<PAGE>
PAGE 1
I represent that this English language IDS Investors Certificate
prospectus represents a fair and accurate translation of a Spanish
language IDS Investors Certificate prospectus.
________________________
Bruce A. Kohn
Vice President and General Counsel
IDS Certificate Company
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PAGE 2
IDS Investors Certificate
[icon of a globe]
Provides high fixed rates with capital preservation
Distributed by American Express Financial Advisors Inc.<PAGE>
PAGE 3
To our certificate holders
A glimpse of American Express Financial Corporation
Assets Under Management
110
$105 billion in 1994 --
-- $10
90
--
80
70
--
60
-- 50
40
30
20
--
-- 10
Started with $1,500 --
-- -- -- -- -- 0
1894 1920 1930 1940 1950 1960 1970 1980 1990 1991 1992 1993 1994
*Volatility between years prior to 1950 has not been illustrated.
The American Express Financial Corporation group of companies,
headquartered in Minneapolis, Minnesota, helps clients meet their
long-term goals with an array of investment products. In fact,
American Express Financial Corporation has been helping people
reach their financial goals since 1894 when it first, as IDS,
introduced the investment certificate as a way for clients to save
money systematically.
That long-standing commitment was affirmed in 1984, when IDS became
an American Express company. Through its affiliation with American
Express, IDS has increased its ability to compete in global markets
and find new ways to serve its clients. In return, IDS Financial
Corporation, and now American Express Financial Corporation, has
become one of the best-performing companies in the American Express
family. Its expertise in financial markets has added an important
dimension to American Express services.<PAGE>
PAGE 4
In 1994, American Express Financial Corporation's strength was
reflected in many ways --
o A record net income of $428 million, a 19.6 percent increase
over 1993.
o Record revenues of $3.3 billion, a 3.6 percent increase over
1993.
o The American Express Financial Corporation group of companies
owned or managed $105.5 billion in assets, a 5.8 percent
increase over 1993.
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PAGE 5
Current Annual Interest Rates for , 19
These rates will apply to your initial term if you purchase today.
Interest rates for future terms may be greater or less than these
rates.
Actual
Simple Compound Effective
Interest Yield for Annualized
Term Rate the Term* Yield*
1-month % % %
2-month % % %
3-month % % %
6-month % % %
12-month % % %
24-month % % %
36-month % % %
*Assuming monthly compounding for the number of months in the term.
**Assuming monthly compounding for 12 months.
These interest rates apply to certificates purchased for $ .
Rates may vary depending on the amount you invest and the term you
select.
Rates for new purchases may change daily. The interest rate that
will apply to your certificate is the rate applicable to your
chosen term and amount invested on the date your application is
accepted by the Issuer. Please refer to the attached prospectus
for information as to how rates are set.
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PAGE 6
Form W-8
Certificate of Foreign Status
(Rev.February 1991)
Department of the Treasury
Internal Revenue Service
Please print or type
Name of Beneficial Owner (if joint account, also give joint owner's
name)
U.S. taxpayer identification number (if any)
Permanent Address (See Specific instructions)(include apt. or suite
no.)
City, province or state, postal code and country
Current Mailing Address, if different (Include apt. or suite no.,
or P.O. box if mail is not delivered to street address.)
City, town, or post office, state, and ZIP code (if foreign
address, enter city, province or state, postal code and country.)
List account information here (Optional, see Specific
Instructions.) Account number(s) Account type
Notice of Change in Status. - To notify the payer, mortgage
interest recipient, broker or barter exchange that you no longer
qualify for exemption, check
here........................................__
If you check this box, reporting will begin on the account(s)
listed.
Please Sign Here
Certification. - (Check applicable box(es)). Under penalties of
perjury, I certify that:
__ For INTEREST PAYMENTS, I am not a U.S. citizen or resident (or I
am filing for a foreign corporation, partnership, estate, or
trust); AND
__ For BROKER TRANSACTIONS or BARTER EXCHANGES, I am an exempt
foreign person as defined in the instructions below.
Signature ______________________________ Date _____________________
General Instructions
(Section references are to the Internal Revenue Code unless
otherwise noted.)
Purpose of Form. - Use Form W-8 or a substitute form containing a
substantially similar statement to tell the payer, mortgage
interest recipient, middleman, broker, or barter exchange that you
are a nonresident alien individual, foreign entity, or exempt
foreign person not subject to certain U.S. information return
reporting or backup withholding rules.
Caution: Form W-8 does not exempt the payee from the 30% (or lower
treaty) withholding rates.
Nonresident Alien Individual. - For income tax purposes, the term
nonresident alien individual means an individual who is neither a
U.S. citizen nor resident. Generally, an alien is considered to be
a U.S. resident if:
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PAGE 7
oThe individual was a lawful permanent resident of the United
States at any time during the calendar year, that is, the alien
held an immigrant visa (a "green card"), or
oThe individual was physically present in the United States on:
(1) at least 31 days during the calendar year, and
(2) 183 days or more during the current year and the two preceding
calendar years (counting all the days of physical presence in
the current year, one-third the number of days of presence in
the first preceding year, and only one-sixth of the number of
days in the second preceding year).
See Pub. 519, U.S. Tax Guide for Aliens, for more information on
resident and nonresident alien status.
Exempt Foreign Person. - For purposes of this form, you are an
exempt foreign person for a calendar year in which:
oYou are a nonresident alien individual or a foreign corporation,
partnership, estate or trust, and
oYou are not engaged, or plan to be engaged during the year, in a
U.S. trade or business that has effectively connected gains from
the broker or barter exchange, or your country has a tax treaty
with the U.S. that exempts your transactions from U.S. taxes.
Who May Not File. - If you are a nonresident alien individual
married to a U.S. citizen or resident and have made an election
under section 6013(g) or (h), you are treated as a U.S. resident
and may not use Form W-8.
When To File. - Form W-8 or substitute form should be filed before
a payment is made. Otherwise, the payer may have to withhold and
send 20% of the payment to the Internal Revenue Service (see Backup
Withholding below). This certificate generally remains in effect
for three calendar years. However, the payer may require you to
file a new certificate each time a payment is made to you.
Where To File. - File this form with the payer of the qualifying
income who is the withholding agent (see Withholding Agent on page
2). You may wish to keep a copy for your own records.
Backup Withholding. - A U.S. taxpayer identification number or Form
W-8 or substitute form must be given to the payers of certain
income. I a taxpayer identification number or Form W-8 or
substitute form is not provided or the wrong taxpayer
identification number is provided, these payers may have to
withhold 20% of each payment or transaction. This is called
"backup withholding."
Reportable payments subject to backup withholding rules are:
oInterest payments under section 6049(a).
oDividend payments under sections 6042(a) and 6044.
oOther payments (i.e., royalties and payments from broker and
barter exchanges) under sections 6041, 6041(a), 6045, 6050A and
6050N.
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PAGE 8
If backup withholding occurs, an exempt foreign person who is a
nonresident alien individual may get a refund by filing Form
1040NR, U.S. Nonresident Alien Income Tax Return, with the Internal
Revenue Service Center, Philadelphia, PA 19255, even if filing the
return is not otherwise required.
U.S. Taxpayer Identification Number. - The Internal Revenue law
requires that certain income be reported to the Internal Revenue
Service using a U.S. taxpayer identification number (TIN). This
number can be a Social Security number assigned to individuals by
the Social Security Administration or an employer identification
number assigned to businesses and other entities by the Internal
Revenue Service.
Payments to account holders who are foreign persons (nonresident
alien individuals, foreign corporations, partnerships, estates or
trusts) generally are not subject to U.S. reporting requirements.
also, foreign persons are not generally required to have a U.S.
taxpayer identification number, nor are they subject to any backup
withholding because they do not furnish such a number to a payer or
broker.
However, foreign persons with income effectively connected with a
trade or business in the United States (income subject to regular
(graduated) income tax), must have a TIN. To apply for a TIN, use
Form SS-4, Application for Employer Identification Number, or Form
SS-5, Application for a Social Security Card, available from Social
Security Administration district offices.
Special Rules
Mortgage Interest. - For purposes of the reporting rules, mortgage
interest is interest paid on a mortgage to a person engaged in a
trade or business originating mortgages in the course of that trade
or business. A mortgage interest recipient is one who receives
interest on a mortgage that was acquired in the course of a trade
or business.
Mortgage interest is not subject to backup withholding rules, but
is subject to reporting requirements under section 6050H.
Generally, however, the reporting requirements do not apply if the
payer of record is a nonresident alien individual who pays interest
on a mortgage not secured by real property in the United States.
Use Form W-8 or substitute statement to notify the mortgage
interest recipient that the payer is a nonresident alien
individual.
Portfolio Interest. - Generally, portfolio interest paid to a
nonresident alien individual or foreign partnership, estate or
trust is not subject to backup withholding rules. However, if
interest is paid on portfolio investments to a beneficial owner
that is neither a financial institution nor a member of a clearing
organization, Form W-8 or substitute form is required.
Registered obligations not targeted to foreign markets qualify as
portfolio interest not subject to 30% withholding but require the
filing of Form W-8 or substitute form.
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PAGE 9
See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign
Corporations, for registered obligations targeted to foreign
markets and when Form W-8 or substitute form is not required on
these payments.
See Instructions to withholding Agents for reporting rule on
portfolio interest.
Bearer Obligations. - The interest from bearer obligations targeted
to foreign markets is treated as portfolio interest and is not
subject to 30% withholding. Form W-8 or substitute form is not
required.
Broker or Barter Exchanges. - Income from broker or barter
exchanges is subject to reporting rules and backup withholding
unless Form W-8 or substitute form is filed to notify the broker or
barter exchange that you are an exempt foreign person as defined on
page 1.
A broker includes a dealer, barter exchange, and any other person
who, in the ordinary course of a trade or business, regularly acts
as a middleman with respect to property or services.
A barter exchange is any organization of members providing property
or services who jointly contract to trade or barter such property
or services.
A person also includes any governmental unit, agency or
instrumentality thereof.
Specific Instructions
U.S. Taxpayer Identification Number. - If you have a U.S. taxpayer
identification number, enter your number in this space (see the
discussion earlier).
Permanent Address. - Enter your complete address in the country
where you reside permanently for income tax purposes.
If you are: Show the address of:
An individual...................Your permanent residence
A partnership or corporation....Principal office
An estate or trust..............Permanent residence or principal
office of any fiduciary
Also show your current mailing address if it differs from your
permanent address.
Account Information (optional). - If you have more than one account
(savings, certificate of deposit, pension, IRA, etc.) with the same
payer, list all account numbers and types on one Form W-8 or
substitute form unless your payer requires you to file a separate
certificate for each account.
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PAGE 10
If you have more than one payer, file a separate Form W-8 with each
payer.
Signature. - If only one foreign person owns the account(s) listed
on this form, that foreign person should sign the Form W-8.
If each owner of a joint account is a foreign person, each should
sign a separate Form W-8.
Notice of Change in Status. - If you become a U.S. citizen or
resident after you have filed Form W-8 or substitute form, or you
cease to be an exempt foreign person, you must notify the payer in
writing within 30 days of your change in status.
To notify the payer, you may check the box in the space provided on
this form or use the method prescribed by the payer.
Reporting will then begin on the account(s) listed and backup
withholding may also begin unless you certify to the payer that:
(1) The U.S. taxpayer identification number you have given is
correct, and
(2) The Internal Revenue Service has not notified you that you are
subject to backup withholding because you failed to report certain
income.
You may use Form W-9, Request for Taxpayer Identification Number
and Certificate, to make these certifications.
If an account is no longer active, you do not have to notify a
payer of you change in status unless you also have another account
with the same payer that is still active.
False Certificate. - If you file a false certificate when you are
not entitled to the exemption from withholding or reporting, you
may be subject to fines and/or imprisonment under U.S. perjury
laws.
Instructions to Withholding Agents
Withholding Agent. - Generally, the person responsible for payment
of the items discussed above to a nonresident alien individual or
foreign entity is the withholding agent (see Pub. 515).
Retention of Statements. - Form W-8 or substitute statement must be
retained in the records of the withholding agent for at least four
years following the end of the last calendar year during which the
payment if paid or collected.
Portfolio Interest. - Although registered obligations not targeted
to foreign markets are not subject to 30% withholding, you must
file Form 1042S, Foreign Person's U.S. Source Income Subject to
Withholding, to report the interest payment. Both Form 1042S and a
copy of Form W-8 or substitute form must be attached to Form 1042,
Annual Withholding Tax Return for U.S. Source Income of Foreign
Persons.
<PAGE>
PAGE 11
IDS Investors Certificate
Prospectus
April 26, 1995
IDS Investors Certificates are issued by IDS Certificate Company
(the Issuer). The IDS Investors Certificate is a security
purchased with a single investment. You may purchase this
certificate by selecting a term of 1, 2, 3, 6, 12, 24 or 36 months,
and an initial investment of at least $100,000 but not more than $5
million (unless you receive prior authorization to invest more) in
the aggregate, exclusive of interest. Your principal and interest
are guaranteed by the Issuer. The Issuer guarantees a fixed rate
of interest depending upon the term you select. You may invest in
successive terms up to a total of 20 years from the issue date of
the certificate. Your interest rate will be determined as
described in "About the certificate."
This prospectus describes IDS Investors Certificate issued by the
Issuer and distributed by American Express Financial Advisors Inc.
American Express Bank International (AEBI) has an arrangement with
American Express Financial Advisors Inc. under which the
certificate is offered to AEBI's clients who are neither citizens
nor residents of the United States, and to certain U.S. trusts.
The certificate is currently available through AEBI offices located
in Florida and New York. The certificate is also available to
certain clients of Coutts & Co (USA) International (Coutts) through
its office in California.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS
Investors 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
Investors Certificate as described in the prospectus, or to bind
the Issuer by any statement not in it.
THIS CERTIFICATE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER ENTITY, AND IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
Issuer: IDS Certificate Company
IDS Tower 10
Minneapolis, MN 55440-0010
1-800-437-3133 (toll free)
(612) 671-3800
(Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1630 (Minneapolis/St. Paul area)
<PAGE>
PAGE 12
Distributor:
American Express Financial Advisors Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Selling Agents:
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300
Coutts & Co (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
Where to get information about the Issuer
The Issuer is subject to the reporting requirements of the
Securities Exchange Act of 1934. Reports and other information on
the Issuer are filed with the Securities and Exchange Commission
(SEC). Copies can be obtained from the Public Reference Section of
the SEC, 450 5th St. NW, Washington, DC 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 Street
Suite 1400
Chicago, IL 60611
Pacific Regional Office
5670 Wilshire Blvd.
11th Floor
Los Angeles, CA 90036
Initial Interest Rates
The Issuer guarantees a fixed rate of interest for each term. For
the initial term, the rate will be within a specified range of
certain average interest rates generally referred to as the London
Interbank Offered Rates (LIBOR) as explained under "About the
certificate."<PAGE>
PAGE 13
Here are the interest rates in effect on the date of this
prospectus, April 26, 1995*:
Actual
Simple Compound Effective
Interest Yield for Annualized
Term Rate* the Term ** Yield ***
1 month 6.125% 6.125% 6.300%
2 month 6.109 6.125 6.283
3 month 6.218 6.250 6.398
6 month 6.292 6.375 6.477
12 month 6.374 6.563 6.563
24 month 6.563 6.764 6.764
36 month 6.563 6.764 6.764
* These are the rates for investments of $1 million. Rates may
depend on factors described in "Rates for new purchases" under
"About the certificate."
** Assuming monthly compounding for the number of months in the
term and a $1 million purchase.
*** Assuming monthly compounding for 12 months and a $1 million
purchase.
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for future terms are set at the discretion
of the Issuer and may also differ from the rates shown here.
The Issuer reserves the right to issue other securities with
different terms.
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PAGE 14
Contents
Table of Contents
About the certificate
Investment amounts and terms
Face amount and principal
Value at maturity
Receiving cash during the term
Interest
Rates for new purchases
Rates for future terms
Additional investments
How to invest and withdraw funds
Buying your certificate
Full and partial withdrawals
When your certificate term ends
Transferring certificate ownership
Giving instructions and written notification
Purchases by bank wire
Tax treatment of your investment
Withholding taxes
Estate tax
Trusts
How your money is used and protected
Invested and guaranteed by the Issuer
Regulated by government
Backed by our investments
Investment policies
How your money is managed
Relationship between the Issuer and American Express Financial
Corporation
Capital structure and certificates issued
Investment management and services
Distribution
Selling agreement with AEBI and Coutts
Employment of other American Express affiliates
Directors and officers
Auditors
About American Express Bank International
About American Express Company
Additional information about IDS Investors certificate
Annual financial information
Summary of selected financial information
Management's discussion and analysis of
financial condition and results of operations
Report of independent auditors<PAGE>
PAGE 15
Financial statements
Notes to financial statements
<PAGE>
PAGE 16
About the certificate
Investment amounts and terms
You may purchase the IDS Investors Certificate with an initial
payment of at least $100,000 payable in U.S. currency. Unless you
receive prior authorization, your total amount paid in any one or
more certificates, in the aggregate over the life of the
certificate, less withdrawals, cannot exceed $5 million.
After determining the amount you wish to invest, you select a term
of 1, 2, 3, 6, 12, 24 or 36 months for which the Issuer will
guarantee a specific interest rate. The Issuer guarantees the
principal of your certificate. At the end of the term, you may
have interest earned on the certificate during its term credited to
your certificate or paid to you. Investments in the certificate
may continue for successive terms up to a total of 20 years from
the issue date of the certificate. Generally, you will be able to
select any of the terms offered. But if your certificate is
nearing its 20-year maturity, you will not be allowed to select a
term that would carry the certificate past its maturity date.
Face amount and principal
The face amount of the certificate is the amount of your initial
investment, and will remain the same over the life of the
certificate. Any investment or withdrawal within 15 days of the
end of a term will be added on or deducted to determine principal
for the new term. A withdrawal at any other time is taken first
from interest credited to your investment during that term. The
principal is the amount that is reinvested at the beginning of each
subsequent term, and is calculated as follows:
Principal equals Face Amount (initial investment)
plus At the end of a term, interest credited to
your account during the term
minus Any interest paid to you in cash
plus Any additional investments to your
certificate
minus Any withdrawals, fees and applicable
penalties
Principal may change during a term as described in "Full and
partial withdrawals."
For example: Assume your initial investment (face amount) of
$500,000 earned $7,500 of interest during the term. You have not
taken any interest as cash or made any withdrawals. You have
invested an additional $250,000 prior to the beginning of the next
term. Your principal for the next term will equal:
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PAGE 17
$500,000 face amount (initial investment)
plus 7,500 interest credited to your account
minus (0) interest paid to you in cash
plus 250,000 additional investment to your certificate
minus (0) withdrawals and applicable penalties or fees
$757,500 PRINCIPAL AT THE BEGINNING OF THE NEXT TERM
Value at maturity
You may continue to invest for successive terms for up to a total
of 20 years. Your certificate matures at 20 years from its issue
date. At maturity, the value of your certificate will be the total
of your purchase price, plus additional investments and any
credited interest not paid to you in cash, less any withdrawals and
penalties. Some fees may apply as described in "How to invest and
withdraw funds."
Receiving cash during the term
If you need your money before your certificate term ends, you may
withdraw part or all of its value at any time, less any penalties
that apply.
Procedures for withdrawing money, as well as conditions under which
penalties apply, are described in "Full and partial withdrawals"
under "How to invest and withdraw funds."
Interest
Your investments earn interest from the date they are credited to
your account. Interest is compounded and credited at the end of
each certificate month (on the monthly anniversary of the issue
date). Interest may be paid to you monthly in cash if you maintain
a principal balance of at least $500,000.
The Issuer declares and guarantees a fixed rate of interest for
each term during the life of your certificate. We calculate the
amount of interest you earn each certificate month by:
o applying the interest rate then in effect to
your balance each day
o adding these daily amounts to get a monthly
total
o subtracting interest accrued on any amount
you withdraw during the certificate month.
Interest is calculated on a 30-day month and 360-day year basis.
Rates for new purchases
When your application is accepted, you will receive a confirmation
of your purchase showing the rate that your investment will earn.
The Issuer guarantees that the rate in effect for your initial term
will be within a 100 basis point (1%) range of certain average
interest rates for comparable length dollar deposits available on
an interbank basis in the London market, and generally referred to <PAGE>
PAGE 18
as the London Interbank Offered Rates (LIBOR). For investment
greater than $250,000, initial rates for specific terms are
determined as follows:
1 month Within a range 100 basis points below to 0 basis points
above the 1-month LIBOR rate.
2 months Within a range 100 basis points below to 0 basis points
above the 1-month LIBOR rate. (A 2-month LIBOR rate is
not published.)
3 months Within a range 100 basis points below to 0 basis points
above the 3-month LIBOR rate.
6 months Within a range 100 basis points below to 0 basis points
above the 6-month LIBOR rate.
12 months Within a range 100 basis points below or equal to or up
to above the 12-month LIBOR rate.
24 months Within a range 70 basis points below to 30 points
above the 12-month LIBOR rate. (A 24-month LIBOR rate
is not published.)
36 months Within a range 70 basis points below to 30 points
above the 12-month LIBOR rate. (A 36-month LIBOR rate
is not published.)
For investments of $100,000 to $249,999.99, initial rates for
specific terms are determined as follows:
1 month Within a range 175 basis points below to 75 basis points
below the 1-month LIBOR rate.
2 months Within a range 175 basis points below to 75 basis points
below the 1-month LIBOR rate. (A 2-month LIBOR rate is
not published.)
3 months Within a range 175 basis points below to 75 basis points
below the 3-month LIBOR rate.
6 months Within a range 175 basis points below to 75 basis points
below the 6-month LIBOR rate.
12 months Within a range of 175 basis points below to 75 basis
points below the 12-month LIBOR rate.
24 months Within a range of 145 basis points below to 45 basis
points below the 12-month LIBOR rate. (A 24-month LIBOR
rate is not published.)
36 months Within a range of 145 basis points below to 45 basis
points below the 12-month LIBOR rate. (A 36-month LIBOR
rate is not published.)
For example, if the LIBOR rate published on the date rates are
determined with respect to a 6-month deposit is 6.50%, the rate
declared on a 6-month IDS Investors Certificate greater than <PAGE>
PAGE 19
$250,000 would be between 5.50% and 6.50%. If the LIBOR rate
published for a given week with respect to 12-month certificates is
7.00%, the Issuer's rates in effect that week for the 24- and 36-
month IDS Investors Certificates greater than $250,000 would be
between 6.30% and 7.30%. When your application is accepted, you
will be sent a confirmation showing the rate that your investment
will earn for the first term.
LIBOR is the interbank-offered rates for dollar deposits at which
major commercial banks will lend for specific terms in the London
market. Generally, LIBOR rates quoted by major London banks will
be the same. However, market conditions, including movements in
the U.S. prime rate and the internal funding position of each bank,
may result in minor differences in the rates offered by different
banks. LIBOR is a generally accepted and widely quoted interest-
rate benchmark. The average LIBOR rate used by the Issuer is
published in The Wall Street Journal.
Rates for new purchases are reviewed and may change daily. The
guaranteed rate that is in effect for your chosen term on the day
your application is accepted at the Issuer's corporate office in
Minneapolis, Minnesota, U.S.A. will apply to your certificate. The
interest rates printed in the front of this prospectus may or may
not be in effect on the date your application to invest is
accepted. Rates for new purchases may vary depending on the amount
you invest, but will always be within the 100 basis point range
described above. You may obtain the current interest rates by
calling your AEBI or Coutts representative.
In determining rates based on the amount of your investment, the
Issuer may offer a rate based on your aggregate investment
determined by totaling only the amounts invested in each
certificate that has a current balance exceeding a specified level.
The current balance considered in this calculation may be exclusive
of interest. The certificates whose balances are aggregated must
have identical ownership. The rate may be available only for a
certificate whose current balance exceeds a specified level.
Interest rates for the term you have selected will not change once
the term has begun.
Rates for future terms
Interest on your certificate for future terms may be greater or
less than the rates you receive during your first term. In setting
future interest rates for subsequent terms, a primary consideration
will be the prevailing investment climate, including the LIBOR
rates. Nevertheless, the Issuer has complete discretion as to what
interest rates it will declare beyond the initial term. The Issuer
will send you notice at the end of each term of the rate your
certificate will earn for the new term. You have a 15-day grace
period to withdraw your certificate without a withdrawal charge.
If LIBOR is no longer publicly available or feasible to use, the
Issuer may use another, similar index as a guide for setting rates.
<PAGE>
PAGE 20
Additional Investments
You may add to your investment within the 15 days following the end
of your term. A $25,000 minimum additional investment is required,
payable in U.S. currency. Your confirmation will show the
applicable rate. However, unless you receive prior approval from
the Issuer, your investment may not bring the aggregate net
investment of any one or more certificates held by you (excluding
any interest added during the life of the certificate and less
withdrawals) over $5 million. Additional investments of at least
$25,000 may be made by bank wire.
The Issuer must receive your additional investment within the 15
days following the end of a certificate's current term, if you wish
to increase your principal investment as of the first day of the
new term. Interest accrues from the first day of the new term or
the day your additional investment is accepted by the Issuer,
whichever is later, at the rate then in effect for your account.
Additional investments for one-month terms must be received by the
end of the certificate's current term.
The interest rate for these additional investments is the rate then
in effect for your account. If your additional investment
increases the principal of your certificate so that your
certificate's principal has exceeded a break point for a higher
interest rate, the certificate will earn this higher interest rate
for the remainder of the term, from the date the Issuer accepts the
additional investment.
Earning interest
At the end of each certificate month, interest is compounded and
credited to your account. A certificate month is the monthly
anniversary of the issue date. Interest may be paid to you monthly
in cash if you maintain a principal balance of at least $500,000.
The amount of interest you earn each certificate month is
determined by applying the interest rate then in effect to the
daily balance of your certificate, and subtracting from that total
the interest accrued on any amount withdrawn during the month.
Interest is calculated on a 360-day year basis. This means
interest is calculated on the basis of a 30-day month even though
terms are
How to invest and withdraw funds
Buying your certificate
This certificate is available only to AEBI or Coutts clients who
are neither citizens nor residents of the United States, and to
U.S. trusts organized under the laws of any state in the United
States, so long as the following are true:
o the trust is unconditionally revocable by the grantor or
grantors (the persons or persons who put the money into the
trust);
<PAGE>
PAGE 21
o there are no more than 10 grantors of the trust;
o all the grantors are neither citizens nor residents of the
United States;
o each grantor provides an appropriately certified Form W-8 (or
approved substitute), as described under "Tax Treatment of
Your Investment;"
o the trustee of the trust is a bank organized under the laws of
the United States or any state in the United States; and
o the trustee supplies IDS Certificate Company with appropriate
tax documentation.
The certificate is available through AEBI offices located in
Florida and New York, and to the limited extent as described in the
section "Selling Agreements with AEBI and Coutts," through a Coutts
office located in California. An AEBI or Coutts representative
will help you prepare your purchase application. The Issuer will
process the application at our corporate offices in Minneapolis,
MN, U.S.A. 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.
Important: When opening an account, you must provide the Issuer
with a Form W-8 or approved substitute. See "Taxes on your
earnings."
Purchase policies:
o You have 15 days from the date of purchase to cancel your
investment without penalty by notifying your AEBI or Coutts
representative, or by writing or calling the Client Service
Organization at the address or phone number on the cover of
this prospectus. If you decide to cancel your certificate
within this 15-day period, you will not earn any interest.
o The Issuer has complete discretion to determine whether to
accept an application and sell a certificate.
Full and partial withdrawals
You may receive all or part of your money at any time. However:
o Full and partial withdrawals of principal are subject to
penalties, described below.
o Partial withdrawals during a term must be at least $10,00
0. You may not make a partial withdrawal if it would red
uce your certificate balance to less than $100,000. If
you request such a withdrawal, we will contact you for
revised instructions.
o If a withdrawal reduces your account value to a point where we
pay a lower interest rate, you will earn the lower rate from
the date of the withdrawal.
<PAGE>
PAGE 22
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 If your certificate is pledged as collateral, any withdrawal
will be delayed until we get approval from the secured party.
Penalties for early withdrawal during a term:
When you request a full or partial withdrawal, we pay the amount
you request:
o first from interest credited during the current term
o then from the principal of your certificate.
Any additional investments or withdrawals during a term are added
to or deducted from the principal and are used in determining any
withdrawal charges.
Withdrawal penalties: For withdrawals during the term of more than
the interest credited that term, a 2% withdrawal penalty will be
deducted from the account's remaining balance.
For example, assume you invest $1 million in a certificate and
select a six-month term. Four months later assume you have earned
$27,000 in interest. The following demonstrates how the withdrawal
charge is deducted:
When you withdraw a specific amount of money, the Issuer has to
withdraw somewhat more from your account to cover the withdrawal
charge. For instance, suppose you request a $100,000 check on a $1
million investment. The first $27,000 paid to you is interest
earned that term, and the remaining $73,000 paid to you is
principal. The Issuer would send you a check for $100,000 and
deduct a withdrawal charge of $1,460 (2% of $73,000) from the
remaining balance of your certificate. Your new balance would be
$925,540.
Total investments $1,000,000
Interested credited $ 27,000
Total balance $1,027,000
Requested check $100,000
Credited interest withdrawn ( 27,000)
Withdrawal charge percent 2%
Actual withdrawal charge $1,460
Balance prior to withdrawal $1,027,000
<PAGE>
PAGE 23
Requested withdrawal check ($100,000)
Withdrawal charge ($1,460)
Total balance after withdrawal $925,540
Additionally, if you make a withdrawal during a certificate month,
you will not earn interest for the month on the amount withdrawn.
For more information on withdrawal charges, talk with your AEBI or
Coutts representative.
When your certificate term ends
Shortly before the end of the term you have selected for your
certificate, the Issuer will send you a notice indicating the
interest rate that will apply to the certificate for the new term.
When your certificate term ends, the Issuer will automatically
renew your certificate for the same term unless you notify your
AEBI or Coutts representative otherwise. If you wish to select a
different term, you must notify your representative in writing
before the end of the grace period. You will not be allowed to
select a term that would carry the certificate past its maturity
date.
The interest rates that will apply to your new term will be those
in effect on the day the new term begins. We will send you a
confirmation showing the rate of interest that will apply to the
new term you have selected. This rate of interest will not be
changed during that term.
If you want to withdraw your certificate without a withdrawal
charge, you must notify us within 15 calendar days following the
end of a term.
You may also add to your investment within the 15 calendar days
following the end of your term. See "Additional investments" under
"About the Certificate."
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate
recently purchased or added to by a check or money order that
is not guaranteed, we will wait for your check to clear.
Please expect a minimum of 10 days from the date of your
payment before IDSC mails a check to you. A check may be
mailed earlier if your bank provides evidence that your check
has cleared.
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.
<PAGE>
PAGE 24
Transferring Certificate Ownership
While this instrument is not a negotiable instrument, it may be
transferred or assigned on the Issuer's records if proper written
notice is received by the Issuer. Ownership may be assigned or
transferred to individuals or an entity who, for U.S. tax purposes,
is considered to be neither a citizen nor resident of the United
States. You may also pledge the certificate to AEBI or another
American Express Company affiliate or to Coutts as collateral
security. Your AEBI or Coutts representative can help you transfer
ownership.
Giving Instructions and Written Notification
Your AEBI or Coutts representative will be happy to handle
instructions concerning your account. Written instructions may be
provided to either your representative's office or directly to the
Issuer.
Proper written notice to your AEBI or Coutts representative or the
Issuer must:
o be addressed to your AEBI or Coutts office or the Issuer's
corporate office, in which case it must identify your AEBI or
Coutts office,
o include your account number and sufficient information for the
Issuer to carry out your request, and
o be signed and dated by all registered owners.
The Issuer will acknowledge your written instructions. If your
instructions are incomplete or unclear, you will be contacted for
revised instructions.
In the absence of any other written mandate or instructions you
have provided to AEBI or Coutts, you may elect in writing, on your
initial or any subsequent purchase application, to authorize AEBI
or Coutts to act upon the sole verbal instructions of any one of
the named owners, and in turn to instruct the Issuer with regard to
any and all actions in connection with the certificate referenced
in the application as it may be modified from time to time by term
changes, renewals, additions or withdrawals. The individual
providing verbal instructions must be a named owner of the
certificate involved. In providing such authorization you agree
that the Issuer, its transfer agent, AEBI and Coutts will not be
liable for any loss, liability, cost or expense arising in
connection with implementing such instructions, reasonably believed
by the Issuer, AEBI or Coutts, or their representatives, to be
genuine. You may revoke such authority at any time by providing
proper written notice to your AEBI or Coutts office.
All amounts payable to or by the Issuer in connection with this
certificate are payable at the Issuer's corporate office unless you
are advised otherwise.
<PAGE>
PAGE 25
Purchases By Bank Wire
You may wish to lock in a specific interest rate by using a bank
wire to purchase a certificate. Your representative can instruct
you about how to use this procedure. Using this procedure will
allow you to start earning interest at the earliest possible time.
The minimum that may be wired to purchase a new certificate is
$100,000.
Wire orders will be accepted only in U.S. currency and only on days
your bank, the Issuer and Norwest Bank Minneapolis are open for
business. The payment must be received by the Issuer before 12
noon Central U.S.A. time to be credited that day. Otherwise, it
will be processed the next business day. The wire purchase will
not be made until the wired amount is received and the purchase is
accepted by the Issuer. Wire transfers not originating from AEB
are accepted by IDSC's corporate office only from banks located in
the United States of America. Any delays that may occur in wiring
the funds, including delays in processing by the banks, are not the
responsibility of the Issuer. Wire orders may be rejected if they
do not contain complete information.
While the Issuer does not charge a service fee for incoming wires,
you must pay any charge assessed by your bank for the wire service.
If a wire order is rejected, all money received will be returned
promptly less any costs incurred in rejecting it.
Tax treatment of your investment
Interest paid on your certificate is "portfolio interest" as
defined in U.S. Internal Revenue Code Section 871(h) if earned by a
nonresident alien who has supplied the Issuer with Form W-8,
Certificate of Foreign Status. Form W-8 must be supplied with both
a current mailing address and an address of foreign residency, if
different. The Issuer will not accept purchases of certificates by
nonresident aliens without an appropriately certified Form W-8 (or
approved substitute). The Form W-8 must be resupplied every three
calendar years. If you have supplied a Form W-8 that certifies
that you are a nonresident alien, the interest income will be
reported at year end to you and to the U.S. Government on a Form
1042S, Foreign Person's U.S. Source Income Subject to Withholding.
We are required to attach your Form W-8 to the forms sent to the
Internal Revenue Service (IRS). Your interest income will be
reported to the IRS even though it is not taxed by the U.S.
Government. The United States participates in various tax treaties
with foreign countries. Those treaties provide that tax
information may be shared upon request between the United States
and such foreign governments.
Withholding taxes
If you fail to provide a Form W-8 as required above, you will be
subject to backup withholding on interest payments and surrenders.
<PAGE>
PAGE 26
Estate tax
In the event of the death of a nonresident alien who owns a
certificate, the Issuer generally will not act on instructions with
regard to the certificate unless the Issuer first receives a
statement in a form satisfactory to the Issuer, from persons that
it reasonably believes are knowledgeable about and responsible for
the deceased person's estate. The statement must inform the Issuer
that, on the date of death, the estate did not include any property
in the United States for U.S. estate tax purposes. If such a
statement is not provided, the Issuer generally will not act on
instructions with regard to the certificate unless the Issuer first
receives a transfer certificate from the IRS. In general, a
transfer certificate requires the opening of an estate in the
United States and provides assurance that the IRS will not claim
the certificate to satisfy estate taxes.
Trusts
If the investor is a trust described in "Buying your certificate"
under "How to invest and withdraw funds," the policies and
procedures described above will apply with regard to each grantor.
Invested and guaranteed by the Issuer
IDS Certificate Company, an American Express company, issues the
IDS Investors Certificate. The Issuer is by far the largest issuer
of face amount certificates in the United States, with total assets
of more than $3.0 billion and a net worth in excess of $141 million
on Dec. 31, 1994.
We back your 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.
<PAGE>
PAGE 27
Regulated by government
Because the IDS Investors Certificate is a security, its offer and
sale are subject to regulation under United States federal and
state securities laws. (It is a face-amount certificate--not a
bank product, an equity investment, a form of life insurance or an
investment trust.)
The federal Investment Company Act of 1940 requires us to keep
investments on deposit in a segregated custodial account to protect
all of our outstanding certificates. These investments back the
entire value of your certificate account. Their 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
The Issuer's investments are varied and of high quality. This was
the composition of our portfolio as of Dec. 31, 1994.
Type of investment Net amount 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 the Issuer's securities portfolio (bonds and
preferred stocks) are rated investment grade. For additional
information regarding securities ratings, please refer to Note 3B
in the financial statements.
Most of the Issuer's investments are on deposit with American
Express Trust Company, Minneapolis, although the Issuer also
maintains separate deposits as required by certain states.
American Express Trust Company is a wholly owned subsidiary of
American Express Financial Corporation. Copies of the Issuer's
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 the
Issuer use their best judgment, subject to applicable law. The
following policies currently govern our investment decisions:
Purchasing securities on margin:
The Issuer 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.<PAGE>
PAGE 28
Commodities:
The Issuer has not and does not intend to purchase or sell
commodities or commodity contracts.
Underwriting:
The Issuer does not intend to engage in the public distribution of
securities issued by others. However, if the Issuer purchases
unregistered securities and later resells them, the Issuer may be
considered an underwriter under federal securities laws.
Borrowing money:
From time to time the Issuer has 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. The Issuer may pledge some of its assets as
security. The Issuer may occasionally use repurchase agreements as
a way to borrow money. Under these agreements, the Issuer sells
debt securities to its lender, and repurchases them at the sales
price plus an agreed-upon interest rate within a specified period
of time.
Real estate:
The Issuer may invest directly in real estate, though we have not
generally done so in the past. The Issuer does invest in mortgage
loans.
Lending securities:
The Issuer may lend some of its securities to broker-dealers and
receive cash equal to the market value of the securities as
collateral. The Issuer invests this cash in short-term securities.
If the market value of the securities goes up, the borrower pays
the Issuer additional cash. During the course of the loan, the
borrower makes cash payments to the Issuer equal to all interest,
dividends and other distributions paid on the loaned securities.
The Issuer will try to vote these securities if a major event
affecting the investment is under consideration.
When-issued securities:
Most of the Issuer's investments are in debt securities, some of
which are purchased on a when-issued basis. It may take as long as
45 days before these securities are issued and delivered to the
Issuer. The Issuer generally does not pay for these securities or
start earning on them until delivery. The Issuer has established
procedures to ensure that sufficient cash is available to meet
when-issued commitments.
Financial transactions:
The Issuer buys or sells various types of options contracts for
hedging purposes or as a trading technique to facilitate securities
purchases or sales. The Issuer buys interest rate caps for hedging
purposes. These pay a return if interest rates rise above a <PAGE>
PAGE 29
specified level. If approved by the SEC, the Issuer may enter into
other financial transactions, including futures and other
derivatives, for the purpose of managing the interest rate
exposures associated with the Issuers 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.
How your money is managed
Relationship between the Issuer and American Express Financial
Corporation
The Issuer was originally organized as Investors Syndicate of
America, Inc., a Minnesota corporation, on Oct. 15, 1940, and began
business as an issuer of face amount investment certificates on
Jan. 1, 1941. The company became a Delaware corporation on Dec.
31, 1977, and changed its name to IDS Certificate Company (IDSC) on
April 2, 1984.
Before the Issuer was created, American Express Financial
Corporation, our parent company and organizer, had issued similar
certificates since 1894. As of Jan. 1, 1995, IDS Financial
Corporation changed its name to American Express Financial
Corporation. The Issuer 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 in 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.
provides a broad range of financial planning services for
individuals and businesses through its nationwide network of more
than 175 offices and more than 7800 financial advisors. American
Express Financial Advisors Inc. 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:
<PAGE>
PAGE 30
o travel related services (including American Express Card(R)
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.
Capital structure and certificates issued.
The Issuer has authorized, issued and has outstanding 150,000
shares of common stock, par value of $10 per share. American
Express Financial Corporation Inc. owns all of the outstanding
shares.
As of Dec. 31, 1994, the Issuer 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 adviser and is
responsible for:
o providing investment research,
o making specific investment recommendations, and
o executing purchase and sale orders according to our policy of
obtaining the best price and execution.
All these activities are subject to direction and control by our
board of directors and officers. The Issuer's agreement with
American Express Financial Corporation requires annual renewal by
the Issuer's 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, the Issuer pays 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 the Issuer except mortgage loans,
real estate, and any other asset on which we pay an advisory or a
service fee.<PAGE>
PAGE 31
Advisory and services fees for past three years:
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.
Other expenses payable by the Issuer:
The Investment Advisory and Services Agreement provides that the
issuer will pay:
o costs incurred 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 the Issuer's 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 the Issuer's directors who are not
officers or employees of American Express Financial
Corporation,
o provision for certificate reserves (interest accrued on
certificate holder account), and
o expenses of customer settlements not attributable to sales
function.
Distribution
Under a Distribution Agreement with American Express Financial
Advisors Inc., the Issuer pays an annualized fee equal to 1% of the
amount outstanding for the distribution of this certificate.
Payments are made at the end of each term on certificates with a
1-, 2- or 3-month term. Payments are made each quarter from
issuance date on certificate with a 6-, 12-,24- or 36-month term.
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. The Issuer expects to pay American
Express Financial Advisors Inc. distribution fees amount 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 the Issuer. The Issuer's board of directors,
including a majority of directors who are not interested persons of
American Express Financial Corporation or IDSC, approved this
distribution agreement.<PAGE>
PAGE 32
Selling Agreements with AEBI and Coutts
In turn, under Selling Agent Agreements with AEBI and Coutts,
American Express Financial Advisors compensates each for their
services as Selling Agents of this certificate as follows:
o AEBI is paid an annualized fee ranging from 0.50% to 0.80% of
the reserve balance of each certificate, depending on the
amount outstanding for each such certificate, except that the
fee will be 0.30% of the reserve balance of each certificate
with an amount outstanding of $5 million or more when the
aggregate reserve balance for that certificate, and any other
certificate with identical ownership and an amount outstanding
of $5 million or more, is greater than $15 million.
o Coutts is paid an annualized fee ranging from 0.425% to 0.68%
of the reserve balance of each certificate owned by a client
who is a former client of AEBI, depending on the amount
outstanding for each certificate. These clients must have
continuously owned a certificate since Nov. 10, 1994. Coutts
is also compensated on additional investments and exchanges
made by such clients to other certificates only to the extent
that clients have the right to make additional investments or
exchanges.
American Express Financial Advisors has entered into a consulting
agreement with AEBI under which AEBI provides consulting services
related to any selling agent agreements between American Express
Financial Advisors and other Edge Act corporations. For these
services, American Express Financial Advisors pays AEBI a fee for
this certificate ranging from 0.075% to 0.12% of the reserve
balance of each certificate, depending on the amount outstanding
for each certificate for which another Edge Act corporation is the
selling agent.
Such payments will be made periodically in arrears.
These fees are not assessed to your certificate account.
Employment of other American Express affiliates
American Express Financial Corporation may employ affiliates of
American Express Company as executing broker for the Issuer's
portfolio transactions only if:
o it is determined that the prices and executions are at least
as favorable as those offered by qualified independent brokers
performing similar services;
o the affiliate charges commissions consistent with those
charged to comparable unaffiliated customers for similar
transactions; and
o the affiliate's employment is consistent with the terms of the
current Investment Advisory and Services Agreement and federal
securities laws.<PAGE>
PAGE 33
Directors and officers
The Issuer's directors, chairman, president and controller are
elected annually for a term on one year. The other executive
officers are appointed by the president.
The Issuer 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.
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<PAGE>
PAGE 34
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.
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.
<PAGE>
PAGE 35
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.
The Issuer has provisions in its bylaws relating to the
indemnification of its officers and directors against liability, as
permitted by law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that
in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
Auditors
A firm of independent auditors audits the Issuer's financial
statements at the close of each fiscal year (Dec. 31st). Copies of
the 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
December 31, 1994. These statements are included in this
prospectus. Ernst & Young LLP is also the auditor for American
Express Company.
<PAGE>
PAGE 36
About American Express Bank International
AEBI is an Edge Act corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act. It is a wholly owned
subsidiary of American Express Bank Ltd. (AEBL). As an Edge Act
corporation, AEBI is subject to the provisions of Section 25(a) of
the Federal Reserve Act and Regulation K of the Board of Governors
of the Federal Reserve System (the Federal Reserve). It is
supervised and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that
is serviced by a marketing staff in New York and Florida. The
banking and financial products offered by AEBI include checking,
money market and time deposits, credit services, check collection
services, foreign exchange, funds transfer, investment advisory
services and securities brokerage services. As of December 31,
1994, AEBI had total assets of $404 million and total equity of
$136 million.
Coutts is an Edge Act corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act. It is an indirect wholly
owned subsidiary of NatWest PLC. As an Edge Act corporation,
Coutts is subject to the provisions of Section 25(a) of the Federal
Reserve Act and Regulation K of the Board of Governors of the
Federal Reserve System (the Federal Reserve). It is supervised and
regulated by the Federal Reserve.
Although AEBI and Coutts are banking entities, the IDS Investors
Certificate is not a bank product, nor is it backed or guaranteed
by AEBI or Coutts, by AEBL, by NatWest PLC or by any other bank,
nor is it guaranteed or insured by the FDIC or any other federal
agency. AEBI is registered where necessary as a securities broker-
dealer.
About American Express Company
American Express Company is a financial services company
principally engaged through subsidiaries in the following
businesses in addition to American Express Financial Corporation:
o travel related services (including American Express(R) Card
and Travelers Cheque operations through American Express
Travel Related Services Company, Inc. and its subsidiaries),
o investment and asset management services,
o information processing, communication and related services
(through American Express Information Services Company), and
o international banking services (through American Express Bank
Ltd. and its subsidiaries).
American Express Company's executive offices are located at
American Express Tower, World Financial Center, New York, NY 10285.
<PAGE>
PAGE 37
Additional information about IDS Investors Certificate
Issuer:
IDS Certificate Company
Executive Offices
IDS Tower 10
Minneapolis, MN 55440-0010
Independent Auditors:
Ernst and Young LLP
1400 Pillsbury Center
Minneapolis, MN 55402
Central Depository:
American Express Trust Company
1200 Northstar Center West
Minneapolis, MN 55402
Investment Manager:
American Express Financial Corporation Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Distributor:
American Express Financial Advisors Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Selling Agents:
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300
Coutts & Co (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
<PAGE>
PAGE 38
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 39
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 40
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 41
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 42
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 43
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 44
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 45
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 $2,951,405
See notes to financial statements.
<PAGE>
PAGE 46
Balance Sheets, Dec. 31,
Liabilities and Stockholder's Equity
Liabilities 1994 1993
($ 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 $2,951,405
See notes to financial statements.
<PAGE>
PAGE 47
Statements of Operations
Year ended Dec. 31, 1994 1993 1992
($ 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 $225,169
See notes to financial statements.
<PAGE>
PAGE 48
Statements of Operations (continued)
Year ended Dec. 31, 1994 1993 1992
($ 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 $52,064
See notes to financial statements.
<PAGE>
PAGE 49
Statements of Stockholder's Equity
Year ended Dec. 31, 1994 1993 1992
($ 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 $179,885
See notes to financial statements.
<PAGE>
PAGE 50
Statements of Cash Flows
Year ended Dec. 31, 1994 1993 1992
($ 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 $435,608
See notes to financial statements.
<PAGE>
PAGE 51
Statements of Cash Flows (continued)
Year ended Dec. 31, 1994 1993 1992
($ 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 $516 - - 64,558
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 52
Notes to Financial Statements ($ 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 53
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 54
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 55
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 56
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 57
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 58
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 59
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 60
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 61
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 62
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 63
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 64
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 65
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 66
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 67
Quick telephone reference
Selling Agent
American Express Bank International
Region Offices
101 East 52nd Street
29th Floor
New York, NY 10022
(212)415-9500
1221 Brickell Avenue
8th Floor
Miami, FL 33131
(305) 350-7750
Selling Agent
Coutts & Co. (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210
(310) 858-2924
American Express Financial Advisors
IDS Investors Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
