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I represent that this English language IDS Stock Market Certificate
prospectus represents a fair and accurate translation of a Spanish
language IDS Stock Market Certificate prospectus.
_____________________________
Bruce A. Kohn
Vice President and General Counsel
IDS Certificate Company
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IDS Stock
Market Certificate-AEBI
(Icon of) building
Potential for stock market growth with safety of principal
IDS
An American Express company
AMERICAN
EXPRESS
Distributed by IDS Financial Services Inc.
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To our certificate holders
Earn interest tied to stock market growth and maintain safety of
principal with ...
The IDS Stock Market Certificate
Guaranteed principal
IDS Certificate Company (IDSC) guarantees that if you hold your
certificate until term end, you will get back every penny you put
in your certificate. Fluctuations in the S&P 500 Index will never
affect your principal.
A century of safety and stability
IDSC and its parent, IDS Financial Corporation (IDS), have never
missed a payment to certificate holders since IDS opened for
business in 1894.
The backing of quality investments
Through IDS certificates are not insured by the FDIC as bank
deposits are, federal law requires that we back our certificates
dollar for dollar with cash and qualified investments. In fact,
the carrying value of our investments exceeds the required carrying
value of our outstanding certificates by more than $118 million.
Choose how your money works for you
At the time you purchase an IDS Stock Market Certificate, you have
the opportunity to choose to earn interest in one of two ways: 1)
stock market full participation, or 2) stock market partial
participation plus a guaranteed minimum rate. Your stock market
participation interest earnings are tied to the movement of the S&P
500 Index. They will be equal to a portion of any percentage
increase in the Index as measured on the beginning and ending date
of each 12-month term.
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IDS Stock Market Certificate
Prospectus April 27, 1994
Potential for stock market growth with safety of principal
IDS Stock Market Certificates are issued by IDS Certificate Company
(IDSC). You can purchase this certificate with a single investment
of at least $1,000 but not more than $1 million (unless you receive
prior authorization from IDSC to invest more). As long as you stay
within this limit, you can make additional investments at the end
of a term. Your principal is guaranteed by IDSC. You can
participate in any increase of the stock market based on the S&P
500 Index while protecting your principal. In addition, you decide
whether part of your return will be guaranteed or whether all of it
will be tied to the market. You can keep your certificate for up
to 14 terms.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your IDS Stock
Market Certificate. It contains facts that can help you decide if
the certificate is the right investment for you. Read the
prospectus before you invest and keep it for future reference. No
one has the authority to change the terms and conditions of the IDS
Stock Market Certificate as described in the prospectus, or to bind
IDSC by any statement not in it.
Issuer: Distributor:
IDS Certificate Company IDS Financial Services Inc.
IDS Tower 10 IDS Tower 10
Minneapolis, MN 55440-0010 Minneapolis, MN 55440-0010
1-800-437-3463 (toll free) or
(612) 671-4737 (Minneapolis/ Selling Agent:
St. Paul area) American Express
TTY numbers: Bank International
1-800-846-4293 (toll free) or American Express Tower
(612) 671-1112 (Minneapolis/ World Financial Center
St. Paul area) New York, NY 10285-2300
An American Express company
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Where to get information about IDSC
IDSC is subject to the reporting requirements of the Securities
Exchange Act of 1934. Reports and other information on IDSC are
filed with the Securities and Exchange Commission (SEC). Copies
can be obtained from the Public Reference Section of the SEC, 450
5th St., N.W., Washington, D.C. 20549, at prescribed rates. Or you
can inspect and copy information in person at the SEC's Public
Reference Section and at the following regional offices:
Northeast Regional Office
7 World Trade Center, Suite 1300
New York, NY 10048
Midwest Regional Office
Northwestern Atrium Center
500 West Madison St., Suite 1400
Chicago, IL 60611
Pacific Regional Office
5670 Wilshire Blvd., 11th Floor
Los Angeles, CA 90036
Initial interest and participation rates
IDSC guarantees return of your principal. The interest on your
certificate is linked to stock market performance as measured by
the Standard & Poor's 500 Stock Index (S&P 500 Index) as explained
under "About the certificate," below.
Here are the interest rates and market participation percentages in
effect on the date of this prospectus, April 27, 1994:
Maximum return Market participation percentage Minimum interest
10% 100% (full) None
10% 25% (partial) 2.5%
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for later terms are set at the discretion
of IDSC and may also differ from the rates shown here. We reserve
the right to issue other securities with different provisions.
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Contents
Table of contents
About the certificate
Investment amounts 4p
Face amount and principal 4p
Certificate term 4p
Value at maturity 5p
Receiving cash before end of the term 5p
Interest 5p
Promotions and pricing flexibility 8p
Historical data on the S&P 500 Index 8p
Calculation of return 12p
About the S&P 500 Index 15p
Opportunities at the end of a term 16p
How to invest and withdraw funds
Buying your certificate 18p
Full and partial withdrawals 20p
Transfers to other IDS accounts 21p
Transfer of ownership 24p
For more information 24p
Taxes on your earnings
Foreign investors 25p
How your money is used and protected
Invested and guaranteed by IDSC 26p
Regulated by government 26p
Backed by our investments 27p
Investment policies 28p
How your money is managed
Relationship between IDSC and IDS 31p
Capital structure and certificates issued 32p
Investment management and services 32p
Distribution 35p
About American Express Bank International 36p
Employment of other American Express affiliates 37p
Directors and officers 37p
Auditors 40p
Annual Financial information
Summary of selected financial information 41p
Management's discussion and analysis of 42p
financial condition and results of operations
Report of independent auditor's 48p
Financial statements 50p
Notes to financial statements 57p
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About the certificate
Investment amounts
You may purchase the IDS Stock Market Certificate with a single
investment of at least $1,000 but not more than $1 million payable
in U.S. currency. You may also make additional lump-sum
investments in any amount at the end of any term as long as your
total amount paid in is not more than the $1 million.
Face amount and principal
The face amount of your certificate is the amount of your initial
investment. Your principal is the value of your certificate at the
beginning of each subsequent term. Your principal is guaranteed by
IDSC. It consists of the amount you actually invest plus interest
and any additional investment you make less withdrawals, penalties
and any interest paid to you in cash.
For example: Assume your initial investment (face amount) of
$10,000 has earned a return of 7.25%. Interest is credited to your
account at the end of the term. You have not taken any interest as
cash, or made any withdrawals. You have invested an additional
$2,500 prior to the beginning of the next term. Your principal for
the next term will equal:
$10,000.00 Face Amount (initial investment)
plus 725.00 Interest credited to your account at the
end of the term
plus 5.00 Interim interest (See "Interim interest")
minus ($0.00) Interest paid to you in cash
plus 2,500.00 Additional investment to your certificate
minus ($0.00) Withdrawals and applicable penalties
$13,230.00 Principal at the beginning of the next
term.
Certificate term
Your first certificate term is a 12-month period that begins on the
Wednesday after your application is accepted and ends the Tuesday
before the one-year anniversary of its acceptance. For example, if
your application is accepted on a Wednesday, your first term would
begin the next Wednesday. Your certificate will earn interest at
the interim interest rate then in effect until the term begins. It
will not earn any participation interest until the term begins. If
you choose to continue to receive participation interest,
subsequent terms are 12-month periods that begin on the Wednesday
following the 14-day grace period at the end of the prior 12-month
term. You may begin your next term on any Wednesday during the 14-
day period by providing prior written instructions to IDSC. If you
choose to receive fixed interest, subsequent terms will be up to 12
months as described in "Fixed interest" under "Interest" below.
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Value at maturity
Your certificate matures after 14 terms, and you will receive a
check for its value. At maturity, the value of your certificate
will be the total of your actual investments, plus credited
interest not paid to you in cash, less any withdrawals and
withdrawal penalties. Certain other fees may apply.
Receiving cash before end of the term
If you need money before your certificate term ends, you may
withdraw part or all of its value at any time, less any penalties
that apply. Procedures for withdrawing money, as well as
conditions under which penalties apply, are described in "Full and
partial withdrawals" under "How to invest and withdraw funds."
Interest
You may select from two types of participation interest for your
first term. The two types are 1) full participation, or 2) partial
participation together with minimum interest. Both of these
options have an upper limit which is the maximum annual return
explained below. After your first term, you may choose not to
participate in any market movement and receive a fixed rate of
interest.
Full participation interest: With this option you participate 100%
in any percentage increase in the S&P 500 Index up to the maximum
return. You earn interest only if the value of the S&P 500 Index
is higher on the last day of your term than it was on the first day
of your term. Thus, your return is linked to stock market
performance. The S&P 500 Index is frequently used to measure the
relative performance of the stock market. For a more detailed
discussion of the Index, see "About the S&P 500 Index."
Partial participation and minimum interest: This option allows you
to participate in a certain part (market participation rate) of any
increase in the S&P 500 Index together with a rate of interest
guaranteed in advance for each term (minimum interest). Your
return is composed of two parts:
1. A percentage of any increase in the S&P 500 Index, and
2. A rate of interest guaranteed in advance for each term.
Together, they cannot exceed the maximum return.
The market participation rate and the minimum interest rate on the
date of this prospectus are listed on the inside cover under
"Initial interest and participation rates."
Fixed interest: After your first term, this option allows you to
stop participating in the market entirely for one or more terms.
You may choose to receive a fixed rate of interest for any term
after the first term. During the term when you are receiving fixed
interest, you can change from your fixed interest selection to
again participate in the market. If you make the change from fixed
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interest to participation interest, your next term would begin on
the Wednesday following our receipt of notice of your new
selection. In this way, you may have a term (during which you
would earn fixed interest) that is less than 12 months. You may
not change from participation interest to fixed interest during a
term.
Maximum annual return: This is the cap, or upper limit, of your
return. Your total return including both participation and minimum
interest for a term for which you have chosen participation
interest will be limited to this maximum return percentage.
Determining the S&P 500 Index value: The stock market closes at 3
p.m. Central time and the S&P 500 Index value is available at
approximately 4:30 p.m. This is the value we currently use to
determine participation interest. Occasionally, Standard & Poor's
Corporation (S&P) makes minor adjustments to the closing value
after 4:30 p.m. and the value we use may not be exactly the one
that is published the next business day. In the future, we may use
a later time cut-off if it becomes feasible to do so. If the stock
market is not open or the S&P 500 Index is unavailable as of the
last day of your term, the preceding business day for which a value
is available will be used instead.
Interim interest: When we accept your application, we pay interim
interest to your account for the time before your first term
begins. We also pay interim interest for the 14-day period between
terms unless you write to ask us to begin your next term earlier.
You may withdraw this interest in cash at any time before it
becomes part of your certificate's principal without withdrawal
penalty. If it is not withdrawn, the interest will become part of
your certificate's principal at the start of the next succeeding
term. For example, the interest you earn between the end of the
first and the beginning of the second term will become part of the
principal at the start of your third term.
Interim interest rates for the time before your first term begins
will be within a range 10 to 110 basis points (0.10% to 1.10%)
above the average interest rate published for 12-month certificates
of deposit in the BANK RATE MONITORTM National Index (the BRM
Index). If the BRM Index is no longer publicly available or
feasible to use, IDSC may use another, similar index as a guide for
setting rates.
The BANK RATE MONITOR is a weekly magazine published in North Palm
Beach, FL 33408 by Advertising News Service Inc., an independent
national news organization that collects and disseminates
information about bank products and interest rates. Advertising
News Service has no connection with IDSC, IDS or any of their
affiliates. The BRM Index used by IDSC is a 25-city index.
The BANK RATE MONITOR may be available in your local library. To
obtain information or current BRM Index rates, call IDS Certificate
Service at 1-800-437-3463 or TTY: 1-800-846-4293.
Earning interest: Participation interest is calculated, credited
and compounded at the end of your certificate term. Minimum and
fixed interest accrue daily and are credited and compounded at the <PAGE>
PAGE 10
end of your certificate term. Both minimum and fixed interest are
calculated on a 30-day month and 360-day year basis. Interim
interest accrues and is credited daily.
Rates for future periods: After the initial term, the maximum
return, market participation percentage or minimum interest rate on
your certificate may be greater or less than those shown on the
front of this prospectus. In setting future interest rates, a
primary consideration will be the prevailing investment climate.
Rates are reviewed weekly, and we have complete discretion as to
what interest rate will be declared.
To find out what your certificate's new maximum return, market
participation percentage and minimum interest rate will be for your
next term, please consult the following:
IDS clients:
o Your local IDS planner, or
o Our service representatives at 1-800-437-3463
AEBI clients:
o Your AEBI relationship manager
Promotions and pricing flexibility
From time to time, IDSC may sponsor or participate in promotions
involving one or more of the certificates and their respective
terms. For example, we may offer different rates to new clients,
to existing clients, or to individuals who have purchased other IDS
products or used services such as the CD transfer service, a
service IDS offers to help you transfer your money from a bank CD
account into IDS investments. These promotions will generally be
for a specified period of time.
We also may offer different rates based on your amount invested,
maturity selected, geographic location and whether the certificate
is purchased for an IRA or a qualified retirement account.
Historical Data on the S&P 500 Index
The following chart illustrates the month-end closing values of the
index from Dec. 31, 1982 through Feb. 28, 1994. The values of the
S&P 500 Index are reprinted with the permission of S&P.
S&P 500 Index values - December 1982 to February 1994
400
300 Chart shows closing values of the S&P from just above
100 to a 1993 end above 400
200
____S&P 500
100
'83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94<PAGE>
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S&P 500 Index Average Annual Return
Beginning date Period held Average annual
Dec. 31, in years return
___________________________________________________________________
1983 10 10.96%
1988 5 10.93
1992 1 7.07
The next chart illustrates, on a moving 12-month basis, the price
return of the S&P 500 Index measured for every 12-month period
beginning with the period ended Dec. 31, 1983. The price return is
the percentage return for each period using month-end closing
prices of the S&P 500 Index. Dividends and other distributions on
the securities comprising the S&P 500 Index are not included in
calculating the price return.
S&P 500 Index values - December 1982 to February 1994
40%
Chart shows 12-month Moving Price Return of the
S&P from a high of 40% to a low of -20%
20%
____ S&P 500
0%
- -20%
'83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94
Using the same data on price returns described above, the next
graph expands on the information in the preceding chart by
illustrating the distribution of all of the 12-month price returns
of the S&P 500 Index beginning with the 12-month period ending Dec.
31, 1983. The graph also shows the number of times these price
returns fell within certain ranges.
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S&P 500 Index - December 1983 to February 1994
Distributions of 12-month Moving Price Returns
20
Chart shows the distribution of all of the 12-month
price returns of the S&P 500 from 1/1/83 through
2/28/94 with a high of just over 20 and a low between
0 and 5
15
10
5
= -15 -10 -5 0 5 10 15 20 25 = 30
The last chart illustrates, on a moving weekly basis, the actual
12-month return of the IDS Stock Market Certificate at full and
partial participation compared to the price return of the NYSE
Composite IndexR through October 1992 and the S&P 500 Index after
October 1992. For non-guaranteed funds received before Nov. 3,
1992, and guaranteed funds received before Nov. 4, 1992, IDS Stock
Market Certificate participation interest was based on the NYSE
Composite IndexR rather than the S&P 500 Index.
Actual 12-month return -- 1/21/91 to 2/1/94
30%
25%
20% Chart shows actual returns of the certificate at full
and 25% participation with the full participation
generally tracking the market indexes over the period
and 25% level of participation tracking at the 25%
level of return.
15%
10% ----Market Index
****Stock Market Full Participation
5% ....Stock Market 25% Participation
0%
1/91 4/91 7/91 10/91 1/92 4/92 7/92 10/92 1/93 4/93 10/93 2/94
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The NYSE Composite IndexR is a registered service mark of the New
York Stock Exchange, Inc. (NYSE) and is a composite covering price
movements of all common stocks listed on the NYSE. Because the IDS
Stock Market Certificate was first available on Jan. 24, 1990, the
performance reflects the returns on the one-year anniversary date,
falling on a Wednesday, of each of the weeks shown.
The recent historical experience of an index should not be taken as
an indication of future performance of the stock market or the
certificate. No assurance can be given that an index will not
decline or that certificate holders will receive interest on their
accounts beyond any minimum interest or fixed interest selected.
Calculation of return
The increase or decrease in the S&P 500 Index, as well as the
actual return paid to you, is calculated as follows:
Rate of return on S&P 500 Index
Term ending value of S&P 500 Index minus
Term beginning value of S&P 500 Index divided by
Term beginning value of S&P 500 Index equals
Rate of return on S&P 500 Index
The actual return paid to you will depend on your interest
participation selection.
For example, assume:
Term ending value of S&P 500 Index 458
Term beginning value of S&P 500 Index 422
Maximum return 10%
Minimum return 2.5%
Partial participation rate 25%
458 Term ending value of S&P 500 Index
minus 422 Term beginning value of S&P 500 Index
equals 36 Difference between beginning and ending values
36 Difference between beginning and ending values
divided by 422 Term beginning value of S&P 500 Index
equals 8.53% Percent increase - full participation return
8.53% Percent increase or decrease
times 25.00% Partial participation rate
equals 2.13%
plus 2.50% 2.50% minimum interest rate
equals 4.63% Partial participation return
In both cases in the example, the return would be less than the 10%
maximum.
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Maximum Return and Partial Participation Minimum Rate History - The
following table illustrates the maximum annual returns and partial
participation minimum rates that have been in effect since the
Stock Market Certificate was introduced.
Partial
Maximum participation
Purchase date annual return minimum rate
Jan. 24, 1990 18.00% 5.00%
Feb. 4, 1992 18.00 4.00
May 5, 1992 15.00 4.00
Aug. 25, 1992 12.00 3.00
Nov. 10, 1992 10.00 2.50
Examples: To help you understand the way this certificate works,
here are some hypothetical examples. The following are three
different examples of market scenarios and how they affect the
certificate's return. Assume for all examples that you purchased
the certificate with a $10,000 original investment. Also assume
that the partial participation rate is 25%, the minimum interest
rate for partial participation is 2.5%, and the maximum total
return for full and partial participation is 10%.
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C>
1. If the Market and the S&P 500 Index value rise
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 8% increase in the S&P 500 Index Index 459
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 800 (8% x $10,000) + 250 2.5% (minimum interest rate) x $10,000
Participation interest + 200 25% x (8% x $10,000) participation interest
$10,800 Ending balance $10,450 Ending balance
(8% total return) (4.5% total return)
- ------------------------------------------------------------------------------------------
2. If the Market and the S&P 500 Index value fall
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 4% decrease in the S&P 500 Index Index 408
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 0 Participation interest + 250 2.5% (Minimum interest rate) x $10,000
$10,000 Ending balance + 0 Participation interest
(0% total return) $10,250 Ending balance
(2.5% total return)
- ----------------------------------------------------------------------------------------
3. If the Market and the S&P 500 Index value rise above maximum return
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 425 16% increase in the S&P 500 Index Index 493
Full Participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 1,000 (10% x $10,000) + 250 2.5% (Minimum interest rate) x $10,000
Maximum interest + 400 (25% x 16% x $10,000) participation interest
$11,000 Ending balance $10,650 Ending balance
(10% Total return) (6.5% total return)
/TABLE
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About the S&P 500 Index
The description in this prospectus of the S&P 500 Index including
its make-up, method of calculation and changes in its components
are derived from publicly available information regarding the S&P
500 Index. IDS Certificate Company (IDSC) does not assume any
responsibility for the accuracy or completeness of such
information.
The S&P 500 Index is composed of 500 common stocks, most of which
are listed on the New York Stock Exchange. The S&P 500 Index is
published by S&P and is intended to provide an indication of the
pattern of common stock movement. S&P chooses the 500 stocks to be
included in the S&P 500 Index with the aim of achieving a
distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of
the New York Stock Exchange. Changes in the S&P 500 Index are
reported daily in the financial pages of many major newspapers.
"Standard & Poor's ", "S&P ", "S&P 500 ", "Standard & Poor's 500",
and "500" are trademarks of McGraw-Hill, Inc. and have been
licensed for use by IDSC. The certificate is not sponsored,
endorsed, sold or promoted by S&P. S&P makes no representation or
warranty, express or implied, to the owners of the certificate or
any member of the public regarding the advisability of investing in
securities generally or in the certificate particularly or the
ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to IDSC is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard
to IDSC or the certificate. S&P has no obligation to take the
needs of IDSC or the owners of the certificate into consideration
in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the certificate to be
issued or in the determination or calculation of the equation by
which the certificate is to be converted into cash. S&P has no
obligation or liability in connection with the administration,
marketing or trading of the certificate.
S&P does not guarantee the accuracy and/or the completeness of the
S&P 500 Index or any data included therein and S&P shall have no
liability for any errors, omissions, or interruptions therein. S&P
makes no warranty, express or implied, as to the results to be
obtained by IDSC, owners of the certificate, or any person or
entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any
data included therein. Without limiting any of the foregoing, in
no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even
if notified of the possibility of such damages.
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PAGE 16
If for any reason the Index were to become unavailable or not
reasonably feasible to use, we would use a comparable stock market
index for determining participation interest. If this were to
occur, you would be sent a notice indicating the comparable index
that will be used and be given the option to surrender your
certificate, if desired, and receive your principal, without being
assessed a surrender charge.
Opportunities at the end of a term
Grace period: When your certificate term ends, you have 14 days
before a new term automatically begins. During this 14-day grace
period you can:
o change your interest selection,
o add money to your certificate,
o withdraw part or all of your money without a withdrawal
penalty or loss of interest, or
o receive your interest in cash.
Fixed interest only: The grace period does not apply if you made
the change from fixed interest back to participation interest
during a term as discussed in "Fixed interest" under "Interest"
above. Instead, your new 12-month term will begin on the Wednesday
following our receipt of your notice of your new interest
selection.
New term: If you do not make changes, your certificate will
continue with your current selections when the new term begins 14
days later. You will earn interim interest during this 14-day
grace period. If you don't want to wait 14 days before starting
your next market participation term, you must give us written
instructions before your current term ends. Or, you may phone in
your instructions and follow up the call with written verification.
You can tell us to start your next term on any Wednesday during the
grace period following our receipt of your notice. Your notice may
also tell us to change your interest selection, add to your
certificate or withdraw part of your money. Any additional
payments received during the current term will be applied at the
end of the current term. By starting your new term early and
waiving the 14-day grace period, you are choosing to start your
next term without knowing the ending value of your current term.
How to invest and withdraw funds
Buying your certificate
An AEBI relationship manager will help you fill out and submit an
application to open an account with us and purchase a certificate.
We will process the application at our corporate offices in <PAGE>
PAGE 17
Minneapolis. When your application is accepted, you will receive a
confirmation showing the acceptance date, the date your term begins
and the interest selection you have made detailing your market
participation percentage and/or the guaranteed minimum interest
rate for your first term. After your term begins, we will send you
notice of the value of the S&P Index on the day your term began.
The rates in effect on the date we accept your application are the
rates that apply to your certificate. If you ask for a printed
certificate, one will be promptly sent to you following acceptance
of your application.
IMPORTANT: When opening an account, you must provide IDSC with a
Form W-8 or approved substitute. See "Taxes on your earnings."
Purchase policies:
o If you purchase a certificate with a personal check or other non-
guaranteed funds, IDS must convert your check to federal funds
(e.g., monies of member banks within the Federal Reserve Bank)
before your purchase will be accepted and you begin earning
interest. This could take up to two business days.
o IDSC has the authority to determine whether to accept an
application.
Two ways to make additional investments at term end
1
By mail
Send your check along with your name and account number to:
Regular mail: Express mail:
IDS Certificate Company IDS Certificate Company
Client Service Client Service
IDS Tower 10 733 Marquette Ave.
Minneapolis, MN 55440-0010 Minneapolis, MN 55402
2
By wire
If you have an established account, you may wire money to:
Norwest Bank Minneapolis
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions: Credit IDS Account #00-30-015 for
personal account # (your account number) for (your name).
If this information is not included, the order may be rejected and
all money received less any costs IDSC incurs will be returned
promptly.
o Minimum amount you may wire: $1,000
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PAGE 18
o Wire orders can be accepted only on days when your bank, IDS,
IDSC and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received and
we accept the purchase.
o Wire investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
credited that day. Otherwise your purchase will be processed the
next business day.
o IDSC and IDS are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
Full and partial withdrawals
You may withdraw your certificate for its full value or make a
partial withdrawal of $100 or more at any time. However:
o Full and partial withdrawals of principal during a term are
subject to penalties, described below.
o You may not make a partial withdrawal if it would reduce your
certificate balance to less than $1,000. If you request such a
withdrawal, we will contact you for revised instructions.
Penalties for withdrawal during a term: If you withdraw money
during a term, you will pay a penalty of 2% of the principal
withdrawn.
When you request a full or partial withdrawal during a term, we pay
you from the principal of your certificate.
Loss of interest: If you make a withdrawal at any time other than
at the end of the term, you will lose interest accrued on the
withdrawal amount since minimum and participation interest is
credited only at the end of a term. However, accrued fixed and
interim interest will be paid to the date of the withdrawal.
Following are examples describing a $2,000 withdrawal during a term
for participation and fixed interest:
Participation interest
Account balance $10,000
Interest (interest is credited at 0.00
the end of the term)
Withdrawal of principal ( 2,000.00)
2% withdrawal penalty (40.00)
Balance after withdrawal. $ 7,960.00
You will forfeit any accrued
interest on the withdrawal amount.
<PAGE>
PAGE 19
Fixed interest
Account balance $10,000.00
Interest credited to date 100.00
Withdrawal of credited interest (100.00)
Withdrawal of principal (1,900.00)
2% withdrawal penalty (on $1,900 (38.00)
principal withdrawn)
Balance after withdrawal. $ 8,062.00
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate
recently purchased or added to by a check or money order that is
not guaranteed, we will wait for your check to clear. Please
expect a minimum of 10 days from the date of your payment before
IDSC mails a check to you. (A check may be mailed earlier if your
bank provides evidence that your check has cleared.)
o If your certificate is pledged as collateral, any withdrawal will
be delayed until we get approval from the secured party.
o Any payments to you may be delayed under applicable rules,
regulations or orders of the SEC.
Transfers to other IDS accounts
You may transfer part or all of your certificate to any other IDS
certificate or into another existing IDS account (subject to any
terms and conditions that may apply).
Two ways to request a withdrawal or transfer
1
By phone
Call between 7 a.m. and 6 p.m. Central time:
1-800-437-3463 (toll free) or
(612) 671-4737 (Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1112 (Minneapolis/St. Paul area)
o Maximum phone request: $50,000
o Transfers into an IDS account with the same ownership.
o A telephone withdrawal request will not be allowed within 30 days
of a phoned-in address change.
o We will honor any telephone request believed to be authentic and
will use reasonable procedures to confirm that they are, such as
asking identifying questions. As long as the procedures are
followed, neither IDSC nor IDS will be liable for any loss
resulting from fraudulent requests.
<PAGE>
PAGE 20
You may request that telephone withdrawals not be authorized from
your account by writing IDSC Client Service.
2
By mail
Send your name, account number and request for a withdrawal or
transfer to:
Regular mail:
IDS Certificate Company
Client Service
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
IDS Certificate Company
Client Service
733 Marquette Ave.
Minneapolis, MN 55402
Written requests are required for:
o Transactions over $50,000
o Pension plans and custodial accounts where the minor has reached
the age at which custodianship should terminate.
o Transfers to another IDS account with different ownership. (All
current registered owners must sign the request.)
Two ways to receive payment when you withdraw funds
1
By regular or express mail
o Mailed to address on record; please allow seven days for mailing
o Payable to name(s) you requested
o For express mail, you will pay charges that vary depending on the
courier you select. For a partial withdrawal leaving a remaining
balance of more than $1,000, these charges will be deducted from
the remaining balance. If the remaining balance is less than
$1,000, or if it is a full withdrawal, charges are deducted from
proceeds of the withdrawal.
2
By wire
o Minimum wire withdrawal: $500
o Request that money be wired to your bank
o Bank account must be in same ownership as IDSC account
<PAGE>
PAGE 21
o Pre-authorization required. Complete the bank wire authorization
section in the application or use a form supplied by your IDS
financial planner. All registered owners must sign.
o A service fee, if any, may be deducted from your balance (for
partial withdrawals) or from the proceeds of a full withdrawal.
Transfer of ownership
While the certificate is not negotiable, IDSC will transfer
ownership upon written notification to IDSC Client Service.
For more information
For information on purchases, withdrawals, exchanges, transfers of
ownership, proper instructions and other service questions
regarding your certificate, please consult your financial planner
or call IDSC's toll free client service number:
1-800-437-3463 or
TTY: 1-800-846-4293.
Taxes on your earnings
Foreign investors
If you are not a citizen or resident of the United States, you must
supply IDSC with Form W-8, Certificate of Foreign Status when you
purchase your certificate, and you must resupply it every three
years. You must also supply both a current mailing address and an
address of foreign residency, if different. IDSC will not accept
purchases of certificates by nonresident aliens without an
appropriately certified Form W-8 (or approved substitute). Also,
if you do not supply Form W-8 you will be subject to backup
withholding on interest payments and withdrawals.
It is most likely that the interest on the certificate is
"portfolio interest" as defined in U.S. Internal Revenue Code
Section 871(h) if earned by a nonresident alien. However, if the
certificate is treated as a contingent debt instrument (CDI), part
of the income may be treated as capital gain instead of portfolio
interest. Even though your interest income or capital gain is not
taxed by the U.S. government, it will be reported at year end to
you and to the U.S. government on a Form 1042S, Foreign Person's
U.S. Source Income Subject to Withholding. The United States
participates in various tax treaties with foreign countries, which
provide for sharing of tax information.
Estate tax: If you are a nonresident alien and you die while
owning a certificate, IDSC will need a statement from persons IDSC
believes are knowledgeable about your estate. The statement must
be in a form satisfactory to IDSC and must tell us that, on your
date of death, your estate did not include any property in the <PAGE>
PAGE 22
United States for U.S. estate tax purposes. If we do not receive
the statement, we generally will not take action regarding your
certificate until we receive a transfer certificate from the IRS.
In general, a transfer certificate requires the opening of an
estate in the United States and provides assurance that the IRS
will not claim your IDS certificate to satisfy estate taxes.
IMPORTANT: This information is a brief and selective summary of
certain federal tax rules that apply to this certificate. Tax
matters are highly individual and complex, and you should consult a
qualified tax adviser about your personal situation.
How your money is used and protected
Invested and guaranteed by IDSC
The IDS Stock Market Certificate is issued and guaranteed by IDSC,
a wholly owned subsidiary of IDS Financial Corporation (IDS). We
are by far the largest issuer of face amount certificates in the
United States, with total assets of more than $2.9 billion and a
net worth in excess of $161 million on Dec. 31, 1993.
We back our certificates by investing the money received and
keeping the invested assets on deposit. Our investments generate
interest and dividends, out of which we pay:
o interest to certificate holders
o various expenses, including taxes, fees to IDS for advisory and
other services and distribution fees to IDS Financial Services Inc.
For a review of significant events relating to our business, see
"Management's discussion and analysis of financial condition and
results of operations."
Most banks and thrifts offer investments known as certificates of
deposit that are similar to our certificates in many ways. Early
withdrawal of bank Cds often results in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money deposited to individuals, businesses and
other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the IDS Stock Market Certificate is a security, its offer
and sale are subject to regulation under federal and state
securities laws. (It is a face-amount certificate--not a bank
product, an equity investment, a form of life insurance or an
investment trust.)
The federal Investment Company Act of 1940 requires us to keep
investments on deposit in a segregated custodial account to protect
all of our outstanding certificates. These investments back the
entire value of your certificate account. Their carrying value <PAGE>
PAGE 23
must exceed the required carrying value of the outstanding
certificates by at least $250,000. As of Dec. 31, 1993, the
carrying value of these investments exceeded the required carrying
value of our outstanding certificates by more than $118 million.
Backed by our investments
Our investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1993:
Type of investment Net amount invested
preferred stocks 29%
government agency bonds 27
corporate and other bonds 25
mortgages 10
municipal bonds 7
cash and cash equivalents 2
More than 95% of our securities portfolio (bonds and preferred
stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3B in the
financial statements.
Most of our investments are on deposit with IDS Trust Company
(formerly IDS Bank & Trust), Minneapolis, although we also maintain
separate deposits as required by certain states. IDS Trust Company
is a wholly owned subsidiary of IDS. Copies of our Dec. 31, 1993
schedule of Investments in Securities of Unaffiliated Issuers are
available upon request. For comments regarding the valuation,
carrying values and unrealized appreciation (depreciation) of
investment securities, see Notes 1, 2 and 3 to the financial
statements.
Investment policies
In deciding how to diversify the portfolio-- among what types of
investments in what amounts--the officers and directors of IDSC use
their best judgment, subject to applicable law. The following
policies currently govern our investment decisions:
Purchasing securities on margin: We will not purchase any
securities on margin or participate on a joint basis or a joint-
and-several basis in any trading account in securities.
Commodities: We have not and do not intend to purchase or sell
commodities or commodity contracts.
Underwriting: We do not intend to engage in the public
distribution of securities issued by others. However, if we
purchase unregistered securities and later resell them, we may be
considered an underwriter under federal securities laws.
<PAGE>
PAGE 24
Borrowing money: From time to time we have established a line of
credit if management believed borrowing was necessary or desirable.
While a line of credit does not currently exist, it may be
established again in the future. We may pledge some of our assets
as security. We may occasionally use repurchase agreements as a
way to borrow money. Under these agreements, we sell debt
securities to our lender, and repurchase them at the sales price
plus an agreed-upon interest rate within a specified period of
time.
Real estate: We may invest directly in real estate, though we have
not generally done so in the past. We do invest in mortgage loans.
Lending securities: We may lend some of our securities to broker-
dealers and receive cash equal to the market value of the
securities as collateral. We invest this cash in short-term
securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan,
the borrower makes cash payments to us equal to all interest,
dividends and other distributions paid on the loaned securities.
We will try to vote these securities if a major event affecting our
investment is under consideration.
When-issued securities: Most of our investments are in debt
securities, some of which are purchased on a when-issued basis. It
may take as long as 45 days before these securities are issued and
delivered to us. We generally do not pay for these securities or
start earning on them until delivery. We have established
procedures to ensure that sufficient cash is available to meet
when-issued commitments.
Options: We buy or sell various types of options contracts for
hedging purposes or as a trading technique to facilitate securities
purchases or sales. We buy interest rate caps for hedging
purposes. These pay us a return if interest rates rise above a
specified level.
Restrictions: There are no restrictions on concentration of
investments in any particular industry or group of industries or on
rates of portfolio turnover.
How your money is managed
Relationship between IDSC and IDS
IDSC was originally organized as Investors Syndicate of America,
Inc., a Minnesota corporation, on Oct. 15, 1940, and began business
as an issuer of face amount investment certificates on Jan. 1,
1941. The company became a Delaware corporation on Dec. 31, 1977,
and changed its name to IDS Certificate Company on April 2, 1984.
Before IDSC was created, IDS, our parent company and organizer, had
issued similar certificates since 1894. IDSC and IDS have never
failed to meet their certificate payments.
<PAGE>
PAGE 25
During its many years in operation, IDS has become a leading
manager of investments in mortgages and securities. As of Dec. 31,
1993, IDS managed investments, including its own, of more than $99
billion. IDS Financial Services Inc. provides a broad range of
financial planning services for individuals and businesses through
its nationwide network of more than 175 offices and more than 7,500
financial planners. IDS financial planning services are
comprehensive, beginning with a detailed written analysis that's
tailored to your needs. Your analysis may address one or all of
these six essential areas: financial position, protection
planning, investment planning, income tax planning, retirement
planning, and estate planning.
IDS itself is a wholly owned subsidiary of American Express, a
financial services company with executive offices at American
Express Tower, World Financial Center, New York, NY 10285.
American Express and its subsidiaries own or manage more than $400
billion in assets. American Express is a financial services
company engaged through subsidiaries in other business including:
o travel related services (including American Express CardR and
Travelers Cheque operations through American Express Travel Related
Services Company, Inc. and its subsidiaries), and
o international banking services (through American Express Bank
Ltd. and its subsidiaries).
IDS Financial Services Inc. is not a bank, and the securities
offered by it, such as face amount certificates issued by IDSC, are
not backed or guaranteed by any bank, nor are they insured by the
FDIC.
Capital structure and certificates issued
IDSC has authorized, issued and has outstanding 150,000 shares of
common stock, par value of $10 per share. IDS owns all of the
outstanding shares.
As of Dec. 31, 1993, IDSC had issued (in face amount)
$12,314,170,599 of installment certificates and $11,517,014,625 of
single payment certificates.
Investment management and services
Under an Investment Advisory and Services Agreement, IDS acts as
our investment adviser and is responsible for:
o providing investment research,
o making specific investment recommendations
o executing purchase and sale orders according to our policy of
obtaining the best price and execution.
All these activities are subject to direction and control by our
board of directors and officers. Our agreement with IDS requires
annual renewal by our board, including a majority of directors who
are not interested persons of IDS or IDSC as defined in the federal
Investment Company Act of 1940.
<PAGE>
PAGE 26
For its services, we pay IDS a monthly fee, equal on an annual
basis to a percentage of the total book value of certain assets
(included assets).
Advisory and Services Fee Computation
Included Assets Percentage of Total Book Value
First $250 million 0.75%
Next 250 million 0.65
Next 250 million 0.55
Next 250 million 0.50
Any amount over $1 billion 0.45
Included assets are all assets of IDSC except mortgage loans, real
estate, and any other asset on which we pay an advisory or service
fee.
Advisory and services fees for the past three years were:
Percentage of
Year Total fees included assets
1993 $15,036,091 0.50%
1992 $17,851,271 0.50
1991 $19,787,451 0.49
Estimated advisory and services fees for 1994 are $13,867,000.
Other expenses payable by IDSC: The Investment Advisory and
Services Agreement provides that we will pay:
o costs incurred by us in connection with real estate and
mortgages,
o taxes,
o depository and custodian fees,
o brokerage commissions,
o fees and expenses for services not covered by other agreements
and provided to us at our request, or by requirement, by attorneys,
auditors, examiners and professional consultants who are not
officers or employees of IDS,
o fees and expenses of our directors who are not officers or
employees of IDS,
o provision for certificate reserves (interest accrued on
certificate holder accounts), and
o expenses of customer settlements not attributable to sales
function.
Distribution
Under a Distribution Agreement with IDS Financial Services Inc., we
pay for the distribution of this certificate as follows:
o 1.25% of the initial investment on the first day of the
certificate's term, and
o 1.25% of the certificate's reserve at the beginning of each
subsequent term.<PAGE>
PAGE 27
This fee is not assessed to your certificate account.
Total distribution fees paid to IDS Financial Services Inc. for all
series of certificates amounted to $26,541,948 during the year
ended Dec. 31, 1993. We expect to pay IDS Financial Services Inc.
distribution fees amounting to $27,258,000 during 1994.
See Note 1 to financial statements regarding deferral of
distribution fee expense.
IDS Financial Services Inc. pays commissions to its planners and
pays other selling expenses in connection with services to us. our
board of directors, including a majority of directors who are not
interested persons of IDS Financial Services Inc. or IDSC, approved
this distribution agreement.
Selling Agent Agreement with American Express Bank International:
In turn, under a Selling Agent Agreement with American Express Bank
International, IDS Financial Services Inc. compensates AEBI for its
services as Selling Agent of this certificate as follows:
o A fee equal to 1.0% per term of the principal amount of each
certificate.
Such payments will be made quarterly in arrears.
These fees are not assessed to your certificate account.
About American Express Bank International
American Express Bank International (AEBI) is an Edge Act
Corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act. It is a wholly owned subsidiary of American
Express Bank Ltd. (AEB Ltd.) As an Edge Act corporation, AEBI is
subject to the provisions of Section 25(a) of the Federal Reserve
Act and Regulation K of the Board of Governors of the Federal
Reserve System (the FRS). It is supervised and regulated by the
FRS.
AEBI has an extensive international high net-worth client base that
is served by a marketing staff in New York and Florida. The
banking and financial products offered by AEBI include checking,
money-market and time deposits, credit services, check collection
services, foreign exchange, funds transfer, investment advisory
services and securities brokerage services. As of Dec. 31, 1993,
AEBI had total assets of $545 million and total equity of $151
million.
Although AEBI is a banking entity, the Stock Market Certificate is
not a bank product, nor is it backed or guaranteed by AEBI, by AEB
Ltd. or by any bank, nor is it guaranteed or insured by the FDIC or
any other federal agency. AEBI is registered where necessary as a
securities broker-dealer.
<PAGE>
PAGE 28
Employment of other American Express affiliates
IDS may employ Lehman Brothers Inc. or another affiliate of
American Express as executing broker for our portfolio transactions
only if:
o we receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar
services;
o the affiliate charges us commissions consistent with those
charged to comparable unaffiliated customers for similar
transactions; and
o the affiliate's employment is consistent with the terms of the
current Investment Advisory and Services Agreement and federal
securities laws.
Directors and officers
IDSC's directors, chairman, president and controller are elected
annually for a term of one year. The other executive officers are
appointed by the president.
We paid a total of $40,000 during 1993 to directors not employed by
IDS.
<PAGE>
PAGE 29
Board of Directors
David R. Hubers*
Age 51. Director since 1987.
President and chief executive officer of IDS since 1993. Senior
vice president and chief financial officer of IDS from 1984 to
1993.
Charles W. Johnson
Age 64. Director since 1989.
Former vice president and group executive, Industrial Systems, with
Honeywell Inc. Retired 1989.
Edward Landes
Age 74. Director since 1984.
Development consultant. Former sales manager - Supplies Division
and district manager - Data Processing Division of IBM Corporation.
Retired 1983.
John V. Luck, Ph.D.
Age 68. Director since 1987.
Former senior vice president - science and technology with
General Mills Inc. Employed with General Mills Inc. since 1970.
Retired 1987.
James A. Mitchell*
Age 52. Director since January 1994. Chairman of the board of
directors since February 1994.
Executive vice president - marketing and products of IDS since
February 1994. Senior vice president - insurance operations of IDS
and president and chief executive officer of IDS Life Insurance
Company from 1986 to 1994.
Harrison Randolph
Age 78. Director since 1968.
Gordon H. Ritz
Age 66. Director since 1968.
President, Con Rad Broadcasting Corp. Director, Sunstar Foods and
Mid-America Publishing.
Stuart A. Sedlacek*
Age 36. Director since January 1994. President since February
1994.
Vice president - assured assets of IDS since March 1994. Vice
President and portfolio manager from 1988 to 1994. Executive vice
president - assured assets of IDS Life Insurance Company since
March 1994.
* Interested Person of IDSC as that term is defined in Investment
Company Act of 1940.
<PAGE>
PAGE 30
Executive officers
Stuart A. Sedlacek
Age 36. President since February 1994.
Louis C. Fornetti
Age 44. Vice president since 1990.
Chief financial officer of IDS since 1993 and senior vice
president, corporate controller and director of IDS since 1988.
Morris Goodwin Jr.
Age 42. Vice president and treasurer since 1989.
Vice president and corporate treasurer of IDS since 1989. Chief
financial officer and treasurer of IDS Bank & Trust from 1988 to
1989.
Colleen Curran
Age 40. Secretary since 1990.
Secretary and assistant vice president of IDS since 1990. Senior
counsel to IDS since 1990. Counsel from 1985 to 1990.
Lorraine R. Hart
Age 42. Vice president - investments since February 1994.
Vice president - insurance investments of IDS since 1989. Vice
president, investments of IDS Life Insurance Company since 1992.
John M. Knight
Age 41. Controller since 1993.
Controller of certificate operations of IDS since 1989. Manager of
certificate operations from 1985 to 1989.
Bruce A. Kohn
Age 43. Vice president and general counsel since 1993.
Counsel to IDS since 1992. Associate counsel from 1987 to 1992.
F. Dale Simmons
Age 56. Vice president - real estate loan management since 1993.
Vice president of IDS since 1992. Senior portfolio manager of IDS
since 1989. Assistant vice president from 1987 to 1992.
The Officers and Directors as a group beneficially own less than 1%
of the common stock of American Express.
IDSC has provisions in its bylaws relating to the indemnification
of its officers and directors against liability, as permitted by
law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
<PAGE>
PAGE 31
Auditors
A firm of independent auditors audits our financial statements at
the close of each fiscal year (Dec. 31). Copies of our annual
financial statements (audited) and semiannual financial statements
(unaudited) are available to any certificate holder upon request.
Ernst & Young, Minneapolis, has audited the financial statements
for each of the years in the three-year period ended Dec. 31, 1993.
These statements are included in this prospectus. Ernst & Young is
also the auditor for American Express, the parent company of IDS
and IDSC.<PAGE>
PAGE 32
Annual Financial Information
<TABLE>
<CAPTION>
Summary of Selected Financial Information
- -------------------------------------------------------------------
The following selected financial information has been derived from
the audited financial statements and should be read in conjunction
with those statements and the related notes to financial
statements. Also see Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
comments.
Year Ended Dec. 31, 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Investment income............. $ 236,859 $ 294,799 $ 351,970 $ 331,521 $ 248,472
Investment expenses........... 65,404 69,630 63,353 55,176 42,082
- -------------------------------------------------------------------------------------------
Net investment income before
provisions for certificate
reserves and income taxes... 171,455 225,169 288,617 276,345 206,390
Net provision for certificate
reserves.................... 123,516 178,175 258,443 271,267 208,219
- -------------------------------------------------------------------------------------------
Net investment income (loss)
before income taxes......... 47,939 46,994 30,174 5,078 (1,829)
Income tax benefit............ 3,365 11,666 20,537 28,588 26,040
- -------------------------------------------------------------------------------------------
Net investment income......... 51,304 58,660 50,711 33,666 24,211
- -------------------------------------------------------------------------------------------
Realized gain (loss) on
investments - net:
Securities of unaffiliated
issuers..................... (9,870) (9,498) (129) 2,178 1,672
Other - unaffiliated.......... (418) (500) (1,053) (851) -
- -------------------------------------------------------------------------------------------
Total gain (loss) on
investments................. (10,288) (9,998) (1,182) 1,327 1,672
Income tax expense (benefit).. (4,617) (3,399) (402) 451 569
- -------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments ................ (5,671) (6,599) (780) 876 1,103
Net income - wholly owned
subsidiary.................. 120 3 139 286 280
- -------------------------------------------------------------------------------------------
Net income ................... $ 45,753 $ 52,064 $ 50,070 $ 34,828 $ 25,594
- -------------------------------------------------------------------------------------------
Dividends declared:
Cash........................ $ 64,500 $ 83,750 $ 74,800 $ 47,000 $ 17,900
In-kind(a).................. - 64,558 25,466 - 1,500
- -------------------------------------------------------------------------------------------
Balance Sheet Data:
Total assets.................. $2,951,405 $3,444,985 $3,971,583 $4,168,586 $3,398,486
Certificate loans............. 67,429 77,347 88,570 99,192 110,608
Certificate reserves.......... 2,777,451 3,256,472 3,712,570 3,859,530 3,150,917
Stockholder's equity.......... 161,138 179,885 223,820 273,600 231,494
- -------------------------------------------------------------------------------------------
IDS Certificate Company (IDSC) is 100 percent owned by IDS Financial Corporation (IDS).
(a) Consisted of an investment security at amortized cost in 1992 and a reduction in the
note receivable from IDS in 1991 and 1989.
</TABLE>
<PAGE>
PAGE 33
Management's discussion and analysis of financial condition and
results of operations
Results of operations: IDS Certificate Company's (IDSC) earnings
are derived from the after-tax yield on invested assets less
investment expenses and interest credited on certificate reserve
liabilities. Significant changes and trends occur largely due to
interest rate changes and the difference between rates of return on
investments, rates of interest credited to certificate holder
accounts and the mix of fully taxable and tax-advantaged
investments in the IDSC portfolio.
In 1989 and 1990, total assets and certificate reserve liabilities
increased due to certificate sales exceeding certificate maturities
and surrenders. The increases in total assets in 1989 and 1990
also reflect capital contributions from its parent, IDS Financial
Corporation (IDS). (See Liquidity and Cash Flow Discussion)
Total assets and certificate reserve liabilities decreased in 1993,
1992 and 1991 due to certificate maturities and surrenders
exceeding certificate sales. The excess of certificate maturities
and surrenders over certificate sales in 1993, 1992 and 1991
resulted primarily from lower accrual rates declared by IDSC in
those years, reflecting lower interest rates available in the
marketplace.
1993 Compared to 1992: Gross investment income decreased 20% due
to a lower balance of invested assets and lower investment yields.
The 6.1% decrease in investment expenses resulted primarily from
lower distribution fees due to lower certificate sales, and lower
investment advisory and services fee due to a lower asset base on
which the fee is calculated. These decreases were partially offset
by higher amortization of interest rate caps. The higher
amortization reflects additional purchases and accelerated
amortization of certain interest rate caps in 1993.
Net provision for certificate reserves decreased 31% reflecting
lower accrual rates and a lower average balance of certificate
reserves.
The $7.1 million decrease in income tax benefit resulted primarily
from lower tax-advantaged income in 1993. The impact of the change
in Federal statutory income tax rate in 1993 was an increase in
income tax benefit of $.6 million of which $.4 million reflects the
increase in rate on the Dec. 31, 1992 balance of temporary
differences.
1992 Compared to 1991: Net investment income of $58.7 million in
1992 was 16% higher than in 1991. The primary reason was an
interest rate environment in 1992, that resulted in slightly lower
long-term investment yields than in 1991 while short-term rates
declined significantly. As a result,
<PAGE>
PAGE 34
IDSC's investment yields decreased, however, interest rates
credited on certificate reserve liabilities were significantly
lower due to the short-term repricing nature of certificate
products.
Gross investment income decreased 16% due to a lower balance of
invested assets and lower investment yields.
The 10% increase in investment expenses resulted primarily from
higher amortization of premiums paid for interest rate caps and
index options used as hedges against changes in rates credited on
certificate liabilities. Distribution fees were lower due
primarily to lower certificate sales. Investment advisory and
services fee was lower due a lower asset base on which the fee is
calculated.
Net provision for certificate reserves decreased 31% reflecting
lower accrual rates and a lower average balance of certificate
reserves.
The decrease in income tax benefit resulted primarily from higher
pretax income and lower tax-advantaged income in 1992.
Liquidity and cash flow: IDSC's principal sources of cash are
reserve payments from sales of face-amount certificates and cash
flows from investments. In turn, IDSC's principal uses of cash are
payments to certificate holders for matured and surrendered
certificates, purchase of investments and payments of dividends to
IDS.
Although certificate sales volume decreased 18% in 1993, total
sales remained strong reflecting clients' ongoing desire for safety
of principal. Sales of single payment certificates totaled $.9
billion compared to $1.1 billion during 1992, $1.4 billion during
1991 and $1.6 billion during both 1990 and 1989.
IDSC, as an issuer of face-amount certificates, is affected
whenever there is a significant change in interest rates. In view
of the uncertainty in the investment markets and due to the
short-term repricing nature of certificate reserve liabilities,
IDSC continues to invest in securities with relatively short
maturities and in securities that provide for more immediate,
periodic interest/principal payments, resulting in improved
liquidity. To accomplish this, IDSC continues to invest much of
its cash flow in mortgage-backed securities and in sinking-fund
preferred stock.
IDSC's investment program is designed to maintain an investment
portfolio that will produce the highest possible after-tax yield
within acceptable risk standards with additional emphasis on
liquidity. The program considers investment securities as
investments acquired with the intent and ability to hold for the
foreseeable future and is designed to meet anticipated certificate
holder obligations. IDSC normally holds its portfolio securities
until maturity or retirement, at which time the carrying values are
expected to be recovered.
<PAGE>
PAGE 35
At Dec. 31, 1993, securities carried at cost decreased to $2.4
billion from $2.9 billion at Dec. 31, 1992. These securities,
which comprise 85% of IDSC's total invested assets, are well
diversified 96% are of investment grade and, other than U.S.
Government Agency mortgage-backed securities, no one issuer
represents more than two percent of these securities. See note 3
to Financial Statements for additional information on ratings and
diversification.
Gross unrealized gains and gross unrealized losses on investment
securities carried at cost were $119 million and $6.5 million,
respectively, at Dec. 31, 1993.
In 1993, in reaction to the changing interest rate environment,
IDSC continued to restructure a portion of its investment security
portfolio by selling $349 million of investment securities. The
sales included $253 million of mortgage-backed securities purchased
at a premium. These securities were sold to decrease exposure to
prepayment activity on the underlying pool of mortgages that could
have had a negative impact on future yields on these securities.
Cash flows of $897 million from operating activities, scheduled
maturities, and redemptions of investments in 1993, were more than
adequate to fund the net cash outflow of $603 million related to
certificate obligations.
During 1992, IDSC charged earnings with $23.7 million of
write-downs in the value of certain interest-only, mortgage-backed
securities that resulted from high prepayments due to refinancing
and additional payment activity on the underlying pool of mortgages
due to declining interest rates. At Dec. 31, 1992, the carrying
value of these securities was $30.2 million. During 1993,
additional write-downs of $.6 million were recorded and all of
these securities with a carrying value of $27.4 million were sold
for $14.3 million.
During 1993, IDSC's reserve for possible losses on its below
investment grade securities was reduced by $12.2 million from $14.2
million at Dec. 31, 1992 to $2.0 million at Dec. 31, 1993. The
reduction reflects sales and exchanges of certain of these issues
in 1993. IDSC does not generally invest in below investment grade
securities and is limited by regulation as to the amount of such
securities it can hold. IDSC's holdings in these securities result
principally from the downgrading of the securities subsequent to
purchase by IDSC. Management believes that reserves for possible
losses on securities owned at Dec. 31, 1993, are adequate, however,
future economic factors could impact the ratings of securities
owned and additional reserves for losses may need to be recognized.
Impact of New Accounting Standards: In May of 1993, the Financial
Accounting Standards Board issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which IDSC will
implement, effective Jan. 1, 1994. Under<PAGE>
PAGE 36
the new rules, debt securities that IDSC has both the positive
intent and ability to hold to maturity will be carried at amortized
cost. Debt securities that IDSC does not have the positive intent
and ability to hold to maturity and all marketable equity
securities will be classified as available-for-sale and carried at
fair value. Unrealized gains and losses on securities classified
as available-for-sale will be carried as a separate component of
Stockholder's Equity. The effect of the new rules will be to
increase Stockholder's Equity by approximately $4 million,
net of taxes, as of Jan. 1, 1994.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
is expected to have no material impact on IDSC's results of
operations or financial condition.
Dividends: Cash dividends ranging from $17.9 million to $83.8
million were declared during each of the years 1989 to 1993. In
addition, dividends-in-kind were declared consisting of an
investment security of $64.6 million in 1992 and a reduction in the
notes receivable from IDS of $25.5 million and $1.5 million in 1991
and 1989, respectively. As a result of projected adequate earnings
in 1994 and capital in excess of regulatory requirements, IDSC
anticipates declaring regular cash dividends of approximately $50
million in 1994.
Capital Contributions: IDSC received capital contributions from
IDS of $54.7 million in Fund American Companies, Inc. preferred
stock in 1990 and $18.5 million in cash and $85.9 million in Fund
American Companies, Inc. preferred stock in 1989. American Express
Company made capital contributions to several subsidiaries in 1989
and IDSC, through IDS, was able to take advantage of this special
opportunity. The contributions benefitted IDSC by providing
support for the increased certificate sales volumes in 1991, 1990
and 1989, allowing for future growth and for payment of regular
dividends.
Due to the decrease in IDSC's assets in 1992, IDSC felt its holding
in Fund American Companies, Inc. preferred stock was too large an
exposure to a single credit risk, resulting in IDSC's
dividend-in-kind of the issue to IDS. IDS subsequently contributed
capital to IDSC of $52.3 million. The contribution was necessary
in management of IDSC's regulatory capital requirements.
Ratios: The ratio of stockholder's equity to total assets less
certificate loans at Dec. 31, 1993, was 5.59%, compared to 5.34% in
1992. IDSC intends to manage this ratio to 5% in 1994, which meets
current regulatory requirements.
<PAGE>
PAGE 37
Annual Financial Information
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheet of IDS Certificate
Company, a wholly owned subsidiary of IDS Financial Corporation,
as of December 31, 1993 and 1992, and the related statements of
operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1993. These
financial statements are the responsibility of the management
of IDS Certificate Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of
December 31, 1993 and 1992 by correspondence with custodians and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Certificate Company at December 31, 1993 and 1992, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
ERNST & YOUNG
Minneapolis, Minnesota
February 3, 1994
<PAGE>
PAGE 38
IDS Certificate Company
Responsibility for Preparation of Financial Statements
The management of IDS Certificate Company is responsible for the
preparation of the financial statements and related notes included
in the prospectus. The statements have been prepared in conformity
with generally accepted accounting principles appropriate in the
circumstances, and include amounts based on the best judgment of
management. Financial information included elsewhere in the
prospectus is consistent with these financial statements.
In recognition of its responsibility for the integrity and
objectivity of data in the financial statements, management
maintains a system of internal accounting controls. This system
includes an organizational structure with clearly defined lines of
responsibility and delegation of authority. To ensure the
effective administration of internal control, employees are
carefully selected and trained, written policies and procedures are
developed and disseminated, and appropriate communication channels
are provided to foster an environment conducive to the effective
functioning of controls.
The system is supported by an internal auditing function that
reports its findings to management throughout the year. IDS
Certificate Company's independent auditors are engaged to express
an opinion on the year-end financial statements. They objectively
and independently review the performance of management in carrying
out its responsibility for reporting operating results and
financial condition. With the coordinated support of the internal
auditors, they review and test the system of internal accounting
controls and the data contained in the financial statements.
<PAGE>
PAGE 39
Financial statements
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Assets
Qualified Assets (note 2) 1993 1992
- -----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Investments in unaffiliated issuers (note 3):
Cash and cash equivalents................... $ 54,059 $ 71,359
Bonds and notes...................................... 1,632,657 1,932,189
Preferred stocks..................................... 797,044 991,505
First mortgage loans on real estate.................. 281,865 233,796
Certificate loans - secured by certificate reserves.. 67,429 77,347
Other................................................ 2,218 150
Investments in and advances to affiliates.............. 4,812 2,787
- -----------------------------------------------------------------------------------------
Total investments...................................... 2,840,084 3,309,133
Receivables:
Dividends and interest............................... 40,432 50,441
Investment securities sold........................... 10,068 7,550
- -----------------------------------------------------------------------------------------
Total receivables...................................... 50,500 57,991
- -----------------------------------------------------------------------------------------
Other (notes 8 and 9).................................. 41,153 44,049
- -----------------------------------------------------------------------------------------
Total qualified assets................................. 2,931,737 3,411,173
- -----------------------------------------------------------------------------------------
Other Assets
- -----------------------------------------------------------------------------------------
Deferred distribution fees............................. 19,615 21,550
Deferred federal income taxes (note 7)................. - 11,281
Other.................................................. 53 981
- -----------------------------------------------------------------------------------------
Total other assets..................................... 19,668 33,812
- -----------------------------------------------------------------------------------------
Total assets........................................... $2,951,405 $3,444,985
- -----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 40
<TABLE>
<CAPTION>
Balance Sheet, Dec. 31,
- ---------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Liabilities 1993 1992
- ---------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C>
Certificate Reserves (note 4):
Installment certificates:
Reserves to mature................................ $ 352,649 $ 358,345
Additional credits and accrued interest........... 18,555 18,067
Advance payments and accrued interest............. 1,943 2,277
Other............................................. 54 53
Fully paid certificates:
Reserves to mature................................ 2,243,416 2,701,724
Additional credits and accrued interest........... 160,440 175,651
Due to unlocated certificate holders................ 394 355
- ---------------------------------------------------------------------------------------
Total certificate reserves.......................... 2,777,451 3,256,472
- ---------------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities:
Due to IDS (note 6A).............................. 1,182 1,419
Due to IDS for federal income taxes............... 5,862 -
Due to affiliates (note 6B and 6C)................ 1,457 1,539
Payable for investment securities purchased....... - 160
Payable upon return of securities loaned ......... - 1,643
Accounts payable, accrued expenses and other...... 4,150 3,867
- ---------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities...... 12,651 8,628
Deferred federal income taxes (note 7).............. 165 -
- ---------------------------------------------------------------------------------------
Total liabilities................................... 2,790,267 3,265,100
- ---------------------------------------------------------------------------------------
Stockholder's Equity (notes 4B, 4C, and 5):
Common stock, $10 par - authorized and
issued 150,000 shares............................. 1,500 1,500
Additional paid-in capital.......................... 147,144 166,144
Retained earnings:
Appropriated for predeclared additional
credits/interest................................ 2,726 2,804
Appropriated for additional interest on
advance payments................................ 25 100
Unappropriated.................................... 9,743 9,337
- ---------------------------------------------------------------------------------------
Total stockholder's equity.......................... 161,138 179,885
- ---------------------------------------------------------------------------------------
Total liabilities and stockholder's equity.......... $2,951,405 $3,444,985
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 41
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------------------------------------------------------------------------
Year ended Dec. 31,
- -----------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Investment Income: 1993 1992 1991
Interest income from investments:
Bonds and notes:
Unaffiliated issuers........................ $140,991 $178,071 $239,193
IDS......................................... - - 3,820
Mortgage loans on real estate:
Unaffiliated................................ 24,071 18,430 10,445
Affiliated.................................. 78 88 97
Certificate loans........................... 3,882 4,479 5,061
Dividends....................................... 67,115 92,599 92,374
Other........................................... 722 1,132 980
- ------------------------------------------------------------------------------------------
Total investment income......................... 236,859 294,799 351,970
- ------------------------------------------------------------------------------------------
Investment Expenses:
IDS and affiliated company fees (note 6):
Distribution.................................. 28,477 32,752 35,888
Investment advisory and services.............. 15,036 17,851 19,787
Depositary.................................... 201 225 279
Transfer agent................................ - 7 30
Options......................................... 9,419 10,323 1,266
Interest rate caps.............................. 11,667 7,649 5,077
Other........................................... 604 823 1,026
- ------------------------------------------------------------------------------------------
Total investment expenses....................... 65,404 69,630 63,353
- ------------------------------------------------------------------------------------------
Net investment income before provisions
for certificate reserves and income taxes..... $171,455 $225,169 $288,617
- ------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 42
<TABLE>
<CAPTION>
Statement of Operations (continued)
- ---------------------------------------------------------------------------------------
Year ended Dec. 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Provision for Certificate Reserves (notes 4 and 9):
According to the terms of the certificates:
Provision for certificate reserves............ $ 20,555 $ 28,685 $ 21,402
Interest on additional credits................ 3,605 3,904 3,984
Interest on advance payments.................. 90 68 71
Additional credits/interest authorized by IDSC:
On fully paid certificates.................... 93,546 141,197 229,039
On installment certificates................... 6,704 5,270 5,058
On advance payments........................... - 89 96
- ---------------------------------------------------------------------------------------
Total provision before reserve recoveries....... 124,500 179,213 259,650
Reserve recoveries from terminations
prior to maturity.............................. (984) (1,038) (1,207)
- ---------------------------------------------------------------------------------------
Net provision for certificate reserves.......... 123,516 178,175 258,443
- ---------------------------------------------------------------------------------------
Net investment income before income taxes....... 47,939 46,994 30,174
Income tax benefit (note 7)..................... 3,365 11,666 20,537
- ---------------------------------------------------------------------------------------
Net investment income........................... 51,304 58,660 50,711
- ---------------------------------------------------------------------------------------
Realized loss on investments - net:
Securities of unaffiliated issuers............ (9,870) (9,498) (129)
Other-unaffiliated............................ (418) (500) (1,053)
- ---------------------------------------------------------------------------------------
Total loss on investments....................... (10,288) (9,998) (1,182)
- ---------------------------------------------------------------------------------------
Income tax expense (benefit) (note 7):
Current....................................... (19,508) 6,121 (777)
Deferred...................................... 14,891 (9,520) 375
- ---------------------------------------------------------------------------------------
Total income tax benefit........................ (4,617) (3,399) (402)
- ---------------------------------------------------------------------------------------
Net realized loss on investments................ (5,671) (6,599) (780)
- ---------------------------------------------------------------------------------------
Net income - wholly owned subsidiary............ 120 3 139
- ---------------------------------------------------------------------------------------
Net income ..................................... $ 45,753 $ 52,064 $ 50,070
- ---------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 43
<TABLE>
<CAPTION>
Statement of Stockholder's Equity
- ----------------------------------------------------------------------------------------
Year ended Dec. 31,
- --------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Common Stock: 1993 1992 1991
Balance at beginning and end of year............ $ 1,500 $ 1,500 $ 1,500
- ----------------------------------------------------------------------------------------
Additional Paid-in Capital:
Balance at beginning of year.................... $166,144 $206,393 $206,393
Contribution from IDS........................... - 52,309
Dividends declared:
Cash.......................................... (19,000) (28,000)
Investment security........................... - (64,558)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $147,144 $166,144 $206,393
- ----------------------------------------------------------------------------------------
Retained Earnings:
Appropriated for predeclared additional
credits/interest (note 4B):
Balance at beginning of year.................... $ 2,804 $ 4,247 $ 6,186
Transferred to unappropriated retained earnings. (78) (1,443) (1,939)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 2,726 $ 2,804 $ 4,247
- ----------------------------------------------------------------------------------------
Appropriated for additional interest on
advance payments (note 4C):
Balance at beginning of year.................... $ 100 $ 100 $ 100
Transferred to unappropriated retained earnings. (75) - -
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 25 $ 100 $ 100
- ----------------------------------------------------------------------------------------
Unappropriated (note 5):
Balance at beginning of year.................... $ 9,337 $ 11,580 $ 59,837
Net income ..................................... 45,753 52,064 50,070
Transferred from appropriated retained earnings. 153 1,443 1,939
Dividends declared:
Cash.......................................... (45,500) (55,750) (74,800)
Reduction in note receivable from IDS......... - - (25,466)
- ----------------------------------------------------------------------------------------
Balance at end of year.......................... $ 9,743 $ 9,337 $ 11,580
- ----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 44
<TABLE>
<CAPTION>
Statement of Cash Flows
- -------------------------------------------------------------------------------------------
Year ended Dec. 31,
- -------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Cash flows from operating activities: 1993 1992 1991
Net income............................................... $ 45,753 $ 52,064 $ 50,070
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary.................... (120) (3) (139)
Certificate reserves..................................... 123,516 178,175 258,443
Interest income added to certificate loans............... (2,454) (2,743) (3,046)
Amortization of premium/discount-net..................... 27,494 30,136 22,809
Deferred federal income taxes............................ 11,446 (13,501) (1,786)
Deferred distribution fees............................... 1,935 1,277 984
Net loss on investments.................................. 10,288 9,998 1,182
Decrease in dividends and interest receivable............ 10,009 10,946 5,430
Decrease (increase) in other assets...................... 967 2,277 (3,152)
Increase (decrease) in other liabilities................. 4,979 (2,934) 1,088
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities................ 233,813 265,692 331,883
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Maturity and redemption of investments................... 663,151 968,647 645,084
Sale of investments...................................... 335,396 616,628 436,398
Certificate loan payments................................ 8,991 10,505 10,764
Purchase of investments.................................. (577,657)(1,147,562) (922,550)
Certificate loan fundings................................ (10,275) (12,610) (14,855)
Investment in subsidiary................................. (2,000) - -
- -------------------------------------------------------------------------------------------
Net cash provided by investing activities................ 417,606 435,608 154,841
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Reserve payments by certificate holders.................. 1,103,391 1,380,376 1,656,062
Proceeds from securities loaned to brokers............... 6,150 52,721 185,171
Proceeds from reverse repurchase agreements.............. 72,800 215,475 -
Capital contribution from IDS............................ - 52,309 -
Certificate maturities and cash surrenders............... (1,705,967)(2,007,880)(2,051,429)
Payments to brokers upon return of securities loaned..... (7,793) (53,550) (183,987)
Payments under reverse repurchase agreements............. (72,800) (215,475) -
Dividends paid........................................... (64,500) (83,750) (87,800)
- -------------------------------------------------------------------------------------------
Net cash used in financing activities.................... (668,719) (659,774) (481,983)
- -------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents..... (17,300) 41,526 4,741
Cash and cash equivalents beginning of year.............. 71,359 29,833 25,092
- -------------------------------------------------------------------------------------------
Cash and cash equivalents end of year.................... $ 54,059 $ 71,359 $ 29,833
- -------------------------------------------------------------------------------------------
Supplemental disclosures including non-cash transactions:
Cash received for income taxes........................... $ 26,606 $ 3,847 $ 15,985
Certificate maturities and surrenders through loan
reductions............................................... 13,656 16,071 17,759
Dividend-in-kind of preferred stock including related
deferred income tax of $516.............................. - 64,558 -
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 45
Notes to Financial Statements ($ in thousands unless indicated
otherwise)
- -------------------------------------------------------------------
1. Summary of significant accounting policies
IDS Certificate Company (IDSC) is a wholly owned subsidiary of IDS
Financial Corporation (IDS), which is a wholly owned subsidiary of
American Express Company.
IDSC is in the business of issuing face-amount investment
certificates.
Described below are certain accounting policies that are important
to an understanding of the accompanying financial statements.
Basis of financial statement presentation
The accompanying financial statements are presented on a historical
cost basis without adjustment of the net assets attributable to the
1984 acquisition of IDS by American Express Company. They include
only the accounts of IDSC. IDSC uses the equity method of
accounting for its investment in its wholly owned unconsolidated
subsidiary, which is the method prescribed by the Securities and
Exchange Commission (SEC) for issuers of face-amount certificates.
Certain amounts from prior years have been reclassified to conform
to the current year presentation.
Fair values of financial instruments
The fair values of financial instruments disclosed in the notes to
financial statements are estimates based upon current market
conditions and perceived risks, and require varying degrees of
management judgment.
Preferred stock dividend income
IDSC recognizes dividend income from cumulative redeemable
preferred stocks with fixed maturity amounts on an accrual basis
similar to that used for recognizing interest income on debt
securities.
Securities
Cash equivalents are carried at amortized cost, which approximates
fair value. IDSC has defined cash and cash equivalents as cash in
banks and highly liquid investments with a maturity of three months
or less at acquisition and are not interest rate sensitive.
IDSC's investment program considers investment securities as
long-term investments and is designed to meet contractual
investment certificate obligations. IDSC has the ability to hold
these securities to their maturities and has the intent to hold
them for the foreseeable future.
<PAGE>
PAGE 46
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
Marketable equity securities and other securities without fixed
maturity dates are carried at aggregate cost or market value,
whichever is lower. A valuation allowance is established for net
unrealized depreciation on marketable equity securities and is
charged against stockholder's equity. Bonds and notes, and
preferred stocks that either must be redeemed by the issuer or may
be redeemed by the issuer at the holder's request are carried at
amortized cost. The basis for determining realized gains and
losses on securities is the amortized cost of bonds and notes on a
"first-in, first-out" basis and the average cost of individual
issues of stocks. When there is a decline in value, that is other
than temporary, the securities are carried at estimated realizable
value.
First mortgage loans on real estate
Mortgage loans are carried at amortized cost, less reserves for
losses, which is the basis for determining any realized gains or
losses. When economic evaluations of the underlying real estate
indicate a loss on a loan is likely to occur, an allowance for such
loss is recorded. IDSC generally stops accruing interest on loans
for which interest is delinquent more than three months.
Certificates
Investment certificates may be purchased either with a lump-sum
payment or by installment payments. Certificate holders are
entitled to receive at maturity a definite sum of money. Payments
from certificate holders are credited to investment certificate
reserves. Investment certificate reserves accumulate at specified
percentage rates. Reserves also are maintained for advance
payments made by certificate holders, accrued interest thereon, and
for additional credits and accrued interest thereon. On
certificates allowing for the deduction of a surrender charge, the
cash surrender values may be less than accumulated investment
certificate reserves prior to maturity dates. Cash surrender
values on certificates allowing for no surrender charge are equal
to certificate reserves. The payment distribution, reserve
accumulation rates, cash surrender values, reserve values and other
matters are governed by the Investment Company Act of 1940 ("the
1940 Act").
Deferred distribution fee expense
On certain series of certificates, distribution fees are deferred
and amortized over the estimated lives of the related certificates,
which is approximately 10 years. Upon surrender, unamortized
deferred distribution fees are charged against income.
Federal income taxes
IDSC's taxable income or loss is included in the consolidated
federal income tax return of American Express Company. IDSC
provides for income taxes on a separate return basis, except that,
<PAGE>
PAGE 47
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
under an agreement between IDS and American Express Company, tax
benefits are recognized for losses to the extent they can be used
in the consolidated return. It is the policy of IDS and its
subsidiaries that IDS will reimburse a subsidiary for any tax
benefits recorded.
2. Deposit of assets and maintenance of qualified assets
o Under the provisions of its certificates and the 1940 Act, IDSC
was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $2,767,057 and
$3,244,505 at Dec. 31, 1993 and 1992, respectively. IDSC had
qualified assets of $2,931,737 at Dec. 31, 1993 and $3,411,173 at
Dec. 31, 1992, including investment securities loaned to brokers of
$nil and $1,643 at Dec. 31, 1993 and 1992, respectively.
Qualified assets are valued in accordance with such provisions of
the Code of the District of Columbia as are applicable to life
insurance companies. Qualified assets for which no provision for
valuation is made in such Code are valued in accordance with rules,
regulations or orders prescribed by the SEC. These values are the
same as financial statement carrying values, except for securities
which are carried at the lower of aggregate cost or market in the
financial statements but are valued at cost for qualified asset and
deposit maintenance purposes.
o Pursuant to provisions of the certificates, the 1940 Act, the
central depositary agreement and to requirements of various states,
qualified assets of IDSC were deposited as follows:
<TABLE>
<CAPTION>
Dec. 31, 1993
------------------------------------------
Required
Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits to meet certificate
liability requirements:
States............. $ 421 $ 393 $ 28
Central Depositary. 2,814,553 2,695,884 118,669
- ---------------------------------------------------------------------------------------
Total.............. $2,814,974 $2,696,277 $118,697
- ---------------------------------------------------------------------------------------
Dec. 31, 1992
------------------------------------------
Required
Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate
liability requirements:
States............. $ 425 $ 410 $ 15
Central Depositary. 3,273,053 3,163,184 109,869
- ---------------------------------------------------------------------------------------
Total.............. $3,273,478 $3,163,594 $109,884
- ---------------------------------------------------------------------------------------
/TABLE
<PAGE>
PAGE 48
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
The assets on deposit at Dec. 31, 1993 and 1992 consisted of
securities having a deposit value of $2,500,790 and $3,006,669,
respectively; mortgage loans of $276,711 and $228,107,
respectively; and other assets of $37,473 and $38,702,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan.
IDS Bank & Trust is the central depositary for IDSC. See note 6C.
3. Investments
A) Fair values of investments in securities with fixed maturities
represent market prices and estimated fair values when quoted
prices are not available. Estimated fair values are determined by
IDSC using established procedures, involving review of market
indexes, price levels of current offerings and comparable issues,
price estimates and market data from independent brokers and
financial files. The procedures are reviewed annually. IDSC's
Vice President - Investments reports to the Board of Directors on
an annual basis regarding such pricing sources and procedures to
provide assurance that fair value is being achieved.
The amortized cost and fair value of investments in securities with
fixed maturities carried at cost are:
<TABLE>
<CAPTION>
Dec. 31, 1993
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government direct
obligations.............. $ 421 $ 22 $ - $ 443
Corporate bonds and
obligations.............. 704,172 45,608 3,449 746,331
State and municipal
obligations.............. 179,394 15,687 - 195,081
Mortgage-backed
securities............... 750,719 16,934 2,415 765,238
Preferred stock............ 797,044 40,933 2,657 835,320
- ---------------------------------------------------------------------------------------
2,431,750 119,184 8,521 2,542,413
Reserve for losses......... (2,049) (2,049)
- ---------------------------------------------------------------------------------------
$2,429,701 $119,184 $ 6,472 $2,542,413
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 49
<TABLE>
<CAPTION>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------------------------
Dec. 31, 1992
- ---------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government direct
obligations.............. $ 425 $ 20 $ - $ 445
Corporate bonds and
obligations.............. 814,800 34,051 12,897 835,954
State and municipal
obligations.............. 194,317 16,848 9 211,156
Mortgage-backed
securities............... 936,857 20,975 13,659 944,173
Preferred stock............ 991,505 32,381 14,485 1,009,401
- ---------------------------------------------------------------------------------------
2,937,904 104,275 41,050 3,001,129
Reserve for losses......... (14,210) (14,210)
- ---------------------------------------------------------------------------------------
$2,923,694 $104,275 $26,840 $3,001,129
- ---------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains on fixed maturities amounted to $112,712 and
$77,435 at Dec. 31, 1993 and 1992, respectively.
IDSC's reserve for possible losses on its below investment grade
securities was $2,049 at Dec. 31, 1993 compared to $14,210 at Dec.
31, 1992. The decrease reflects sales and exchanges of certain of
these issues in 1993.
The amortized cost and fair value of investments in securities with
fixed maturities by contractual maturity, are shown below. Cash
flows will differ from contractual maturities because issuers may
have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Dec. 31, 1993
----------------------
Amortized Fair
Cost Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less............................. $ 133,591 $ 135,839
Due from one to five years.......................... 679,639 719,175
Due from five to ten years.......................... 627,716 666,526
Due in more than ten years.......................... 240,085 255,635
- ---------------------------------------------------------------------------------------
1,681,031 1,777,175
Mortgage-backed securities.......................... 750,719 765,238
- ---------------------------------------------------------------------------------------
$2,431,750 $2,542,413
- ---------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments in securities with fixed
maturities during 1993 and 1992 were $330,851 and $420,713,
respectively. Gross gains of $3,272 and $17,514 and gross losses
of $19,927 and $2,730 were realized on those sales during 1993 and
1992, respectively.<PAGE>
PAGE 50
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
B) Investments in securities with fixed maturities comprised 85
percent and 88 percent of IDSC's total invested assets at Dec. 31,
1993 and 1992, respectively. Securities are rated by Moody's and
Standard & Poors (S&P), or by IDS internal analysts, using criteria
similar to Moody's and S&P, when a public rating does not exist. A
summary of investments in securities with fixed maturities by
rating of investment is as follows:
Rating 1993 1992
- ------------------------------------------
Aaa/AAA...................... 35% 35%
Aa/AA........................ 4 4
Aa/A......................... 1 1
A/A.......................... 22 21
A/BBB........................ 3 6
Baa/BBB...................... 31 28
Below investment grade....... 4 5
- ------------------------------------------
100% 100%
- ------------------------------------------
Of the securities rated Aaa/AAA, 87 percent at Dec. 31, 1993 and 89
percent at Dec. 31, 1992, are U.S. Government Agency
mortgage-backed securities that are not rated by a public rating
agency. Approximately 23 percent at Dec. 31, 1993 and 25 percent
at Dec, 31, 1992 of other securities with fixed maturities are
rated by IDS internal analysts. No investment in any one issuer at
Dec. 31, 1993 and 1992, is greater than two percent and one
percent, respectively, of IDSC's total investment in securities
with fixed maturities.
At Dec. 31, 1993 and 1992, approximately ten percent and seven
percent, respectively, of IDSC's invested assets were first
mortgage loans on real estate. A summary of first mortgage loans
by region and by type of real estate is as follows:
Region 1993 1992 Property Type 1993 1992
- -------------------------------- --------------------------------------
South Atlantic....... 23% 21% Apartments................. 40% 46%
East North Central... 23 25 Retail/shopping centers.... 28 19
West North Central... 21 24 Industrial buildings....... 13 11
Middle Atlantic...... 14 16 Office buildings........... 10 12
West South Central... 8 6 Hotels/motels.............. 1 2
Mountain............. 6 3 Retirement homes........... 1 1
Pacific.............. 3 2 Residential................ - 3
New England.......... 2 3 Other...................... 7 6
- -------------------------------- --------------------------------------
100% 100% 100% 100%
- -------------------------------- --------------------------------------
<PAGE>
PAGE 51
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
The carrying amounts and fair values of first mortgage loans on
real estate are as follows at Dec. 31. The fair values are
estimated using discounted cash flow analysis, using market
interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
<TABLE>
<CAPTION>
Dec. 31, 1993
- ---------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
Residential................................ $ 53 $ 59
Commercial................................. 282,773 289,726
- -----------------------------------------------------------------------
282,826 289,785
Reserve for losses......................... (961) -
- -----------------------------------------------------------------------
Net first mortgage loans on real estate $281,865 $289,785
- -----------------------------------------------------------------------
Dec. 31, 1992
- ---------------------------------------------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
Residential................................ $ 6,638 $ 6,133
Commercial................................. 228,869 236,307
- -----------------------------------------------------------------------
235,507 242,440
Reserve for losses......................... (1,711) -
- -----------------------------------------------------------------------
Net first mortgage loans on real estate $233,796 $242,440
- -----------------------------------------------------------------------
</TABLE>
At Dec. 31, 1993 and 1992, commitments for fundings of first
mortgage loans, at market interest rates, aggregated $nil and $30.6
million, respectively. IDSC employs policies and procedures to
ensure the creditworthiness of the borrowers and that funds will be
available on the funding date. IDSC's first mortgage loan fundings
are restricted to 75 percent or less of the market value of the
real estate at the time of the loan funding. Management believes
there is no fair value for these commitments.
C) IDSC reserves freedom of action with respect to its acquisition
of restricted securities that offer advantageous and desirable
investment opportunities. In a private negotiation, IDSC may
purchase for its portfolio all or part of an issue of restricted
securities. Since IDSC would intend to purchase such securities
for investment and not for distribution, it would not be "acting as
a distributor" if such securities are resold by IDSC at a later
date.
The fair values of restricted securities are determined by the
Board of Directors using the procedures and factors described in
paragraph A of note 3.<PAGE>
PAGE 52
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
In the event IDSC were to be deemed to be a distributor of the
restricted securities, it is possible that IDSC would be required
to bear the costs of registering those securities under the
Securities Act of 1933, although in most cases such costs would be
borne by the issuer of the restricted securities.
D) IDSC will implement, effective Jan. 1, 1994, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the new rules,
debt securities that IDSC has both the positive intent and ability
to hold to maturity will be carried at amortized cost. Debt
securities that IDSC does not have the positive intent and ability
to hold to maturity and all marketable equity securities will be
classified as available-for-sale and carried at fair value.
Unrealized gains and losses on securities classified as available-
for-sale will be carried as a separate component of Stockholder's
Equity. The effect of the new rules will be to increase
Stockholder's Equity by approximately $4,304, net of taxes, as of
Jan. 1, 1994. The measurement of unrealized securities gains and
losses in Stockholder's Equity is affected by market conditions,
and therefore, subject to volatility. The new rules will not have a
material impact on IDSC's results of operations.
4. Certificate reserves
Reserves maintained on outstanding certificates have been computed
in accordance with the provisions of the certificates and Section
28 of the 1940 Act. The average rates of accumulation on
certificate reserves at Dec. 31, 1993 and 1992 were:
<TABLE>
<CAPTION>
1993
------------------------------------
Average Average
Reserve Gross Additional
Balance Accumulation Credit
at Dec. 31 Rate Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates..................... $ 57,958 3.49% 1.01%
Without guaranteed rates (A).............. 294,691 - 2.74
Additional credits and accrued interest... 18,555 3.09 -
Advance payments and accrued interest (C). 1,943 3.05 1.45
Other..................................... 54 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates..................... 291,923 3.30 1.07
Without guaranteed rates (A) and (D)...... 1,951,493 - 3.56
Additional credits and accrued interest... 160,440 3.37 -
Due to unlocated certificate holders...... 394 - -
- ---------------------------------------------------------------------------------------
$2,777,451
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 53
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1992
------------------------------------
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..................... $ 67,331 3.49% 2.26%
Without guaranteed rates (A).............. 291,014 - 3.26
Additional credits and accrued interest... 18,067 3.07 -
Advance payments and accrued interest (C). 2,277 3.02 2.48
Other..................................... 53 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates..................... 360,903 3.34 2.19
Without guaranteed rates (A) and (D)...... 2,340,821 - 4.49
Additional credits and accrued interest... 175,651 3.38 -
Due to unlocated certificate holders...... 355 - -
- ---------------------------------------------------------------------------------------
$3,256,472
- ---------------------------------------------------------------------------------------
</TABLE>
A) There is no minimum rate of accrual on these reserves.
Interest is declared periodically, quarterly or annually, in
accordance with the terms of the separate series of certificates.
B) On certain series of single payment certificates, additional
interest is predeclared for periods greater than one year. At Dec.
31, 1993, $2,726 of retained earnings had been appropriated for the
predeclared additional interest, which represents the difference
between certificate reserves on these series, calculated on a
statutory basis, and the reserves maintained per books.
C) Certain series of installment certificates guarantee accrual of
interest on advance payments at an average of 3.05 percent. IDSC
has increased the rate of accrual to 3.51 percent through April 30,
1995. An appropriation of retained earnings amounting to $25 has
been made, which represents the estimated additional accrual that
will result from the increase granted by IDSC.
D) IDS Stock Market Certificate enables the certificate holder to
participate in any relative rise in a major stock market index
without risking loss of principal. Generally the certificate has a
term of 12 months and may continue for up to 14 successive terms.
The reserve balance at Dec. 31, 1993 and 1992 was $402,801 and
$445,021, respectively.
E) The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1993 and 1992. Fair values
of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender
charges. The fair values for other certificate reserves is a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less any
applicable surrender charges.<PAGE>
PAGE 54
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
Reserves with terms of one year or less.... $2,409,668 $2,402,972
Other...................................... 367,783 384,484
- -----------------------------------------------------------------------
Total certificate reserves................. 2,777,451 2,787,456
Unapplied certificate transactions......... 1,064 1,064
Certificate loans and accrued interest..... (68,174) (68,174)
- -----------------------------------------------------------------------
Total $2,710,341 $2,720,346
- -----------------------------------------------------------------------
1992
------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------------------------
Reserves with terms of one year or less.... $2,939,259 $2,935,204
Other...................................... 317,213 326,646
- -----------------------------------------------------------------------
Total certificate reserves................. 3,256,472 3,261,850
Unapplied certificate transactions......... 1,586 1,586
Certificate loans and accrued interest..... (78,228) (78,228)
- -----------------------------------------------------------------------
Total $3,179,830 $3,185,208
- -----------------------------------------------------------------------
</TABLE>
5. Dividend restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1 percent on such series
of certificates have been authorized by IDSC. This restriction has
been removed for 1994 and 1995 by action of IDSC on additional
credits in excess of this requirement.
6. Fees paid to IDS and affiliated companies ($ not in thousands)
A) The basis of computing fees paid or payable to IDS for
investment advisory and services is:
The investment advisory and services agreement with IDS provides
for a graduated scale of fees equal on an annual basis to 0.75
percent on the first $250 million of total book value of assets of
IDSC, 0.65 percent on the next $250 million, 0.55 percent on the
next $250 million, 0.50 percent on the next $250 million and 0.45
percent on the amount in excess of $1 billion. The fee is payable
monthly in an amount equal to one-twelfth of each of the
percentages set forth above. Excluded from assets for purposes of
this computation are first-mortgage loans, real estate and any
other asset on which IDSC pays a service fee.<PAGE>
PAGE 55
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
B) The basis of computing fees paid or payable to IDS Financial
Services Inc. (an affiliate) for distribution services is:
Fees payable to IDS Financial Services Inc. on sales of IDSC's
certificates are based upon terms of agreements giving IDS
Financial Services Inc. the exclusive right to distribute the
certificates covered under the agreements. The agreements provide
for payment of fees over a period of time. The aggregate fees
payable under the agreements per $1,000 face amount of installment
certificates and $1,000 purchase price of single payments, and a
summary of the periods over which the fees are payable, shown by
series are:
<TABLE>
<CAPTION>
Number of
Certificate
Years Over
Aggregate Fees Payable Which
-------------------------- Subsequent
First Subsequent Years' Fees
Total Year Years Are Payable
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Installment certificates(a) $30.00 $ 6.00 $24.00 4
Single-payment certificates 60.00 60.00 - -
Future Value certificates.. 50.00 50.00 - -
- -----------------------------------------------------------------------
</TABLE>
Fees on Cash Reserve and Flexible Savings (formerly Variable Term)
certificates are paid at a rate of 0.25 percent of the purchase
price at time of issuance and 0.25 percent of the reserves
maintained for these certificates at the beginning of the second
and subsequent quarters from issue date.
Fees on the Investors Certificate are paid at an annualized rate of
1 percent of the reserves maintained for the certificates. Fees
are paid at the end of each term on certificates with a one, two or
three-month term. Fees are paid each quarter from date of issuance
on certificates with a six, 12, 24 or 36-month term.
Fees on the Stock Market Certificate are paid at a rate of 1.25
percent of the purchase price on the first day of the certificate's
term and 1.25 percent of the reserves maintained for these
certificates at the beginning of each subsequent term.
(a) At the end of the sixth through the 10th year, an additional
fee is payable of 0.5 percent of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.<PAGE>
PAGE 56
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
C) The basis of computing depositary fees paid or payable to IDS
Bank & Trust (an affiliate) is:
- -------------------------------------------------------------------
Maintenance charge per account..... 5 cents per $1,000 of
assets on deposit
Transaction charge................. $20 per transaction
Security loan activity:
Depositary Trust Company
receive/deliver................ $20 per transaction
Physical receive/deliver......... $25 per transaction
Exchange collateral.............. $15 per transaction
- -----------------------------------------------------------------------
A transaction consists of the receipt or withdrawal of securities
and commercial paper and/or a change in the security position. The
charges are payable quarterly except for maintenance, which is an
annual fee.
D) The basis for computing fees paid or payable to American
Express Service Corporation (an affiliate) in connection with the
American Express Savings certificate was:
Distribution Fees - Fees were paid at a rate of 0.25 percent of the
reserves maintained at the end of the first and subsequent
calendar quarters.
Transfer Agent Fees - Fees of $3.50 per certificate account were
paid each month.
E) The basis for computing fees paid or payable to American
Express Bank Ltd. (an affiliate) for the distribution of the IDS
Special Deposits certificate on an annualized basis is 0.80 percent
of the reserves maintained for the certificates on an amount from
$250,000 to $499,000, 0.65 percent on an amount from $500,000 to
$999,000 and 0.50 percent on an amount $1,000,000 or more. Fees
are paid at the end of each term on certificates with a one, two or
three-month term. Fees are paid at the end of each quarter from
date of issuance on certificates with a six, 12, 24 or 36-month
term.
<PAGE>
PAGE 57
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
7. Income taxes
Income tax expense (benefit) as shown in the statement of
operations for the three years ended Dec. 31, consists of:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current............................. $(19,777) $ (1,571) $(19,137)
Deferred............................ 11,446 (13,501) (1,786)
- -----------------------------------------------------------------------
(8,331) (15,072) (20,923)
State............................... 349 7 (16)
- -----------------------------------------------------------------------
$ (7,982) $(15,065) $(20,939)
- -----------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) differs from that computed by using
the U.S. statutory rate of 35 percent for 1993 and 34 percent for
1992 and 1991. The principal causes of the difference in each year
are shown below:
<TABLE>
<CAPTION>
1993 1992 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax expense (benefit) at
U.S. statutory rate............... $ 13,178 $ 12,579 $ 9,857
Tax-exempt interest................. (4,929) (6,212) (9,340)
Dividend exclusion.................. (17,326) (22,317) (20,964)
Change in statutory rates........... (406) - -
Other, net.......................... 1,152 878 (476)
- -----------------------------------------------------------------------
Federal tax benefit $ (8,331) $(15,072) $(20,923)
- -----------------------------------------------------------------------
</TABLE>
Deferred income taxes result from the net tax effects of temporary
differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements that will result in differences between income
for tax purposes and income for financial statement purposes in
future years. Principal components of IDSC's deferred tax assets
and liabilities as of Dec. 31, are as follows:
<TABLE>
<CAPTION>
1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Certificate reserves................ $ 6,127 $ 8,351
Investments......................... 1,225 6,095
Investment reserves................. 1,487 5,654
Purchased/written call options...... - 273
- -----------------------------------------------------------------------
Total deferred tax assets 8,839 20,373
- -----------------------------------------------------------------------
Deferred tax liabilities:
Deferred distribution fees.......... 6,865 7,327
Dividends receivable................ 1,255 1,586
Return of capital dividends......... 463 46
Purchased/written call options...... 254 -
Other, net.......................... 167 133
- -----------------------------------------------------------------------
Total deferred tax liabilities 9,004 9,092
- -----------------------------------------------------------------------
Net deferred tax assets (liabilities) $ (165) $11,281
- -----------------------------------------------------------------------
/TABLE
<PAGE>
PAGE 58
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
8. Interest-Rate Caps
IDSC owns interest-rate caps with a notional amount of $1,170,000
and $900,000 at Dec. 31, 1993 and 1992, respectively. These caps
are quarterly reset caps and IDSC is to be reimbursed on the
notional amount to the extent the London Interbank Offering Rate
exceeds the reference rates specified in the cap agreements. These
reference rates range from 4 percent to 13 percent. The cost of
these caps is being amortized over the terms of the agreements
(three to seven years) on a straight line basis and is included in
other qualified assets.
The carrying amounts and fair values of interest rate caps
consisted of the following at Dec. 31, 1993 and 1992. Fair values
are determined using the procedures and factors described in
paragraph A of note 3.
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Carrying amount.................. $24,809 $26,551
Fair value....................... 6,916 13,480
</TABLE>
9. Options
IDSC offers a series of certificates which pay interest based upon
the relative change in a major stock market index between the
beginning and end of the certificates' term. The certificate
holders have the option of participating in the full amount of
increase in the index during the term (subject to a specified
maximum) or a lesser percentage of the increase plus a guaranteed
minimum rate of interest. As a means of hedging its obligations
under the provisions of these certificates, IDSC purchases and
writes call options on the major market index. The options are
cash settlement options, that is, there is no underlying security
to deliver at the time the contract is closed out. There is the
risk that the counterparties to the purchased call option contracts
may be unable to fulfill their obligations. IDSC employs policies
and procedures to ensure the adequacy of the creditworthiness of
counterparties. Following is a summary of open option contracts at
Dec. 31, 1993 and 1992.
<PAGE>
PAGE 59
Notes to Financial Statements (continued)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
---------------------------------------------
Face Average Index at
Amount Strike Price Dec. 31, 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Purchased call options $221,389 452 466
Written call options 207,540 497 466
- -----------------------------------------------------------------------
1992
---------------------------------------------
Face Average Index at
Amount Strike Price Dec. 31, 1992
- -----------------------------------------------------------------------
Purchased call options $185,387 417 436
Written call options 123,147 484 436
- -----------------------------------------------------------------------
</TABLE>
The option contracts are less than one year in term and are carried
at the aggregate of the amortized cost and underlying intrinsic
value of the contracts. These carrying amounts may be different
than fair value depending on market conditions and other factors.
The amortization of the cost of purchased and the proceeds of
written call options is included net in investment expenses and the
changes in the intrinsic value of the contracts are included net in
provision for certificate reserves, in the statement of operations.
The purchased options are included in other qualified assets and
the written options are included in other liabilities.
The carrying amounts and fair values of options consisted of the
following at Dec. 31, 1993 and 1992. Fair values are determined
using the procedures and factors described in paragraph A of note
3.
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased call options.......... $13,615 $14,509 $14,239 $13,571
Written call options............ 1,640 2,992 881 1,157
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 60
With stock market full participation, if the S&P 500 Index doesn't
increase during the term of your certificate, your principal will
be secure but you'll earn no participation interest. If you want a
return regardless of market performance, you may want to choose
stock market partial participation plus a guaranteed minimum rate.
That way you'll be assured of some return in addition to what you
might earn with stock market participation.
The two types of interest add flexibility to your financial plan.
You have the potential to earn higher than average interest or the
option of a guaranteed interest rate, plus safety of principal.
Your maximum return over each 12-month term will be limited to a
specific percentage as described in the prospectus.
After your first term, you may choose to earn a fixed rate with no
stock market participation. And you can change from your fixed
interest selection to again participate in the movement of the S&P
500 Index.
If an emergency arises, your money is available.
You can withdraw from your certificate, in part of in full, during
the term, if your financial needs change. Withdrawal of principal
during the term will be assessed a 2% penalty. You will also
forfeit any interest earned on the amount you withdraw. However,
if you select a fixed rate with no stock market participation after
your first term, you can keep the interest earned on the amount you
withdraw.<PAGE>
PAGE 61
Quick reference
Selling Agent
American Express Bank International
Region Offices
375 Park Avenue (212) 415-9500
Suite 1404
New York, NY 10022
1221 Brickell Avenue
8th Floor
Miami, FL 33131 (305) 350-7750
421 North Rodeo Drive (310) 858-2924
Penthouse 1
Beverly Hill, CA 90210
1200 3rd Avenue (619) 239-5421
Suite 1630
San Diego, CA 92101
AEBI relationship manager:
