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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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April, 1997
American Express Stock Market Certificate
Potential for stock market growth with safety of principal.
Distributor: AMERICAN EXPRESS Financial Advisors
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To our certificate owners
Earn interest tied to stock market growth and maintain safety of
principal with ...
The American Express Stock Market Certificate
Guaranteed principal
IDS Certificate Company (IDSC) guarantees that if you own 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, American Express Financial Corporation, have
never missed a payment to certificate owners since they opened for
business in 1894.
The backing of quality investments
Though the 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, valued at
amortized cost. In fact, at December 31, 1996 the carrying value
of our investments exceeded the required carrying value of our
outstanding certificates by more than $151 million.
Choose how your money works for you
At the time you purchase an American Express 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 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.
Current rates on _______, 199_.
Client may select Minimum S&P 500 Max. ann.
one of the following: rate participation return
1) Full participation 0% 100% 10%
2) Partial participation -- 25% 10%
Interim interest rate: ____%
(This brochure is not part of the prospectus.)<PAGE>
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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 minimum rate guaranteed
by IDSC. 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 minimum 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 or in full, at any
time after making your fixed interest selection, 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.
(This brochure is not part of the prospectus.)
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(THIS PAGE LEFT INTENTIONALLY BLANK)
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American Express Stock Market Certificate
Prospectus
April 30, 1997
Potential for stock market growth with safety of principal.
American Express Stock Market Certificates are issued by IDS
Certificate Company (the Issuer or 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
the Issuer 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 the Issuer. 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 by IDSC or whether all of it will be
tied to the market. You can keep your certificate for up to 14
terms.
As is the case with other investment companies, 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 American
Express 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 American Express Stock Market Certificate as
described in the prospectus, or to bind the Issuer by any statement
not in it.
IDS CERTIFICATE COMPANY IS NOT A BANK OR FINANCIAL INSTITUTION, AND
THE SECURITIES IT OFFERS ARE NOT DEPOSITS OR OBLIGATIONS OF, BACKED
OR GUARANTEED OR ENDORSED BY ANY BANK OR FINANCIAL INSTITUTION NOR
ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Issuer:
IDS Certificate Company
Unit 557
IDS Tower 10
Minneapolis, MN 55440-0010
Distributor:
American Express Financial Advisors Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
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Selling Agents:
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300
Coutts & Co (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
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Where to get information about the Issuer
The Issuer is subject to the reporting requirements of the
Securities Exchange Act of 1934. Reports and other information on
the Issuer are filed with the Securities and Exchange Commission
(SEC) and are available on the SEC Internet web site
(http://www.sec.gov). Copies can be obtained from the Public
Reference Section of the SEC, 450 5th St., N.W., Room 1024,
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
500 West Madison St. Suite 1400
Chicago, IL 60661
Pacific Regional Office
5670 Wilshire Blvd., 11th Floor
Los Angeles, CA 90036
Initial interest and participation rates
The Issuer 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 30, 1997:
Maximum Market participation Minimum
return percentage interest
10% 100% (full) None
10 25 (partial) Currently 3.00%
These rates may or may not be in effect when you apply to purchase
your certificate. For your first term, if you choose the partial
participation option for your certificate, your minimum interest
rate will be between 2.50% and 3.50%. Rates for later terms are
set at the discretion of the Issuer and may 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 p
Investment amounts p
Face amount and principal p
Certificate term p
Value at maturity p
Receiving cash before end of term p
Interest p
Promotions and pricing flexibility p
Historical data on the S&P 500 Index p
Calculation of return p
About the S&P 500 Index p
Opportunities at the end of a term p
How to invest and withdraw funds p
Buying your certificate p
How to make investments at term end p
Full and partial withdrawals p
Other full and partial withdrawal policies p
Transfers to other accounts p
Two ways to request a withdrawal or transfer p
Two ways to receive payment when you withdraw funds p
Transfer of ownership p
For more information p
Taxes on your earnings
Foreign investors p
Trusts p
How your money is used and protected
Invested and guaranteed by the Issuer p
Regulated by government p
Backed by our investments p
Investment policies p
Certain investment considerations p
How your money is managed
Relationship between the Issuer
and American Express Financial Corporation p
Capital structure and certificates issued p
Investment management and services p
Distribution p
About American Express Bank International and Coutts p
About American Express Service Corporation p
Employment of other American Express affiliates p
Directors and officers p
Auditors p
Appendix p
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Annual financial information
Summary of selected financial information p
Management's discussion and analysis of financial
condition and results of operations p
Report of independent auditors p
Financial statements p
Notes to financial statements p
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About the certificate
Investment amounts
You may purchase the American Express Stock Market 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)
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 (unless you
receive prior authorization from IDSC to invest more).
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
the Issuer. It consists of the amount you actually invest plus
interest credited to your account 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 the Issuer.
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
distribution for its value. Participation terms are always 12
months. Fixed interest terms may be less than 12 months if you
convert to participation before the 12-month period. At maturity,
the value of your certificate will be the total of your actual
investments, plus credited interest not paid to you in cash, less
any withdrawals and withdrawal penalties. Certain other fees may
apply.
Receiving cash before end of term
If you need money before your certificate term ends, you may
withdraw part or all of its value at any time, less any penalties
that apply. Procedures for withdrawing money, as well as
conditions under which penalties apply, are described in "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. Interest earned
under both of these options has an upper limit which is the maximum
annual return explained below. After your first term, you may
choose full or partial participation or 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 S&P 500 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 by IDSC 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 by IDSC in advance for each
term.
Together, they cannot exceed the maximum return.
If you choose the partial participation option for your first term,
the minimum interest paid on your certificate will be between 2.50%
and 3.50%.
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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 some period of time.
You may choose to receive a fixed rate of interest for any term
after the first term. During the term when you are receiving fixed
interest, you can change from your fixed interest selection to
again participate in the market. If you make the change from fixed
interest to participation interest, your next term would begin on
the Wednesday following our receipt of notice of your new
selection. In this way, you may have a term (during which you
would earn fixed interest) that is less than 12 months. You may
not change from participation interest to fixed interest during a
term.
Maximum annual return: This is the cap, or upper limit, of your
return. Your total return including both participation and minimum
interest for a term for which you have chosen participation
interest will be limited to this maximum return percentage.
Determining the S&P 500 Index value: The stock market closes at 3
p.m. Central time and the S&P 500 Index value is available at
approximately 4:30 p.m. This is the value we currently use to
determine participation interest. Occasionally, Standard & Poor's
(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. Each Tuesday's closing value of the S&P 500
Index is used for establishing the term start and the term end
values each week.
Interim interest: When we accept your application, we pay interim
interest to your account for the time before your first term
begins. We also pay interim interest for the 14-day period between
terms unless you write to ask us to begin your next term earlier.
You may withdraw this interest in cash at any time before it
becomes part of your certificate's principal without a withdrawal
penalty. If it is not withdrawn, the interest will become part of
your certificate's principal at the start of the next succeeding
term. For example, the interest you earn between the end of the
first and the beginning of the second term will become part of the
principal at the start of your third term. Interim interest rates
for the time before your first term begins will be within a range 0
to 100 basis points (0% to 1%) above the average interest rate
published for 12-month certificates of deposit in the BANK RATE
MONITOR Top 25 Market AverageTM (the BRM Average), North Palm
Beach, FL 33408. If the BRM Average is no longer publicly
available or feasible to use, IDSC may use another, similar index
as a guide for setting rates.
The BANK RATE MONITOR is a weekly magazine published in North Palm
Beach, FL 33408, by Advertising News Service Inc., an independent<PAGE>
PAGE 14
national news organization that collects and disseminates
information about bank products and interest rates. Advertising
News Service has no connection with the Issuer, American Express
Financial Corporation (AEFC) or any of their affiliates.The BRM
Average is an index of rates and annual effective yields offered on
various length certificates of deposit by large banks and thrifts
in 25 metropolitan areas. The frequency of compounding varies
among the banks and thrifts. Certificates of deposit in the BRM
Average are government insured fixed-rate time deposits.
The BANK RATE MONITOR may be available in your local library. To
obtain information or current BRM Average rates, call the Client
Service Organization at the telephone numbers listed on the back
cover.
Earning interest: Participation interest is calculated, credited
and compounded at the end of your certificate term. Minimum
interest accrues daily and is credited and compounded at the end of
your certificate term. Fixed interest accrues and is credited
daily and compounds at the end of your 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 and
compounds at the end of your term immediately following the period
in which interim interest is credited.
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:
o Your American Express Bank International (AEBI) relationship
manager.
o Your Coutts & Co (USA) International (Coutts) relationship
officer.
o The Issuer's Client Service Organization at the telephone
numbers listed on the back cover.
Promotions and pricing flexibility
From time to time, the Issuer may sponsor or participate in
promotions involving one or more of the certificates and their
respective terms. For example, we may offer different rates to new
clients, to existing clients, or to individuals who purchase or use
products or services offered by American Express Company, Coutts &
Co. (USA) International or their affiliates. These promotions will
generally be for a specified period of time. We also may offer
different rates based on your amount invested.
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Historical Data on the S&P 500 Index
The following chart illustrates the month-end closing values of the
index from Dec. 31, 1983 through Feb. 28, 1997. The values of the
S&P 500 Index are reprinted with the permission of S&P.
S&P 500 Index values - December 1983 to February 1997
800
700
600
500
400
300 Chart shows closing values of the S&P from above 100 in
1994 to end near 500 in Feb. 1997
200
S&P 500
100
84 85 86 87 88 89 90 91 92 93 94 95 96 97
S&P 500 Index Average Annual Return
Beginning date Period held Average annual
Dec. 31, in years return
1986 10 11.83%
1991 5 12.17
1995 1 20.26
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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, 1984. 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 - December 1984 to February 1997
40%
Chart shows 12-month Moving Price Return of the S&P from a
high of 40% to a low of -20%
20%
10%
0%
- -10%
- -20%
84 85 86 87 88 89 90 91 92 93 94 95 96
12 months return
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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 the 12-month price returns of
the S&P 500 Index beginning with the 12-month period ending Dec.
31, 1984. The graph also shows the number of times these price
returns fell within certain ranges.
S&P 500 Index - December 1984 to February 1997
25
20
Chart shows the distribution of all of the 12-month price
returns of the S&P 500 from 1/1/84 through 2/28/97 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 29.9 >=30
The last chart illustrates, on a moving weekly basis, the actual
12-month return of the American Express 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,
American Express Stock Market Certificate participation interest
was based on the NYSE Composite IndexR rather than the S&P 500
Index.
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<TABLE><CAPTION>
Actual 12-month return 1/22/91 to 2/18/97
<S> <C>
35%
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%
5%
0%
1/91 5/91 9/91 1/92 5/92 9/92 1/93 5/93 9/93 1/94 5/94 9/94 1/95 5/95 9/95 1/96 5/96 9/96 1/97
</TABLE>
Your interest earnings are tied to the movement of the Index. They
will be based on any increase in the Index as measured on the
beginning and ending date of each 12-month term. Of course, if the
Index is not higher on the last day of your term than it was on the
first day, your principal will be secure but you will earn no
participation interest.
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
American Express 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 owners will receive interest on their
accounts beyond any minimum interest or fixed interest selected.
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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 3.00%
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 3.00% 3.00% minimum interest rate
equals 5.13% Partial participation return
In both cases in the example, the return would be less than the 10%
maximum.
Maximum Return and Partial Participation Minimum Rate History - The
following table illustrates the maximum annual returns and partial
participation minimum rates that have been in effect since the
Stock Market Certificate was introduced.
Partial
Maximum participation
Start of term annual return minimum rate
Jan. 24, 1990 18.00% 5.00%
Feb. 5, 1992 18.00 4.00
May 13, 1992 15.00 4.00
Sept. 9, 1992 12.00 3.00
Nov. 11, 1992 10.00 2.50
Nov. 2, 1994 10.00 2.75
April 26, 1995 12.00 3.75
Jan. 17, 1996 10.00 3.25
Feb. 26, 1997 10.00 3.00
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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 3.00%, and the maximum total return for full and
partial participation is 10%.
<TABLE><CAPTION>
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
<S> <C>
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 800 (8% x $10,000) + 300 3.00% (Minimum interest rate) x 10,000
Participation interest + 200 25% x 8% x $10,000 Participation interest
$10,800 Ending balance $10,500 Ending balance
(8% Total return) (5.00% 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 + 300 3.00% (Minimum interest rate) x $10,000
$10,000 Ending balance + 0 Participation interest
(0% Total return) $10,300 Ending balance
(3.00% Total return)
3. If the Market and the S&P 500 Index value rise above the minimum 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) + 300 3.00% (Minimum interest rate) x $10,000
Maximum interest + 400 (25% x 16% x $10,000) Participation interest
$11,000 Ending balance $10,700 Ending balance
(10% Total return) (7.00% Total return)
</TABLE>
About the S&P 500 Index
The description in this prospectus of the S&P 500 Index including
its make-up, method of calculation and changes in its components
are derived from publicly available information regarding the S&P
500 Index. The Issuer 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. Standard & Poor's (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 U.S. common
stock population. Changes in the S&P 500 Index are reported daily
in the financial pages of many major newspapers.
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PAGE 21
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's
500" and "500" are trademarks of The McGraw-Hill Companies Inc. and
have been licensed for use by the Issuer. 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
the Issuer 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 the Issuer or the certificate.
S&P has no obligation to take the needs of the Issuer 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 the Issuer, 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 of implied warranties, and expressly
disclaims all warranties or merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any
data included therein. Without limiting any of the foregoing, in
no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even
if notified of the possibility of such damages.
If for any reason the S&P 500 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 change your term start date;
o withdraw part or all of your money without a withdrawal <PAGE>
PAGE 22
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 phone or send written
instructions before your current term ends. You can tell us to
start your next term on any Wednesday that is during the grace
period and immediately following the date on which we receive your
notice. Your notice may also tell us to change your interest
selection, add to your certificate or withdraw part of your money.
Term end notification cannot be sent in advance because indexing
information and interest (if any) are included. The notification
that we send you at the end of the term cannot be sent before the
term ends because indexing information and interest (if any) are
included in the notice and are not known until the term ends. Any
additional payments received during the current term will be
applied at the end of the current term. By starting your new term
early and waiving the 14-day grace period, you are choosing to
start your next term without knowing the ending value of your
current term.
How to invest and withdraw funds
Buying your certificate
Your AEBI relationship manager or Coutts client relationship
officer will help you fill out and submit an application to open an
account with us and purchase a certificate. We will process the
application at our corporate offices in Minneapolis. When your
application is accepted and we have received your initial
investment, we will send you 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
minimum interest rate for your first term. After your term begins,
we will send you notice of the value of the S&P 500 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. See
"Purchase policies" below.
Important: When opening an account, you must provide a Form W-8 or
approved substitute. See "Taxes on your earnings."
Purchase policies:
The Issuer has complete discretion to determine whether to accept
an application and sell a certificate.
<PAGE>
PAGE 23
How to make investments at term end
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 #00-29-882 for
personal account # (your account number) for (your name).
If this information is not included, the order may be rejected and
all money received less any costs IDSC incurs will be returned
promptly.
o Minimum amount you may wire: $1,000.
o Wire orders can be accepted only on days when your bank, AEFC,
IDSC and Norwest Bank Minneapolis are open for business.
o Purchases made by wire are accepted by AEFC only from banks
located in the United States.
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 The Issuer, AEFC, its subsidiaries, AEBI, and Coutts 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 If your withdrawal request is received in the Minneapolis
headquarters on a business day before 3 p.m. Central time, it
will be processed that day and payment will be sent the next
business day. Otherwise, your request will be processed one
business day later.
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.<PAGE>
PAGE 24
Penalties for withdrawal during a term: If you withdraw money
during a term, you will pay a penalty of 2% of the principal
withdrawn. The 2% penalty is waived upon death of the certificate
owner.
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, if any, 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 $10,000.00
Interest (interest is credited at the 0.00
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.
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 the Issuer mails a check to you. A check may
be mailed earlier if the bank provides evidence that your
check has cleared.
o If your certificate is pledged as collateral, any withdrawal
will be delayed until we get approval from the secured party.
o Any payments to you may be delayed under applicable rules,
regulations or orders of the SEC.
<PAGE>
PAGE 25
Transfers to other accounts
You may transfer part or all of your certificate to other IDS
certificates available through AEBI or Coutts.
Two ways to request a withdrawal or transfer
1
By phone
Your AEBI relationship manager or Coutts client relationship
officer will handle this transaction for you. You may also call
the Client Service Organization between 8 a.m. and 6 p.m.
Minneapolis time at the telephone numbers listed on the back cover.
o Maximum phone request: $50,000.
o A telephone withdrawal request will not be allowed within 30
days of a phoned-in address change.
o We will honor any telephone requests believed to be authentic
and will use reasonable procedures to confirm that it is.
This includes asking identifying questions and tape recording
telephone calls. If reasonable procedures are not followed,
IDSC or AEFC will be liable for any loss resulting from
fraudulent requests. We can decline the telephone request if
we do not have enough information to confirm the request is
authentic.
You may request that telephone withdrawals not be authorized from
your account by writing the Client Service Organization.
2
By mail
Your AEBI relationship manager or Coutts client relationship
officer will handle this transaction for you. You may also send
your name, account number and request for a withdrawal or transfer
to:
Regular mail:
American Express Financial Advisors Inc.
Client Service Organization
Unit 557
IDS Tower 10
Minneapolis, MN 55440-0010
Express mail:
American Express Financial Advisors Inc.
Client Service Organization
Unit 557
733 Marquette Ave.
Minneapolis, MN 55440-0010
<PAGE>
PAGE 26
Written requests are required for:
o Transactions over $50,000.
o Transfers to another certificate with different ownership
marketed through AEBI or Coutts (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 You will be charged a fee if you request express mail
delivery. For a partial withdrawal leaving a remaining
balance of more than $1,000, the fee will be deducted from the
remaining balance. If the remaining balance is less than
$1,000, or if it is a full withdrawal, the fee is deducted
from proceeds of the withdrawal.
2
By wire
o Minimum wire withdrawal: $1,000.
o Request that money be wired to your bank.
o Bank account must be in same ownership as the Issuer's
account.
o Pre-authorization required. Complete the bank wire
authorization section in the application or use a form
supplied by your AEBI relationship manager or Coutts client
relationship officer. 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 this certificate is not a negotiable instrument, it may be
transferred or assigned on the Issuer's records if proper written
notice is received by the Issuer. Ownership may be assigned or
transferred to individuals or an entity who, for U.S. tax purposes,
is considered to be neither a citizen nor resident of the United
States. You may also pledge the certificate to AEBI or another
American Express Company affiliate or to Coutts as collateral
security. Your AEBI or Coutts representative can help you transfer
ownership.
<PAGE>
PAGE 27
For more information
For information on purchases, withdrawals, exchanges, transfers of
ownership, proper instructions and other service questions
regarding your certificate, please consult your AEBI relationship
manager or Coutts client relationship officer, or call the Issuer's
toll free client service number listed on the back cover.
Taxes on your earnings
Foreign investors
If you are not a citizen or resident of the United States, you must
supply the Issuer 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. The Issuer will not
accept purchases of certificates by nonresident aliens without an
appropriately certified Form W-8 (or approved substitute). Also,
if you do not supply Form W-8 you will be subject to backup
withholding on interest payments and withdrawals.
It is most likely that interest on the certificate is "portfolio
interest" as defined in U.S. Internal Revenue Code Section 871(h)
if earned by a nonresident alien. However, if the certificate is
treated as a contingent debt instrument (CDI), part of the earned
income may be treated as capital gain instead of portfolio
interest. Even though your interest income or capital gain is not
taxed by the U.S. government, it will be reported at year end to
you and to the U.S. government on a Form 1042S, Foreign Person's
U.S. Source Income Subject to Withholding. The United States
participates in various tax treaties with foreign countries, which
provide for sharing of tax information.
Estate tax: If you are a nonresident alien and you die while
owning a certificate, then, depending on the circumstances, the
Issuer generally will not act on instructions with regard to the
certificate unless the Issuer first receives, at a minimum, a
statement from persons the Issuer believes are knowledgeable about
your estate. The statement must be in a form satisfactory to the
Issuer and must tell us that, on your date of death, your estate
did not include any property in the United States for U.S. estate
tax purposes. In other cases, we generally will not take action
regarding your certificate until we receive a transfer certificate
from the IRS or evidence satisfactory to the Issuer that the estate
is being administered by an executor or administrator appointed,
qualified and acting within the United States. 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 certificate to satisfy estate taxes.
Important: The information in this prospectus is a brief and
selective summary of certain federal tax rules that apply to this
certificate and is given on the basis of current law and practice.
Tax matters are highly individual and complex. Investors should
consult a qualified tax advisor regarding their own position.
<PAGE>
PAGE 28
Trusts
If the investor is a trust, the policies and procedures described
above will apply with regard to each grantor who is a nonresident
alien.
How your money is used and protected
Invested and guaranteed by the Issuer
The American Express Stock Market Certificate is issued and
guaranteed by the Issuer, a wholly owned subsidiary of AEFC. We
are by far the largest issuer of face amount certificates in the
United States, with total assets of more than $3.5 billion and a
net worth in excess of $194 million on Dec. 31, 1996.
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 owners; and
o various expenses, including taxes, fees to AEFC for
advisory and other services and distribution fees to
American Express Financial Advisors Inc. and American
Express Service Corporation (AESC).
For a review of significant events relating to our business, see
"Management's discussion and analysis of financial condition and
results of operations." Our certificates are not rated by a
national rating agency.
Most banks and thrifts offer investments known as certificates of
deposit (CDs) that are similar to our certificates in many ways.
Early withdrawals of bank CDs often result in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money deposited to individuals, businesses and
other enterprises. Other financial institutions and some insurance
companies may offer investments with comparable combinations of
safety and return on investment.
Regulated by government
Because the American Express 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 amortized cost
must exceed the required carrying value of the outstanding
certificates by at least $250,000. As of Dec. 31, 1996, the
amortized cost of these investments exceeded the required carrying
value of our outstanding certificates by more than $151 million.
<PAGE>
PAGE 29
Backed by our investments
Our investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1996:
Type of investment Net amount invested
Corporate and other bonds 38%
Government agency bonds 31
Preferred stocks 20
Mortgages 6
Cash and cash equivalents 3
Municipal bonds 2
As of Dec. 31, 1996 about 93% of our securities portfolio
(including bonds and preferred stocks) is rated investment grade.
For additional information regarding securities ratings, please
refer to Note 3B in the financial statements.
Most of our investments are on deposit with American Express Trust
Company, Minneapolis, although we also maintain separate deposits
as required by certain states. American Express Trust Company is a
wholly owned subsidiary of AEFC. Copies of our Dec. 31, 1996
schedule of Investments in Securities of Unaffiliated Issuers are
available upon request. For comments regarding the valuation,
carrying values and unrealized appreciation (depreciation) of
investment securities, see Notes 1, 2 and 3 to the financial
statements.
Investment policies
In deciding how to diversify the portfolio -- among what types of
investments in what amounts -- the officers and directors of the
Issuer use their best judgment, subject to applicable law. The
following policies currently govern our investment decisions:
Debt securities-
Most of our investments are in debt securities as referenced in the
table in "Backed by our investments" under "How your money is used
and protected."
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 except to the extent that transactions
described in "Financial transactions including hedges" in this
section may be considered 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 30
Borrowing money -
From time to time we have established a line of credit if
management believed borrowing was necessary or desirable. 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 in limited partnership interests in limited
partnerships that either directly, or indirectly through other
limited partnerships, invest in real estate. We may invest
directly in real estate. We also 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-
Some of our investments in debt securities are purchased on a when-
issued basis. It may take as long as 45 days or more before these
securities are issued and delivered to us. We generally do not pay
for these securities or start earning on them until delivery. We
have established procedures to ensure that sufficient cash is
available to meet when-issued commitments.
Financial transactions including hedges-
We buy or sell various types of options contracts for hedging
purposes or as a trading technique to facilitate securities
purchases or sales. We buy interest rate caps for hedging
purposes. These pay us a return if interest rates rise above a
specified level. If interest rates do not rise above a specified
level, the interest rate caps do not pay us a return. The Issuer
may enter into other financial transactions, including futures and
other derivatives, for the purpose of managing the interest rate
exposures associated with the Issuer's assets or liabilities. We
do not use derivatives for speculative purposes.
Illiquid securities -
A security is illiquid if it cannot be sold in the normal course of
business within seven days at approximately its current market
value. Some investments cannot be resold to the U.S. public
because of their terms or government regulations. All securities,
however can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. IDSC's
investment advisor will follow guidelines established by the board
and consider relevant factors such as the nature of the security
and the number of likely buyers when determining whether a security
is illiquid. No more than 15% of IDSC's investment portfolio will
be held in securities that are illiquid. In valuing its investment
portfolio to determine this 15% limit, IDSC will use statutory <PAGE>
PAGE 31
accounting under an SEC order. This means that, for this purpose,
the portfolio will be valued in accordance with applicable
Minnesota law governing investments of life insurance companies,
rather than generally accepted accounting principles.
Restrictions -
There are no restrictions on concentration of investments in any
particular industry or group of industries or on rates of portfolio
turnover.
Certain investment considerations
The price of bonds generally falls as interest rates increase, and
rises as interest rates decrease. The price of a bond also
fluctuates if its credit rating is upgraded or downgraded. The
price of bonds below investment grade may react more to the ability
of a company to pay interest and principal when due than to changes
in interest rates. They have greater price fluctuations, are more
likely to experience a default, and sometimes are referred to as
junk bonds. Reduced market liquidity for these bonds may
occasionally make it more difficult to value them. In valuing
bonds, IDSC relies both on independent rating agencies and the
investment manager's credit analysis. Under normal circumstances,
at least 85% of the securities in IDSC's Portfolio will be rated
investment grade, or in the opinion of IDSC's investment advisor
will be the equivalent of investment grade. Under normal
circumstances, IDSC will not purchase any security rated below B-
by Moody's Investors Service, Inc. or Standard & Poor's.
Securities that are subsequently downgraded in quality may continue
to be held by IDSC and will be sold only when IDSC believes it is
advantageous to do so.
As of Dec. 31, 1996, IDSC held about 7% of its investment portfolio
(including bonds, preferred stocks, mortgages and cash equivalents)
in investments rated below investment grade.
When-issued securities are subject to market fluctuations and they
may affect IDSC's investment portfolio the same as owned
securities.
Derivatives are financial instruments whose performance is derived,
at least in part, from the performance of an underlying asset,
security or index. A small change in the value of the underlying
asset, security or index may cause a sizable gain or loss in the
fair value of the derivative.
How your money is managed
Relationship between the Issuer and American Express Financial
Corporation
The Issuer was originally organized as Investors Syndicate of
America, Inc., a Minnesota corporation, on Oct. 15, 1940, and began
business as an issuer of face amount investment certificates on
Jan. 1, 1941. The company became a Delaware corporation on Dec.
31, 1977, and changed its name to IDS Certificate Company on April
2, 1984.
<PAGE>
PAGE 32
Before the Issuer was created, AEFC (formerly known as IDS
Financial Corporation), our parent company, had issued similar
certificates since 1894. As of Jan. 1, 1995, IDS Financial
Corporation changed its name to AEFC. The Issuer and AEFC have
never failed to meet their certificate payments.
During its many years in operation, AEFC has become a leading
manager of investments in mortgages and securities. As of Dec. 31,
1996, AEFC managed investments, including its own, of more than
$149 billion. American Express Financial Advisors Inc., a wholly
owned subsidiary of AEFC, provides a broad range of financial
planning services for individuals and businesses through its
nationwide network of more than 175 offices and more than 7,800
financial advisors. American Express Financial Advisors' 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.
AEFC itself is a wholly owned subsidiary of American Express
Company, a financial services company with executive offices at
American Express Tower, World Financial Center, New York, NY 10285.
American Express Company is a financial services company engaged
through subsidiaries in other businesses including:
o travel related services (including American Express(R) Card
and Travelers Cheque operations through American Express
Travel Related Services Company, Inc. and its subsidiaries);
and
o international banking services (through American Express Bank
Ltd. and its subsidiaries including American Express Bank
International).
Capital structure and certificates issued
The Issuer has authorized, issued and has outstanding 150,000
shares of common stock, par value of $10 per share. AEFC owns all
of the outstanding shares.
As of Dec. 31, 1996, the Issuer had issued (in face amount)
$13,327,949,715 of installment certificates and $15,788,445,077 of
single payment certificates.
Investment management and services
Under an Investment Advisory and Services Agreement, AEFC acts as
our investment advisor and is responsible for:
o providing investment research;
o making specific investment recommendations; and
o executing purchase and sale orders according to our policy of
obtaining the best price and execution.
All these activities are subject to direction and control by our
board of directors and officers. Our agreement with AEFC requires
annual renewal by our board, including a majority of directors who <PAGE>
PAGE 33
are not interested persons of AEFC or the Issuer as defined in the
federal Investment Company Act of 1940.
For its services, we pay AEFC a monthly fee, equal on an annual
basis to a percentage of the total book value of certain assets
(included assets).
Advisory and services fee computation:
Included assets Percentage of total book value
First $250 million 0.75%
Next 250 million 0.65
Next 250 million 0.55
Next 250 million 0.50
Any amount over 1 billion 0.45
Included assets are all assets of the Issuer except mortgage loans,
real estate, and any other asset on which we pay an advisory or
service fee.
Advisory and services fee for the past three years:
Percentage of
Year Total fees included assets
1996 $16,989,093 0.50%
1995 $16,472,458 0.50
1994 $13,565,432 0.51
Estimated advisory and services fees for 1997 are $16,621,000.
Other expenses payable by the Issuer: 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 AEFC;
o fees and expenses of our directors who are not officers or
employees of AEFC;
o provision for certificate reserves (interest accrued on
certificate owner accounts); and
o expenses of customer settlements not attributable to sales
function.
<PAGE>
PAGE 34
Distribution
Under a Distribution Agreement with American Express Financial
Advisors Inc., we pay for the distribution of this certificate by
American Express Financial Advisors Inc., effective April 30, 1997
as follows:
o 0.70% of the initial investment on the first day of the
certificate's term; and
o 0.70% of the certificate's reserve at the beginning of each
subsequent term, for certificates sold through American
Express Financial Advisors Inc. or through AEBI or Coutts.
Under a Distribution Agreement with AESC, for certificates sold
through American Express Financial Direct, we pay AESC the
following:
o 1.00% of the initial investment on the first day of the
certificate's term; and
o 1.00% of the certificate's reserve at the beginning of each
subsequent term.
This fee is not assessed to your certificate account.
American Express Financial Direct is a channel for direct marketing
of financial services to American Express card members and others.
Total distribution fees paid to American Express Financial Advisors
Inc. for all series of certificates amounted to $29,971,960 during
the year ended Dec. 31, 1996. We expect to pay American Express
Financial Advisors Inc. distribution fees amounting to $30,806,000
during 1997.
See Note 1 to Financial statements regarding deferral of
distribution fee expense.
American Express Financial Advisors Inc. and AESC pay selling
expenses in connection with services to us. Our board of
directors, including a majority of directors who are not interested
persons of American Express Financial Advisors Inc., AESC or the
Issuer, approved these distribution agreements.
Selling Agent Agreements with AEBI and Coutts: In turn, under
Selling Agent Agreements with AEBI and Coutts, American Express
Financial Advisors Inc. compensates each for their services as
Selling Agents of this certificate as follows:
o AEBI is paid a fee equal to 1.0% per term of the principal
amount of each certificate for which AEBI is the selling
agent.
o Coutts is paid a fee equal to 0.80% per term of the principal
amount of each certificate for which Coutts is the selling
agent.<PAGE>
PAGE 35
Coutts is compensated on certificates owned by its clients who are
former clients of AEBI. These clients must have continuously owned
a certificate since Nov. 10, 1994. Coutts is also compensated on
additional investments and exchanges made by such clients to other
certificates only to the extent that a client has the right to make
additional investments or exchanges.
American Express Financial Advisors Inc. has entered into a
consulting agreement with AEBI under which AEBI provides consulting
services related to any selling agent agreements between American
Express Financial Advisors Inc. and other Edge Act corporations.
For these services, American Express Financial Advisors Inc. pays
AEBI a fee for this certificate equal to 0.20% per term of the
principal amount of each certificate for which another Edge Act
corporation is the selling agent.
Such payments will be made quarterly in arrears.
These fees are not assessed to your certificate account.
About AEBI and Coutts
AEBI is an Edge Act corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act. It is a wholly owned
subsidiary of American Express Bank Ltd. (AEBL). As an Edge Act
corporation, AEBI is subject to the provisions of Section 25(a) of
the Federal Reserve Act and Regulation K of the Board of Governors
of the Federal Reserve System (the Federal Reserve). It is
supervised and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that
is 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, 1996,
AEBI had total assets of $355 million and total equity of $150
million.
Coutts is an Edge Act corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act. It is an indirect wholly
owned subsidiary of National Westminster Bank PLC. As an Edge Act
corporation, Coutts is subject to the provisions of Section 25(a)
of the Federal Reserve Act and Regulation K of the Board of
Governors of the Federal Reserve. Coutts is supervised and
regulated by the Federal Reserve.
Although AEBI and Coutts are banking entities, the Stock Market
Certificate is not a bank product, nor is it backed or guaranteed
by AEBI or Coutts, by AEBL, by NatWest PLC or by any other bank,
nor is it guaranteed or insured by the FDIC or any other federal
agency. AEBI is registered where necessary as a securities broker-
dealer.
<PAGE>
PAGE 36
About AESC
AESC is a wholly-owned subsidiary of American Express Travel
Related Services Inc., which in turn is a wholly-owned subsidiary
of American Express Company.
Employment of other American Express affiliates
AEFC may employ an affiliate of American Express Company 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
The Issuer's directors, chairman, president and controller are
elected annually for a term of one year. The other executive
officers are appointed by the president.
We paid a total of $37,000 during 1996 to directors not employed by
AEFC.
Board of directors
David R. Hubers*
Born in 1943. Director since 1987.
President and chief executive officer of AEFC since 1993. Senior
vice president and chief financial officer of AEFC from 1984 to
1993.
Charles W. Johnson
Born in 1929. Director since 1989.
Director, Communications Holdings, Inc. Former vice president and
group executive, Industrial Systems, with Honeywell, Inc. Retired
1989.
Richard W. Kling*
Born in 1940. Director since 1996.
Chairman of the board of directors since 1996. Director of IDS
Life Insurance Company since 1984; president since 1994. Executive
vice president of Marketing and Products of AEFC from 1988 to 1994.
Senior vice president of AEFC since 1994. Director of IDS Life
Series Fund, Inc. and member of the board of managers of IDS Life
Variable Annuity Funds A and B.
<PAGE>
PAGE 37
Edward Landes
Born in 1919. Director since 1984.
Development consultant. Director of IDS Life Insurance Company of
New York. Director of Endowment Development, YMCA of Metropolitan
Minneapolis. Vice president for Financial Development, YMCA of
Metropolitan Minneapolis from 1985 through 1995. Former sales
manager - Supplies Division and district manager - Data Processing
Division of IBM Corporation. Retired 1983.
John V. Luck, Ph.D.
Born in 1926. Director since 1987.
Former senior vice president - Science and Technology with General
Mills, Inc. Employed with General Mills, Inc. since 1968. Retired
1988.
James A. Mitchell*
Born in 1941. Director since 1994.
Chairman of the board of directors from 1994 to 1996. Executive
vice president - Marketing and Products of AEFC since 1994. Senior
vice president - Insurance Operations of AEFC and president and
chief executive officer of IDS Life Insurance Company from 1986 to
1994.
Harrison Randolph
Born in 1916. Director since 1968.
Engineering, manufacturing and management consultant since 1978.
Gordon H. Ritz
Born in 1926. Director since 1968.
Director, Mid-America Publishing and Atrix International, Inc.
Former president, Com Rad Broadcasting Corp. Former director,
Sunstar Foods.
Stuart A. Sedlacek*
Born in 1957. Director since 1994.
President since 1994. Vice president - Assured Assets of AEFC
since 1994. Vice president and portfolio manager from 1988 to
1993. Executive vice president - Assured Assets of IDS Life
Insurance Company since 1994.
*"Interested Person" of IDSC as that term is defined in Investment
Company Act of 1940.
Executive officers
Stuart A. Sedlacek
Born in 1957. President since 1994.
Morris Goodwin Jr.
Born in 1951. Vice president and treasurer since 1989.
Vice president and corporate treasurer of AEFC since 1989. Chief
financial officer and treasurer of American Express Trust Company
from 1988 to 1989.
<PAGE>
PAGE 38
Timothy S. Meehan
Born in 1957. Secretary since 1995.
Secretary of AEFC and American Express Financial Advisors Inc.
since 1995. Senior counsel to AEFC since 1995. Counsel from 1990
to 1995.
Lorraine R. Hart
Born in 1951. Vice president - Investments since 1994.
Vice president - Insurance Investments of AEFC since 1989. Vice
president - Investments of IDS Life Insurance Company since 1992.
Jay C. Hatlestad
Born in 1957. Vice president and controller of IDSC since 1994.
Manager of Investment Accounting of IDS Life Insurance Company from
1986 to 1994.
Bruce A. Kohn
Born in 1951. Vice president and general counsel since 1993.
Senior counsel to AEFC since 1996. Counsel to AEFC from 1992 to
1996. Associate counsel from 1987 to 1992.
F. Dale Simmons
Born in 1937. Vice president - real estate loan management since
1993. Vice president of AEFC since 1992. Senior portfolio manager
of AEFC since 1989. Assistant vice president from 1987 to 1992.
The officers and directors as a group beneficially own less than 1%
of the common stock of American Express Company.
The Issuer has provisions in its bylaws relating to the
indemnification of its officers and directors against liability, as
permitted by law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that
in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
Auditors
A firm of independent auditors audits 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 owner upon request.
Ernst & Young LLP, Minneapolis, has audited the financial
statements for each of the years in the three-year period ended
Dec. 31, 1996. These statements are included in this prospectus.
Ernst & Young LLP is also the auditor for American Express Company,
the parent company of AEFC and IDSC.
<PAGE>
PAGE 39
Appendix
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa,
A, Baa, Ba, B, Caa, Ca and C. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Non-rated securities will be considered for investment. When
assessing each non-rated security, IDSC will consider the financial
condition of the issuer or the protection afforded by the terms of
the security.
<PAGE>
PAGE 40
Summary of selected financial information
The following selected financial information has been derived from
the audited financial statements and should be read in conjunction
with those statements and the related notes to financial
statements. Also see Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
comments.
<TABLE><CAPTION>
Year Ended Dec. 31, 1996 1995 1994 1993 1992
($ thousands)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Investment income $251,481 $256,913 $207,975 $236,859 $294,799
Investment expenses 62,851 62,817 58,690 65,404 69,630
Net investment income before provision for
certificate reserves and income tax benefit 188,630 194,096 149,285 171,455 225,169
Net provision for certificate reserves 171,968 176,407 107,288 123,516 178,175
Net investment income before income taxes 16,662 17,689 41,997 47,939 46,994
Income tax benefit 6,537 9,097 2,663 3,3651 1,666
Net investment income 23,199 26,786 44,660 51,304 58,660
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers (444) 452 (7,514) (9,870) (9,498)
Other - unaffiliated 101 (120) 1,638 (418) (500)
Total gain (loss) on investments (343) 332 (5,876) (10,288) (9,998)
Income tax benefit (expense) 120 (117) 2,047 4,617 -
Net realized gain (loss) on investments (223) 215 (3,829) (5,671) (9,998)
Net income - wholly owned subsidiary 1,251 373 241 120 3
Net income $24,227 $27,374 $41,072 $45,753 $48,665
Dividends declared:
Cash $65,000 $- $40,200 $64,500 $83,750
In-kind(a) - - - - 64,558
Balance Sheet Data:
Total assets $3,563,234 $3,912,131 $3,040,857 $2,951,405 $3,444,985
Certificate loans 43,509 51,147 58,203 67,429 77,347
Certificate reserves 3,283,191 3,628,574 2,887,405 2,777,451 3,256,472
Stockholder's equity 194,550 250,307 141,852 161,138 179,885
IDS Certificate Company (IDSC) is 100% owned by American Express Financial Corporation (Parent).
</TABLE>
(a) Consisted of an investment security at amortized cost.
<PAGE>
PAGE 41
Management's discussion and analysis of financial condition and
results of operations
Results of operations:
IDS Certificate Company's (IDSC) earnings are derived primarily
from the after-tax yield on invested assets less investment
expenses and interest credited on certificate reserve liabilities.
Changes in earnings' trends occur largely due to changes in the
rates of return on investments and the rates of interest credited
to certificate owner accounts and also, the mix of fully taxable
and tax-advantaged investments in the IDSC portfolio.
During the years 1994 and 1995, total assets and certificate
reserves increased due to certificate sales exceeding certificate
maturities and surrenders. The excess of certificate sales over
certificate maturities and surrenders resulted primarily from
higher accrual rates declared by IDSC during the last six months of
1994 and the first six months of 1995, reflecting rising interest
rates in the marketplace. The increase in total assets in 1995
reflects also an increase of $81 million in net unrealized
appreciation on investment securities classified as available for
sale. The increase in total assets in 1994 was tempered by $23
million of net unrealized depreciation on investment securities
classified as available for sale, net of deferred taxes of $13
million.
During the year 1996, total assets and certificate reserves
decreased due primarily to certificate maturities and surrenders
exceeding certificate sales. The excess of certificate maturities
and surrenders over certificate sales resulted primarily from lower
accrual rates declared by IDSC during the year. The decrease in
total assets in 1996 reflects also, a decrease in unrealized
appreciation on investment securities classified as available for
sale of $23 million and cash dividends paid to Parent of $65
million. The decrease in total assets in 1996 was tempered by an
increase in payable for securities purchased of $62 million that
settled in early 1997.
1996 Compared to 1995:
Gross investment income decreased 2.1% due primarily to lower
investment yields.
Investment expenses increased slightly in 1996. The increase
resulted primarily from higher amortization of premiums paid for
index options of $2.1 million and higher investment advisory and
services fee of $.5 million due to a slightly higher average asset
base on which the fee is calculated. These increases were offset
by lower distribution fees of $1.2 million due to lower certificate
sales, and lower amortization of premiums paid for interest rate
caps/corridors of $1.4 million. The lower amortization of interest
rate caps/corridors reflects the net of $8.2 million lower
amortization and $6.8 million less interest earned under the
cap/corridor agreements.
<PAGE>
PAGE 42
Net provision for certificate reserves decreased 2.5% due primarily
to the net of lower accrual rates and a slightly higher average
balance of certificate reserves during 1996.
The decrease in income tax benefit resulted primarily from a lesser
portion of net investment income before income tax benefit being
attributable to tax-advantaged income.
1995 Compared to 1994:
Gross investment income increased 24% due primarily to a higher
average balance of invested assets and slightly higher investment
yields.
The 7.1% increase in investment expenses resulted primarily from
higher distribution fees due to higher sales of certificates that
provide for no deferral of those fees, and higher investment
advisory and services fee due to a higher asset base on which the
fee is calculated. These increases were partially offset by lower
amortization of the cost of options and interest rate
caps/corridors. The lower amortization of interest rate
caps/corridors reflects the net of $1.7 million of accelerated
amortization and $5.6 million higher interest earned under the
cap/corridor agreements.
Net provision for certificate reserves increased 65% reflecting a
higher average balance of certificate reserves and higher accrual
rates.
The increase in income tax benefit resulted primarily from a
greater portion of net investment income before income tax benefit
being attributable to tax-advantaged income.
Liquidity and cash flow:
IDSC's principal sources of cash are payments from sales of
face-amount certificates and cash flows from investments. In turn,
IDSC's principal uses of cash are payments to certificate owners
for matured and surrendered certificates, purchase of investments
and payments of dividends to its Parent.
Although total certificate sales decreased 41% in 1996 compared to
1995, certificate sales remained strong reflecting clients' ongoing
desire for safety of principal. Sales of certificates totaled
$1.0 billion in 1996 compared to $1.8 billion in 1995 and $1.5
billion during 1994. Certificate sales in 1995 benefited from the
special introductory promotion of IDSC's 11-month term Flexible
Savings certificate which generated sales of $562 million.
The special promotion of the 11-month term Flexible Savings
certificate was offered from May 10, 1995 to July 3, 1995, and
applied only to sales of new certificate accounts during the
promotion period. Certificates sold during the promotion period
received a special interest rate of 7.0% for the 11-month term.
Certificate maturities and surrenders totaled $1.7 billion during
1996 compared to $1.0 billion in 1995 and $1.2 billion in 1994.
The higher certificate maturities and surrenders in 1996 resulted
<PAGE>
PAGE 43
primarily from $461 million of surrenders of the 11-month Flexible
Savings certificate. The surrenders of the 11-month Flexible
Savings certificate resulted primarily from lower accrual rates
declared by IDSC at term renewal, reflecting interest rates
available in the marketplace.
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 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
intermediate-term bonds.
IDSC's investment program is designed to maintain an investment
portfolio that will produce the highest possible after-tax yield
within acceptable risk standards with additional emphasis on
liquidity. The program considers investment securities as
investments acquired to meet anticipated certificate owner
obligations.
Under Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
debt securities that IDSC has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities
IDSC does not have the positive intent to hold to maturity, as well
as all marketable equity securities, are classified as available
for sale and carried at fair value. The available-for-sale
classification does not mean that IDSC expects to sell these
securities, but that under SFAS No. 115 positive intent criteria,
these securities are available to meet possible liquidity needs
should there be significant changes in market interest rates
or certificate owner demand. See notes 1 and 3 to the financial
statements for additional information relating to SFAS No. 115.
At Dec. 31, 1996, securities classified as held to maturity and
carried at amortized cost were $.9 billion. Securities classified
as available for sale and carried at fair value were $2.2
billion. These securities, which comprise 88% of IDSC's total
invested assets, are well diversified. Of these securities, 98%
have fixed maturities of which 93% are of investment grade. Other
than U.S. Government Agency mortgage-backed securities, no one
issuer represents more than 1% of total securities. See note 3 to
financial statements for additional information on ratings and
diversification.
During the year ended Dec. 31, 1996, IDSC sold held-to-maturity
securities with an amortized cost and fair value of $2.3 million
and $1.8 million, respectively. The securities were sold due to
significant deterioration in the issuers' creditworthiness. In
addition, a held-to-maturity security with an amortized cost of $20
million was tendered for $23.2 million. By not accepting the
tender offer, Management believes it would have left IDSC
vulnerable to issuer's credit deterioration and it is reasonably
probable, impairment of investment and /or dividends would occur.
During the same period in 1996, securities classified as available<PAGE>
PAGE 44
for sale were sold with an amortized cost and fair value of $319
million and $314 million, respectively. The securities were sold
primarily to cover the cash outflows from surrenders of the
11-month Flexible Savings certificate.
During the year ended Dec. 31, 1995, investment securities,
primarily municipal bonds, with an amortized cost and fair value of
$112 million and $117 million, respectively, were reclassified
from held to maturity to available for sale. The reclassification
was made on Dec. 4, 1995, as a result of IDSC adopting the FASB
Special Report, A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities.
There were no other transfers of securities during the years 1996
and 1995.
Derivative financial instruments:
IDSC enters into transactions involving interest rate caps, and
purchased and written call options to manage its exposure to rising
interest rates. IDSC does not enter into such transactions for
trading purposes. There is a possibility that the value of these
instruments will change due to fluctuations in a factor from which
the instruments derive their values. IDSC is not subject to this
market risk because these instruments are largely used to hedge
such risks, and therefore, the cash flow and income effects of the
instruments are inverse to the effects of the underlying
transactions. See note 9 to financial statements for additional
information regarding derivative financial instruments.
Dividends:
Cash dividends of $65 million were paid to IDSC's Parent in 1996.
Ratios:
The ratio of stockholder's equity, excluding net unrealized holding
gains on investment securities, to total assets less certificate
loans and net unrealized holding gains on investment securities
at Dec. 31, 1996 was 5.2% compared to 5.8% in 1995. IDSC's current
regulatory requirement is a ratio of 5.0%.
<PAGE>
PAGE 45
IDS Certificate Company
Responsibility for Preparation of Financial Statements
The management of IDS Certificate Company (IDSC) is responsible for
the preparation and fair presentation of its financial statements.
The financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the
circumstances, and include amounts based on the best judgment of
management. IDSC's management is also responsible for the
accuracy and consistency of other financial information included in
the prospectus.
In recognition of its responsibility for the integrity and
objectivity of data in the financial statements, IDSC maintains a
system of internal control over financial reporting. The system
is designed to provide reasonable, but not absolute, assurance with
respect to the reliability of IDSC's financial statements. The
concept of reasonable assurance is based on the notion
that the cost of the internal control system should not exceed the
benefits derived.
The internal control system is founded on an ethical climate and
includes an organizational structure with clearly defined lines of
responsibility, policies and procedures, a Code of Conduct, and the
careful selection and training of employees. Internal auditors
monitor and assess the effectiveness of the internal control system
and report their findings to management throughout the year.
IDSC's independent auditors are engaged to express an opinion on
the year-end financial statements and, with the coordinated support
of the internal auditors, review the financial records and related
data and test the internal control system over financial reporting.
<PAGE>
PAGE 46
Annual Financial Information
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheets of IDS Certificate
Company, a wholly owned subsidiary of American Express Financial
Corporation, as of December 31, 1996 and 1995, and the related
statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996.
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, 1996 and 1995 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, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the financial statements, IDS Certificate
Company changed its method of accounting for certain investments in
debt and equity securities in 1994.
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 7, 1997
<PAGE>
PAGE 47
<TABLE><CAPTION>
Balance Sheets, Dec. 31,
Assets
<S> <C> <C>
Qualified Assets (note 2) 1996 1995
($ thousands)
Investments in unaffiliated issuers (notes 3, 4 and 10):
Cash and cash equivalents $111,331 $56,873
Held-to-maturity securities 863,921 1,002,905
Available-for-sale securities 2,212,968 2,408,491
First mortgage loans on real estate 218,697 233,394
Certificate loans - secured by certificate reserves 43,509 51,147
Investments in and advances to affiliates 6,444 5,655
Total investments 3,456,870 3,758,465
Receivables:
Dividends and interest 44,013 49,632
Investment securities sold 654 42,872
Total receivables 44,667 92,504
Other (notes 9 and 10) 36,164 32,778
Total qualified assets 3,537,701 3,883,747
Other Assets
Deferred distribution fees 25,525 28,286
Other 8 98
Total other assets 25,533 28,384
Total assets $3,563,234 $3,912,131
See notes to financial statements.
<PAGE>
PAGE 48
Balance Sheets, Dec. 31,
Liabilities and Stockholder's Equity
Liabilities 1996 1995
($ thousands)
Certificate Reserves (notes 5 and 10):
Installment certificates:
Reserves to mature $344,344 $330,415
Additional credits and accrued interest 21,931 21,555
Advance payments and accrued interest 1,198 1,394
Other 55 55
Fully paid certificates:
Reserves to mature 2,747,690 3,127,301
Additional credits and accrued interest 167,673 147,468
Due to unlocated certificate holders 300 386
Total certificate reserves 3,283,191 3,628,574
Accounts Payable and Accrued Liabilities:
Due to Parent (note 7A) 1,424 1,541
Due to Parent for federal income taxes 1,737 103
Due to affiliates (note 7B, 7C and 7D) 279 2,068
Payable for investment securities purchased 61,979 -
Accounts payable, accrued expenses and other (notes 9 and 10) 11,977 12,249
Total accounts payable and accrued liabilities 77,396 15,961
Deferred federal income taxes (note 8) 8,097 17,289
Total liabilities 3,368,684 3,661,824
Commitments (note 4)
Stockholder's Equity (notes 5B, 5C, and 6):
Common stock, $10 par - authorized and issued 150,000 shares 1,500 1,500
Additional paid-in capital 143,844 168,844
Retained earnings:
Appropriated for predeclared additional credits/interest 11,989 18,878
Appropriated for additional interest on advance payments 50 50
Unappropriated 22,728 31,612
Unrealized holding gains on investment
securities - net (note 3A) 14,439 29,423
Total stockholder's equity 194,550 250,307
Total liabilities and stockholder's equity $3,563,234 $3,912,131
See notes to financial statements.
<PAGE>
PAGE 49
Statements of Operations
Year ended Dec. 31, 1996 1995 1994
($thousands)
Investment Income:
Interest income from investments:
Bonds and notes:
Unaffiliated issuers $184,653 $181,902 $125,546
Mortgage loans on real estate:
Unaffiliated 19,583 22,171 24,006
Affiliated 36 56 68
Certificate loans 2,533 2,963 3,342
Dividends 44,100 48,614 54,170
Other 576 1,207 843
Total investment income 251,481 256,913 207,975
Investment Expenses:
Parent and affiliated company fees (note 7):
Distribution 32,732 33,977 27,007
Investment advisory and services 16,989 16,472 13,565
Depositary 228 242 183
Options (note 9) 10,156 8,038 9,854
Interest rate caps/corridors (note 9) 2,351 3,725 7,608
Other 395 363 473
Total investment expenses 62,851 62,817 58,690
Net investment income before provision
for certificate reserves and income
tax benefit $188,630 $194,096 $149,285
See notes to financial statements.
<PAGE>
PAGE 50
Statements of Operations (continued)
Year ended Dec. 31, 1996 1995 1994
($thousands)
Provision for Certificate Reserves (notes 5 and 9):
According to the terms of the certificates:
Provision for certificate reserves $10,445 $11,009 $13,317
Interest on additional credits 1,487 2,300 3,174
Interest on advance payments 61 73 61
Additional credits/interest authorized by IDSC:
On fully paid certificates 155,411 157,857 85,101
On installment certificates 5,637 6,288 6,741
Total provision before reserve recoveries 173,041 177,527 108,394
Reserve recoveries from terminations
prior to maturity (1,073) (1,120) (1,106)
Net provision for certificate reserves 171,968 176,407 107,288
Net investment income before income tax benefit 16,662 17,689 41,997
Income tax benefit (note 8) 6,537 9,097 2,663
Net investment income 23,199 26,786 44,660
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers (444) 452 (7,514)
Other-unaffiliated 101 (120) 1,638
Total gain (loss) on investments (343) 332 (5,876)
Income tax benefit (expense) (note 8):
Current 772 160 2,414
Deferred (652) (277) (367)
Total income tax benefit (expense) 120 (117) 2,047
Net realized gain (loss) on investments (223) 215 (3,829)
Net income - wholly owned subsidiary 1,251 373 241
Net income $24,227 $27,374 $41,072
See notes to financial statements.
<PAGE>
PAGE 51
Statements of Stockholder's Equity
Year ended Dec. 31, 1996 1995 1994
($thousands)
Common Stock:
Balance at beginning and end of year $1,500 $1,500 $1,500
Additional Paid-in Capital:
Balance at beginning of year $168,844 $140,344 $147,144
Contribution from Parent - 28,500 3,000
Cash dividends declared (25,000) - (9,800)
Balance at end of year $143,844 $168,844 $140,344
Retained Earnings:
Appropriated for predeclared additional credits/interest (note 5B):
Balance at beginning of year $18,878 $18,398 $2,726
Transferred from (to) unappropriated
retained earnings (6,889) 480 15,672
Balance at end of year $11,989 $18,878 $18,398
Appropriated for additional interest on advance payments (note 5C):
Balance at beginning of year $50 $50 $25
Transferred from (to) unappropriated
retained earnings - - 25
Balance at end of year $50 $50 $50
Unappropriated (note 6):
Balance at beginning of year $31,612 $4,718 $9,743
Net income 24,227 27,374 41,072
Transferred (to) from appropriated
retained earnings 6,889 (480) (15,697)
Cash dividends declared (40,000) - (30,400)
Balance at end of year $22,728 $31,612 $4,718
Unrealized holding gains and losses on investment securities -
net (notes 1 and 3A):
Balance at beginning of year $29,423 ($23,158) $-
Adjustment due to initial application of SFAS 115 - - 8,827
Change during year (14,984) 52,581 (31,985)
Balance at end of year $14,439 $29,423 ($23,158)
Total stockholder's equity $194,550 $250,307 $141,852
See notes to financial statements.
<PAGE>
PAGE 52
Statements of Cash Flows
Year ended Dec. 31, 1996 1995 1994
($ thousands)
Cash flows from operating activities:
Net income $24,227 $27,374 $41,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (1,251) (373) (241)
Provision for certificate reserves 171,968 176,407 107,288
Interest income added to certificate loans (1,631) (1,902) (2,133)
Amortization of premium/discount-net 14,039 19,232 22,114
Net loss (gain) on investments 343 (332) 5,876
Decrease (increase) in dividends and
interest receivable 5,619 (7,371) (1,829)
Decrease (increase) in deferred
distribution fees 2,761 (1,144) (7,527)
Decrease (increase) in other assets - 466 (466)
Decrease (increase) in deferred federal
income taxes (1,124) (2,652) 4,263
Decrease in other liabilities (679) (1,549) (3,210)
Net cash provided by operating activities 214,272 208,156 165,207
Cash flows from investing activities:
Maturity and redemption of investments:
Held-to-maturity securities 163,066 315,766 350,411
Available-for-sale securities 537,565 325,521 173,547
Other investments 52,189 46,004 35,130
Sale of investments:
Held-to-maturity securities 24,984 22,305 3,164
Available-for-sale securities 356,194 48,372 267,808
Other investments 385 21 -
Certificate loan payments 6,003 6,061 7,508
Purchase of investments:
Held-to-maturity securities (49,984) (208,140) (46,080)
Available-for-sale securities (617,138) (1,397,983) (830,826)
Other investments (28,617) (17,234) (9,208)
Certificate loan fundings (5,288) (7,776) (7,603)
Investment in subsidiary - - (450)
Net cash provided by (used in)
investing activities $439,359 ($867,083) ($56,599)
See notes to financial statements.
<PAGE>
PAGE 53
Statements of Cash Flows (continued)
Year ended Dec. 31, 1996 1995 1994
($ thousands)
Cash flows from financing activities:
Payments from certificate owners $1,129,023 $1,577,884 $1,185,762
Capital contribution from Parent - 28,500 3,000
Certificate maturities and cash surrenders (1,663,196) (1,030,712) (1,171,101)
Dividends paid (65,000) - (40,200)
Net cash provided by (used in)
financing activities (599,173) 575,672 (22,539)
Net increase (decrease) in cash and
cash equivalents 54,458 (83,255) 86,069
Cash and cash equivalents beginning of year 56,873 140,128 54,059
Cash and cash equivalents end of year $111,331 $56,873 $140,128
Supplemental disclosures including non-cash transactions:
Cash received for income taxes $7,195 $6,854 $2,416
Certificate maturities and surrenders through
loan reductions 8,554 10,673 11,454
See notes to financial statements.
</TABLE>
<PAGE>
PAGE 54
Notes to Financial Statements ($ in thousands unless indicated
otherwise)
1. Nature of business and summary of significant accounting
policies
Nature of business
IDS Certificate Company (IDSC) is a wholly owned subsidiary of
American Express Financial Corporation (Parent), which is a wholly
owned subsidiary of American Express Company. IDSC is registered
as an investment company under the Investment Company Act of 1940
(the 1940 Act) and is in the business of issuing face-amount
investment certificates. The certificates issued by IDSC are not
insured by any government agency. IDSC's certificates are sold
primarily by American Express Financial Advisors Inc.'s (an
affiliate) field force operating in 50 states, the District of
Columbia and Puerto Rico. IDSC's Parent acts as investment advisor
for IDSC.
IDSC currently offers nine types of certificates with specified
maturities ranging from four to twenty years. Within their
specified maturity, most certificates have interest rate terms of
one to thirty-six months. In addition, one type of certificate has
interest tied, in whole or in part, to any upward movement in a
broad-based stock market index. Except for three types of
certificates, all of the certificates are available as qualified
investments for Individual Retirement Accounts or 401(k) plans and
other qualified retirement plans.
IDSC's gross income is derived primarily from interest and
dividends generated by its investments. IDSC's net income is
determined by deducting from such gross income its provision for
certificate reserves, and other expenses, including taxes, the fee
paid to Parent for investment advisory and other services, and the
distribution fees paid to American Express Financial Advisors Inc.
Described below are certain accounting policies that are important
to an understanding of the accompanying financial statements.
Basis of financial statement presentation
The accompanying financial statements are presented in accordance
with generally accepted accounting principles. IDSC uses the
equity method of accounting for its wholly owned unconsolidated
subsidiary, which is the method prescribed by the Securities and
Exchange Commission (SEC) for issuers of face-amount certificates.
Certain amounts from prior years have been reclassified to
conform to the current year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities and the reported amounts of income and expenses during
the year then ended. Actual results could differ from those
estimates.
<PAGE>
PAGE 55
Notes to Financial Statements (continued)
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. Dividend income from perpetual preferred stock is
recognized on an ex-dividend basis.
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.
As of Jan. 1, 1994, IDSC adopted Statement of Financial Accounting
Standards (SFAS) 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 are carried at amortized cost. Debt securities IDSC does
not have the positive intent to hold to maturity, as well as all
marketable equity securities, are classified as available for
sale and carried at fair value. Unrealized holding gains and
losses on securities classified as available for sale are carried,
net of deferred income taxes, as a separate component of
stockholder's equity. The opening balance of stockholder's equity
was increased by $8,827 (net of $4,752 in deferred income taxes) to
reflect the net unrealized holding gains on securities classified
as available for sale previously carried at amortized cost or the
lower of cost or market.
The basis for determining cost in computing realized gains and
losses on securities is specific identification. When there is a
decline in value that is other than temporary, the securities are
carried at estimated realizable value with the amount of adjustment
included in income.
First mortgage loans on real estate
Mortgage loans are carried at amortized cost, less reserves for
losses, which is the basis for determining any realized gains or
losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage
interest rates currently offered for mortgages of similar
maturities.
<PAGE>
PAGE 56
Notes to Financial Statements (continued)
Impairment is measured as the excess of the loan's recorded
investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate,
or the fair value of collateral. The amount of the impairment is
recorded in a reserve for mortgage loan losses.
The reserve for mortgage loan losses is maintained at a level that
management believes is adequate to absorb estimated losses in the
portfolio. The level of the reserve account is determined based on
several factors, including historical experience, expected future
principal and interest payments, estimated collateral values, and
current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the reserve for
mortgage loan losses.
IDSC generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
Management's judgement as to the ultimate collectibility of
principal, interest payments received are either recognized as
income or applied to the recorded investment in the loan.
Certificates
Investment certificates may be purchased either with a lump-sum
payment or by installment payments. Certificate owners are
entitled to receive at maturity a definite sum of money. Payments
from certificate owners are credited to investment certificate
reserves. Investment certificate reserves accumulate at specified
percentage rates as declared by IDSC. Reserves also are maintained
for advance payments made by certificate owners, accrued interest
thereon, and for additional credits in excess of minimum guaranteed
rates 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 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 and any related surrender charges are
recognized in income.
Federal income taxes
IDSC's taxable income or loss is included in the consolidated
federal income tax return of American Express Company. IDSC
provides for income taxes on a separate return basis, except that,
under an agreement between Parent and American Express Company, tax
benefits are recognized for losses to the extent they can be used <PAGE>
PAGE 57
Notes to Financial Statements (continued)
in the consolidated return. It is the policy of Parent and its
subsidiaries that Parent will reimburse a subsidiary for any tax
benefits recorded.
2. Deposit of assets and maintenance of qualified assets
A) Under the provisions of its certificates and the 1940 Act, IDSC
was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $3,259,260 and
$3,619,188 at Dec. 31, 1996 and 1995, respectively. IDSC had
qualified assets of $3,453,508 at Dec. 31, 1996 and $3,838,482 at
Dec. 31, 1995, excluding net unrealized appreciation on
available-for-sale securities of $22,214 and $45,265 at Dec.
31,1996 and 1995, respectively and payable for securities purchased
of $61,979 and $nil at Dec. 31, 1996 and 1995,
respectively.
Qualified assets are valued in accordance with such provisions of
Minnesota Statutes as are applicable to investments of life
insurance companies. Qualified assets for which no provision for
valuation is made in such statutes are valued in accordance with
rules, regulations or orders prescribed by the SEC. These values
are the same as financial statement carrying values, except for
debt securities classified as available for sale and all marketable
equity securities, which are carried at fair value in the financial
statements but are valued at amortized cost for qualified asset and
deposit maintenance purposes.
B) Pursuant to provisions of the certificates, the 1940 Act, the
central depositary agreement and to requirements of various states,
qualified assets of IDSC were deposited as follows:
<TABLE><CAPTION>
Dec. 31, 1996
Required
Deposits deposits Excess
<S> <C> <C> <C>
Deposits to meet certificate
liability requirements:
States $362 $330 $32
Central Depositary 3,355,041 3,203,076 151,965
Total $3,355,403 $3,203,406 $151,997
<PAGE>
PAGE 58
Notes to Financial Statements (continued)
Dec. 31, 1995
Required
Deposits deposits Excess
Deposits to meet certificate
liability requirements:
States $414 $384 $30
Central Depositary 3,678,295 3,548,334 129,961
Total $3,678,709 $3,548,718 $129,991
</TABLE>
The assets on deposit at Dec. 31, 1996 and 1995 consisted of
securities having a deposit value of $3,117,715 and $3,435,074,
respectively; mortgage loans of $218,697 and $229,554,
respectively; and other assets of $18,991 and $14,081,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan at Dec. 31, 1995.
American Express Trust Company is the central depositary for IDSC.
See note 7C.
3. Investments in securities
A) Fair values of investments in securities represent market
prices or estimated fair values when quoted prices are not
available. Estimated fair values are determined by IDSC using
established procedures, involving review of market indexes, price
levels of current offerings and comparable issues, price estimates
and market data from independent brokers and financial files. The
procedures are reviewed annually. IDSC's vice president -
investments reports to the board of directors on an annual basis
regarding such pricing sources and procedures to provide assurance
that fair value is being achieved.
The following is a summary of securities held to maturity and
securities available for sale at Dec. 31, 1996 and Dec. 31, 1995.
<TABLE><CAPTION>
Dec. 31, 1996
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government and agencies obligations $362 $365 $4 $1
Mortgage-backed securities 38,435 38,834 743 344
Corporate debt securities 266,642 274,235 8,447 854
Stated maturity preferred stock 558,482 576,603 19,513 1,392
$863,921 $890,037 $28,707 $2,591
AVAILABLE FOR SALE
Mortgage-backed securities $1,009,738 $1,021,603 $14,164 $2,299
State and municipal obligations 55,876 57,726 1,850 -
Corporate debt securities 1,000,316 1,008,077 10,808 3,047
Stated maturity preferred stock 52,458 52,139 109 428
Perpetual preferred stock 68,000 68,282 317 35
Common stock 4,366 5,141 775 -
$2,190,754 $2,212,968 $28,023 $5,809
<PAGE>
PAGE 59
Notes to Financial Statements (continued)
Dec. 31, 1995
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government and agencies obligations $415 $427 $12 $-
Mortgage-backed securities 54,477 55,708 1,234 3
Corporate debt securities 333,861 348,860 15,029 30
Stated maturity preferred stock 614,152 643,436 30,072 788
$1,002,905 $1,048,431 $46,347 $821
AVAILABLE FOR SALE
Mortgage-backed securities $1,321,051 $1,340,956 $21,349 $1,444
State and municipal obligations 101,399 105,680 4,281 -
Corporate debt securities 918,792 939,878 22,638 1,552
Stated maturity preferred stock 21,229 21,365 192 56
Common stock 755 612 - 143
$2,363,226 $2,408,491 $48,460 $3,195
</TABLE>
The amortized cost and fair value of securities held to maturity
and available for sale, by contractual maturity, at Dec. 31, 1996,
are shown below. Cash flows will differ from contractual
maturities because issuers may have the right to call or prepay
obligations.
Amortized Fair
cost value
HELD TO MATURITY
Due within 1 year $34,448 $34,948
Due after 1 through 5 years 400,592 414,987
Due after 5 years through 10 years 211,557 217,449
Due after 10 years 178,889 183,819
825,486 851,203
Mortgage-backed securities 38,435 38,834
$863,921 $890,037
AVAILABLE FOR SALE
Due within 1 year $109,402 $109,963
Due after 1 through 5 years 642,863 647,886
Due after 5 years through 10 years 204,675 207,250
Due after 10 years 151,710 152,843
1,108,650 1,117,942
Mortgage-backed securities 1,009,738 1,021,603
Perpetual preferred stock 68,000 68,282
Common stock 4,366 5,141
$2,190,754 $2,212,968
During the years ended Dec. 31, 1996 and 1995, there were no
securities classified as trading securities.
<PAGE>
PAGE 60
Notes to Financial Statements (continued)
The proceeds from sales of available-for-sale securities and the
gross realized gains and gross realized losses on those sales
during the years ended Dec. 31, 1996, 1995 and 1994, were as
follows:
1996 1995 1994
Proceeds $313,976 $83,970 $265,008
Gross realized gains 456 36 363
Gross realized losses 5,836 1,854 10,140
Sales of held-to-maturity securities, due to significant credit
deterioration, during the years ended Dec. 31, 1996, 1995 and 1994,
were as follows:
1996 1995 1994
Amortized cost $22,297 $22,782 $3,158
Gross realized gains 3,200 2 5
Gross realized losses 513 479 -
During the year ended Dec. 31, 1996, no securities were
reclassified from held to maturity to available for sale. During
the year ended Dec. 31, 1995, securities with an amortized cost
and fair value of $111,967 and $116,882, respectively, were
reclassified from held to maturity to available for sale. The
reclassification was made on Dec. 4, 1995, as a result of
adopting the FASB Special Report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities.
B) Investments in securities with fixed maturities comprised 85%
and 90% of IDSC's total invested assets at Dec. 31, 1996 and 1995,
respectively. Securities are rated by Moody's and Standard & Poors
(S&P), or by Parent's internal analysts, using criteria similar to
Moody's and S&P, when a public rating does not exist. A summary of
investments in securities with fixed maturities by rating of
investment is as follows:
Rating 1996 1995
Aaa/AAA 41% 44%
Aa/AA 1 2
Aa/A 1 2
A/A 20 23
A/BBB 6 6
Baa/BBB 24 20
Below investment grade 7 3
100% 100%
<PAGE>
PAGE 61
Notes to Financial Statements (continued)
Of the securities rated Aaa/AAA, 87% at Dec. 31, 1996 and 92% at
Dec. 31, 1995 are U.S. Government Agency mortgage-backed securities
that are not rated by a public rating agency. Approximately 11% at
Dec. 31, 1996 and 1995 of other securities with fixed maturities
are rated by Parent's internal analysts. At Dec. 31, 1996 and 1995
no one issuer, other than U.S. Government Agency mortgage-backed
securities, is greater than 1% of IDSC's total investment in
securities with fixed maturities.
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
note 3A.
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.
4. Investments in first mortgage loans on real estate
At Dec. 31, 1996 and 1995, IDSC's recorded investment in impaired
mortgage loans was $847 and $1,004, respectively, and the reserve
for loss on those amounts was $611. During 1996 and 1995, the
average recorded investment in impaired mortgage loans was $925 and
$1,052, respectively.
IDSC recognized $88 and $53 of interest income related to impaired
mortgage loans for the years ended Dec. 31, 1996 and 1995,
respectively.
There were no changes in the reserve for loss on mortgage loans of
$611 during the years ended Dec. 31, 1996 and 1995.
At Dec. 31, 1996 and 1995, approximately 6% of IDSC's invested
assets were first mortgage loans on real estate. A summary of
first mortgage loans by region and type of real estate is as
follows:
Region 1996 1995
South Atlantic 22% 22%
East North Central 21 22
West North Central 17 19
Mountain 15 9
Middle Atlantic 14 17
<PAGE>
PAGE 62
Notes to Financial Statements (continued)
West South Central 5 5
Pacific 3 3
New England 3 3
100% 100%
Property Type 1996 1995
Retail/shopping centers 36% 32%
Apartments 33 39
Industrial buildings 13 12
Office buildings 9 8
Retirement homes - 1
Other 9 8
100% 100%
The carrying amounts and fair values of first mortgage loans on
real estate are as follows at Dec. 31. The fair values are
estimated using discounted cash flow analysis, using market
interest rates currently being offered for loans with similar
maturities.
<TABLE><CAPTION>
Dec. 31, 1996 Dec. 31, 1995
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
First mortgage loans on real estate $219,308 $221,253 $234,005 $248,860
Reserve for losses (611) - (611) -
Net first mortgage loans on real estate $218,697 $221,253 $233,394 $248,860
</TABLE>
At Dec. 31, 1996 and 1995, commitments for fundings of first
mortgage loans, at market interest rates, aggregated $9,300 and
$nil, 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 loan fundings are restricted
to 80% 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.
5. 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, 1996 and 1995 were:
<TABLE><CAPTION>
1996
Average Average
gross additional
Reserve accumulation credit
balance rate rate
<S> <C> <C> <C>
Installment certificates:
Reserves to mature:
With guaranteed rates $32,512 3.50% 1.35%
Without guaranteed rates (A) 311,832 - 2.97
Additional credits and accrued interest 21,931 3.14 -
Advance payments and accrued interest (C) 1,198 3.15 1.70<PAGE>
PAGE 63
Notes to Financial Statements (continued)
Other 55 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates 187,272 3.23 1.79
Without guaranteed rates (A) and (D) 2,560,418 - 5.03
Additional credits and accrued interest 167,673 3.23 -
Due to unlocated certificate holders 300 - -
$3,283,191
1995
Average Average
gross additional
Reserve accumulation credit
balance rate rate
Installment certificates:
Reserves to mature:
With guaranteed rates $40,232 3.50% 1.35%
Without guaranteed rates (A) 290,183 - 3.23
Additional credits and accrued interest 21,555 3.13 -
Advance payments and accrued interest 1,394 3.13 1.72
Other 55 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates 210,365 3.24 1.85
Without guaranteed rates (A) and (D) 2,916,936 - 5.70
Additional credits and accrued interest 147,468 3.26 -
Due to unlocated certificate holders 386 - -
$3,628,574
</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, 1996, $11,989 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 3.15%. IDSC has
increased the rate of accrual to 4.85% through April 30, 1998. An
appropriation of retained earnings amounting to $50 has been made,
which represents the estimated additional accrual that will result
from the increase granted by IDSC.
D) IDS Stock Market Certificate enables the certificate owner 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, 1996 and 1995 was $309,570 and
$211,093, respectively.
E) The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1996 and 1995. Fair values
of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender
charges.
<PAGE>
PAGE 64
Notes to Financial Statements (continued)
The fair values for other certificate reserves are determined by a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less
any applicable surrender charges.
<TABLE><CAPTION>
1996 1995
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
Reserves with terms of one year or less $2,637,144 $2,635,835 $2,900,947 $2,899,542
Other 646,047 630,141 727,627 765,110
Total certificate reserves 3,283,191 3,265,976 3,628,574 3,664,652
Unapplied certificate transactions 1,217 1,217 1,545 1,545
Certificate loans and accrued interest (43,980) (43,980) (51,707) (51,707)
Total $3,240,428 $3,223,213 $3,578,412 $3,614,490
</TABLE>
6. Dividend restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1% on such series of
certificates have been authorized by IDSC. This restriction has
been removed for 1997 and 1998 by IDSC's declaration of additional
credits in excess of this requirement.
7. Fees paid to Parent and affiliated companies ($ not in
thousands)
A) The basis of computing fees paid or payable to Parent for
investment advisory and other general and administrative services
is:
The investment advisory and services agreement with Parent provides
for a graduated scale of fees equal on an annual basis to 0.75% on
the first $250 million of total book value of assets of IDSC, 0.65%
on the next $250 million, 0.55% on the next $250 million, 0.50% on
the next $250 million and 0.45% on the amount in excess of $1
billion. The fee is payable monthly in an amount equal to
one-twelfth of each of the percentages set forth above. Excluded
from assets for purposes of this computation are first mortgage
loans, real estate and any other asset on which IDSC pays an
outside service fee.
B) The basis of computing fees paid or payable to American Express
Financial Advisors Inc. (an affiliate) for distribution services
is:
Fees payable to American Express Financial Advisors Inc. on sales
of IDSC's certificates are based upon terms of agreements giving
American Express Financial Advisors Inc. the exclusive right to
distribute the certificates covered under the agreements. The
agreements provide for payment of fees over a period of time. The
aggregate fees payable under the agreements per $1,000 face amount
of installment certificates and $1,000 purchase price of single
payments, and a summary of the periods over which the fees are
payable, shown by series are: <PAGE>
PAGE 65
<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>
(a) At the end of the sixth through the 10th year, an additional
fee is payable of 0.5% of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.
Fees on Cash Reserve and Flexible Savings certificates are paid at
a rate of 0.25% of the purchase price at the time of issuance and
0.25% of the reserves maintained for these certificates at the
beginning of the second and subsequent quarters from issue date.
Fees on the Investors Certificate are paid at an annualized rate of
1% of the reserves maintained for the certificates. Fees are paid
at the end of each term on certificates with a one, two or
three-month term. Fees are paid each quarter from date of issuance
on certificates with a six, 12, 24 or 36-month term.
Fees on the Preferred Investors Certificate are paid at an
annualized rate of 0.66% of the reserves maintained for the
certificates. Fees are paid at the end of each term on
certificates with a one, two or three-month term. Fees are paid
each quarter from date of issuance on certificates with a six, 12,
24 or 36-month term.
Fees on the Stock Market Certificate are paid at a rate of 1.25% of
the purchase price on the first day of the certificate's term and
1.25% of the reserves maintained for these certificates at the
beginning of each subsequent term.
C) The basis of computing depositary fees paid or payable to
American Express Trust Company (an affiliate) is:
<TABLE><CAPTION>
<S> <C>
Maintenance charge per account 5 cents per $1,000 of assets on deposit
Transaction charge $20 per transaction
Security loan activity:
Depositary Trust Company
receive/deliver $20 per transaction
Physical receive/deliver $25 per transaction
Exchange collateral $15 per transaction
</TABLE>
A transaction consists of the receipt or withdrawal of securities
and commercial paper and/or a change in the security position. The
charges are payable quarterly except for maintenance, which is an
annual fee. <PAGE>
PAGE 66
Notes to Financial Statements (continued)
D) 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:
1.25% of the reserves maintained for the certificates on an amount
from $100,000 to $249,000, 0.80% on an amount from $250,000 to
$499,000, 0.65% on an amount from $500,000 to $999,000 and 0.50% on
an amount $1,000,000 or more. Fees are paid at the end of each
term on certificates with a one, two or three-month term. Fees are
paid at the end of each quarter from date of issuance on
certificates with a six, 12, 24 or 36-month term.
8. Income taxes
Income tax expense (benefit) as shown in the statement of
operations for the three years ended Dec. 31, consists of:
1996 1995 1994
Federal:
Current ($5,560) ($6,285) ($8,743)
Deferred (1,124) (2,652) 3,933
(6,684) (8,937) (4,810)
State 27 (43) 100
Total tax benefit ($6,657) ($8,980) ($4,710)
Income tax expense (benefit) differs from that computed by using
the U.S. Statutory rate of 35%. The principal causes of the
difference in each year are shown below:
<TABLE><CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal tax expense at U.S. statutory rate $5,711 $6,307 $12,642
Tax-exempt interest (1,517) (3,339) (4,205)
Dividend exclusion (10,865) (12,166) (13,862)
Other, net (13) 261 615
Federal tax benefit ($6,684) ($8,937) ($4,810)
</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.
<PAGE>
PAGE 67
Notes to Financial Statements (continued)
Deferred tax assets: 1996 1995
Certificate reserves $13,028 $10,312
Investment reserves 540 843
Investments - 348
Other, net 19 -
Total deferred tax assets $13,587 $11,503
Deferred tax liabilities: 1996 1995
Deferred distribution fees $8,934 $9,900
Investment unrealized gains 7,775 15,843
Purchased/written call options 3,429 1,623
Dividends receivable 745 892
Investments 714 -
Return of capital dividends 87 305
Other, net - 229
Total deferred tax liabilities 21,684 28,792
Net deferred tax liabilities $8,097 $17,289
9. Derivative financial instruments
IDSC enters into transactions involving derivative financial
instruments as an end user(nontrading). IDSC uses these
instruments to manage its exposure to interest rate risk, including
hedging specific transactions. IDSC manages risks associated with
these instruments as described below.
Market risk is the possibility that the value of the derivative
financial instrument will change due to fluctuations in a factor
from which the instrument derives its value, primarily an interest
rate or a major market index. IDSC is not impacted by market risk
related to derivatives held because derivatives are largely used to
manage risk and, therefore, the cash flows and income effects of
the derivatives are inverse to the effects of the underlying hedged
transactions.
Credit exposure is the possibility that the counterparty will not
fulfill the terms of the contract. IDSC monitors credit exposure
related to derivative financial instruments through established
approval procedures, including setting concentration limits by
counterparty, reviewing credit ratings and requiring collateral
where appropriate. At Dec. 31, 1996, IDSC's counterparties to the
interest rate corridors are rated AA or better by nationally
recognized rating agencies. The counterparties to the call options
are seven major broker/dealers.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional amounts
do not represent market risk or credit exposure and are not
recorded on the balance sheet. <PAGE>
PAGE 68
Notes to Financial Statements (continued)
Credit exposure related to derivative financial instruments is
measured by the replacement cost of those contracts at the balance
sheet date. The replacement cost represents the fair value
of the instrument, and is determined by market values, dealer
quotes or pricing models.
IDSC's holdings of derivative financial instruments were as follows
at Dec. 31, 1996 and 1995.
<TABLE><CAPTION>
1996
Notional Total
or contract Carrying Fair credit
amount value value exposure
<S> <C> <C> <C> <C>
Assets:
Interest rate corridors $200,000 $- $188 $188
Purchased call options 242,243 36,164 34,987 34,987
Total $442,243 $36,164 $35,175 $35,175
Liabilities:
Written call options $225,386 $9,552 $17,571 $-
1995
Notional Total
or contract Carrying Fair credit
amount value value exposure
Assets:
Interest rate caps and corridors $970,000 $3,362 $2,128 $2,128
Purchased call options 152,406 27,138 24,161 24,161
Total $1,122,406 $30,500 $26,289 $26,289
Liabilities:
Written call options $141,782 $9,333 $10,394 $-
</TABLE>
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The interest rate
corridors expire in Jan. and Feb. of 1997. The options expire
throughout 1997.
Interest rate caps/corridors and options are used to manage IDSC's
exposure to rising interest rates. These instruments are used
primarily to protect the margin between the interest rate
earned on investments and the interest rate credited to related
investment certificate owners.
The interest rate caps/corridors are reset quarterly and IDSC earns
interest on the notional amount to the extent the London Interbank
Offering Rate exceeds the reference rates specified in the
cap/corridor agreements. These reference rates ranged from 4% to
9%. The cost of interest rate caps/corridors is amortized over the
terms of the agreements on a straight line basis and is included in
other qualified assets. The amortization, net of any interest
earned, is included in investment expenses.
IDSC offers a series of certificates which pay interest based upon
the relative change in a major stock market index between the
beginning and end of the certificates' term. The certificate
owners 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<PAGE>
PAGE 69
Notes to Financial Statements (continued)
writes call options on the major market index. The options are
cash settlement options, that is, there is no underlying security
to deliver at the time the contract is closed out.
The option contracts are less than one year in term. The premiums
paid or received on these index options are reported in other
qualified assets or other liabilities, as appropriate, and are
amortized into investment expense over the life of the option. The
intrinsic value of these index options is also reported in other
qualified assets or other liabilities, as appropriate. The
unrealized gains and losses related to the changes in the intrinsic
value of these options are recognized currently in provision for
certificate reserves.
Following is a summary of open option contracts at Dec. 31, 1996
and 1995.
1996
Face Average Index at
amount strike price Dec.31,1996
Purchased call options $242,243 669 741
Written call options 225,386 736 741
1995
Face Average Index at
amount strike price Dec.31,1995
Purchased call options $152,406 539 616
Written call options 141,782 601 616
10. Fair values of financial instruments
IDSC discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate
that value. The fair value of the financial instruments presented
may not be indicative of their future fair values. The estimated
fair value of certain financial instruments such as cash and cash
equivalents, receivables for dividends and interest, investment
securities sold and other trade receivables, accounts payable due
to Parent and affiliates, payable for investment securities
purchased and other accounts payable and accrued expenses are
approximated to be the carrying amounts disclosed in the balance
sheets. Non-financial instruments, such as deferred distribution
fees, are excluded from required disclosure. IDSC's off-balance
sheet intangible assets, such as IDSC's name and future earnings of
the core business are also excluded. IDSC's management believes
the value of these excluded assets is significant. The fair value
of IDSC, therefore, cannot be estimated by aggregating the amounts
presented.
<PAGE>
PAGE 70
A summary of fair values of financial instruments as of Dec. 31, is
as follows:
<TABLE><CAPTION>
1996 1995
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
Financial assets
Assets for which carrying values
approximate fair values $155,396 $155,396 $148,746 $148,746
Investment securities (note 3) 3,076,889 3,103,005 3,411,396 3,456,922
First mortgage loans on real estate (note 4) 218,697 221,253 233,394 248,860
Derivative financial instruments (note 9) 36,164 35,175 30,500 26,289
Financial liabilities
Liabilities for which carrying values
approximate fair values 76,040 76,040 14,247 14,247
Certificate reserves (note 5) 3,240,428 3,223,213 3,578,412 3,614,490
Derivative financial instruments (note 9) 9,552 17,571 9,333 10,394
</TABLE>
<PAGE>
PAGE 71
(Back cover)
Quick telephone reference
Selling Agent
American Express Bank International
Region Offices
101 East 52nd Street
29th Floor
New York, NY 10022
(212) 415-9500
1221 Brickell Avenue
8th Floor
Miami, FL 33131
(305) 350-2502
Selling Agent
Coutts & Co. (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
(213) 613-2244
American Express Stock Market Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
Distributed by American Express Financial Advisors Inc.
<PAGE>
PAGE 72
Form W-8
Certificate of Foreign Status
(Rev. November 1992)
Department of the Treasury
Internal Revenue Service
Please print or type
Name of Owner (if joint account, also give joint owner's name)
U.S. taxpayer identification number (if any)
Permanent Address (See Specific instructions)(include apt. or suite
no.)
City, province or state, postal code and country
Current Mailing Address, if different from permanent address
(Include apt. or suite no., or P.O. box if mail is not delivered to
street address.)
City, town, or post office, state, and ZIP code (if foreign
address, enter city, province or state, postal code and country.)
List account information here (Optional, see Specific
Instructions.) Account number(s) Account type
Notice of Change in Status. - To notify the payer, mortgage
interest recipient, broker or barter exchange that you no longer
qualify for exemption, check
here........................................__
If you check this box, reporting will begin on the account(s)
listed.
Please Sign Here
Certification. - (Check applicable box(es). Under penalties of
perjury, I certify that:
__ For INTEREST PAYMENTS, I am not a U.S. citizen or resident (or I
am filing for a foreign corporation, partnership, estate, or
trust).
__ For DIVIDENDS, I am not a U.S. citizen or resident (or I am
filing for a foreign corporation, partnership, estate, or trust).
__ For BROKER TRANSACTIONS or BARTER EXCHANGES, I am an exempt
foreign person as defined in the instructions below.
Signature ______________________________ Date _____________________
<PAGE>
PAGE 73
Form W-8
Form W- (Rev. 11-92)
General Instructions
(Section references are to the Internal Revenue Code unless
otherwise noted.)
Purpose - Use Form W-8 or a substitute form containing a
substantially similar statement to tell the payer, mortgage
interest recipient, middleman, broker, or barter exchange that you
are a nonresident alien individual, foreign entity, or exempt
foreign person not subject to certain U.S. information return
reporting or backup withholding rules.
Caution: Form W-8 does not exempt the payee from the 30% (or lower
treaty) nonresident withholding rates.
Nonresident Alien Individual. - For income tax purposes,
"nonresident alien individual" means an individual who is neither a
U.S. citizen nor resident. Generally, an alien is considered to be
a U.S. resident if:
o The individual was a lawful permanent resident of the United
States at any time during the calendar year, that is, the alien
held an immigrant visa (a "green card"), or
o The individual was physically present in the United States on:
(1) at least 31 days during the calendar year, and
(2) 183 days or more during the current year and the 2 preceding
calendar years (counting all the days of physical presence in
the current year, one-third the number of days of presence in
the first preceding year, and only one-sixth of the number of
days in the second preceding year).
See Pub. 519, U.S. Tax Guide for Aliens, for more information on
resident and nonresident alien status.
Exempt Foreign Person. - For purposes of this form, you are an
exempt foreign person for a calendar year in which:
1. You are a nonresident alien individual or a foreign corporation,
partnership, estate or trust,
2. You are an individual who has not been, and plans not to be,
present in the United States for a total of 183 days or more during
the calendar year, and
3. You are neither engaged, nor plan to be engaged during the year,
in a U.S. trade or business that has effectively connected gains
from transactions with a broker or barter exchange.
If you do not meet the requirements of 2 or 3 above, you may
instead certify on Form 1001, Ownership, Exemption, or Reduced Rate
Certificate, that your country has a tax treaty with the United
States that exempts your transactions from U.S. tax.
<PAGE>
PAGE 74
Filing Instructions
When To File.-File Form W-8 or substitute form before a payment is
made. Otherwise, the payer may have to withhold and send part of
the payment to the Internal Revenue Service (see Backup Withholding
below). This certificate generally remains in effect for three
calendar years. However, the payer may require you to file a new
certificate each time a payment is made to you.
Where To File. - File this form with the payer of the qualifying
income who is the withholding agent (see Withholding Agent on page
2). Keep a copy for your own records.
Backup Withholding. - A U.S. taxpayer identification number or Form
W-8 or substitute form must be given to the payers of certain
income. If a taxpayer identification number or Form W-8 or
substitute form is not provided or the wrong taxpayer
identification number is provided, these payers may have to
withhold 20% of each payment or transaction. This is called
"backup withholding."
Note: On January 1, 1993, the backup withholding rate increases
from 20% to 31%.
Reportable payments subject to backup withholding rules are:
o Interest payments under section 6049(a).
o Dividend payments under sections 6042(a) and 6044.
o Other payments (i.e., royalties and payments from broker and
barter exchanges) under sections 6041, 6041(a), 6045, 6050A and
6050N.
If backup withholding occurs, an exempt foreign person who is a
nonresident alien individual may get a refund by filing Form
1040NR, U.S. Nonresident Alien Income Tax Return, with the Internal
Revenue Service Center, Philadelphia, PA 19255, even if filing the
return is not otherwise required.
U.S. Taxpayer Identification Number. - The Internal Revenue law
requires that certain income be reported to the Internal Revenue
Service using a U.S. taxpayer identification number (TIN). This
number can be a social security number assigned to individuals by
the Social Security Administration or an employer identification
number assigned to businesses and other entities by the Internal
Revenue Service.
Payments to account holders who are foreign persons (nonresident
alien individuals, foreign corporations, partnerships, estates or
trusts) generally are not subject to U.S. reporting requirements.
also, foreign persons are not generally required to have a TIN, nor
are they subject to any backup withholding because they do not
furnish such a TIN to a payer or broker.
<PAGE>
PAGE 75
However, foreign persons with income effectively connected with a
trade or business in the United States (income subject to regular
(graduated) income tax), must have a TIN. To apply for a TIN, use
Form SS-4, Application for Employer Identification Number,
available from local Internal Revenue Service offices, or Form SS-
5, Application for a Social Security Card, available from Social
Security Administration district offices.
Special Rules
Mortgage Interest. - For purposes of the reporting rules, mortgage
interest is interest paid on a mortgage to a person engaged in a
trade or business originating mortgages in the course of that trade
or business. A mortgage interest recipient is one who receives
interest on a mortgage that was acquired in the course of a trade
or business.
Mortgage interest is not subject to backup withholding rules, but
is subject to reporting requirements under section 6050H.
Generally, however, the reporting requirements do not apply if the
payer of record is a nonresident alien individual who pays interest
on a mortgage not secured by real property in the United States.
Use Form W-8 or substitute statement to notify the mortgage
interest recipient that the payer is a nonresident alien
individual.
Portfolio Interest. - Generally, portfolio interest paid to a
nonresident alien individual or foreign partnership, estate or
trust is not subject to backup withholding rules. However, if
interest is paid on portfolio investments to a beneficial owner
that is neither a financial institution nor a member of a clearing
organization, Form W-8 or substitute form is required.
Registered obligations not targeted to foreign markets qualify as
portfolio interest not subject to 30% withholding, but require the
filing of Form W-8 or substitute form. See Instructions to
Withholding Agents on this page for reporting rules.
See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign
Corporations, for registered obligations targeted to foreign
markets and when Form W-8 or substitute form is not required on
these payments.
Bearer Obligations. - The interest from bearer obligations targeted
to foreign markets is treated as portfolio interest and is not
subject to 30% withholding. Form W-8 or substitute form is not
required.
Dividends. - Any distribution or payment of dividends by a U.S.
corporation sent to a foreign address is subject to the 30% (or
lower treaty) withholding rate, but is not subject to backup
withholding. Also, there is no backup withholding on dividend
payments made to a foreign person by a foreign corporation.
However, the 30% withholding (or lower treaty) rate applies to
dividend payments made to a foreign person by a foreign corporation
if:
<PAGE>
PAGE 76
o 25% or more of the foreign corporation's gross income for the
three preceding taxable years was effectively connected with a U.S.
trade or business, and
o The corporation was not subject to the branch profits tax
because of an income tax treaty (see section 884(e)).
If a foreign corporation makes payments to another foreign
corporation, the recipient must be a qualified resident of its
country of residence to benefit from that country's tax treaty.
Broker or Barter Exchanges. - Income from transactions with a
broker or barter exchanges is subject to reporting rules and backup
withholding unless Form W-8 or substitute form is filed to notify
the broker or barter exchange that you are an exempt foreign person
as defined on page 1.
Specific Instructions
Name of Owner. - If Form W-8 is being filed for portfolio interest,
enter the name of the beneficial owner.
U.S. Taxpayer Identification Number. - If you have a U.S. taxpayer
identification number, enter your number in this space (see the
discussion earlier).
Permanent Address. - Enter your complete address in the country
where you reside permanently for income tax purposes.
If you are: Show the address of:
An individual...................Your permanent residence
A partnership or corporation....Principal office
An estate or trust..............Permanent residence or principal
office of any fiduciary
Also show your current mailing address if it differs from your
permanent address.
Account Information (optional). - If you have more than one account
(savings, certificate of deposit, pension, IRA, etc.) with the same
payer, list all account numbers and types on one Form W-8 or
substitute form unless your payer requires you to file a separate
certificate for each account.
If you have more than one payer, file a separate Form W-8 with each
payer.
Signature. - If only one foreign person owns the account(s) listed
on this form, that foreign person should sign the Form W-8.
If each owner of a joint account is a foreign person, each should
sign a separate Form W-8.
<PAGE>
PAGE 77
Notice of Change in Status. - If you become a U.S. citizen or
resident after you have filed Form W-8 or substitute form, or you
cease to be an exempt foreign person, you must notify the payer in
writing within 30 days of your change in status.
To notify the payer, you may check the box in the space provided on
this form or use the method prescribed by the payer.
Reporting will then begin on the account(s) listed and backup
withholding may also begin unless you certify to the payer that:
(1) The U.S. taxpayer identification number you have given is
correct, and
(2) The Internal Revenue Service has not notified you that you are
subject to backup withholding because you failed to report certain
income.
You may use Form W-9, Request for Taxpayer Identification Number
and Certification, to make these certifications.
If an account is no longer active, you do not have to notify a
payer of you change in status unless you also have another account
with the same payer that is still active.
False Certificate. - If you file a false certificate when you are
not entitled to the exemption from withholding or reporting, you
may be subject to fines and/or imprisonment under U.S. perjury
laws.
Instructions to Withholding Agents
Withholding Agent. - Generally, the person responsible for payment
of the items discussed above to a nonresident alien individual or
foreign entity is the withholding agent (see Pub. 515).
Retention of Statement. - Keep Form W-8 or substitute form in your
records for at least four years following the end of the last
calendar year during which the payment is paid or collected.
Portfolio Interest. - Although registered obligations not targeted
to foreign markets are not subject to 30% withholding, you must
file Form 1042S, Foreign Person's U.S. Source Income Subject to
Withholding, to report the interest payment. Both Form 1042S and a
copy of Form W-8 or substitute form must be attached to Form 1042,
Annual Withholding Tax Return for U.S. Source Income of Foreign
Persons.
* U.S. GPO: 1992-315-087
(11/92)
<PAGE>
PAGE 78
Quick telephone reference
Selling Agent
American Express Bank International
Region Offices
101 East 52nd Street
29th Floor
New York, NY 10022
(212) 415-9500
1221 Brickell Avenue
8th Floor
Miami, FL 33131
(305) 350-2502
Selling Agent
Coutts & Co. (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
(213) 612-2244
AMERICAN
EXPRESS
Financial
Advisors
American Express
Stock Market Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
American Express Financial Advisors Inc., Member SIPC.
<PAGE>
