PAGE 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
AMERICAN EXPRESS INVESTORS CERTIFICATE
POST-EFFECTIVE AMENDMENT NO. 12 TO
REGISTRATION STATEMENT NO. 33-26844
UNDER
THE SECURITIES ACT OF 1933
IDS CERTIFICATE COMPANY
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
6725
(Primary Standard Industrial Classification Code Number)
41-6009975
(I.R.S. Employer Identification No.)
IDS Tower 10, Minneapolis, MN 55440, (612) 671-3131
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Bruce A. Kohn IDS Tower 10, Minneapolis, MN 55440-0010,
(612) 671-2221
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
The Registrant has registered an indefinite number of certificates
under the Securities Act of 1933 pursuant to Section 24-f of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for
its most recent fiscal year (December 31) was filed on or about
February 28, 1996.
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PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c)
AMERICAN EXPRESS INVESTORS CERTIFICATE
AND VARIATIONS
Item Caption in
Number Prospectus
Item 1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus.
Item 2. Inside Front and Where to Get Information
Outside Back Cover Pages about the Issuer. Table of
of Prospectus. Contents.
Item 3. Summary Informa- Table of Contents.
tion, Risk Factors
and Ratio of Earnings
to Fixed Charges.
Item 4. Use of Proceeds. How your money is used and
protected.
Item 5. Determination of Not Applicable.
Offering Price.
Item 6. Dilution. Not Applicable.
Item 7. Selling Security Not Applicable.
Holders
Item 8. Plan of Distribution.
Distribution.
Item 9. Description of About the Certificate; How to
Securities to be invest and withdraw funds;
Registered. Tax Treatment of Your
Investment; Investment
Policies.
Item 10. Interests of Not Applicable.
Named Experts and Counsel.
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PART I. CROSS REFERENCE SHEET FOR PROSPECTUS
PURSUANT TO RULE 404(c) (Continued)
Item Caption in
Number Prospectus
Item 11. Information with About the certificate; How to
Respect to the Registrant. Invest and Withdraw Funds; Invested
and guaranteed by IDSC; regulated
by government;
Relationship between IDSC and
American Express Financial
Corporation; Capital structure and
certificates issued; Directors
and Officers.
Item 12. Disclosure of Directors and Officers;
Commission Position on Also see Item 17 in
Indemnification for Part II.
Securities Act Liabilities.
PAGE 4
American Express Investors Certificate
Prospectus
April 24, 1996
American Express Investors Certificates are issued by IDS
Certificate Company (the Issuer). The American Express Investors
Certificate is a security purchased with a single investment. You
may purchase this certificate by selecting a term of 1, 2, 3, 6,
12, 24 or 36 months, and an initial investment of at least $100,000
but not more than $5 million (unless you receive prior
authorization to invest more), exclusive of interest. Your
principal and interest are guaranteed by the Issuer. The Issuer
guarantees a fixed rate of interest depending upon the term you
select. You may invest in successive terms up to a total of 20
years from the issue date of the certificate. Your interest rate
will be determined as described in "About the certificate."
This prospectus describes American Express Investors Certificate
issued by the Issuer and distributed by American Express Financial
Advisors Inc. American Express Bank International (AEBI) has an
arrangement with American Express Financial Advisors Inc. under
which the certificate is offered to AEBI's clients who are neither
citizens nor residents of the United States, and to certain U.S.
trusts. The certificate is currently available through AEBI
offices located in Florida and New York. The certificate is also
available to certain clients of Coutts & Co (USA) International
(Coutts) through its office in California.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This prospectus describes terms and conditions of your American
Express Investors Certificate. It contains facts that can help you
decide if the certificate is the right investment for you. Read
the prospectus before you invest and keep it for future reference.
No one has the authority to change the terms and conditions of the
American Express Investors Certificate as described in the
prospectus, or to bind the Issuer by any statement not in it.
THIS CERTIFICATE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER ENTITY, AND IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
Issuer: IDS Certificate Company
IDS Tower 10
Minneapolis, MN 55440-0010
1-800-437-3133 (toll free)
(612) 671-3800
(Minneapolis/St. Paul area)
TTY numbers:
1-800-846-4293 (toll free) or
(612) 671-1630 (Minneapolis/St. Paul area)
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Distributor:
American Express Financial Advisors Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Selling Agents:
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300
Coutts & Co (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
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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). Copies can be obtained from the Public Reference Section of
the SEC, 450 5th St. NW, Washington, DC 20549, at prescribed
rates. Or you can inspect and copy information in person at the
SEC's Public Reference Section and at the following regional
offices:
Northeast Regional Office
7 World Trade Center
Suite 1300
New York, NY 10048
Midwest Regional Office
Northwestern Atrium Center
500 West Madison Street
Suite 1400
Chicago, IL 60611
Pacific Regional Office
5670 Wilshire Blvd.
11th Floor
Los Angeles, CA 90036
Initial Interest Rates
The Issuer guarantees a fixed rate of interest for each term. For
the initial term, the rate will be within a specified range of
certain average interest rates generally referred to as the London
Interbank Offered Rates (LIBOR) as explained under "About the
certificate."
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Here are the interest rates in effect on the date of this
prospectus, April 24, 1996*:
Actual
Simple Compound Effective
Interest Yield for Annualized
Term Rate* the Term ** Yield ***
1 month
2 month
3 month
6 month
12 month
24 month
36 month
* These are the rates for investments of $1 million. Rates may
depend on factors described in "Rates for new purchases" under
"About the certificate."
** Assuming monthly compounding for the number of months in the
term and a $1 million purchase.
*** Assuming monthly compounding for 12 months and a $1 million
purchase.
These rates may or may not be in effect when you apply to purchase
your certificate. Rates for future terms are set at the discretion
of the Issuer and may also differ from the rates shown here.
The Issuer reserves the right to issue other securities with
different terms.
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Contents
Table of Contents
About the certificate
Investment amounts and terms p
Face amount and principal p
Value at maturity p
Receiving cash during the term p
Interest p
Rates for new purchases p
Rates for future terms p
Additional investments p
Earning interest p
How to invest and withdraw funds
Buying your certificate p
Full and partial withdrawals p
When your certificate term ends p
Transferring certificate ownership p
Giving instructions and written notification p
Purchases by bank wire p
Tax treatment of your investment
Withholding taxes p
Estate tax 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
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
Selling agreements with AEBI and Coutts p
Employment of other American Express affiliates p
Directors and officers p
Auditors p
About American Express Bank International p
About American Express Company p
Additional information about
American Express Investors certificate 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 and terms
You may purchase the American Express Investors Certificate with an
initial payment of at least $100,000 payable in U.S. currency.
Unless you receive prior authorization, your total amount paid in
any one or more certificates, in the aggregate over the life of the
certificate, less withdrawals, cannot exceed $5 million.
After determining the amount you wish to invest, you select a term
of 1, 2, 3, 6, 12, 24 or 36 months for which the Issuer will
guarantee a specific interest rate. The Issuer guarantees the
principal of your certificate. At the end of the term, you may
have interest earned on the certificate during its term credited to
your certificate or paid to you. Investments in the certificate
may continue for successive terms up to a total of 20 years from
the issue date of the certificate. Generally, you will be able to
select any of the terms offered. But if your certificate is
nearing its 20-year maturity, you will not be allowed to select a
term that would carry the certificate past its maturity date.
Face amount and principal
The face amount of the certificate is the amount of your initial
investment, and will remain the same over the life of the
certificate. Any investment or withdrawal within 15 days of the
end of a term will be added on or deducted to determine principal
for the new term. A withdrawal at any other time is taken first
from interest credited to your investment during that term. The
principal is the amount that is reinvested at the beginning of each
subsequent term, and is calculated as follows:
Principal equals Face Amount (initial investment)
plus At the end of a term, interest credited to
your account during the term
minus Any interest paid to you in cash
plus Any additional investments to your
certificate
minus Any withdrawals, fees and applicable
penalties
Principal may change during a term as described in "Full and
partial withdrawals."
For example: Assume your initial investment (face amount) of
$500,000 earned $7,500 of interest during the term. You have not
taken any interest as cash or made any withdrawals. You have
invested an additional $250,000 prior to the beginning of the next
term. Your principal for the next term will equal:
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$500,000 Face amount (initial investment)
plus 7,500 Interest credited to your account
minus (0) Interest paid to you in cash
plus 250,000 Additional investment to your certificate
minus (0) Withdrawals and applicable penalties or fees
$757,500 Principal at the beginning of the next term.
Value at maturity
You may continue to invest for successive terms for up to a total
of 20 years. Your certificate matures at 20 years from its issue
date. At maturity, the value of your certificate will be the total
of your purchase price, plus additional investments and any
credited interest not paid to you in cash, less any withdrawals and
penalties. Some fees may apply as described in "How to invest and
withdraw funds."
Receiving cash during the term
If you need your money before your certificate term ends, you may
withdraw part or all of its value at any time, less any penalties
that apply.
Procedures for withdrawing money, as well as conditions under which
penalties apply, are described in "How to invest and withdraw
funds."
Interest
Your investments earn interest from the date they are credited to
your account. Interest is compounded and credited at the end of
each certificate month (on the monthly anniversary of the issue
date). Interest may be paid to you monthly in cash if you maintain
a principal balance of at least $500,000.
The Issuer declares and guarantees a fixed rate of interest for
each term during the life of your certificate. We calculate the
amount of interest you earn each certificate month by:
o applying the interest rate then in effect to
your balance each day,
o adding these daily amounts to get a monthly
total, and
o subtracting interest accrued on any amount
you withdraw during the certificate month.
Interest is calculated on a 30-day month and 360-day year basis.
Rates for new purchases
When your application is accepted and we have received your initial
investment, we will send you a confirmation of your purchase
showing the rate that your investment will earn. The Issuer
guarantees that the rate in effect for your initial term will be
within a 100 basis point (1%) range tied to certain average
interest rates for comparable length dollar deposits available on
an interbank basis in the London market, and generally referred to
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as the London Interbank Offered Rates (LIBOR). For investments of
$1 million or more, initial rates for specific terms are determined
as follows:
1 month Within a range of 80 basis points below to 20 basis
points above the 1-month LIBOR rate.
2 months Within a range of 80 basis points below to 20 basis
points above the 1-month LIBOR rate. (A 2-month LIBOR
rate is not published.)
3 months Within a range of 80 basis points below to 20 basis
points above the 3-month LIBOR rate.
6 months Within a range of 80 basis points below to 20 basis
points above the 6-month LIBOR rate.
12 months Within a range of 80 basis points below to 20 basis
points above the 12-month LIBOR rate.
24 months Within a range of 50 basis points below to 50 basis
points above the 12-month LIBOR rate. (A 24-month LIBOR
rate is not published.)
36 months Within a range of 50 basis points below to 50 basis
points above the 12-month LIBOR rate. (A 36-month LIBOR
rate is not published.)
For investments from $250,000 to $999,999 initial rates for
specific terms are determined as follows:
1 month Within a range of 100 basis points below to 0 basis
points above the 1-month LIBOR rate.
2 months Within a range of 100 basis points below to 0 basis
points above the 1-month LIBOR rate. (A 2-month LIBOR
rate is not published.)
3 months Within a range of 100 basis points below to 0 basis
points above the 3-month LIBOR rate.
6 months Within a range of 100 basis points below to 0 basis
points above the 6-month LIBOR rate.
12 months Within a range of 100 basis points below to 0 basis
points above the 12-month LIBOR rate.
24 months Within a range of 70 basis points below to 30 points
above the 12-month LIBOR rate. (A 24-month LIBOR rate is
not published.)
36 months Within a range of 70 basis points below to 30 points
above the 12-month LIBOR rate. (A 36-month LIBOR rate is
not published.)
For investments of $100,000 to $249,999, initial rates for specific
terms are determined as follows:
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1 month Within a range of 175 basis points below to 75 basis
points below the 1-month LIBOR rate.
2 months Within a range of 175 basis points below to 75 basis
points below the 1-month LIBOR rate. (A 2-month LIBOR
rate is not published.)
3 months Within a range of 175 basis points below to 75 basis
points below the 3-month LIBOR rate.
6 months Within a range of 175 basis points below to 75 basis
points below the 6-month LIBOR rate.
12 months Within a range of 175 basis points below to 75 basis
points below the 12-month LIBOR rate.
24 months Within a range of 145 basis points below to 45 basis
points below the 12-month LIBOR rate. (A 24-month LIBOR
rate is not published.)
36 months Within a range of 145 basis points below to 45 basis
points below the 12-month LIBOR rate. (A 36-month LIBOR
rate is not published.)
For example, if the LIBOR rate published on the date rates are
determined with respect to a 6-month deposit is 6.50%, the rate
declared on a 6-month American Express Investors Certificate
greater than $250,000 would be between 5.50% and 6.50%. If the
LIBOR rate published for a given week with respect to 12-month
certificates is 7.00%, the Issuer's rates in effect that week for
the 24- and 36-month American Express Investors Certificates
greater than $250,000 would be between 6.30% and 7.30%. When your
application is accepted, you will be sent a confirmation showing
the rate that your investment will earn for the first term.
LIBOR is the interbank-offered rates for dollar deposits at which
major commercial banks will lend for specific terms in the London
market. Generally, LIBOR rates quoted by major London banks will
be the same. However, market conditions, including movements in
the U.S. prime rate and the internal funding position of each bank,
may result in minor differences in the rates offered by different
banks. LIBOR is a generally accepted and widely quoted interest-
rate benchmark. The average LIBOR rate used by the Issuer is
published in The Wall Street Journal.
Rates for new purchases are reviewed and may change daily. The
guaranteed rate that is in effect for your chosen term on the day
your application is accepted at the Issuer's corporate office in
Minneapolis, Minnesota, U.S.A. will apply to your certificate. The
interest rates printed in the front of this prospectus may or may
not be in effect on the date your application to invest is
accepted. Rates for new purchases may vary depending on the amount
you invest, but will always be within the 100 basis point range
described above. You may obtain the current interest rates by
calling your AEBI or Coutts representative.
PAGE 14
In determining rates based on the amount of your investment, the
Issuer may offer a rate based on your aggregate investment
determined by totaling only the amounts invested in each
certificate that has a current balance exceeding a specified level.
The current balance considered in this calculation may be exclusive
of interest. Part of the balance may be required to be invested in
terms of a specified minimum length. The certificates whose
balances are aggregated must have identical ownership. The rate
may be available only for a certificate whose current balance
exceeds a specified level or that is offered through a specified
distributor or selling agent.
Interest rates for the term you have selected will not change once
the term has begun.
Rates for future terms
Interest on your certificate for future terms may be greater or
less than the rates you receive during your first term. In setting
future interest rates for subsequent terms, a primary consideration
will be the prevailing investment climate, including the LIBOR
rates. Nevertheless, the Issuer has complete discretion as to what
interest rates it will declare beyond the initial term. The Issuer
will send you notice at the end of each term of the rate your
certificate will earn for the new term. You have a 15-day grace
period to withdraw your certificate without a withdrawal charge.
If LIBOR is no longer publicly available or feasible to use, the
Issuer may use another, similar index as a guide for setting rates.
Additional Investments
You may add to your investment when your term ends. If your new
term is a one-month term, you may add to your investment on the
first day of your new term (the renewal date) or the following
business day if the renewal date is a non-business day. If your
new term is greater than one month, you may add to your investment
within the 15 days following the end of your term. A $25,000
minimum additional investment is required, payable in U.S.
currency. Your confirmation will show the applicable rate.
However, unless you receive prior approval from the Issuer, your
investment may not bring the aggregate net investment of any one or
more certificates held by you (excluding any interest added during
the life of the certificate and less withdrawals) over $5 million.
Additional investments of at least $25,000 may be made by bank
wire.
The Issuer must receive your additional investment within the 15
days following the end of a certificate's current term (unless your
new investment is a one-month term), if you wish to increase your
principal investment as of the first day of the new term. Interest
accrues from the first day of the new term or the day your
additional investment is accepted by the Issuer, whichever is
later, at the rate then in effect for your account. If your new
term is a one-month term, your additional investment must be
received by the end of the certificate's current term.
The interest rate for these additional investments is the rate then
in effect for your account. If your additional investment
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increases the principal of your certificate so that your
certificate's principal has exceeded a break point for a higher
interest rate, the certificate will earn this higher interest rate
for the remainder of the term, from the date the Issuer accepts the
additional investment.
Earning interest
At the end of each certificate month, interest is compounded and
credited to your account. A certificate month is the monthly
anniversary of the issue date. Interest may be paid to you monthly
in cash if you maintain a principal balance of at least $500,000.
The amount of interest you earn each certificate month is
determined by applying the interest rate then in effect to the
daily balance of your certificate, and subtracting from that total
the interest accrued on any amount withdrawn during the month.
Interest is calculated on a 360-day year basis. This means
interest is calculated on the basis of a 30-day month even though
terms are determined on a calendar month.
How to invest and withdraw funds
Buying your certificate
This certificate is available only to AEBI clients who are neither
citizens nor residents of the United States, and to U.S. trusts
organized under the laws of any state in the United States, so long
as the following are true:
o the trust is unconditionally revocable by the grantor or
grantors (the person or persons who put the money into the
trust);
o there are no more than 10 grantors of the trust;
o all the grantors are neither citizens nor residents of the
United States;
o each grantor provides an appropriately certified Form W-8 (or
approved substitute), as described under "Tax treatment of
your investment;"
o the trustee of the trust is a bank organized under the laws of
the United States or any state in the United States; and
o the trustee supplies IDS Certificate Company with appropriate
tax documentation.
The certificate is available through AEBI offices located in
Florida and New York, and to the limited extent as described in the
section "Selling agreements with AEBI and Coutts," through a Coutts
office located in California. An AEBI or Coutts representative
will help you prepare your purchase application. The Issuer will
process the application at our corporate offices in Minneapolis,
MN, U.S.A. When your application is accepted and we have received
your initial investment, we will send you a confirmation of your
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purchase, indicating your account number and applicable rate of
interest for your first term, as described under "Rates for new
purchases." See "Purchase policies" below.
Important: When opening an account, you must provide the Issuer
with a Form W-8 or approved substitute. See "Taxes on your
earnings."
Purchase policies:
o You have 15 days from the date of purchase to cancel your
investment without penalty by notifying your AEBI or Coutts
representative, or by writing or calling the Client Service
Organization at the address or phone number on the cover of
this prospectus. If you decide to cancel your certificate
within this 15-day period, you will not earn any interest.
o The Issuer has complete discretion to determine whether to
accept an application and sell a certificate.
Full and partial withdrawals
You may receive all or part of your money at any time. However:
o Full and partial withdrawals of principal are subject to
penalties, described below.
o Partial withdrawals during a term must be at least
$10,000. You may not make a partial withdrawal if it
would reduce your certificate balance to less than
$100,000. If you request such a withdrawal, we will
contact you for revised instructions.
o If a withdrawal reduces your account value to a point where we
pay a lower interest rate, you will earn the lower rate from
the date of the withdrawal.
o Withdrawals before the end of the certificate month will
result in loss of interest on the amount withdrawn.
You'll get the best result by timing a withdrawal at the
end of the certificate month.
o If your certificate is pledged as collateral, any withdrawal
will be delayed until we get approval from the secured party.
Penalties for early withdrawal during a term:
When you request a full or partial withdrawal, we pay the amount
you request:
o first from interest credited during the current term,
o then from the principal of your certificate.
Any additional investments or withdrawals during a term are added
to or deducted from the principal and are used in determining any
withdrawal charges.
PAGE 17
Withdrawal penalties: For withdrawals during the term of more than
the interest credited that term, a 2% withdrawal penalty will be
deducted from the account's remaining balance.
For example, assume you invest $1 million in a certificate and
select a six-month term. Four months later assume you have earned
$27,000 in interest. The following demonstrates how the withdrawal
charge is deducted:
When you withdraw a specific amount of money, the Issuer has to
withdraw somewhat more from your account to cover the withdrawal
charge. For instance, suppose you request a $100,000 check on a $1
million investment. The first $27,000 paid to you is interest
earned that term, and the remaining $73,000 paid to you is
principal. The Issuer would send you a check for $100,000 and
deduct a withdrawal charge of $1,460 (2% of $73,000) from the
remaining balance of your certificate. Your new balance would be
$925,540.
Total investments $1,000,000
Interest credited $ 27,000
Total balance $1,027,000
Requested check $100,000
Credited interest withdrawn ( 27,000)
Withdrawal charge percent 2%
Actual withdrawal charge $1,460
Balance prior to withdrawal $1,027,000
Requested withdrawal check ($100,000)
Withdrawal charge ($1,460)
Total balance after withdrawal $925,540
Additionally, if you make a withdrawal during a certificate month,
you will not earn interest for the month on the amount withdrawn.
For more information on withdrawal charges, talk with your AEBI or
Coutts representative.
When your certificate term ends
Shortly before the end of the term you have selected for your
certificate, the Issuer will send you a notice indicating the
interest rate that will apply to the certificate for the new term.
When your certificate term ends, the Issuer will automatically
renew your certificate for the same term unless you notify your
AEBI or Coutts representative otherwise. If you wish to select a
different term, you must notify your representative in writing
before the end of the grace period. You will not be allowed to
select a term that would carry the certificate past its maturity
date.
The interest rates that will apply to your new term will be those
in effect on the day the new term begins. We will send you a
PAGE 18
confirmation showing the rate of interest that will apply to the
new term you have selected. This rate of interest will not be
changed during that term.
If you want to withdraw your certificate without a withdrawal
charge, you must notify us within 15 calendar days following the
end of a term.
For most terms, you may also add to your investment within the 15
calendar days following the end of your term. See "Additional
investments" under "About the Certificate."
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate
recently purchased or added to by a check or money order that
is not guaranteed, we will wait for your check to clear.
Please expect a minimum of 10 days from the date of your
payment before IDSC mails a check to you. A check may be
mailed earlier if your bank provides evidence that your check
has cleared.
o If your certificate is pledged as collateral, any withdrawal
will be delayed until we get approval from the secured party.
o Any payments to you may be delayed under applicable rules,
regulations or orders of the SEC.
Transferring certificate ownership
While this instrument is not a negotiable instrument, it may be
transferred or assigned on the Issuer's records if proper written
notice is received by the Issuer. Ownership may be assigned or
transferred to individuals or an entity who, for U.S. tax purposes,
is considered to be neither a citizen nor resident of the United
States. You may also pledge the certificate to AEBI or another
American Express Company affiliate or to Coutts as collateral
security. Your AEBI or Coutts representative can help you transfer
ownership.
Giving instructions and written notification
Your AEBI or Coutts representative will be happy to handle
instructions concerning your account. Written instructions may be
provided to either your representative's office or directly to the
Issuer.
Proper written notice to your AEBI or Coutts representative or the
Issuer must:
o be addressed to your AEBI or Coutts office or the Issuer's
corporate office, in which case it must identify your AEBI or
Coutts office,
PAGE 19
o include your account number and sufficient information for the
Issuer to carry out your request, and
o be signed and dated by all registered owners.
The Issuer will acknowledge your written instructions. If your
instructions are incomplete or unclear, you will be contacted for
revised instructions.
In the absence of any other written mandate or instructions you
have provided to AEBI or Coutts, you may elect in writing, on your
initial or any subsequent purchase application, to authorize AEBI
or Coutts to act upon the sole verbal instructions of any one of
the named owners, and in turn to instruct the Issuer with regard to
any and all actions in connection with the certificate referenced
in the application as it may be modified from time to time by term
changes, renewals, additions or withdrawals. The individual
providing verbal instructions must be a named owner of the
certificate involved. In providing such authorization you agree
that the Issuer, its transfer agent, AEBI and Coutts will not be
liable for any loss, liability, cost or expense arising in
connection with implementing such instructions, reasonably believed
by the Issuer, AEBI or Coutts, or their representatives, to be
genuine. You may revoke such authority at any time by providing
proper written notice to your AEBI or Coutts office.
All amounts payable to or by the Issuer in connection with this
certificate are payable at the Issuer's corporate office unless you
are advised otherwise.
Purchases By Bank Wire
You may wish to lock in a specific interest rate by using a bank
wire to purchase a certificate. Your representative can instruct
you about how to use this procedure. Using this procedure will
allow you to start earning interest at the earliest possible time.
The minimum that may be wired to purchase a new certificate is
$100,000.
Wire orders will be accepted only in U.S. currency and only on days
your bank, the Issuer and Norwest Bank Minneapolis are open for
business. The payment must be received by the Issuer before 12
noon Central U.S.A. time to be credited that day. Otherwise, it
will be processed the next business day. The wire purchase will
not be made until the wired amount is received and the purchase is
accepted by the Issuer. Wire transfers not originating from AEBI
and Coutts are accepted by IDSC's corporate office only from banks
located in the United States of America. Any delays that may occur
in wiring the funds, including delays in processing by the banks,
are not the responsibility of the Issuer. Wire orders may be
rejected if they do not contain complete information.
While the Issuer does not charge a service fee for incoming wires,
you must pay any charge assessed by your bank for the wire service.
If a wire order is rejected, all money received will be returned
promptly less any costs incurred in rejecting it.
PAGE 20
Tax treatment of your investment
Interest paid on your certificate is "portfolio interest" as
defined in U.S. Internal Revenue Code Section 871(h) if earned by a
nonresident alien who has supplied the Issuer with Form W-8,
Certificate of Foreign Status. Form W-8 must be supplied with both
a current mailing address and an address of foreign residency, if
different. The Issuer will not accept purchases of certificates by
nonresident aliens without an appropriately certified Form W-8 (or
approved substitute). The Form W-8 must be resupplied every three
calendar years. If you have supplied a Form W-8 that certifies
that you are a nonresident alien, the interest income will be
reported at year end to you and to the U.S. Government on a Form
1042S, Foreign Person's U.S. Source Income Subject to Withholding.
We are required to attach your Form W-8 to the forms sent to the
Internal Revenue Service (IRS). Your interest income will be
reported to the IRS even though it is not taxed by the U.S.
Government. The United States participates in various tax treaties
with foreign countries. Those treaties provide that tax
information may be shared upon request between the United States
and such foreign governments.
Withholding taxes
If you fail to provide a Form W-8 as required above, you will be
subject to backup withholding on interest payments and surrenders.
Estate tax
In the event of the death of a nonresident alien who owns a
certificate, 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 in a form
satisfactory to the Issuer, from persons that it reasonably
believes are knowledgeable about and responsible for the deceased
person's estate. The statement must inform the Issuer that, on the
date of death, the estate did not include any property in the
United States for U.S. estate tax purposes. In other cases, the
Issuer generally will not act on instructions with regard to the
certificate unless the Issuer first receives 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
the certificate to satisfy estate taxes.
Trusts
If the investor is a trust described in "Buying your certificate"
under "How to invest and withdraw funds," the policies and
procedures described above will apply with regard to each grantor.
PAGE 21
How your money is used and protected
Invested and guaranteed by the Issuer
IDS Certificate Company, an American Express company, issues the
American Express Investors Certificate. The Issuer is by far the
largest issuer of face amount certificates in the United States,
with total assets of more than $3.9 billion and a net worth in
excess of $250 million on Dec. 31, 1995.
We back your certificates by investing the money received and
keeping the invested assets on deposit. Our investments generate
interest and dividends, out of which we pay:
o interest to certificate owners, and
o various expenses, including taxes, fees to AEFC for advisory
and other services and distribution fees to American Express
Financial Advisors Inc.
For a review of significant events relating to our business, see
"Management's discussion and analysis of financial condition and
results of operations." Our certificates are not rated by a
national rating agency.
Most banks and thrifts offer investments known as certificates of
deposit (CDs) that are similar to our certificates in many ways.
Early withdrawals of bank CDs often result in penalties. Banks and
thrifts generally have federal deposit insurance for their deposits
and lend much of the money you deposit to individuals, businesses
and other enterprises. Other financial institutions may offer
investments with comparable combinations of safety and return on
investment.
Regulated by government
Because the American Express Investors Certificate is a security,
its offer and sale are subject to regulation under United States
federal and state securities laws. (It is a face-amount
certificate--not a bank product, an equity investment, a form of
life insurance or an investment trust.)
The federal Investment Company Act of 1940 requires us to keep
investments on deposit in a segregated custodial account to protect
all of our outstanding certificates. These investments back the
entire value of your certificate account. Their amortized cost
must exceed the required carrying value of the outstanding
certificates by at least $250,000. As of Dec. 31, 1995, the
amortized cost of these investments exceeded the required carrying
value of our outstanding certificates by more than $129 million.
Backed by our investments
The Issuer's investments are varied and of high quality. This was
the composition of our portfolio as of Dec. 31, 1995.
PAGE 22
Type of investment Net amount invested
Government agency bonds 38%
Corporate and other bonds 34%
Preferred stocks 17%
Mortgages 6%
Municipal bonds 3%
Cash and cash equivalents 2%
More than 96% of the Issuer's securities portfolio (bonds and
preferred stocks) are rated investment grade. For additional
information regarding securities ratings, please refer to Note 3B
in the financial statements.
Most of the Issuer's investments are on deposit with American
Express Trust Company, Minneapolis, although the Issuer also
maintains separate deposits as required by certain states.
American Express Trust Company is a wholly owned subsidiary of
American Express Financial Corporation (AEFC). Copies of the
Issuer's Dec. 31, 1995 schedule of Investments in Securities of
Unaffiliated Issuers are available upon request. For comments
regarding the valuation, carrying values and unrealized
appreciation (depreciation) of investment securities, see Notes 1,
2 and 3 to the financial statements.
Investment policies
In deciding how to diversify the portfolio--among what types of
investments in what amounts--the officers and directors of the
Issuer use their best judgment, subject to applicable law. The
following policies currently govern our investment decisions:
Purchasing securities on margin-
The Issuer will not purchase any securities on margin or
participate on a joint basis or a joint-and-several basis in any
trading account in securities.
Commodities-
The Issuer has not and does not intend to purchase or sell
commodities or commodity contracts.
Underwriting-
The Issuer does not intend to engage in the public distribution of
securities issued by others. However, if the Issuer purchases
unregistered securities and later resells them, the Issuer may be
considered an underwriter under federal securities laws.
Borrowing money-
From time to time the Issuer has established a line of credit if
management believed borrowing was necessary or desirable. While a
line of credit does not currently exist, it may be established
again in the future. The Issuer may pledge some of its assets as
security. The Issuer may occasionally use repurchase agreements as
a way to borrow money. Under these agreements, the Issuer sells
debt securities to its lender, and repurchases them at the sales
price plus an agreed-upon interest rate within a specified period
of time.
PAGE 23
Real estate-
The Issuer may invest directly in real estate, though we have not
generally done so in the past. The Issuer does invest in mortgage
loans.
Lending securities-
The Issuer may lend some of its securities to broker-dealers and
receive cash equal to the market value of the securities as
collateral. The Issuer invests this cash in short-term securities.
If the market value of the securities goes up, the borrower pays
the Issuer additional cash. During the course of the loan, the
borrower makes cash payments to the Issuer equal to all interest,
dividends and other distributions paid on the loaned securities.
The Issuer will try to vote these securities if a major event
affecting the investment is under consideration.
When-issued securities-
Most of the Issuer's investments are in debt securities, some of
which are purchased on a when-issued basis. It may take as long as
45 days or more before these securities are issued and delivered to
the Issuer. The Issuer generally does not pay for these securities
or start earning on them until delivery. The Issuer has
established procedures to ensure that sufficient cash is available
to meet when-issued commitments. When-issued securities are
subject to market fluctuations and they may affect IDSC's
investment portfolio the same as owned securities.
Financial transactions-
The Issuer buys or sells various types of options contracts for
hedging purposes or as a trading technique to facilitate securities
purchases or sales. The Issuer buys interest rate caps for hedging
purposes. These pay a return if interest rates rise above a
specified level. 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. 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.
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% illiquid securities
limit, IDSC will use statutory accounting under an SEC order. This
PAGE 24
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.
How your money is managed
Relationship between the Issuer and American Express Financial
Corporation
The Issuer was originally organized as Investors Syndicate of
America, Inc., a Minnesota corporation, on Oct. 15, 1940, and began
business as an issuer of face amount investment certificates on
Jan. 1, 1941. The company became a Delaware corporation on Dec.
31, 1977, and changed its name to IDS Certificate Company (IDSC) on
April 2, 1984.
Before the Issuer was created, AEFC (formerly known as IDS
Financial Corporation), our parent company and organizer, had
issued similar certificates since 1894. As of Jan. 1, 1995, IDS
Financial Corporation changed its name to 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 in investments in mortgages and securities. As of Dec. 31,
1995, AEFC managed investments, including its own, of more than
$129 billion. American Express Financial Advisors Inc. provides a
broad range of financial planning services for individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,800 financial advisors. American Express Financial
Advisors Inc. financial planning services are comprehensive,
beginning with a detailed written analysis that's tailored to your
needs. Your analysis may address one or all of these six essential
areas: financial position, protection planning, investment
planning, income tax planning, retirement planning and estate
planning.
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 business including:
o travel related services (including American Express Card(R)
and Travelers Cheque operations through American Express
Travel Related Services Company, Inc. and its subsidiaries),
and
o international banking services (through American Express Bank
Ltd. and its subsidiaries).
American Express Financial Advisors Inc. is not a bank, and the
securities offered by it, such as face amount certificates issued
PAGE 25
by IDSC, are not backed or guaranteed by any bank, nor are they
insured by the FDIC.
Capital structure and certificates issued
The Issuer has authorized, issued and has outstanding 150,000
shares of common stock, par value of $10 per share. AEFC owns all
of the outstanding shares.
As of Dec. 31, 1995, the Issuer had issued (in face amount)
$13,074,792,382 of installment certificates and $14,769,642,620 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. The Issuer's agreement with AEFC
requires annual renewal by the Issuer's board, including a majority
of directors who are not interested persons of AEFC or IDSC as
defined in the federal Investment Company Act of 1940.
For its services, the Issuer pays 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 a
service fee.
Advisory and services fees for past three years:
Percentage of
Year Total fees included assets
1995 $16,472,458 0.50%
1994 $13,565,432 0.51
1993 $15,036,091 0.50
PAGE 26
Estimated advisory and services fees for 1996 are $19,152,000.
Other expenses payable by the Issuer:
The Investment Advisory and Services Agreement provides that the
issuer will pay:
o costs incurred in connection with real estate and mortgages,
o taxes,
o depository and custodian fees,
o brokerage commissions,
o fees and expenses for services not covered by other agreements
and provided to us at the Issuer's request, or by requirement,
by attorneys, auditors, examiners and professional consultants
who are not officers or employees of AEFC,
o fees and expenses of the Issuer's directors who are not
officers or employees of American Express Financial
Corporation,
o provision for certificate reserves (interest accrued on
certificate owner account), and
o expenses of customer settlements not attributable to sales
function.
Distribution
Under a Distribution Agreement with American Express Financial
Advisors Inc., the Issuer pays an annualized fee equal to 1% of the
amount outstanding for the distribution of this certificate.
Payments are made at the end of each term on certificates with a
1-, 2- or 3-month term. Payments are made each quarter from
issuance date on certificates with a 6-, 12-,24- or 36-month term.
Total distribution fees paid to American Express Financial Advisors
Inc. for all series of certificates amounted to $35,120,612 during
the year ended Dec. 31, 1995. The Issuer expects to pay American
Express Financial Advisors Inc. distribution fees amounting to
$39,384,000 during 1996.
See Note 1 to financial statements regarding deferral of
distribution fee expense.
American Express Financial Advisors Inc. pays commissions to its
financial advisors and pays other selling expenses in connection
with services to the Issuer. The Issuer's board of directors,
including a majority of directors who are not interested persons of
AEFC or IDSC, approved this distribution agreement.
Selling agreements with AEBI and Coutts
In turn, under Selling Agent Agreements with AEBI and Coutts,
American Express Financial Advisors compensates each for their
services as Selling Agents of this certificate as follows:
AEBI is paid an annualized fee ranging from 0.50% to 1.25% of the
reserve balance of each certificate, depending on the amount
PAGE 27
outstanding for each such certificate, with this exception: The
fee will be 0.30% of the reserve balance of each certificate with
an amount outstanding of $5 million or more when:
o the aggregate reserve balance for that certificate, and any
other certificate with identical ownership and an amount
outstanding of $5 million or more, is at least $20 million,
and
o at least $5 million of this aggregate reserve balance is
invested for a term of 12 months or longer.
Coutts is paid an annualized fee ranging from 0.425% to 0.68% of
the reserve balance of each certificate owned by a client who is a
former client of AEBI, depending on the amount outstanding for each
certificate. These clients must have continuously owned a
certificate since Nov. 10, 1994. Coutts is also compensated on
additional investments and exchanges made by such clients to other
certificates only to the extent that clients have the right to make
additional investments or exchanges.
American Express Financial Advisors has entered into a consulting
agreement with AEBI under which AEBI provides consulting services
related to any selling agent agreements between American Express
Financial Advisors and other Edge Act corporations. For these
services, American Express Financial Advisors pays AEBI a fee for
this certificate ranging from 0.075% to 0.12% of the reserve
balance of each certificate, depending on the amount outstanding
for each certificate for which another Edge Act corporation is the
selling agent.
Such payments will be made periodically in arrears.
These fees are not assessed to your certificate account.
Employment of other American Express affiliates
AEFC may employ affiliates of American Express Company as executing
broker for the Issuer's portfolio transactions only if:
o it is determined that the prices and executions are at least
as favorable as those offered by qualified independent brokers
performing similar services;
o the affiliate charges commissions consistent with those
charged to comparable unaffiliated customers for similar
transactions; and
o the affiliate's employment is consistent with the terms of the
current Investment Advisory and Services Agreement and federal
securities laws.
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.
PAGE 28
The Issuer paid a total of $40,000 during 1995 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 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.
Edward Landes
Born in 1919. Director since 1984.
Development consultant. Director of Endowment Development, YMCA of
Metropolitan Minneapolis. 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 1970. Retired
1987.
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.
PAGE 29
Harrison Randolph
Born in 1916. Director since 1968.
Consultant.
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
1994. 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.
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.
PAGE 30
Bruce A. Kohn
Born in 1951. Vice president and general counsel since 1993.
Counsel to AEFC since 1992. 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 the Issuer's financial
statements at the close of each fiscal year (Dec. 31st). Copies of
the annual financial statements (audited) and semiannual financial
statements (unaudited) are available to any certificate owner upon
request.
Ernst & Young LLP, Minneapolis, has audited the financial
statements for each of the years in the three-year period ended
December 31, 1995. These statements are included in this
prospectus. Ernst & Young LLP is also the auditor for American
Express Company.
PAGE 31
About AEBI
AEBI is an Edge Act corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act. It is a wholly owned
subsidiary of American Express Bank Ltd. (AEBL). As an Edge Act
corporation, AEBI is subject to the provisions of Section 25(a) of
the Federal Reserve Act and Regulation K of the Board of Governors
of the Federal Reserve System (the Federal Reserve). It is
supervised and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that
is serviced by a marketing staff in New York and Florida. The
banking and financial products offered by AEBI include checking,
money market and time deposits, credit services, check collection
services, foreign exchange, funds transfer, investment advisory
services and securities brokerage services. As of Dec. 31, 1995,
AEBI had total assets of $369 million and total equity of $144
million.
Coutts is an Edge Act corporation organized under the provisions of
Section 25(a) of the Federal Reserve Act. It is an indirect wholly
owned subsidiary of NatWest PLC. As an Edge Act corporation,
Coutts is subject to the provisions of Section 25(a) of the Federal
Reserve Act and Regulation K of the Board of Governors of the
Federal Reserve System (the Federal Reserve). It is supervised and
regulated by the Federal Reserve.
Although AEBI and Coutts are banking entities, the American Express
Investors Certificate is not a bank product, nor is it backed or
guaranteed by AEBI or Coutts, by AEBL, by NatWest PLC or by any
other bank, nor is it guaranteed or insured by the FDIC or any
other federal agency. AEBI is registered where necessary as a
securities broker-dealer.
About American Express Company
American Express Company is a financial services company
principally engaged through subsidiaries in the following
businesses in addition to AEFC:
o travel related services (including American Express(R) Card
and Travelers Cheque operations through American Express
Travel Related Services Company, Inc. and its subsidiaries),
o investment and asset management services,
o international banking services (through American Express Bank
Ltd. and its subsidiaries).
American Express Company's executive offices are located at
American Express Tower, World Financial Center, New York, NY 10285.
PAGE 32
Additional information about American Express Investors Certificate
Issuer:
IDS Certificate Company
Executive Offices
IDS Tower 10
Minneapolis, MN 55440-0010
Independent Auditors:
Ernst and Young LLP
1400 Pillsbury Center
Minneapolis, MN 55402
Central Depository:
American Express Trust Company
1200 Northstar Center West
Minneapolis, MN 55402
Investment Manager:
American Express Financial Corporation Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Distributor:
American Express Financial Advisors Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
Selling Agents:
American Express Bank International
American Express Tower
World Financial Center
New York, NY 10285-2300
Coutts & Co (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210-4539
PAGE 33
(Outside 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) 350-7750
Selling agent
Coutts & Co. (USA) International
421 North Rodeo Drive
Penthouse 1
Beverly Hills, CA 90210
(310) 858-2924
American Express Investors Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
Distributed by American Express Financial Advisors Inc.
PAGE 34
Summary of selected financial information
The following selected financial information has been derived from
the audited financial statements and should be read in conjunction
with those statements and the related notes to financial
statements. Also see Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
comments.
Year Ended Dec. 31, 1995 1994 1993 1992 1991
($ thousands)
Statement of Operations Data:
Investment income $256,913 $207,975 $236,859 $294,799 $351,970
Investment expenses 62,817 58,690 65,404 69,630 63,353
Net investment income before provision for
certificate reserves and income tax benefit 194,096 149,285 171,455 225,169 288,617
Net provision for certificate reserves 176,407 107,288 123,516 178,175 258,443
Net investment income before income taxes 17,689 41,997 47,939 46,994 30,174
Income tax benefit 9,097 2,663 3,365 11,666 20,537
Net investment income 26,786 44,660 51,304 58,660 50,711
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers 452 (7,514) (9,870) (9,498) (129)
Other - unaffiliated (120) 1,638 (418) (500) (1,053)
Total gain (loss) on investments 332 (5,876) (10,288) (9,998) (1,182)
Income tax benefit (expense) (117) 2,047 4,617 - 402
Net realized gain (loss) on investments 215 (3,829) (5,671) (9,998) (780)
Net income - wholly owned subsidiary 373 241 120 3 139
Net income $27,374 $41,072 $45,753 $48,665 $50,070
Dividends declared:
Cash $- $40,200 $64,500 $83,750 $74,800
In-kind(a) - - - 64,558 25,466
Balance Sheet Data:
Total assets $3,912,131 $3,040,857 $2,951,405 $3,444,985 $3,971,583
Certificate loans 51,147 58,203 67,429 77,347 88,570
Certificate reserves 3,628,574 2,887,405 2,777,451 3,256,472 3,712,570
Stockholder's equity 250,307 141,852 161,138 179,885 223,820
IDS Certificate Company (IDSC) is 100% owned by American Express Financial Corporation (Parent).
(a) Consisted of an investment security at amortized cost in 1992 and a reduction in the note receivable from
Parent in 1991.
/TABLE
PAGE 35
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 holder accounts and also, the mix of fully taxable
and tax-advantaged investments in the IDSC portfolio.
During the years 1992 and 1993, total assets and certificate
reserve liabilities decreased due to certificate maturities and
surrenders exceeding certificate sales. The excess of certificate
maturities and surrenders over certificate sales in 1992 and 1993
primarily reflected lower accrual rates declared by IDSC in those
years, which in turn, reflected lower interest rates available in
the marketplace.
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.
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. The
lower amortization of interest rate caps reflects the net of $1.7
million of accelerated amortization and $5.6 million higher
interest earned under the cap agreements.
Net provision for certificate reserves increased 65% reflecting a
higher average balance of certificate reserves and higher accrual
rates.
PAGE 36
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.
1994 Compared to 1993:
Gross investment income decreased 12% due primarily to a lower
average balance of invested assets and slightly lower investment
yields.
The 10% decrease in investment expenses resulted primarily from
lower amortization of the cost of interest rate caps and $2.3
million of interest earned under the cap agreements in 1994. Lower
amortization of deferred distribution fees, and lower investment
advisory and services fees due to a lower average asset base on
which the fee is calculated contributed also to the decrease in
investment expenses.
Net provision for certificate reserves decreased 13% reflecting
lower accrual rates during the first six months of the year and a
lower average balance of certificate reserves.
The decrease in income tax benefit resulted primarily from lower
tax-advantaged income.
Liquidity and cash flow:
IDSC's principal sources of cash are reserve payments from sales of
face-amount certificates and cash flows from investments. In turn,
IDSC's principal uses of cash are payments to certificate holders
for matured and surrendered certificates, purchase of investments
and payments of dividends to its Parent.
Certificate sales volume increased 38% in 1995, reflecting higher
accrual rates and clients' ongoing desire for safety of principal.
Sales of certificates totaled $1.5 billion compared to $1.1
billion in 1994 and $.6 billion during 1993. Certificate sales in
1995 benefitted also from a special introductory promotion of
IDSC's 11-month term Flexible Savings certificate.
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 and
totaled $562 million.
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.
PAGE 37
IDSC's investment program is designed to maintain an investment
portfolio that will produce the highest possible after-tax yield
within acceptable risk standards with additional emphasis on
liquidity. The program considers investment securities as
investments acquired to meet anticipated certificate holder
obligations.
Effective Jan.1, 1994, IDSC adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under the SFAS No.
115, debt securities that IDSC has both the positive intent and
ability to hold to maturity are carried at amortized cost. Debt
securities IDSC does not have the positive intent to hold to
maturity, as well as all marketable equity securities, are
classified as available for sale and carried at fair value. The
available-for-sale classification does not mean that IDSC expects
to sell these securities, but that under SFAS No. 115 positive
intent criteria, these securities are available to meet possible
liquidity needs should there be significant changes in market
interest rates or certificate holder demand. See notes 1 and 3 to
the financial statements for additional information relating to
SFAS No. 115.
At Dec. 31, 1995, securities classified as held to maturity and
carried at amortized cost were $1.0 billion. Securities
classified as available for sale and carried at fair value were
$2.4 billion. These securities, which comprise 90% of IDSC's total
invested assets, are well diversified. Of these securities, 97%
are of investment grade and, other than U.S. Government Agency
mortgage-backed securities, no one issuer represents more than 1%
of these securities. See note 3 to financial statements for
additional information on ratings and diversification.
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 1995 and 1994.
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.
PAGE 38
Capital contributions:
To maintain its regulatory capital requirements, IDSC received a
capital contribution from its Parent of $28.5 million in 1995.
Ratios:
The ratio of stockholder's equity, excluding net unrealized holding
gains and losses on investment securities, to total assets less
certificate loans and net unrealized holding gains and losses on
investment securities at Dec. 31, 1995 was 5.79% compared to 5.49%
in 1994. IDSC intends to manage this ratio to 5.0% in 1996, which
meets current regulatory requirements.
PAGE 39
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, 1995 and 1994, and the related
statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1995.
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, 1995 and 1994 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, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, 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 8, 1996
PAGE 40
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 41
Balance Sheets, Dec. 31,
Assets
Qualified Assets (note 2) 1995 1994
($ thousands)
Investments in unaffiliated issuers (notes 3, 4 and 10):
Cash and cash equivalents $56,873 $140,128
Held-to-maturity securities 1,002,905 1,245,793
Available-for-sale securities 2,408,491 1,226,674
First mortgage loans on real estate 233,394 253,968
Certificate loans - secured by certificate reserves 51,147 58,203
Investments in and advances to affiliates 5,655 5,399
Total investments 3,758,465 2,930,165
Receivables:
Dividends and interest 49,632 42,261
Investment securities sold 42,872 7,269
Total receivables 92,504 49,530
Other (notes 9 and 10) 32,778 25,094
Total qualified assets 3,883,747 3,004,789
Other Assets
Deferred distribution fees 28,286 27,142
Deferred federal income taxes (note 8) - 8,372
Other 98 554
Total other assets 28,384 36,068
Total assets $3,912,131 $3,040,857
See notes to financial statements.
PAGE 42
Balance Sheets, Dec. 31,
Liabilities and Stockholder's Equity
Liabilities 1995 1994
($ thousands)
Certificate Reserves (notes 5 and 10):
Installment certificates:
Reserves to mature $330,415 $335,712
Additional credits and accrued interest 21,555 19,698
Advance payments and accrued interest 1,394 1,634
Other 55 56
Fully paid certificates:
Reserves to mature 3,127,301 2,389,198
Additional credits and accrued interest 147,468 140,766
Due to unlocated certificate holders 386 341
Total certificate reserves 3,628,574 2,887,405
Accounts Payable and Accrued Liabilities:
Due to Parent (note 7A) 1,541 1,186
Due to Parent for federal income taxes 103 -
Due to affiliates (note 7B and 7C) 2,068 2,883
Payable for investment securities purchased - 1,362
Accounts payable, accrued expenses and other (notes 9 and 10) 12,249 6,169
Total accounts payable and accrued liabilities 15,961 11,600
Deferred federal income taxes (note 8) 17,289 -
Total liabilities 3,661,824 2,899,005
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 168,844 140,344
Retained earnings:
Appropriated for predeclared additional credits/interest 18,878 18,398
Appropriated for additional interest on advance payments 50 50
Unappropriated 31,612 4,718
Unrealized holding gains (losses) on investment
securities - net (note 3A) 29,423 (23,158)
Total stockholder's equity 250,307 141,852
Total liabilities and stockholder's equity $3,912,131 $3,040,857
See notes to financial statements.
/TABLE
PAGE 43
Statements of Operations
Year ended Dec. 31, 1995 1994 1993
($ thousands)
Investment Income:
Interest income from investments:
Bonds and notes:
Unaffiliated issuers $181,902 $125,546 $140,991
Mortgage loans on real estate:
Unaffiliated 22,171 24,006 24,071
Affiliated 56 68 78
Certificate loans 2,963 3,342 3,882
Dividends 48,614 54,170 67,115
Other 1,207 843 722
Total investment income 256,913 207,975 236,859
Investment Expenses:
Parent and affiliated company fees (note 7):
Distribution 33,977 27,007 28,477
Investment advisory and services 16,472 13,565 15,036
Depositary 242 183 201
Options (note 9) 8,038 9,854 9,419
Interest rate caps (note 9) 3,725 7,608 11,667
Other 363 473 604
Total investment expenses 62,817 58,690 65,404
Net investment income before provision
for certificate reserves and income tax benefit $194,096 $149,285 $171,455
See notes to financial statements.
PAGE 44
Statements of Operations (continued)
Year ended Dec. 31, 1995 1994 1993
($ thousands)
Provision for Certificate Reserves (notes 5 and 9):
According to the terms of the certificates:
Provision for certificate reserves $11,009 $13,317 $20,555
Interest on additional credits 2,300 3,174 3,605
Interest on advance payments 73 61 90
Additional credits/interest authorized by IDSC:
On fully paid certificates 157,857 85,101 93,546
On installment certificates 6,288 6,741 6,704
Total provision before reserve recoveries 177,527 108,394 124,500
Reserve recoveries from terminations
prior to maturity (1,120) (1,106) (984)
Net provision for certificate reserves 176,407 107,288 123,516
Net investment income before income tax benefit 17,689 41,997 47,939
Income tax benefit (note 8) 9,097 2,663 3,365
Net investment income 26,786 44,660 51,304
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers 452 (7,514) (9,870)
Other-unaffiliated (120) 1,638 (418)
Total gain (loss) on investments 332 (5,876) (10,288)
Income tax benefit (expense) (note 8):
Current 160 2,414 19,508
Deferred (277) (367) (14,891)
Total income tax benefit (expense) (117) 2,047 4,617
Net realized gain (loss) on investments 215 (3,829) (5,671)
Net income - wholly owned subsidiary 373 241 120
Net income $27,374 $41,072 $45,753
See notes to financial statements.
PAGE 45
Statements of Stockholder's Equity
Year ended Dec. 31, 1995 1994 1993
($ 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 $140,344 $147,144 $166,144
Contribution from Parent 28,500 3,000 -
Cash dividends declared - (9,800) (19,000)
Balance at end of year $168,844 $140,344 $147,144
Retained Earnings:
Appropriated for predeclared additional credits/interest (note 5B):
Balance at beginning of year $18,398 $2,726 $2,804
Transferred from (to) unappropriated retained earnings 480 15,672 (78)
Balance at end of year $18,878 $18,398 $2,726
Appropriated for additional interest on advance payments (note 5C):
Balance at beginning of year $50 $25 $100
Transferred from (to) unappropriated retained earnings - 25 (75)
Balance at end of year $50 $50 $25
Unappropriated (note 6):
Balance at beginning of year $4,718 $9,743 $9,337
Net income 27,374 41,072 45,753
Transferred (to) from appropriated retained earnings (480) (15,697) 153
Cash dividends declared - (30,400) (45,500)
Balance at end of year $31,612 $4,718 $9,743
Unrealized holding gains and losses on investment securities -
net (notes 1 and 3A):
Balance at beginning of year ($23,158) $- $-
Adjustment due to initial application of SFAS 115 - 8,827 -
Change during year 52,581 (31,985) -
Balance at end of year $29,423 ($23,158) $-
Total stockholder's equity $250,307 $141,852 $161,138
See notes to financial statements.
PAGE 46
Statements of Cash Flows
Year ended Dec. 31, 1995 1994 1993
($ thousands)
Cash flows from operating activities:
Net income $27,374 $41,072 $45,753
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (373) (241) (120)
Certificate reserves 176,407 107,288 123,516
Interest income added to certificate loans (1,902) (2,133) (2,454)
Amortization of premium/discount-net 19,232 22,114 27,494
Deferred federal income taxes (2,652) 4,263 11,446
Deferred distribution fees (1,144) (7,527) 1,935
Net (gain) loss on investments (332) 5,876 10,288
(Increase) decrease in dividends and interest receivable (7,371) (1,829) 10,009
(Increase) decrease in other assets 466 (466) 967
Increase (decrease) in other liabilities (1,549) (3,210) 4,979
Net cash provided by operating activities 208,156 165,207 233,813
Cash flows from investing activities:
Maturity and redemption of investments:
Held-to-maturity securities 315,766 350,411 641,778
Available-for-sale securities 325,521 173,547 -
Other investments 46,004 35,130 21,373
Sale of investments:
Held-to-maturity securities 22,305 3,164 329,942
Available-for-sale securities 48,372 267,808 -
Other investments 21 - 5,454
Certificate loan payments 6,061 7,508 8,991
Purchase of investments:
Held-to-maturity securities (208,140) (46,080) (498,841)
Available-for-sale securities (1,397,983) (830,826) -
Other investments (17,234) (9,208) (78,816)
Certificate loan fundings (7,776) (7,603) (10,275)
Investment in subsidiary - (450) (2,000)
Net cash (used in) provided by investing activities ($867,083) ($56,599) $417,606
See notes to financial statements.
PAGE 47
Statements of Cash Flows (continued)
Year ended Dec. 31, 1995 1994 1993
($ thousands)
Cash flows from financing activities:
Reserve payments by certificate holders $1,577,884 $1,185,762 $709,684
Proceeds from securities loaned to brokers - - 6,150
Proceeds from reverse repurchase agreements - - 72,800
Capital contribution from Parent 28,500 3,000 -
Certificate maturities and cash surrenders (1,030,712) (1,171,101) (1,312,260)
Payments to brokers upon return of securities loaned - - (7,793)
Payments under reverse repurchase agreements - - (72,800)
Dividends paid - (40,200) (64,500)
Net cash provided by (used in) financing activities 575,672 (22,539) (668,719)
Net increase (decrease) in cash and cash equivalents (83,255) 86,069 (17,300)
Cash and cash equivalents beginning of year 140,128 54,059 71,359
Cash and cash equivalents end of year $56,873 $140,128 $54,059
Supplemental disclosures including non-cash transactions:
Cash received for income taxes $6,854 $2,416 $26,606
Certificate maturities and surrenders through loan
reductions 10,673 11,454 13,656
See notes to financial statements.
PAGE 48
Notes to Financial Statements ($ 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 eight 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 two 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 49
Fair values of financial instruments
The fair values of financial instruments disclosed in the notes to
financial statements are estimates based upon current market
conditions and perceived risks, and require varying degrees of
management judgment.
Preferred stock dividend income
IDSC recognizes dividend income from cumulative redeemable
preferred stocks with fixed maturity amounts on an accrual basis
similar to that used for recognizing interest income on debt
securities.
Securities
Cash equivalents are carried at amortized cost, which approximates
fair value. IDSC has defined cash and cash equivalents as cash in
banks and highly liquid investments with a maturity of three months
or less at acquisition and are not interest rate sensitive.
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 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.
Certificates
Investment certificates may be purchased either with a lump-sum
payment or by installment payments. Certificate holders are
entitled to receive at maturity a definite sum of money. Payments
from certificate holders are credited to investment certificate
reserves. Investment certificate reserves accumulate at specified
percentage rates. Reserves also are maintained for advance
payments made by certificate holders, accrued interest thereon, and
for additional credits and accrued interest thereon. On
certificates allowing for the deduction of a surrender charge, the
cash surrender values may be less than accumulated investment
certificate reserves prior to maturity dates. Cash surrender
values on certificates allowing for no surrender charge are equal
PAGE 50
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 are charged against income.
Federal income taxes
IDSC's taxable income or loss is included in the consolidated
federal income tax return of American Express Company. IDSC
provides for income taxes on a separate return basis, except that,
under an agreement between Parent and American Express Company, tax
benefits are recognized for losses to the extent they can be used
in the consolidated return. It is the policy of Parent and its
subsidiaries that Parent will reimburse a subsidiary for any tax
benefits recorded.
2. Deposit of assets and maintenance of qualified assets
A) Under the provisions of its certificates and the 1940 Act, IDSC
was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $3,619,188 and
$2,895,226 at Dec. 31, 1995 and 1994, respectively. IDSC had
qualified assets of $3,838,482 at Dec. 31, 1995 and $3,040,416 at
Dec. 31, 1994, excluding net unrealized appreciation on
available-for-sale securities of $45,265 at Dec. 31, 1995 and net
unrealized depreciation of $35,627 at Dec. 31, 1994.
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:
PAGE 51
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
Dec. 31, 1994
Required
Deposits deposits Excess
Deposits to meet certificate
liability requirements:
States $417 $388 $29
Central Depositary 2,939,538 2,817,716 121,822
Total $2,939,955 $2,818,104 $121,851
The assets on deposit at Dec. 31, 1995 and 1994 consisted of
securities having a deposit value of $3,435,074 and $2,659,676,
respectively; mortgage loans of $229,554 and $252,263,
respectively; and other assets of $14,081 and $28,016,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan.
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 and estimated fair values when quoted prices are not
available. Estimated fair values are determined by IDSC using
established procedures, involving review of market indexes, price
levels of current offerings and comparable issues, price estimates
and market data from independent brokers and financial files. The
procedures are reviewed annually. IDSC's vice president -
investments reports to the board of directors on an annual basis
regarding such pricing sources and procedures to provide assurance
that fair value is being achieved.
The following is a summary of securities held to maturity and
securities available for sale at Dec. 31, 1995 and Dec. 31, 1994.
PAGE 52
Dec. 31, 1995
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
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
Dec. 31, 1994
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
HELD TO MATURITY
U.S. Government and agencies obligations $417 $417 $1 $1
Mortgage-backed securities 65,101 66,329 1,251 23
State and municipal obligations 145,205 150,856 5,659 8
Corporate debt securities 405,716 408,087 5,683 3,312
Foreign government bonds and obligations 10,048 10,065 17 -
Stated maturity preferred stock 619,306 616,655 10,201 12,852
$1,245,793 $1,252,409 $22,812 $16,196
AVAILABLE FOR SALE
Mortgage-backed securities $745,513 $724,276 $1,079 $22,316
Corporate debt securities 487,799 473,865 460 14,394
Stated maturity preferred stock 28,234 27,894 50 390
Common stock 755 639 - 116
$1,262,301 $1,226,674 $1,589 $37,216
The amortized cost and fair value of securities held to maturity
and available for sale, by contractual maturity, at Dec. 31, 1995,
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 $94,577 $95,440
Due after 1 through 5 years 388,529 407,994
Due after 5 years through 10 years 269,579 283,685
Due after 10 years 195,743 205,604
948,428 992,723
Mortgage-backed securities 54,477 55,708
$1,002,905 $1,048,431
AVAILABLE FOR SALE
Due within 1 year $146,731 $148,072
Due after 1 through 5 years 746,470 765,480
Due after 5 years through 10 years 38,433 41,945
Due after 10 years 109,786 111,426
1,041,420 1,066,923
Mortgage-backed securities 1,321,051 1,340,956
Common stock 755 612
$2,363,226 $2,408,491
/TABLE
PAGE 53
During the years ended Dec. 31, 1995 and 1994, there were no
securities classified as trading securities.
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, 1995 and 1994, were as follows:
1995 1994
Proceeds $83,970 $265,008
Gross realized gains 36 363
Gross realized losses 1,854 10,140
Sales of held-to-maturity securities, due to significant credit
deterioration, during the years ended Dec. 31, 1995 and 1994, were
as follows:
1995 1994
Amortized cost $22,782 $3,158
Gross realized gains 2 5
Gross realized losses 479 -
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 IDSC
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 90%
and 84% of IDSC's total invested assets at Dec. 31, 1995 and 1994,
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 1995 1994
Aaa/AAA 44% 36%
Aa/AA 2 5
Aa/A 2 3
A/A 23 25
A/BBB 6 3
Baa/BBB 20 24
Below investment grade 3 4
100% 100%
Of the securities rated Aaa/AAA, 92% at Dec. 31, 1995 and 88% at
Dec. 31, 1994 are U.S. Government Agency mortgage-backed securities
that are not rated by a public rating agency. Approximately 11% at
Dec. 31, 1995 and 17% at Dec. 31, 1994 of other securities with
fixed maturities are rated by Parent's internal analysts. At Dec.
PAGE 54
31, 1995 and 1994 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
paragraph A of note 3.
In the event IDSC were to be deemed to be a distributor of the
restricted securities, it is possible that IDSC would be required
to bear the costs of registering those securities under the
Securities Act of 1933, although in most cases such costs would be
borne by the issuer of the restricted securities.
4. Investments in first mortgage loans on real estate
As of Jan. 1, 1995, IDSC adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (SFAS No. 114), as amended by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" (SFAS
No. 118). The adoption of the new rules did not have a material
impact on IDSC's results of operations or financial condition.
SFAS No. 114 applies to all loans except for smaller-balance
homogeneous loans that are collectively evaluated for impairment.
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 loss on mortgage loans.
Based on management's judgment as to the ultimate collectibility of
principal, interest payments received are either recognized as
income or applied to the recorded investment in the loan until it
has been recovered.
The reserve for loss on mortgage loans is maintained at a level
that management believes is appropriate to absorb estimated credit
losses in the mortgage loan 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 loss on mortgage loans.
At Dec. 31, 1995, IDSC's recorded investment in impaired mortgage
loans was $1,004 and the reserve for loss on that amount was $611.
PAGE 55
During 1995, the average recorded investment in impaired mortgage
loans was $1,052.
IDSC recognized $53 of interest income related to impaired mortgage
loans for the year ended Dec. 31, 1995.
There were no changes in the reserve for loss on mortgage loans of
$611 during the year ended Dec. 31, 1995.
At Dec. 31, 1995 and 1994, approximately 6% and 9%, respectively,
of IDSC's invested assets were first mortgage loans on real estate.
A summary of first mortgage loans by region and by type of real
estate is as follows:
Region 1995 1994
East North Central 22% 25%
South Atlantic 22 24
West North Central 19 18
Middle Atlantic 17 16
Mountain 9 6
West South Central 5 5
Pacific 3 3
New England 3 3
100% 100%
Property Type 1995 1994
Apartments 39% 41%
Retail/shopping centers 32 30
Industrial buildings 12 12
Office buildings 8 8
Retirement homes 1 1
Other 8 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 terms
to borrowers of similar credit quality.
Dec. 31, 1995 Dec. 31, 1994
Carrying Fair Carrying Fair
amount value amount value
Commercial $234,005 $248,860 $254,531 $246,874
Residential - - 48 43
234,005 248,860 254,579 246,917
Reserve for losses (611) - (611) -
Net first mortgage loans on real estate $233,394 $248,860 $253,968 $246,917
At Dec. 31, 1995 and 1994, there were no commitments for fundings
of first mortgage loans. If there were any commitments, IDSC
employs policies and procedures to ensure the creditworthiness of
the borrowers and that funds will be available on the funding date.
IDSC's first mortgage loan fundings are restricted to 75% or less
of the market value of the real estate at the time of the loan
funding.
PAGE 56
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, 1995 and 1994 were:
1995
Average Average
Reserve gross additional
balance accumulation credit
at Dec. 31 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 (C) 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
1994
Average Average
Reserve gross additional
balance accumulation credit
at Dec. 31 rate rate
Installment certificates:
Reserves to mature:
With guaranteed rates $49,278 3.49% 1.51%
Without guaranteed rates (A) 286,434 - 2.97
Additional credits and accrued interest 19,698 3.11 -
Advance payments and accrued interest 1,634 3.08 1.92
Other 56 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates 234,822 3.25 1.09
Without guaranteed rates (A) and (D) 2,154,376 - 4.81
Additional credits and accrued interest 140,766 3.35 -
Due to unlocated certificate holders 341 - -
$2,887,405
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, 1995, $18,878 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 3.13%. IDSC has
increased the rate of accrual to 4.85% through April 30, 1997. 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.
PAGE 57
D) IDS Stock Market Certificate enables the certificate holder to
participate in any relative rise in a major stock market index
without risking loss of principal. Generally the certificate has a
term of 12 months and may continue for up to 14 successive terms.
The reserve balance at Dec. 31, 1995 and 1994 was $211,093 and
$263,494, respectively.
E) The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1995 and 1994. Fair values
of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender
charges.
The fair values for other certificate reserves are determined by a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less any
applicable surrender charges.
1995 1994
Carrying Fair Carrying Fair
amount value amount value
Reserves with terms of one year or less $2,900,947 $2,899,542 $2,425,880 $2,415,970
Other 727,627 765,110 461,525 461,060
Total certificate reserves 3,628,574 3,664,652 2,887,405 2,877,030
Unapplied certificate transactions 1,545 1,545 2,671 2,671
Certificate loans and accrued interest (51,707) (51,707) (58,840) (58,840)
Total $3,578,412 $3,614,490 $2,831,236 $2,820,861
6. Dividend restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1% on such series of
certificates have been authorized by IDSC. This restriction has
been removed for 1996 and 1997 by action of IDSC on additional
credits in excess of this requirement.
7. Fees paid to Parent and affiliated companies ($ not in
thousands)
A) The basis of computing fees paid or payable to Parent for
investment advisory and 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 a service
fee.
B) The basis of computing fees paid or payable to American Express
Financial Advisors Inc. (an affiliate) for distribution services
is:
PAGE 58
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:
Number of
certificate
years over
Aggregate fees payable which
subsequent
First Subsequent years' fees
Total year years are payable
Installment certificates(a) $30.00 $ 6.00 $24.00 4
Single-payment certificates 60.00 60.00 - -
Future Value certificates 50.00 50.00 - -
Fees on Cash Reserve and Flexible Savings (formerly Variable Term)
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 Stock Market Certificate are paid at a rate of 1.25% of
the purchase price on the first day of the certificate's term and
1.25% of the reserves maintained for these certificates at the
beginning of each subsequent term.
(a) At the end of the sixth through the 10th year, an additional
fee is payable of 0.5% of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.
C) The basis of computing depositary fees paid or payable to
American Express Trust Company (an affiliate) is:
Maintenance charge per account 5 cents per $1,000 of assets on deposit
Transaction charge $20 per transaction
Security loan activity:
Depositary Trust Company
receive/deliver $20 per transaction
Physical receive/deliver $25 per transaction
Exchange collateral $15 per transaction
A transaction consists of the receipt or withdrawal of securities
and commercial paper and/or a change in the security position. The
charges are payable quarterly except for maintenance, which is an
annual fee.
PAGE 59
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:
1995 1994 1993
Federal:
Current ($6,285) ($8,743) ($19,777)
Deferred (2,652) 3,933 11,446
(8,937) (4,810) (8,331)
State (43) 100 349
($8,980) ($4,710) ($7,982)
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:
1995 1994 1993
Federal tax expense at U.S. statutory rate $6,307 $12,642 $13,178
Tax-exempt interest (3,339) (4,205) (4,929)
Dividend exclusion (12,166) (13,862) (17,326)
Change in statutory rates - - (406)
Other, net 261 615 1,152
Federal tax benefit ($8,937) ($4,810) ($8,331)
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.
1995 1994
Deferred tax assets:
Certificate reserves $10,312 $4,315
Investment unrealized losses - 12,470
Investments 348 1,390
Investment reserves 843 1,120
Purchased/written call options - 283
Total deferred tax assets $11,503 $19,578
PAGE 60
1995 1994
Deferred tax liabilities:
Investment unrealized gains $15,843 $-
Deferred distribution fees 9,900 9,500
Dividends receivable 892 1,000
Return of capital dividends 305 508
Purchased/written call options 1,623 -
Other, net 229 198
Total deferred tax liabilities 28,792 11,206
Net deferred tax assets (liabilities) ($17,289) $8,372
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. The majority of IDSC's counterparties to the
interest rate caps are rated A or better by nationally recognized
rating agencies. The counterparties to the call options are five
major broker/dealers.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional amounts
do not represent market risk or credit exposure and are not
recorded on the balance sheet.
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, 1995 and 1994.
PAGE 61
1995
Notional Total
or contract Carrying Fair credit
amount value value exposure
Assets:
Interest rate caps $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 $157,951 $9,333 $10,394 $-
1994
Notional Total
or contract Carrying Fair credit
amount value value exposure
Assets:
Interest rate caps $1,020,000 $14,946 $24,727 $24,727
Purchased call options 191,496 7,770 8,886 8,886
Total $1,211,496 $22,716 $33,613 $33,613
Liabilities:
Written call options $189,443 $2,070 $1,779 $-
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The interest rate
caps expire on various dates from 1996 to 1997. The options expire
in 1996.
Interest rate caps and options are used to manage IDSC's exposure
to rising interest rates. These instruments are used primarily to
protect the margin between the interest rate earned on investments
and the interest rate accrued to related investment certificate
holders.
The interest rate caps are quarterly reset caps and IDSC earns
interest on the notional amount to the extent the London Interbank
Offering Rate exceeds the reference rates specified in the cap
agreements. These reference rates range from 4% to 9%. The cost
of these caps of $3,362 at Dec. 31, 1995 is being 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
holders have the option of participating in the full amount of
increase in the index during the term (subject to a specified
maximum) or a lesser percentage of the increase plus a guaranteed
minimum rate of interest. As a means of hedging its obligations
under the provisions of these certificates, IDSC purchases and
writes call options on the major market index. The options are
cash settlement options, that is, there is no underlying security
to deliver at the time the contract is closed out.
PAGE 62
The option contracts are less than one year in term. The premiums
paid or received on these index options are reported in other
qualified assets or other liabilities, as appropriate, and are
amortized into investment expenses over the life of the option.
The intrinsic value of these index options is also reported in
other qualified assets or other liabilities, as appropriate. The
unrealized gains and losses related to the changes in the intrinsic
value of these options are recognized currently in provision for
certificate reserves.
Following is a summary of open option contracts at Dec. 31, 1995
and 1994.
1995
Face Average Index at
amount strike price Dec. 31,1995
Purchased call options $152,406 539 616
Written call options 157,951 601 616
1994
Face Average Index at
amount strike price Dec. 31,1995
Purchased call options $191,496 460 459
Written call options 189,443 506 459
10. Fair values of financial instruments
IDSC is required to disclose fair value information for most on-
and off-balance sheet financial instruments for which it is
practical to estimate that value. The carrying value of certain
financial instruments such as trade receivables and payables
approximates the fair value. 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.
A summary of fair values of financial instruments as of Dec. 31, is
as follows:
1995 1994
Carrying Fair Carrying Fair
value value value value
Financial assets
Cash equivalents (note 1) $68,943 $68,943 $152,912 $152,912
Investment securities (note 3) 3,411,396 3,456,922 2,472,467 2,479,083
First mortgage loans on real estate (note 4) 233,394 248,860 253,968 246,917
Derivative financial instruments (note 9) 30,500 26,289 22,716 33,613
Financial liabilities
Certificate reserves (note 5) 3,578,412 3,614,490 2,831,236 2,820,861
Derivative financial instruments (note 9) 9,333 10,394 2,070 1,779
PAGE 63
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item
Number
Item 13. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and
distribution of the securities being registered are to be
borne by the registrant.
Item 14. Indemnification of Directors and Officers.
The By-Laws of IDS Certificate Company provide that it
shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that
he was or is a director, officer, employee or agent of
the company, or is or was serving at the direction of the
company, or any predecessor corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to
any threatened, pending or completed action, suit or
proceeding, wherever brought, to the fullest extent
permitted by the laws of the state of Delaware, as now
existing or hereafter amended.
The By-Laws further provide that indemnification
questions applicable to a corporation which has been
merged into the company relating to causes of action
arising prior to the date of such merger shall be
governed exclusively by the applicable laws of the state
of incorporation and by the by-laws of such merged
corporation then in effect. See also Item 17.
Item 15. Recent Sales of Unregistered Securities.
(a) Securities Sold
Period of sale Title of securities Amount sold
1993 IDS Special Deposits $ 8,367,601.13
1994 IDS Special Deposits 18,013,424.38
1995 IDS Special Deposits 56,855,953.53
1996 through March 31* IDS Special Deposits 4,292,871.38
*Most recent practicable date through which to provide information
(b) Underwriters and other purchasers
IDS Special Deposits are marketed by American Express Bank Ltd.
(AEBL), an affiliate of IDS Certificate Company, to private banking
clients of AEBL in the United Kingdom.
(c) Consideration
All IDS Special Deposits were sold for cash. The aggregate
offering price was the same as the amount sold in the table above.
Aggregate marketing fees to AEBL were $153,318.21 in 1993,
$88,686.14 in 1994, $172,633.41 in 1995, and $87,200.37 in 1996
through March 31.
PAGE 64
(d) Exemption from registration claimed
IDS Special Deposits are marketed, pursuant to the exemption in
Regulation S under the Securities Act of 1933, by AEBL in the
United Kingdom to persons who are not U.S. persons, as defined in
Regulation S.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits to this Post-Effective Amendment
No. 12 to Registration Statement No. 33-26844 are
incorporated herein by reference or attached hereto:
1. (a) Copy of Distribution Agreement dated November
18, 1988, between Registrant and IDS Financial
Services Inc., filed electronically as Exhibit
1(a) to the Registration Statement for the
American Express International Investment
Certificate (now called, the IDS Investors
Certificate), is incorporated herein by
reference.
(b) Selling Agent Agreement dated June 1, 1990
between American Express Bank International and
IDS Financial Services Inc. for the IDS
Investors Certificate, filed electronically as
Exhibit 1 to the Pre-Effective Amendment 2 to
Registration Statement No. 33-26844 for the IDS
Investors Certificate is incorporated herein by
reference.
(c) Amendment to the Selling Agent Agreement dated
Dec. 12, 1994 between American Express Bank
International and IDS Financial Services Inc.
for the IDS Investors Certificate is filed
electronically as Exhibit 1(d) to Post-
Effective Amendment No. 9 to Registration
Statment No. 33-26844 for IDS Investors
Certificate is incorporated herein by
reference.
(d) Selling Agent Agreement dated Dec. 12, 1994
between American Express Bank International,
Coutts & Co (USA) International and IDS
Financial Services Inc. for the Investors
Certificate is filed electronically. As
Exhibit 1(e) to Post-Effective Amendment No. 9
to Registration Statment No. 33-26844 for IDS
Investors Certificate is incorporated herein by
reference.
PAGE 65
(e) Consulting Agreement dated Dec. 12, 1994
between American Express Bank and IDS Financial
Services Inc. for the IDS Investors Certificate
is filed electronically. As Exhibit 1(f) to
Post-Effective Amendment No. 9 to Registration
Statment No. 33-26844 for IDS Investors
Certificate is incorporated herein by
reference.
(f) Marketing Agreement dated October 10,1991,
between Registrant and American Express Bank
Ltd., filed electronically as Exhibit 1(d) to
Post-Effective Amendment No. 31 to Registration
Statement 2-55252, is incorporated herein by
reference.
2. Not Applicable.
3. (a) Certificate of Incorporation, dated December
31, 1977, filed electronically as Exhibit 3(a)
to Post-Effective Amendment No. 2 to
Registration Statement No. 2-95577, is
incorporated herein by reference.
(b) Certificate of Amendment, dated February 29,
l984, filed electronically as Exhibit 3(b) to
Post-Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(c) By-Laws, dated December 31, 1977, filed
electronically as Exhibit 3(c) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
4. Not applicable.
5. Not applicable.
6 through 9. -- None.
10. (a) Investment Advisory and Services Agreement
between Registrant and IDS/American Express
Inc., dated January 12, 1984, filed
electronically as Exhibit 10(a) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(b) Depository and Custodial Agreement, between IDS
Certificate Company and IDS Trust Company dated
September 30, 1985, filed electronically as
Exhibit 10(b) to Post-Effective Amendment No. 2
to Registration Statement No. 2-95577, is
incorporated herein by reference.
PAGE 66
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16.
(a) Continued
(c) Loan Agreement between Registrant and Investors
Syndicate Development Corporation, dated
October 13, 1970, filed electronically as
Exhibit 10(c) to Post-Effective Amendment No. 2
to Registration Statement No. 2-95577, is
incorporated herein by reference.
(d) Agreement for the servicing of Residential
Mortgage Loans between ISA and Advance Mortgage
Company, Ltd., dated August 31, 1980, filed
electronically as Exhibit 10(d) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(e) Agreement for the servicing of Commercial
Mortgage Loans, between ISA and FBS Mortgage
Corporation, dated October 1, 1980, filed
electronically as Exhibit 10(e) to Post-
Effective Amendment No. 2 to Registration
Statement No. 2-95577, is incorporated herein
by reference.
(f) Agreement by and between Registrant and
Investors Diversified Services, Inc. (now IDS
Financial Services Inc.) providing for the
purchase by IDS of a block of portfolio
securities from Registrant, filed as Exhibit -
10.5 to the September 30, 1981 quarterly report
on Form 10-Q of Alleghany Corporation, is
incorporated herein by reference.
(g) Transfer Agent Agreements for the servicing of
the American Express Savings Certificate filed
electronically as Exhibit 10(g) to Pre-
Effective Amendment No. 1 to Registration
Statement No. 33-25385, are incorporated herein
by reference.
(h) Foreign Deposit Agreement dated November 24,
1990, between Registrant and IDS Bank & Trust,
filed electronically as Exhibit 10(h) to Post-
Effective Amendment No. 5 to Registration
Statement No. 33-26844, is incorporated herein
by reference.
11 through 24. -- None.
25. (a) Officers' Power of Attorney, dated May 17,
1994, filed electronically as Exhibit
25(a) to Post-Effective Amendment No. 9 to
Registration Statement No. 2-95577, is
incorporated herein by reference.
PAGE 67
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16.
(a) Continued
(b) Directors' Power of Attorney, dated
February 29, 1996 is filed electronically
herewith.
26 through 28. -- None.
(b) The financial statement schedules for IDS Certificate Company,
filed electronically as Exhibit 16(b) to Post-Effective
Amendment No. 38 to Registration Statement No. 2-55252 for
Series D-1 Investment Certificate, are incorporated by
reference herewith.
Item 17. Undertakings.
Without limiting or restricting any liability on the part
of the other, American Express Financial Advisors Inc.,
(formerly, IDS Financial Services Inc.) as underwriter,
and American Express Bank International and Coutts & Co
(USA) International, as selling agents, will assume any
actionable civil liability which may arise under the
Federal Securities Act of 1933, the Federal Securities
Exchange Act of 1934 or the Federal Investment Company
Act of 1940, in addition to any such liability arising at
law or in equity, out of any untrue statement of a
material fact made by their respective agents in the due
course of their business in selling or offering for sale,
or soliciting applications for, securities issued by the
Company or any omission on the part of their respective
agents to state a material fact necessary in order to
make the statements so made, in the light of the
circumstances in which they were made, not misleading (no
such untrue statements or omissions, however, being
admitted or contemplated), but such liability shall be
subject to the conditions and limitations described in
said Acts. American Express Financial Advisors Inc.,
American Express Bank International and Coutts & Co (USA)
International will also assume any liability of the
Company for any amount or amounts which the Company
legally may be compelled to pay to any purchaser under
said Acts because of any untrue statements of a material
fact, or any omission to state a material fact, on the
part of the respective agents of American Express
Financial Advisors Inc., American Express Bank
International, and Coutts & Co (USA) International to the
extent of any actual loss to, or expense of, the Company
in connection therewith. The By-Laws of the Registrant
contain a provision relating to Indemnification of
Officers and Directors as permitted by applicable law.
PAGE 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to this registration
statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis and State of Minnesota,
on the 18th day of April, 1996.
IDS CERTIFICATE COMPANY
By /s/ Stuart A. Sedlacek*
Stuart A. Sedlacek, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed below by the following persons in the
capacities on the 18th day of April, 1996.
Signature Capacity
/s/ Stuart A. Sedlacek* ** President and Director
Stuart A. Sedlacek (Principal Executive
Officer)
/s/ Morris Goodwin* Vice President and
Morris Goodwin Treasurer
(Principal Financial
Officer)
/s/ Jay C. Hatlestad* Vice President and
Jay C. Hatlestad Controller
(Principal Accounting
Officer)
/s/ David R. Hubers** Director
David R. Hubers
/s/ Charles W. Johnson** Director
Charles W. Johnson
/s/ Richard W. Kling** Chairman of the
Richard W. Kling Board of Directors
and Director
/s/ Edward Landes** Director
Edward Landes
Signatures continued on next page.
PAGE 69
Signatures continued from previous page.
Signature Capacity
/s/ John V. Luck** Director
John V. Luck
/s/ James A. Mitchell** Director
James A. Mitchell
/s/ Harrison Randolph** Director
Harrison Randolph
/s/ Gordon H. Ritz** Director
Gordon H. Ritz
*Signed pursuant to Officers' Power of Attorney dated May 17, 1994
filed electronically as Exhibit 25(a) to Post-Effective Amendment
No. 10, to Registration Statement No. 33-26844 is incorporated
herein by reference.
________________________
Bruce A. Kohn
**Signed pursuant to Directors' Power of Attorney dated February
29, 1996 filed electronically herewith.
________________________
Bruce A. Kohn
PAGE 70
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 12 TO REGISTRATION
STATEMENT NO. 33-26844
Cover Page
Cross-reference sheet
Prospectus
Part II Information
Signatures