meets current regulatory requirements.
<PAGE>
PAGE 36
Annual Financial Information
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheets of IDS Certificate
Company, a wholly owned subsidiary of American Express Financial
Corporation (formerly IDS Financial Corporation), as of December
31, 1994 and 1993, and the related statements of operations,
stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1994. 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, 1994 and 1993 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, 1994 and 1993, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the financial statements, IDS Certificate
Company changed its method of accounting for certain investments in
debt and equity securities in 1994.
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 2, 1995
<PAGE>
PAGE 37
IDS Certificate Company
Responsibility for Preparation of Financial Statements
The management of IDS Certificate Company (IDSC) is responsible for
the preparation and fair presentation of its financial statements.
The financial 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. IDSC's management is also responsible for the accuracy
and consistency of other financial information included in the
prospectus.
In recognition of its responsibility for the integrity and
objectivity of data in the financial statements, IDSC maintains a
system of internal control over financial reporting. The system is
designed to provide reasonable, but not absolute, assurance with
respect to the reliability of IDSC's financial statements. The
concept of reasonable assurance is based on the notion that the
cost of the internal control system should not exceed the benefits
derived.
The internal control system is founded on an ethical climate and
includes an organizational structure with clearly defined lines of
responsibility, policies and procedures, and the careful selection
and training of employees. Internal auditors monitor and assess
the effectiveness of the internal control system and report their
findings to management throughout the year. IDSC's independent
auditors are engaged to express an opinion on the year-end
financial statements and, with the coordinated support of the
internal auditors, review the financial records and related data
and test the internal control system over financial reporting.
<PAGE>
PAGE 38
Balance Sheets, Dec. 31,
<TABLE><CAPTION>
Assets
Qualified Assets (note 2) 1994 1993
<S> <C> <C>
($ thousands)
Investments in unaffiliated issuers (notes 3 and 9):
Cash and cash equivalents $140,128 $54,059
Securities at amortized cost or the lower of cost or market - 2,431,919
Held-to-maturity securities 1,245,793 -
Available-for-sale securities 1,226,674 -
First mortgage loans on real estate 253,968 281,865
Certificate loans - secured by certificate reserves 58,203 67,429
Investments in and advances to affiliates 5,399 4,812
Total investments 2,930,165 2,840,084
Receivables:
Dividends and interest 42,261 40,432
Investment securities sold 7,269 10,068
Total receivables 49,530 50,500
Other (notes 8 and 9) 25,094 41,153
Total qualified assets 3,004,789 2,931,737
Other Assets
Deferred distribution fees 27,142 19,615
Deferred federal income taxes (note 7) 8,372 -
Other 554 53
Total other assets 36,068 19,668
Total assets $3,040,857 $2,951,405
See notes to financial statements.
<PAGE>
PAGE 39
Balance Sheets, Dec. 31,
Liabilities and Stockholder's Equity
Liabilities 1994 1993
($ thousands)
Certificate Reserves (notes 4 and 9):
Installment certificates:
Reserves to mature $335,712 $352,649
Additional credits and accrued interest 19,698 18,555
Advance payments and accrued interest 1,634 1,943
Other 56 54
Fully paid certificates:
Reserves to mature 2,389,198 2,243,416
Additional credits and accrued interest 140,766 160,440
Due to unlocated certificate holders 341 394
Total certificate reserves 2,887,405 2,777,451
Accounts Payable and Accrued Liabilities:
Due to Parent (note 6A) 1,186 1,182
Due to Parent for federal income taxes - 5,862
Due to affiliates (note 6B and 6C) 2,883 1,457
Payable for investment securities purchased 1,362 -
Accounts payable, accrued expenses and other (notes 8 and 9) 6,169 4,150
Total accounts payable and accrued liabilities 11,600 12,651
Deferred federal income taxes (note 7) - 165
Total liabilities 2,899,005 2,790,267
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 140,344 147,144
Retained earnings:
Appropriated for predeclared additional credits/interest 18,398 2,726
Appropriated for additional interest on advance payments 50 25
Unappropriated 4,718 9,743
Unrealized holding gains and losses on investment
securities - net (note 3A) (23,158) -
Total stockholder's equity 141,852 161,138
Total liabilities and stockholder's equity $3,040,857 $2,951,405
See notes to financial statements.
<PAGE>
PAGE 40
Statements of Operations
Year ended Dec. 31, 1994 1993 1992
($ thousands)
Investment Income:
Interest income from investments:
Bonds and notes:
Unaffiliated issuers $125,546 $140,991 $178,071
Mortgage loans on real estate:
Unaffiliated 24,006 24,071 18,430
Affiliated 68 78 88
Certificate loans 3,342 3,882 4,479
Dividends 54,170 67,115 92,599
Other 843 722 1,132
Total investment income 207,975 236,859 294,799
Investment Expenses:
Parent and affiliated company fees (note 6):
Distribution 27,007 28,477 32,752
Investment advisory and services 13,565 15,036 17,851
Depositary 183 201 225
Transfer agent - - 7
Options (note 8) 9,854 9,419 10,323
Interest rate caps (note 8) 7,608 11,667 7,649
Other 473 604 823
Total investment expenses 58,690 65,404 69,630
Net investment income before provisions
for certificate reserves and income taxes $149,285 $171,455 $225,169
See notes to financial statements.
<PAGE>
PAGE 41
Statements of Operations (continued)
Year ended Dec. 31, 1994 1993 1992
($ thousands)
Provision for Certificate Reserves (notes 4 and 8):
According to the terms of the certificates:
Provision for certificate reserves $13,317 $20,555 $28,685
Interest on additional credits 3,174 3,605 3,904
Interest on advance payments 61 90 68
Additional credits/interest authorized by IDSC:
On fully paid certificates 85,101 93,546 141,197
On installment certificates 6,741 6,704 5,270
On advance payments - - 89
Total provision before reserve recoveries 108,394 124,500 179,213
Reserve recoveries from terminations
prior to maturity (1,106) (984) (1,038)
Net provision for certificate reserves 107,288 123,516 178,175
Net investment income before income taxes 41,997 47,939 46,994
Income tax benefit (note 7) 2,663 3,365 11,666
Net investment income 44,660 51,304 58,660
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers (7,514) (9,870) (9,498)
Other-unaffiliated 1,638 (418) (500)
Total loss on investments (5,876) (10,288) (9,998)
Income tax benefit (expense) (note 7):
Current 2,414 19,508 (6,121)
Deferred (367) (14,891) 9,520
Total income tax benefit 2,047 4,617 3,399
Net realized loss on investments (3,829) (5,671) (6,599)
Net income - wholly owned subsidiary 241 120 3
Net income $41,072 $45,753 $52,064
See notes to financial statements.
<PAGE>
PAGE 42
Statements of Stockholder's Equity
Year ended Dec. 31, 1994 1993 1992
($ thousands)
Common Stock:
Balance at beginning and end of year $1,500 $1,500 $1,500
Additional Paid-in Capital:
Balance at beginning of year $147,144 $166,144 $206,393
Contribution from Parent 3,000 - 52,309
Dividends declared:
Cash (9,800) (19,000) (28,000)
Investment security - - (64,558)
Balance at end of year $140,344 $147,144 $166,144
Retained Earnings:
Appropriated for predeclared additional credits/interest (note 4B):
Balance at beginning of year $2,726 $2,804 $4,247
Transferred from (to) unappropriated retained earnings 15,672 (78) (1,443)
Balance at end of year $18,398 $2,726 $2,804
Appropriated for additional interest on advance payments (note 4C):
Balance at beginning of year $25 $100 $100
Transferred from (to) unappropriated retained earnings 25 (75) -
Balance at end of year $50 $25 $100
Unappropriated (note 5):
Balance at beginning of year $9,743 $9,337 $11,580
Net income 41,072 45,753 52,064
Transferred (to) from appropriated retained earnings (15,697) 153 1,443
Cash dividends declared (30,400) (45,500) (55,750)
Balance at end of year $4,718 $9,743 $9,337
Unrealized holding gains and losses on investment securities -
net (notes 1 and 3A):
Balance at beginning of year $- $- $-
Adjustment due to initial application of SFAS 115 8,827 - -
Decrease during year (31,985) - -
Balance at end of year ($23,158) $- $-
Total stockholder's equity $141,852 $161,138 $179,885
See notes to financial statements.
<PAGE>
PAGE 43
Statements of Cash Flows
Year ended Dec. 31, 1994 1993 1992
($ thousands)
Cash flows from operating activities:
Net income $41,072 $45,753 $52,064
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (241) (120) (3)
Certificate reserves 107,288 123,516 178,175
Interest income added to certificate loans (2,133) (2,454) (2,743)
Amortization of premium/discount-net 22,114 27,494 30,136
Deferred federal income taxes 4,263 11,446 (13,501)
Deferred distribution fees (7,527) 1,935 1,277
Net loss on investments 5,876 10,288 9,998
(Increase) decrease in dividends and interest receivable - (1,829) 10,009 10,946
(Increase) decrease in other assets (466) 967 2,277
Increase (decrease) in other liabilities (3,210) 4,979 (2,934)
Net cash provided by operating activities 165,207 233,813 265,692
Cash flows from investing activities:
Maturity and redemption of investments:
Held-to-maturity securities 350,411 641,778 951,155
Available-for-sale securities 173,547 - -
Other investments 35,130 21,373 17,492
Sale of investments:
Held-to-maturity securities 3,164 329,942 616,628
Available-for-sale securities 267,808 - -
Other investments - 5,454 -
Certificate loan payments 7,508 8,991 10,505
Purchase of investments:
Held-to-maturity securities (46,080) (498,841) (1,025,097)
Available-for-sale securities (830,826) - -
Other investments (9,208) (78,816) (122,465)
Certificate loan fundings (7,603) (10,275) (12,610)
Investment in subsidiary (450) (2,000) -
Net cash (used in) provided by investing activities ($56,599) $417,606 $435,608
See notes to financial statements.
<PAGE>
PAGE 44
Statements of Cash Flows (continued)
Year ended Dec. 31, 1994 1993 1992
($ thousands)
Cash flows from financing activities:
Reserve payments by certificate holders $1,613,820 $1,103,391 $1,380,376
Proceeds from securities loaned to brokers - 6,150 52,721
Proceeds from reverse repurchase agreements - 72,800 215,475
Capital contribution from Parent 3,000 - 52,309
Certificate maturities and cash surrenders (1,599,159) (1,705,967) (2,007,880)
Payments to brokers upon return of securities loaned - (7,793) (53,550)
Payments under reverse repurchase agreements - (72,800) (215,475)
Dividends paid (40,200) (64,500) (83,750)
Net cash used in financing activities (22,539) (668,719) (659,774)
Net increase (decrease) in cash and cash equivalents 86,069 (17,300) 41,526
Cash and cash equivalents beginning of year 54,059 71,359 29,833
Cash and cash equivalents end of year $140,128 $54,059 $71,359
Supplemental disclosures including non-cash transactions:
Cash received for income taxes $2,416 $26,606 $3,847
Certificate maturities and surrenders through loan reductions 11,454 13,656 16,071
Dividend-in-kind of preferred stock including related
deferred income tax of $516 - - 64,558
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 45
Notes to Financial Statements ($ in thousands unless indicated
otherwise)
1. Summary of significant accounting policies
IDS Certificate Company (IDSC) is a wholly owned subsidiary of
American Express Financial Corporation (Parent) (formerly IDS
Financial Corporation), 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 in accordance
with generally accepted accounting principles, except only the
accounts of IDSC are included. IDSC uses the equity method of
accounting for 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.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
which IDSC adopted as of Jan. 1, 1994. Under the new rules, debt
securities that IDSC has both the positive intent and ability to
hold to maturity are carried at amortized cost. Debt securities
IDSC does not have the positive intent to hold to maturity, as well
as all marketable equity securities, are classified as available
for sale and carried at fair value. Unrealized holding gains and <PAGE>
PAGE 46
Notes to Financial Statements (continued)
losses on securities classified as available for sale are carried,
net of deferred income taxes, as a separate component of
stockholder's equity. The opening balance of stockholder's equity
was increased by $8,827 (net of $4,752 in deferred income taxes) to
reflect the net unrealized holding gains on securities classified
as available for sale previously carried at amortized cost or the
lower of cost or market.
The basis for determining cost in computing realized gains and
losses on securities is specific identification. When there is a
decline in value that is other than temporary, the securities are
carried at estimated realizable value with the amount of adjustment
included in income.
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 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,
under an agreement between Parent and American Express Company, tax
<PAGE>
PAGE 47
Notes to Financial Statements (continued)
benefits are recognized for losses to the extent they can be used
in the consolidated return. It is the policy of Parent and its
subsidiaries that Parent 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 $2,895,226 and
$2,767,057 at Dec. 31, 1994 and 1993, respectively. IDSC had
qualified assets of $3,040,416 at Dec. 31, 1994 and $2,931,737 at
Dec. 31, 1993, excluding net unrealized depreciation on
available-for-sale securities of $35,627 at Dec. 31, 1994.
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 debt
securities classified as available for sale and all marketable
equity securities, which are carried at fair value in the financial
statements but are valued at amortized 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:
Dec. 31, 1994
Required
Deposits deposits Excess
Deposits to meet certificate
liability requirements:
States $417 $388 $29
Central Depositary 2,939,538 2,817,716 121,822
Total $2,939,955 $2,818,104 $121,851
Dec. 31, 1993
Required
Deposits deposits Excess
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
<PAGE>
PAGE 48
Notes to Financial Statements (continued)
The assets on deposit at Dec. 31, 1994 and 1993 consisted of
securities having a deposit value of $2,659,676 and $2,500,790,
respectively; mortgage loans of $252,263 and $276,711,
respectively; and other assets of $28,016 and $37,473,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan.
American Express Trust Company (formerly IDS Trust Company) is the
central depositary for IDSC. See note 6C.
3. Investments
A) Fair values of investments in securities 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 following is a summary of securities held to maturity and
securities available for sale at Dec. 31, 1994 and securities
carried at amortized cost at Dec. 31, 1993.
<TABLE>
<CAPTION>
Dec. 31, 1994
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government and agencies obligations $417 $417 $1 $1
Mortgage-backed securities 65,101 66,329 1,251 23
State and municipal obligations 145,205 150,856 5,659 8
Corporate debt securities 405,716 408,087 5,683 3,312
Foreign government bonds and obligations 10,048 10,065 17 -
Stated maturity preferred stock 619,306 616,655 10,201 12,852
$1,245,793 $1,252,409 $22,812 $16,196
AVAILABLE FOR SALE
Mortgage-backed securities $745,513 $724,276 $1,079 $22,316
Corporate debt securities 487,799 473,865 460 14,394
Stated maturity preferred stock 28,234 27,894 50 390
Common stock 755 639 - 116
$1,262,301 $1,226,674 $1,589 $37,216
Dec. 31, 1993
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
CARRIED AT AMORTIZED COST
U.S. Government and agencies obligations $421 $443 $22 $-
Mortgage-backed securities 750,719 765,238 16,934 2,415
State and municipal obligations 179,394 195,081 15,687 -
Corporate debt securities 702,123 746,331 45,608 1,400
Stated maturity preferred stock 797,044 835,320 40,933 2,657
Common stock 2,218 2,357 139 -
$2,431,919 $2,544,770 $119,323 $6,472
</TABLE>
<PAGE>
PAGE 49
Notes to Financial Statements (continued)
The amortized cost and fair value of securities held to maturity
and available for sale, by contractual maturity, at Dec. 31, 1994,
are shown below. Cash flows will differ from contractual
maturities because issuers may have the right to call or prepay
obligations.
Amortized Fair
cost value
HELD TO MATURITY
Due within 1 year $142,206 $144,388
Due after 1 through 5 years 491,017 497,199
Due after 5 years through 10 years 384,200 383,699
Due after 10 years 163,269 160,794
1,180,692 1,186,080
Mortgage-backed securities 65,101 66,329
$1,245,793 $1,252,409
AVAILABLE FOR SALE
Due within 1 year $78,018 $77,683
Due after 1 through 5 years 315,279 306,508
Due after 5 years through 10 years 70,698 65,590
Due after 10 years 52,038 51,978
516,033 501,759
Mortgage-backed securities 745,513 724,276
Common stock 755 639
$1,262,301 $1,226,674
During the year ended Dec. 31, 1994, there were no securities
classified as trading securities.
During the year ended Dec. 31, 1994, securities classified as
available for sale were sold with proceeds of $265,008 and gross
realized gains on such sales of $363 and gross realized losses on
such sales of $10,140.
During the year ended Dec. 31, 1994, a held-to-maturity security
was sold with an amortized cost of $3,158. A gain of $5 was
realized on the sale. The security was sold due to deterioration
in the issuer's creditworthiness.
There were no transfers from securities classified as held to
maturity during the year ended Dec. 31, 1994.
B) Investments in securities with fixed maturities comprised 84%
and 85% of IDSC's total invested assets at Dec. 31, 1994 and 1993,
respectively. Securities are rated by Moody's and Standard & Poors
(S&P), or by Parent's 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 1994 1993
Aaa/AAA 36% 35%
Aa/AA 5 4
Aa/A 3 1
A/A 25 22 <PAGE>
PAGE 50
A/BBB 3 3
Baa/BBB 24 31
Below investment grade 4 4
100% 100%
Of the securities rated Aaa/AAA, 88% at Dec. 31, 1994 and 87% at
Dec. 31, 1993, are U.S. Government Agency mortgage-backed
securities that are not rated by a public rating agency.
Approximately 17% at Dec. 31, 1994 and 23% at Dec. 31, 1993 of
other securities with fixed maturities are rated by Parent's
internal analysts. No investment in any one issuer at Dec. 31,
1994 and 1993, is greater than 1% and 2%, respectively, of IDSC's
total investment in securities with fixed maturities.
At Dec. 31, 1994 and 1993, approximately 9% and 10%, 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 1994 1993
East North Central 25% 23%
South Atlantic 24 23
West North Central 18 21
Middle Atlantic 16 14
Mountain 6 6
West South Central 5 8
Pacific 3 3
New England 3 2
100% 100%
Property Type 1994 1993
Apartments 41% 40%
Retail/shopping centers 30 28
Industrial buildings 12 13
Office buildings 8 10
Retirement homes 1 1
Hotels/motels - 1
Other 8 7
100% 100%
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.
<PAGE>
PAGE 51
Dec. 31, 1994 Dec. 31, 1993
Carrying Fair Carrying Fair
amount value amount value
Residential $48 $43 $53 $59
Commercial 254,531 246,874 282,773 289,726
254,579 246,917 282,826 289,785
Reserve for losses (611) - (961) -
Net first mortgage
loans on real estate $253,968 $246,917 $281,865 $289,785
At Dec. 31, 1994 and 1993, there were no commitments for fundings
of first mortgage loans. If there were any commitments, 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% or
less of the market value of the real estate at the time of the loan
funding.
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.
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.
<PAGE>
PAGE 52
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, 1994 and 1993 were:
<TABLE>
<CAPTION>
1994
Average Average
Reserve gross additional
balance accumulation credit
at Dec.31 rate rate
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates $49,278 3.49% 1.51%
Without guaranteed rates (A) 286,434 - 2.97
Additional credits and accrued interest 19,698 3.11 -
Advance payments and accrued interest (C) 1,634 3.08 1.92
Other 56 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates 234,822 3.25 1.09
Without guaranteed rates (A) and (D) 2,154,376 - 4.81
Additional credits and accrued interest 140,766 3.35 -
Due to unlocated certificate holders 341 - -
$2,887,405
1993
Average Average
Reserve gross additional
balance accumulation credit
at Dec.31 rate rate
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 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>
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.
<PAGE>
PAGE 53
B) On certain series of single payment certificates, additional
interest is predeclared for periods greater than one year. At Dec.
31, 1994, $18,398 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 3.08%. IDSC has
increased the rate of accrual to 5.00% through April 30, 1996. An
appropriation of retained earnings amounting to $50 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, 1994 and 1993 was $263,494 and
$402,801, respectively.
E) The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1994 and 1993. 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 are a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less any
applicable surrender charges.
<TABLE><CAPTION>
1994 1993
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
Reserves with terms of one year or less $2,425,880 $2,415,970 $2,409,668 $2,402,972
Other 461,525 461,060 367,783 384,484
Total certificate reserves 2,887,405 2,877,030 2,777,451 2,787,456
Unapplied certificate transactions 2,671 2,671 1,064 1,064
Certificate loans and accrued interest (58,840) (58,840) (68,174) (68,174)
Total $2,831,236 $2,820,861 $2,710,341 $2,720,346
</TABLE>
5. Dividend restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1% on such series of
certificates have been authorized by IDSC. This restriction has
been removed for 1995 and 1996 by action of IDSC on additional
credits in excess of this requirement.
6. Fees paid to Parent and affiliated companies ($ not in
thousands)
A) The basis of computing fees paid or payable to Parent for
investment advisory and services is:
The investment advisory and services agreement with Parent provides
for a graduated scale of fees equal on an annual basis to 0.75% on<PAGE>
PAGE 54
the first $250 million of total book value of assets of IDSC, 0.65%
on the next $250 million, 0.55% on the next $250 million, 0.50% on
the next $250 million and 0.45% 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.
B) The basis of computing fees paid or payable to American Express
Financial Advisors Inc. (formerly IDS Financial Services Inc.) (an
affiliate) for distribution services is:
Fees payable to American Express Financial Advisors Inc. on sales
of IDSC's certificates are based upon terms of agreements giving
American Express Financial Advisors 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% of the purchase price at
time of issuance and 0.25% 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% 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% of
the purchase price on the first day of the certificate's term and
1.25% 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% of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.
<PAGE>
PAGE 55
C) The basis of computing depositary fees paid or payable to
American Express Trust Company (formerly IDS Trust Company) (an
affiliate) is:
<TABLE><CAPTION>
<S> <C>
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
</TABLE>
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% 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% of the reserves maintained for the certificates on an amount
from $250,000 to $499,000, 0.65% on an amount from $500,000 to
$999,000 and 0.50% 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.
7. Income taxes
Income tax expense (benefit) as shown in the statement of
operations for the three years ended Dec. 31, consists of:
1994 1993 1992
Federal:
Current ($8,743) ($19,777) ($1,571)
Deferred 3,933 11,446 (13,501)
(4,810) (8,331) (15,072)
State 100 349 7
($4,710) ($7,982) ($15,065)
<PAGE>
PAGE 56
Income tax expense (benefit) differs from that computed by using
the U.S. Statutory rate of 35% for 1994 and 1993 and 34% for 1992.
The principal causes of the difference in each year are shown
below:
<TABLE><CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Federal tax expense (benefit) at U.S. statutory rate $12,642 $13,178 $12,579
Tax-exempt interest (4,205) (4,929) (6,212)
Dividend exclusion (13,862) (17,326) (22,317)
Change in statutory rates - (406) -
Other, net 615 1,152 878
Federal tax benefit ($4,810) ($8,331) ($15,072)
</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.
1994 1993
Deferred tax assets:
Investment unrealized losses $12,470 $-
Certificate reserves 4,315 6,127
Investments 1,390 1,225
Investment reserves 1,120 1,487
Purchased/written call options 283 -
Total deferred tax assets 19,578 8,839
Deferred tax liabilities:
Deferred distribution fees 9,500 6,865
Dividends receivable 1,000 1,255
Return of capital dividends 508 463
Purchased/written call options - 254
Other, net 198 167
Total deferred tax liabilities 11,206 9,004
Net deferred tax assets (liabilities) $8,372 ($165)
8. Derivative financial instruments
IDSC enters into transactions involving derivative financial
instruments as an end user (nontrading). IDSC uses these
instruments to manage its exposure to interest rate risk, including
hedging specific transactions. IDSC manages risks associated with
these instruments as described below.
<PAGE>
PAGE 57
Market risk is the possibility that the value of the derivative
financial instrument will change due to fluctuations in a factor
from which the instrument derives its value, primarily an interest
rate or a major market index. IDSC is not impacted by market risk
related to derivatives held because derivatives are largely used to
manage risk and, therefore, the cash flows and income effects of
the derivatives are inverse to the effects of the underlying hedged
transactions.
Credit exposure is the possibility that the counterparty will not
fulfill the terms of the contract. IDSC monitors credit exposure
related to derivative financial instruments through established
approval procedures, including setting concentration limits by
counterparty, reviewing credit ratings and requiring collateral
where appropriate. The majority of IDSC's counterparties to the
interest rate caps are rated A or better by nationally recognized
rating agencies. The counterparties to the call options are five
major broker/dealers.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional amounts
do not represent market risk or credit exposure.
Credit exposure related to derivative financial instruments is
measured by the carrying amount, if higher, or the replacement cost
of those contracts in a gain position at the balance sheet date.
The replacement cost represents the fair value of the instrument,
and is determined by market values, dealer quotes or pricing
models.
IDSC's holdings of derivative financial instruments were as follows
at Dec. 31, 1994.
<TABLE><CAPTION>
Notional Total
or contract Carrying Fair credit
amount value value exposure
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $1,020,000 $14,946 $24,727 $24,727
Purchased call options 191,496 7,770 8,886 8,886
Total $1,211,496 $22,716 $33,613 $33,613
Liabilities:
Written call options $189,443 $2,070 $1,779 $-
</TABLE>
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The interest rate
caps expire on various dates from 1995 to 1997. The options expire
in 1995.
Interest rate caps and options are used to manage IDSC's exposure
to rising interest rates. These instruments are used primarily to
protect the margin between the interest rate earned on investments
and the interest rate accrued to related investment certificate
holders.
<PAGE>
PAGE 58
The interest rate caps are quarterly reset caps and IDSC earns
interest 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% to 13%. The cost
of these caps of $14,946 at Dec. 31, 1994, 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
amortization, net of any interest earned, is included in investment
expenses.
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.
The option contracts are less than one year in term. The premiums
paid or received on these index options are reported in other
qualified assets or other liabilities, as appropriate, and are
amortized into investment expenses over the life of the option.
The intrinsic value of these index options is also reported in
other qualified assets or other liabilities, as appropriate. The
unrealized gains and losses related to the changes in the intrinsic
value of these options are recognized currently in provision for
certificate reserves.
Following is a summary of open option contracts at Dec. 31, 1994
and 1993.
<TABLE><CAPTION>
1994
Face Average Index at
amount strike price Dec.31,1994
<S> <C> <C> <C>
Purchased call options $191,496 460 459
Written call options 189,443 506 459
1993
Face Average Index at
amount strike price Dec.31,1993
Purchased call options $221,389 452 466
Written call options 207,540 497 466
</TABLE>
9. Fair values of financial instruments
IDSC is required to disclose fair value information for most on-
and off-balance sheet financial instruments for which it is
practical to estimate that value. Certain financial instruments
such as trade receivables and payables (when the carrying value
approximates the fair value), and all non-financial instruments,
such as deferred distribution fees, are excluded from required <PAGE>
PAGE 59
disclosure. IDSC's off-balance sheet intangible assets, such as
IDSC's name and future earnings of the core business are also
excluded. IDSC's management believes the value of these excluded
assets is significant. The fair value of IDSC, therefore, cannot
be estimated by aggregating the amounts presented.
A summary of fair values of financial instruments as of Dec. 31, is
as follows:
<TABLE><CAPTION>
1994 1993
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
Financial assets
Cash equivalents (note 1) $152,912 $152,912 $68,871 $68,871
Investment securities (note 3) 2,472,467 2,479,083 2,431,919 2,544,770
First mortgage loans on real estate (note 3) 253,968 246,917 281,865 289,785
Derivative financial instruments (note 8) 22,716 33,613 38,424 21,425
Financial liabilities
Certificate reserves (note 4) 2,831,236 2,820,861 2,710,341 2,720,346
Derivative financial instruments (note 8) 2,070 1,779 1,640 2,992
</TABLE>
<PAGE>
PAGE 60
IDS Cash Reserve
Certificate
IDS Tower 10
Minneapolis, MN
55440-0010
Distributed by
American Express
Financial Advisors Inc.
<PAGE>
PAGE 61
The more you save, the more you'll earn -- The interest rate on
your certificate is guaranteed for three months. Near the end of
that term, we'll notify you of the available rate for the next
three months. Plus, you can qualify to earn a higher interest
rate, depending on the balance of your account. Three rate tiers
are available so the more you accumulate, the more interest you'll
earn! Interest on IDS Cash Reserve Certificates is earned and
compounded monthly.
Your money is available when you need it -- You pay no withdrawal
penalty for either a partial or complete withdrawal of funds. You
may, at any time, make a partial withdrawal from your certificate
if you withdrawal at least $100 and keep a balance of at least
$1,000 in the certificate after the withdrawal. Interest is paid
through the end of the last completed certificate month.
Withdrawals before month end will result in loss of interest on the
amount withdrawn. You'll get the best result by timing a
withdrawal at the end of the certificate month.
An affordable way to build assets -- You can start building your
cash reserve right away, with automatic monthly investments of as
little as $50 per month.
Convenient service -- Make deposits by mail or by authorizing
monthly deposits from your bank account or paycheck or by
depositing your Social Security check. Use the mail or telephone
to make withdrawals or transfer your investment into another IDSC
certificate.
(This brochure is not part of the prospectus.)
<PAGE>
PAGE 62
IDS Certificates
IDS certificates for a range of investment needs
IDSC offers the following certificates:
IDS Cash Reserve Certificate
A safe, highly liquid investment for your short-term cash needs
like paying bills and meeting emergencies. You can invest with a
single investment and make additional investments anytime you want,
or make automatic monthly investments of as little as $50.
Interest rates are guaranteed by IDSC for a three-month term. And
our interest rate tiers allow you to earn higher rates the more you
invest.
[icon of a piggy bank]
IDS Flexible Savings Certificate
An investment you can tailor to your own needs. On this
certificate IDSC guarantees interest for terms of six months to
three years. At any time, you can add to your investment, up to
25% of the initial or renewal amount, locking in your current IDSC-
guaranteed rate and protecting yourself against falling market
rates. Larger investments may earn higher rates. In addition, you
can withdraw up to 10% of your principal without penalty. And you
can time this withdrawal to avoid loss of interest
[icon of the face of George Washington]
IDS Future Value Certificate
Do you want a specific sum of money you can count on to meet a
future goal, like college tuition or a retirement nest egg? You'll
know exactly how much you can expect, and when, with this
certificate. IDSC guarantees interest for maturities of four
through 10 years. Generally, rates will be higher than those paid
on shorter-term certificates. What's more, our interest rate tiers
reward you with even higher rates when you save more.
[icon of a sunrise]
IDS Installment Certificate
A great way to build your cash reserves through affordable
systematic savings. You can start building your cash reserves
right away, with regular investments of as little as $50 per month.
It offers highly competitive yields and a bonus for regular saving,
that can give a substantial boost to your total return. IDSC
guarantees a specific interest rate for every three months you hold
your certificate.
[icon of steps]
<PAGE>
PAGE 63
IDS Stock Market Certificate
The security of IDSC's guarantee that it will repay your principal,
plus stock market returns, is a combination that's hard to beat.
It's available through this single payment certificate that lets
you share in the growth of U.S. industry without risking your money
in a volatile market. IDSC guarantees return of your principal but
links your return to stock market performance, as measured by a
broad market index. You decide whether part of your return will be
guaranteed by IDSC or whether all of it will be tied to the market.
[icon of a building with columns]
For more information including fees and expenses, contact your
American Express financial advisor for a prospectus. Read it
carefully before you invest or send money.
(This brochure is not part of the prospectus.)<PAGE>
PAGE 64
Quick telephone reference
American Express Telephone Transaction Service
Withdrawals, transfers, inquiries
National/Minnesota: 800-437-3313
Mpls./St. Paul area: 612-671-3800
TTY Service
For the hearing impaired
800-846-4293
American Express Infoline
Current rate information
(automated response, TouchTone (trademark) phones only)
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 612-671-1630
American Express
Financial Advisors
IDS Cash Reserve Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
