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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
POST-EFFECTIVE AMENDMENT NUMBER 40 TO
REGISTRATION STATEMENT NUMBER 2-55252
SERIES D-1 INVESTMENT CERTIFICATE
(FORMERLY SINGLE-PAYMENT CERTIFICATES, SERIES D-1)
UNDER
THE SECURITIES ACT OF 1933
IDS CERTIFICATE COMPANY
(IDS Certificate Company effective April 1984)
(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 or amount of
securities under the Securities Act of 1933 pursuant to Section
24-f of the Investment Company Act of 1940. Registrants' Rule
24f-2 Notice for its most recent fiscal year (December 31) was
filed on or about February 19, 1997.
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IDS Series D-1 Investment Certificate
Prospectus/April 30, 1997
This prospectus describes the Series D-1 Investment Certificate
(Series D-1) issued by IDS Certificate Company (IDSC). The Series
D-1 certificate is offered only in connection with the American
Express Retirement Plan, the Career Distributors' Retirement Plan
(CDRP), and the IDS Mutual Funds Profit Sharing Plan of the IDS
MUTUAL FUND GROUP(individually a "Plan" and collectively the
"Plans") and to affiliated companies of IDSC. These Plans have
been adopted for the exclusive benefit and participation of
eligible employees and personal financial advisors of American
Express Financial Corporation (AEFC) and its subsidiary companies,
and the IDS MUTUAL FUND GROUP.
IDSC offers persons who retire as full-time employees or as full-
time financial advisors or district managers of AEFC and its
subsidiary companies the opportunity to purchase the Series D-1
Certificate in Individual Retirement Accounts (IRAs).
IDSC guarantees a specific rate of interest for each calendar
quarter. IDSC also guarantees the principal of your certificate
(page --).
The Series D-1 certificate matures 20 years from its issue date.
Its value at maturity will be equal to total contributions made
plus interest earned and less any withdrawals (i.e. surrenders)
(page --).
As is the case with other investment companies, these securities
have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities
commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This certificate is backed by IDSC's investments on deposit rather
than guaranteed or insured by the government or someone else. See
"Invested and guaranteed by IDSC" and "Regulated by government"
under "How your money is used and protected."
The prospectus gives you facts about the Series D-1 certificate and
describes its terms and conditions. You should read it to decide
if this certificate is the right investment for you. Keep it with
your investment records for future reference.
IDS Certificate Company
IDS Tower 10
Minneapolis, MN 55440-0010
800-437-3463
800-846-4293 (TTY)
An American Express company
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Annual Interest Rates as of April 30, 1997
___________________________________________________________________
Simple Compound
Interest Effective
Rate Yield
- ----% ----%
___________________________________________________________________
These rates were in effect on the date of this prospectus. IDSC
reviews and may change its rates on new purchases each week. The
interest rate paid during the first calendar quarter the
certificate is owned will be that in effect on the date an
application or investment is accepted. IDSC guarantees that when
the rate for new purchases takes effect, the rate for the first
quarter will be within a specified range of the average 12-month
certificate of deposit rate then published in the most recent BANK
RATE MONITOR National Index (trademark), N. Palm Beach, FL 33408 (page ---).
Interest rates for future calendar quarters are declared at the
discretion of IDSC and may be greater or less than the rates shown
here.
The Series D-1 certificate is backed 100 percent by our investments
on deposit instead of by federal insurance. There are no sales or
surrender charges. There is no minimum rate of interest. IDSC
does not have a distribution agreement or pay a distribution fee
with respect to this certificate.
AVAILABLE INFORMATION ABOUT IDSC
IDSC is subject to the reporting requirements of the Securities
Exchange Act of 1934. Reports and other information on IDSC are
filed with the Securities and Exchange Commission (SEC) and can be
inspected and copied at the public reference section of the SEC,
Washington, D.C. and also at the following regional offices:
Northeast Regional Office
7 World Trade Center
Suite 1300
New York, NY 10048
Midwest Regional Office
Northwestern Atrium Center
500 West Madison St.
Suite 1400
Chicago, IL 60661
Pacific Regional Office
5670 Wilshire Blvd.
11th Floor
Los Angeles, CA 90036
You can obtain copies from the Public Reference Section of the SEC,
450 5th Street, N.W., Washington, D.C. 20549 at prescribed rates.
PAGE 4
We are not responsible for any information about IDSC except for
the information in this prospectus, including any supplements, in
any reports filed with the SEC or in any supplemental sales
material we have authorized for use in the sale of this
certificate.
No person has authority to change the terms of this certificate or
to bind IDSC by any statement not in this prospectus.
We reserve the right to issue other securities with different
terms.
SUMMARY OF CONTENTS
Listed below is a summary of items you should consider in
evaluating the certificate. These items are discussed in more
detail elsewhere in the prospectus as indicated.
About the Series D-1 Investment Certificate
Investment Amounts and Interest Rates - The Series D-1 certificate
is purchased by the trustee or custodian (page _) at the direction
of Plan participants or IRA owners using contributions to a Plan or
IRA or by affiliated companies of IDSC. IDSC will pay the trustee
or custodian at maturity the face amount plus earned interest.
Interest rates are declared each calendar quarter beginning on Jan.
1, April 1, July 1, and Oct. 1. The rate for the first calendar
quarter will be within a specified range of an average 12-month
certificate of deposit rate as published in the BANK RATE MONITOR
National Index(trademark) N. Palm Beach, FL 33408. Future interest rates are
at the discretion of IDSC (page --).
Determining the Face Amount and Principal of the Series D-1
Investment Certificate - The face amount of the certificate is the
total amount invested. The principal is the total investment plus
interest compounded monthly over the 20-year life of the
certificate, less withdrawals (page --).
Value at Maturity Will Exceed Face Amount - We guarantee the rate
of interest on the Series D-1 certificate for each calendar
quarter. Due to interest received, the value at maturity of a
certificate held to maturity will exceed the face amount of the
certificate (page --).
Earning Interest - Interest accrues and is credited daily and will
be compounded at the end of each calendar month (page --).
Using the Series D-1 Investment Certificate
Contributions to the Certificate - Instructions to Plan
participants on how to direct contributions to the Series D-1
certificate may be obtained through the appropriate Plan
Administrator or, for IRAs, from your financial advisor or your
local American Express Financial Advisors office or by writing to
American Express Financial Advisors Inc., IDS Tower 10,
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Minneapolis, MN 55440-0534 or by calling 1-800-437-3463. The
Series D-1 certificate is offered only to eligible participants in
connection with the American Express Retirement Plan, the CDRP, the
IDS DVP Retirement Plan, the IDS DVP Savings Plan, the IDS Mutual
Funds Profit Sharing Plan, IRAs of persons who retire as full-time
AEFC employees, financial advisors or district managers and to
affiliated companies of IDSC (page --).
Other IRAs or 401(k) Plan Accounts and Other Qualified Retirement
Accounts - When a participant takes a qualifying distribution from
a plan qualified under Internal Revenue Code 401(a), the
participant's Series D-1 certificate plan account may be rolled
over into an IRA or other qualified retirement plan account where
allowed by a Plan (page --). The Career Distributors' Retirement
Plan is a nonqualified deferred compensation plan.
Receiving Cash - A participant in a Plan (other than CDRP) or an
IRA owner may receive cash after taking an "in kind" distribution
of his or her Series D-1 certificate plan account or IRA, subject
to federal tax laws and the terms of the payout options (page --).
At Maturity - If the Series D-1 certificate is held to maturity
following an "in kind" distribution, a check for the principal will
be sent. Payout options also are available (page --).
Transferring the Series D-1 Certificate Ownership - While the
Series D-1 certificate is not negotiable, under limited
circumstances it can, if eligible, be transferred to a qualified
plan or IRA trustee or custodian upon written request (page --).
Giving Us Instructions - All instructions to us must be in proper
written form (page --).
Income and Taxes
Tax Treatment of this Investment - Interest earned on the Series
D-1 certificate is generally not taxable until withdrawn (page --).
How your money is used and protected
Invested and guaranteed by IDSC - IDSC, a wholly owned subsidiary
of AEFC, issues the Series D-1 certificate in the name of the
custodian of the IRA, trustee of a Plan or in the case of the CDRP
of AEFC, to AEFC as the sponsor of the plan or to an affiliated
company of IDSC. This section gives basic information about IDSC's
assets and income (page --).
Regulated by Government - The Series D-1 certificate is a security
and is governed by federal and state law (page --).
Backed by our investments - Our investments, mostly debt
securities, are on deposit (page --).
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Investment Policies - We do not purchase securities on margin or
invest in commodities nor do we participate on a joint basis or
joint-and-several basis in any trading account in securities.
There are no restrictions on concentration of investments in
industries. We may lend securities and receive cash equal to the
market value of the securities as collateral. We also may purchase
securities on a "when-issued" basis (page --).
Relationship Between IDSC and AEFC - AEFC is our parent company.
It, in turn, is owned by American Express Company (American
Express) (page --).
Capital structure and certificates issued - (page --).
Investment management and services - AEFC acts as investment
advisor for our certificates. The Investment Advisory and Services
Agreement governs AEFC's transactions on our behalf and the fees we
pay AEFC for investment advisory services. There is no
distribution fee charged (page --).
Employment of Other American Express Affiliates - AEFC may employ
other American Express affiliates to perform certain transactions
for us (page --).
Directors and officers - This section contains information about
our management and directors. (page -----).
ABOUT THE SERIES D-1 INVESTMENT CERTIFICATE
Investment Amounts and Interest Rates
The Series D-1 Certificate is a security purchased with single or
multiple payments. The amount that can be invested is determined
by the provisions of the Plans and applicable tax laws. A
participant's Plan investment is the dollar amount or its
equivalent percentage contributions directed to the participant's
Plan account. The interest rate applied to the investment is the
quarterly rate then in effect. Investments earn interest from the
date IDSC accepts each Plan contribution or IRA contribution.
Interest on the Series D-1 certificate is guaranteed for each
calendar quarter. The rate paid will not change during a quarter.
A calendar quarter begins each Jan. 1, April 1, July 1, or Oct. 1.
IDSC guarantees that when rates for new purchases take effect, the
rate will be within a range from 75 to 175 basis points above the
average interest rate then published for 12-month certificates of
deposit in the BANK RATE MONITOR National Index (trademark), N.
Palm Beach, FL 33408. For example, if the rate published for a
given week in the BANK RATE MONITOR National Index (trademark), N.
Palm Beach, FL 33408 for 12-month certificates is 3.25 percent,
IDSC's rate in effect for new purchases would be between 4 percent
and 5 percent.
Interest rates may differ for investments of more than $1 million
in one or more Series D-1 Certificates by any affiliated company of
IDSC. When rates for new purchases by any such company take
PAGE 7
effect, the rate will be within a range from 20 basis points below
to 80 basis points above the average interest rate then published
for 12-month certificates of deposit in the BANK RATE MONITOR
National Index (trademark), N. Palm Beach, FL 33408.
The BANK RATE MONITOR National Index (trademark), N. Palm Beach, FL
33408 is an index of rates and annual effective yields offered on
various length certificates of deposit by large banks and thrifts
in large metropolitan areas. The frequency of compounding varies
among the banks and thrifts.
Certificates of deposit in the BANK RATE MONITOR National Index
(trademark), N. Palm Beach, FL 33408 are government-insured fixed-
rate time deposits. The BANK RATE MONITOR National Index
(trademark), N. Palm Beach, FL 33408 is published in the BANK RATE
MONITOR, a weekly magazine published in N. Palm Beach, FL, by
Advertising News Service Inc., an independent national news
organization that collects and disseminates information about bank
products and interest rates. It is not affiliated with IDSC, AEFC,
or any of their affiliates.
The publisher of the BANK RATE MONITOR distributes to national and
broadcast news media on a regular weekly basis its current index
rates for various terms of certificates of deposit of banks and
thrifts.
The BANK RATE MONITOR periodical may be available in your local
library. To obtain information on the current BANK RATE MONITOR
Top Market AverageTM rates, call the Client Service Organization at
the telephone numbers listed on the back cover between 8 a.m. and 6
p.m. your local time.
Interest is credited to the certificate daily. The rate in effect
on the day the contribution is accepted in Minneapolis will apply
to the certificate. The interest rate shown on the front of this
prospectus may or may not be in effect on the date a participant's
contribution is accepted.
Interest for future calendar quarters may be greater or less than
the rates for the first quarter. The then prevailing investment
climate, including 12-month average certificate of deposit
effective yields as reflected in the BANK RATE MONITOR National
Index (trademark), N. Palm Beach, FL 33408, will be a primary
consideration in deciding future rates. Nevertheless, IDSC has
complete discretion as to what interest it will declare beyond the
initial quarter.
Any investments rolled over from the Series D-1 certificate to an
IRA or 401(k) plan account or other qualified retirement account
will be subject to the limits and provisions of that account or
plan and applicable tax laws.
Determining the Face Amount and Principal of the Series D-1
Investment Certificate
The face amount is the amount of the initial investment in the
Series D-1 certificate. At the beginning of each quarter, all
interest previously credited to a Series D-1 certificate and not
PAGE 8
withdrawn will become part of its principal. For example: if the
initial investment in a certificate was $100,000, the face amount
would be $100,000. If the certificate earns $1,000 in interest
during a quarter and it is not withdrawn, the principal for the
next quarter will be $101,000. Your principal is guaranteed by
IDSC.
Value at Maturity Will Exceed Face-Amount
The Series D-1 certificate matures in 20 years except as provided
in "receiving cash" under "Using the Series D-1 Investment
Certificate." A certificate held to maturity will have had
interest declared each quarter over its life. Interest once
declared for the quarter will not be reduced. The value at
maturity will exceed the face amount.
Earning Interest
Interest is accrued and credited daily on the Series D-1
certificate. If a withdrawal is made during a month, interest will
be paid to the date of the withdrawal. Interest is compounded at
the end of each calendar month. The amount of interest earned each
month is determined by applying the daily interest rate then in
effect to the daily balance of the Series D-1 certificate.
Interest is calculated on a 360-day year basis.
USING THE SERIES D-1 INVESTMENT CERTIFICATE
Contributions to the Series D-1 Investment Certificate
A contribution will be made to the Series D-1 Certificate by the
Plan sponsor as directed by the participant. Instructions to Plan
participants on how to direct Plan contributions to a Series D-1
certificate may be obtained from the appropriate Plan
Administrator. The amount of contributions made on behalf of a
participant or AEFC will be limited by the terms of the Plan and
applicable tax laws.
Any additional contributions in a Plan or IRA made on behalf of
participants or investors who already have a beneficial interest in
or related to an IDS Series D-1 Investment Certificate in the same
Plan or IRA will be added directly to that certificate, rather than
invested in a new certificate.
The Series D-1 certificate is offered only in connection with the
American Express Retirement Plan, the CDRP, the IDS DVP Retirement
Plan, the IDS DVP Savings Plan, the IDS Mutual Funds Profit Sharing
Plan, and the IRAs of persons who retire as full-time employees,
financial advisors or district managers of AEFC, its subsidiary
companies, and the IDS MUTUAL FUND GROUP and to affiliated
companies of IDSC. These Plans are for the exclusive benefit of
eligible employees and financial advisors of AEFC and its
subsidiary companies and the IDS MUTUAL FUND GROUP. Any Series D-1
certificate issued will be owned by and issued in the name of the
trustee or custodian of the IRA or Plan except that a certificate
issued in conjunction with CDRP will be issued in the name of AEFC.
PAGE 9
Participating employees and advisors have a beneficial interest in
or related to the applicable Series D-1 certificates but are not
the direct owners. The terms of a Plan, as interpreted by the
applicable Plan trustee, or AEFC in the case of CDRP, will
determine how a participant's individual account is administered.
These terms will likely differ in some aspects from those of the
Series D-1 certificate. The custodian or trustee may change the
ownership of any Series D-1 certificate issued to a participant in
a Plan in connection with an "in kind" distribution of benefits
from a Plan as described below. Any new custodian or trustee,
including any IRA custodian, will be responsible for contacting us
to change ownership.
Other IRAs or 401(k) Plan Accounts and Other Qualified Retirement
Accounts
Unless prohibited by your Plan, any Series D-1 certificate proceeds
distributed to an eligible participant in a qualifying
distribution, may be invested in an IRA or qualified retirement
plan. Transfer of proceeds of the Series D-1 certificate to an
IRA, or 401(k) plan account or other qualified retirement plan
account will be limited by Plan provisions and applicable federal
law. Federal tax laws may affect your ability to invest in certain
types of retirement accounts. You may wish to consult your tax
advisor or your local American Express Tax and Business Services
tax professional, where available, for further information.
In addition, under limited circumstances a Series D-1 certificate
may be transferred "in kind" to an IRA or qualified retirement
account. An "in kind" distribution will not reduce or extend the
certificate's maturity. If an "in kind" transfer is made, the
terms and conditions of the Series D-1 certificate apply to the IRA
or qualified retirement account as the holder of the certificate.
The terms of the Plan, as interpreted by the Plan trustee or
administrator, will determine how a participant's individual
account with the Plan is administered. These terms may differ from
the terms of the certificate. A Series D-1 certificate may only be
distributed "in kind" to an IRA or other qualified retirement
account. If you make a withdrawal from a qualified retirement plan
or IRA prior to age 59 1/2, you may be required to pay federal
early distribution penalty tax.
IDSC will withhold federal income taxes of 10% on IRA withdrawals
unless you tell us not to. IDSC is required to withhold federal
income taxes of 20% on most qualified plan distributions, unless
the distribution is directly rolled over to another qualified plan
or IRA. See your tax adviser to see how these rules apply to you
before you request a distribution from your plan or IRA.
PAGE 10
Receiving Cash
The following sections briefly describe the limitations upon a
participant's ability to withdraw cash from the Series D-1
certificate. Any such withdrawal could take place after the
participant has taken an "in kind" distribution of the Series D-1
certificate.
Federal Tax Limitations - The following briefly discusses certain
federal tax limitations on a participant's ability to take "in
kind" distributions. You may wish to consult your tax adviser or
your local American Express Tax and Business Services tax
professional, where available, for further information.
If a Series D-1 certificate is distributed to the beneficial owner
by the trustee or custodian of a plan qualified under Section
401(a) of the Internal Revenue Code of 1986 then, unless otherwise
elected by the trustee or custodian on a form satisfactory to IDSC:
1) the maturity date will be no later than the end of the taxable
year in which the later of the following occurs:
a) the beneficial owner attains age 70 1/2; or
b) distribution of the Series D-1 certificate is made to the
beneficial owner; and
2) the total value of the Series D-1 certificate will be paid out
in equal or substantially equal monthly, quarterly, semiannual
or annual payments over a specified period of time which does
not extend beyond the life expectancy (determined as of the
maturity date) or the joint and survivor life expectancy of
the beneficial owner and his/her spouse.
If the Series D-1 certificate is issued in connection with an
Individual Retirement Account (IRA) or other qualified Plan, (1)
the owner must elect a maturity date which is no later than the
taxable year in which he or she attains age 70 1/2, and (2) the
total value of the Series D-1 certificate will be paid out in equal
or substantially equal monthly, quarterly, semiannual or annual
payments over a specified period of time which does not extend
beyond the owner's life expectancy (determined as of the end of the
taxable year in which the owner attains age 70 1/2) or the joint
and survivor life expectancy of the owner and his/her spouse.
Except as noted above, each of the payout options described is
subject to the following general provisions governing payout
options.
'All election(s) must be made by written notice in a form
acceptable by IDSC. The election(s) will become effective on
the date(s) chosen.
'No election(s) can be made that will require IDSC to make any
payment later than 30 years from the date elected; and make
any term or periodic interest payment of less than $50.
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'After the date of the elected payout option, the owner may
elect to receive all or part of the balance left under a
payout option. If done only in part, the balance may be left
under the elected option.
Payout Options - Any time after the issue date of the Series D-1
certificate if an "in kind" distribution has occurred, including at
the time of maturity, a payout option may be elected for all or any
part of a Plan investment. The payout options are described below.
Payout options may be changed. The balance remaining in the
certificate will continue to accrue interest at the then current
rate; the amount transferred to an option will continue to accrue
interest at the then current option rate. The maturity date of the
balance will not be affected. Notwithstanding the provisions of
the payout options herein described, tax laws in effect at the time
a payout option is selected and plan provisions may limit the
availability of the option.
Withdrawals - Withdrawals can be made from the certificate. To do
so, a request must be submitted in a form acceptable to IDSC at the
address or phone number on the cover of this prospectus. If
proceeds from a full or partial surrender are received directly by
a participant and are not transferred to a trustee or custodian of
a qualified retirement plan, the participant may be penalized by
the IRS for this may be considered an early withdrawal.
Installment Payments - Installment payments of $50 or more may be
elected. The payment periods designated may be monthly, quarterly,
semiannually or annually over a period of more than two years but
less than 30 years, but also cannot exceed that permitted under
federal tax law. Payments will begin one payment period after the
effective date of the payout option. Depending on the size of the
payment selected, these payments may include both principal and
interest.
Periodic Interest Payments - Combined interest on the Series D-1
certificate may be paid in monthly, quarterly, semiannual or annual
payments of more than two years but less than 30 years provided the
payments are at least $50. The time period selected cannot exceed
that permitted under federal tax law.
Deferred Interest - At maturity or after any installment or
periodic interest payout plan has begun, all or part of the Series
D-1 certificate may be left with IDSC to continue to earn interest
for an additional period of years. The additional years elected
may not exceed the earlier of 30 years from the date of maturity or
date on which the participant reaches age 70 1/2.
At its option, IDSC may defer for not more than thirty days any
payment to which the participant may become entitled prior to the
Series D-1 certificate's maturity. IDSC will pay interest on the
amount deferred at the rate used in accumulating the reserves for
the Series D-1 certificate for any period of deferment. Any
PAGE 12
payment by us also may be subject to other deferment as provided by
the rules, regulations or orders made by the Securities and
Exchange Commission.
At Maturity
If an "in kind" distribution has been taken, at the Series D-1
certificate's maturity, a check will be sent for the remaining
value of the certificate. Instead of receiving cash, the Deferred
Interest Option, or one of the payout options explained above may
be selected.
Transferring Series D-1 Investment Certificate Ownership
When the Series D-1 certificate is owned by a trustee or custodian
of a Plan or IRA, the trustee or custodian may request a transfer
of the ownership of the Series D-1 certificate on the books of
IDSC. A transfer request must be in a form acceptable to the Plan
or the IRA custodian and to IDSC and received at IDSC's home
office.
Giving Us Instructions
We must receive proper notice in writing or by telephone of any
instructions regarding a certificate.
Proper written notice must:
'be addressed to our home office,
'include sufficient information for us to carry out the request,
and
'be signed and dated by all participant(s).
All amounts payable by us in connection with the Series D-1
certificate are payable at our home office unless we advise
otherwise.
To give us instructions by telephone, call the Client Service
Organization at the telephone numbers listed on the back cover
between 8 a.m. and 6 p.m. your local time.
INCOME AND TAXES
Tax Treatment of This Investment
Interest paid to the Series D-1 certificate is generally not
taxable until a participant begins to make withdrawals. For
further discussion of certain federal tax limitations, see page _.
Rules regarding Plan distributions and other aspects of the Series
D-1 certificate are complicated. We recommend that participants
consult their own tax advisor or local American Express Tax and
Business Services tax professional, where available, to determine
how the rules may apply to their individual situation.
PAGE 13
Withholding Taxes
According to federal tax laws, you must provide us with your
correct certified taxpayer identification number. This number is
your Social Security number. If you do not provide this number, we
may be required to withhold a portion of your interest income and
certain other payments, including distributions from a retirement
account or qualified plan. Be sure your correct taxpayer
identification number is provided.
If you supply an incorrect taxpayer identification number, the IRS
may assess a $50 penalty against you.
How your money is used and protected
Invested and guaranteed by IDSC
The IDS Series D-1 Certificate is issued and guaranteed by IDSC, a
wholly owned subsidiary of AEFC. We are by far the largest issuer
of face amount certificates in the United States, with total assets
of more than $3.5 billion and a net worth in excess of $194 million
on Dec. 31, 1996.
We back our certificates by investing the money received and
keeping the invested assets on deposit. Our investments generate
interest and dividends, out of which we pay:
o interest to certificate owners, and
o various expenses, including taxes, fees to AEFC for advisory and
other services and distribution fees to American Express Financial
Advisors Inc.
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 that are similar to our certificates in many ways. Banks
and thrifts generally have federal deposit insurance for their
deposits and lend much of the deposited money to individuals,
businesses and other enterprises. Other financial institutions may
offer investments with comparable combinations of safety and return
on investment.
Regulated by government
Because the IDS Series D-1 Certificate is a security, its offer and
sale are subject to regulation under federal and state securities
laws. (It is a face amount certificate -- not a bank product, an
equity investment, a form of life insurance or an investment
trust.)
The federal Investment Company Act of 1940 requires us to keep
investments on deposit in a segregated custodial account to protect
all of our outstanding certificates. These investments back the
entire value of your certificate account. Their amortized cost
PAGE 14
must exceed the required carrying value of the outstanding
certificates by at least $250,000. As of Dec. 31, 1996, the
amortized cost of these investments exceeded the required carrying
value of our outstanding certificates by more than $151 million.
Backed by our investments
Our investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1996:
38% corporate and other bonds
31 government agency bonds
20 preferred stocks
6 mortgages
3 cash and cash equivalents
2 municipal bonds
As of Dec. 31, 1996, about 93% of our securities portfolio (bonds
and preferred stocks) is rated investment grade. For additional
information regarding securities ratings, please refer to Note 3B
in the Financial Statements.
Most of our investments are on deposit with American Express Trust
Company (formerly IDS Trust Company), Minneapolis, although we also
maintain separate deposits as required by certain states. American
Express Trust Company is a wholly owned subsidiary of AEFC. Copies
of our Dec. 31, 1996 schedule of Investments in Securities of
Unaffiliated Issuers are available upon request. For comments
regarding the valuation, carrying values and unrealized
appreciation (depreciation) of investment securities, see Notes 1,
2 and 3 to the Financial Statements.
Investment policies
In deciding how to diversify the portfolio -- among what types of
investments in what amounts -- the officers and directors of IDSC
use their best judgment, subject to applicable law. The following
policies currently govern our investment decisions:
Debt securities -- Most of our investments are in debt securities
as referenced in the table in "Backed by our investments" under
"How your money is used and protected."
Purchasing securities on margin -- We will not purchase any
securities on margin or participate on a joint basis or a joint-
and-several basis in any trading account in securities.
Commodities -- We have not and do not intend to purchase or sell
commodities or commodity contracts except to the extent that
transactions described in "Financial transactions including hedges"
in this section may be considered commodity contracts.
PAGE 15
Underwriting -- We do not intend to engage in the public
distribution of securities issued by others. However, if we
purchase unregistered securities and later resell them, we may be
considered an underwriter under federal securities laws.
Borrowing money -- From time to time we have established a line of
credit if management believed borrowing was necessary or desirable.
We may pledge some of our assets as security. We may occasionally
use repurchase agreements as a way to borrow money. Under these
agreements, we sell debt securities to our lender, and repurchase
them at the sales price plus an agreed-upon interest rate within a
specified period of time.
Real estate -- We may invest in limited partnership interests in
limited parnerships that either directly, or indirectly through
other limited partnerships, invest in real estate. We may invest
directly in real estate. We also invest in mortgage loans.
Lending securities -- We may lend some of our securities to
broker-dealers and receive cash equal to the market value of the
securities as collateral. We invest this cash in short-term
securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan,
the borrower makes cash payments to us equal to all interest,
dividends and other distributions paid on the loaned securities.
We will try to vote these securities if a major event affecting our
investment is under consideration.
When-issued securities -- Most of our investments in debt
securities are purchased on a when-issued basis. It may take as
long as 45 days or more before these securities are issued and
delivered to us. We generally do not pay for these securities or
start earning on them until delivery. We have established
procedures to ensure that sufficient cash is available to meet
when-issued commitments.
Financials transactions including hedges -- We buy or sell various
types of options contracts for hedging purposes or as a trading
technique to facilitate securities purchases or sales. We buy
interest rate caps for hedging purposes. These pay us a return if
interest rates rise above a specified level. If interest rates do
not rise above a specified level, the interest rate caps do not pay
us a return. IDSC may enter into other financial transactions,
including futures and other derivatives, for the purpose of
managing the interest rate exposures associated with IDSC's assets
or liabilities. We do not use derivatives for speculative
purposes.
Illiquid securities -- A security is illiquid if it cannot be sold
in the normal course of business within seven days at approximately
its current market value. Some investments cannot be resold to the
U.S. public because of their terms or government regulations. All
PAGE 16
securities, however, can be sold in private sales, and many may be
sold to other institutions and qualified buyers or on foreign
markets. IDSC's investment advisor will follow guidelines
established by the board and consider relevant factors such as the
nature of the security and the number of likely buyers when
determining whether a security is illiquid. No more than 15% of
IDSC's investment portfolio will be held in securities that are
illiquid. In valuing its investment portfolio to determine this
15% limit, IDSC will use statutory accounting under an SEC order.
This means that, for this purpose, the portfolio will be valued in
accordance with applicable Minnesota law governing investments of
life insurance companies, rather than generally accepted accounting
principles.
Restrictions: There are no restrictions on concentration of
investments in any particular industry or group of industries or on
rates of portfolio turnover.
Certain investment considerations
The price of bonds generally falls as interest rates increase, and
rises as interest rates decrease. The price of a bond also
fluctuates if its credit rating is upgraded or downgraded. The
price of bonds below investment grade may react more to the ability
of a company to pay interest and principal when due than to changes
in interest rates. They have greater price fluctuations, are more
likely to experience a default, and sometimes are referred to as
junk bonds. Reduced market liquidity for these bonds may
occasionally make it more difficult to value them. In valuing
bonds, IDSC relies both on independent rating agencies and the
investment manager's credit analysis. Under normal circumstances,
at least 85% of the securities in IDSC's Portfolio will be rated
investment grade, or in the opinion of IDSc's investment advisor
will be the equivalent of investment grade. Under normal
circumstances, IDSC will not purchase any security rated below B-
by Moody's Investors Service, Inc. or Standard & Poor's
Corporation. Securities that are subsequently downgraded in
quality may continue to be held by IDSC and will be sold only when
IDSC believes it is advantageous to do so.
As of Dec. 31, 1996, IDSC held about 7% of its investment portfolio
(including bonds, preferred stocks, mortgages and cash equivalents)
in investments rated below investment grade.
When-issued securities are subject to market fluctuations and they
may affect IDSC's investment portfolio the same as owned
securities.
Derivatives are financial instruments whose performance is derived,
at least in part, from the performance of an underlying asset,
security or index. A small change in the value of the underlying
asset, security or index may cause a sizable gain or loss in the
fair value of the derivative.
PAGE 17
How your money is managed
Relationship between IDSC and American Express Financial
Corporation
IDSC was originally organized as Investors Syndicate of America,
Inc., a Minnesota corporation, on Oct. 15, 1940, and began business
as an issuer of face amount investment certificates on Jan. 1,
1941. The company became a Delaware corporation on Dec. 31, 1977,
and changed its name to IDS Certificate Company on April 2, 1984.
Before IDSC was created, AEFC (formerly known as IDS Financial
Corporation), our parent company, had issued similar certificates
since 1894. As of Jan. 1, 1995, IDS Financial Corporation changed
its name to AEFC. IDSC and AEFC have never failed to meet their
certificate payments.
During its many years in operation, AEFC has become a leading
manager of investments in mortgages and securities. As of Dec. 31,
1996, AEFC managed investments, including its own, of more than
$149 billion. American Express Financial Advisors Inc., a wholly
owned subsidiary of AEFC, provides a broad range of financial
planning services for individuals and businesses through its
nationwide network of more than 175 offices and more than 7,800
financial advisors. American Express Financial Advisors' financial
planning services are comprehensive, beginning with a detailed
written analysis that's tailored to your needs. Your analysis may
address one or all of these six essential areas: financial
position, protection planning, investment planning, income tax
planning, retirement planning and estate planning.
AEFC itself is a wholly owned subsidiary of American Express
Company, a financial services company with executive offices at
American Express Tower, World Financial Center, New York, NY 10285.
American Express Company is a financial services company engaged
through subsidiaries in other businesses including:
o travel related services (including American Express(R) Card
and Travelers Cheque operations through American Express
Travel Related Services Company, Inc. and its subsidiaries);
and
o international banking services (through American Express Bank
Ltd. and its subsidiaries including American Express Bank
International).
American Express Financial Advisors Inc. is not a bank, and the
securities offered by it, such as face amount certificates issued
by IDSC, are not backed or guaranteed by any bank, nor are they
insured by the FDIC.
PAGE 18
Capital structure and certificates issued
IDSC has authorized, issued and has outstanding 150,000 shares of
common stock, par value of $10 per share. AEFC owns all of the
outstanding shares.
As of Dec. 31, 1996, IDSC had issued (in face amount)
$13,327,949,715 of installment certificates and $15,788,445,077 of
single payment certificates.
Investment management and services
Under an Investment Advisory and Services Agreement, AEFC acts as
our investment advisor and is responsible for:
o providing investment research;
o making specific investment recommendations; and
o executing purchase and sale orders according to our policy of
obtaining the best price and execution.
All these activities are subject to direction and control by our
board of directors and officers. Our agreement with AEFC requires
annual renewal by our board, including a majority of directors who
are not interested persons of AEFC or IDSC as defined in the
federal Investment Company Act of 1940.
For its services, we pay AEFC a monthly fee, equal on an annual
basis to a percentage of the total book value of certain assets
(included assets).
Advisory and services fee computation:
Percentage of total
Included assets book value
First $250 million 0.75%
Next 250 million 0.65
Next 250 million 0.55
Next 250 million 0.50
Any amount over 1 billion 0.45
Included assets are all assets of IDSC except mortgage loans, real
estate, and any other asset on which we pay an advisory or a
service fee.
Advisory and services fees for the past three years were:
Percentage of
Year Total fees included assets
1996 $16,989,093 0.50%
1995 $16,472,458 0.50%
1994 $13,565,432 0.51%
Estimated advisory and services fees for 1997 are $16,621,000.
PAGE 19
Other expenses payable by IDSC: The Investment Advisory and
Services Agreement provides that we will pay:
o costs incurred by us in connection with real estate and
mortgages;
o taxes;
o depository and custodian fees;
o brokerage commissions;
fees and expenses for services not covered by other agreements
and provided to us at our request, or by requirement, by
attorneys, auditors, examiners and professional consultants
who are not officers or employees of AEFC;
o fees and expenses of our directors who are not officers or
employees of AEFC;
o provision for certificate reserves (interest accrued on
certificate holder accounts); and
o expenses of customer settlements not attributable to any sales
function.
Distribution
IDSC does not have a distribution agreement or pay a distribution
fee for this certificate.
Employment of other American Express affiliates
AEFC may employ another affiliate of American Express as executing
broker for our portfolio transactions only if:
o we receive prices and executions at least as favorable as
those offered by qualified independent brokers performing
similar services;
o the affiliate charges us commissions consistent with those
charged to comparable unaffiliated customers for similar
transactions; and
o the affiliate's employment is consistent with the terms of the
current Investment Advisory and Services Agreement and federal
securities laws.
Directors and officers
IDSC's directors, chairman, president and controller are elected
annually for a term of one year. The other executive officers are
appointed by the president.
We paid a total of $37,000 during 1996 to directors not employed by
AEFC.
Board of directors
David R. Hubers*
Born in 1943. Director since 1987.
President and chief executive officer of AEFC since 1993. Senior
vice president and chief financial officer of AEFC from 1984 to
1993.
PAGE 20
Charles W. Johnson
Born in 1929. Director since 1989.
Director, Communications Holdings, Inc. Former vice president and
group executive, Industrial Systems, with Honeywell, Inc. Retired
1989.
Richard W. Kling*
Born in 1940. Director since 1996.
Chairman of the board of directors since 1996. Director of IDS
Life Insurance Company since 1984; president since 1994. Executive
vice president of marketing and products of AEFC from 1988 to 1994.
Senior vice president of AEFC since 1994. Director of IDS Life
Series Fund, Inc. and member of the board of managers of IDS Life
Variable Annuity Funds A and B.
Edward Landes
Born in 1919. Director since 1984.
Development consultant. Director of IDS Life Insurance Company of
New York. Director of Endowment Development, YMCA of Metropolitan
Minneapolis. Vice president for Financial Development, YMCA of
Metropolitan Minneapolis from 1985 through 1995. Former sales
manager - Supplies Division and district manager - Data Processing
Division of IBM Corporation. Retired 1983.
John V. Luck Ph.D.
Born in 1926. Director since 1987.
Former senior vice president - Science and Technology with General
Mills, Inc. Employed with General Mills, Inc. since 1968. Retired
1988.
James A. Mitchell*
Born in 1941. Director since 1994.
Chairman of the board of directors from 1994 to 1996. Executive
vice president - marketing and products of AEFC since 1994. Senior
vice president - insurance operations of AEFC and president and
chief executive officer of IDS Life Insurance Company from 1986 to
1994.
Harrison Randolph
Born in 1916. Director since 1968.
Engineering, manufacturing and management consultant since 1978.
Gordon H. Ritz
Born in 1926. Director since 1968.
Director, Mid-America Publishing and Atrix International, Inc.
Former president, Con 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.
PAGE 21
*"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.
Bruce A. Kohn
Born in 1951. Vice president and general counsel since 1993.
Senior counsel to AEFC since 1996. Counsel to AEFC from 1992 to
1996. Associate counsel from 1987 to 1992.
F. Dale Simmons
Born in 1937. Vice president - real estate loan management since
1993. Vice president of AEFC since 1992. Senior portfolio manager
of AEFC since 1989. Assistant vice president from 1987 to 1992.
The officers and directors as a group beneficially own less than 1%
of the common stock of American Express Company.
IDSC has provisions in its bylaws relating to the indemnification
of its officers and directors against liability, as permitted by
law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of
the SEC such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
PAGE 22
Auditors
A firm of independent auditors audits our financial statements at
the close of each fiscal year (Dec. 31). Copies of our annual
financial statements (audited) and semiannual financial statements
(unaudited) are available to any certificate holder upon request.
Ernst & Young, LLP, Minneapolis, has audited the financial
statements for each of the years in the three-year period ended
Dec. 31, 1996. These statements are included in this prospectus.
Ernst & Young, LLP, is also the auditor for American Express, the
parent company of AEFC and IDSC.
PAGE 23
Appendix
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa,
A, Baa, Ba, B, Caa, Ca and C. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Non-rated securities will be considered for investment. When
assessing each non-rated security, IDSC will consider the financial
condition of the issuer or the protection afforded by the terms of
the security.
PAGE 24
Quick telephone reference
Client Service Organization/Transaction Line
Withdrawals, transfers, inquiries
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 612-671-3800
TTY Service
For the hearing impaired
800-846-4293
American Express Easy Access Line
Current rate information.
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 612-671-1630
Account value, cash transactions information (automated response,
TouchtoneR phones only)
National/Minnesota: 800-862-7919
Mpls./St. Paul area: 800-862-7919
IDS Series D-1 Investment Certificate
IDS Tower 10
Minneapolis, MN 55440-0010
Distributed by American Express Financial Advisors Inc.
PAGE 25
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, 1996 1995 1994 1993 1992
($ thousands)
Statement of Operations Data:
Investment income $251,481 $256,913 $207,975 $236,859 $294,799
Investment expenses 62,851 62,817 58,690 65,404 69,630
Net investment income before provision for
certificate reserves and income tax benefit 188,630 194,096 149,285 171,455 225,169
Net provision for certificate reserves 171,968 176,407 107,288 123,516 178,175
Net investment income before income taxes 16,662 17,689 41,997 47,939 46,994
Income tax benefit 6,537 9,097 2,663 3,3651 1,666
Net investment income 23,199 26,786 44,660 51,304 58,660
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers (444) 452 (7,514) (9,870) (9,498)
Other - unaffiliated 101 (120) 1,638 (418) (500)
Total gain (loss) on investments (343) 332 (5,876) (10,288) (9,998)
Income tax benefit (expense) 120 (117) 2,047 4,617 -
Net realized gain (loss) on investments (223) 215 (3,829) (5,671) (9,998)
Net income - wholly owned subsidiary 1,251 373 241 120 3
Net income $24,227 $27,374 $41,072 $45,753 $48,665
Dividends declared:
Cash $65,000 $- $40,200 $64,500 $83,750
In-kind(a) - - - - 64,558
Balance Sheet Data:
Total assets $3,563,234 $3,912,131 $3,040,857 $2,951,405 $3,444,985
Certificate loans 43,509 51,147 58,203 67,429 77,347
Certificate reserves 3,283,191 3,628,574 2,887,405 2,777,451 3,256,472
Stockholder's equity 194,550 250,307 141,852 161,138 179,885
IDS Certificate Company (IDSC) is 100% owned by American Express Financial Corporation (Parent).
(a) Consisted of an investment security at amortized cost.
PAGE 26
Management's discussion and analysis of financial condition and
results of operations
Results of operations:
IDS Certificate Company's (IDSC) earnings are derived primarily
from the after-tax yield on invested assets less investment
expenses and interest credited on certificate reserve liabilities.
Changes in earnings' trends occur largely due to changes in the
rates of return on investments and the rates of interest credited
to certificate owner accounts and also, the mix of fully taxable
and tax-advantaged investments in the IDSC portfolio.
During the years 1994 and 1995, total assets and certificate
reserves increased due to certificate sales exceeding certificate
maturities and surrenders. The excess of certificate sales over
certificate maturities and surrenders resulted primarily from
higher accrual rates declared by IDSC during the last six months of
1994 and the first six months of 1995, reflecting rising interest
rates in the marketplace. The increase in total assets in 1995
reflects also an increase of $81 million in net unrealized
appreciation on investment securities classified as available for
sale. The increase in total assets in 1994 was tempered by $23
million of net unrealized depreciation on investment securities
classified as available for sale, net of deferred taxes of $13
million.
During the year 1996, total assets and certificate reserves
decreased due primarily to certificate maturities and surrenders
exceeding certificate sales. The excess of certificate maturities
and surrenders over certificate sales resulted primarily from lower
accrual rates declared by IDSC during the year. The decrease in
total assets in 1996 reflects also, a decrease in unrealized
appreciation on investment securities classified as available for
sale of $23 million and cash dividends paid to Parent of $65
million. The decrease in total assets in 1996 was tempered by an
increase in payable for securities purchased of $62 million that
settled in early 1997.
1996 Compared to 1995:
Gross investment income decreased 2.1% due primarily to lower
investment yields.
Investment expenses increased slightly in 1996. The increase
resulted primarily from higher amortization of premiums paid for
index options of $2.1 million and higher investment advisory and
services fee of $.5 million due to a slightly higher average asset
base on which the fee is calculated. These increases were offset
by lower distribution fees of $1.2 million due to lower certificate
sales, and lower amortization of premiums paid for interest rate
caps/corridors of $1.4 million. The lower amortization of interest
rate caps/corridors reflects the net of $8.2 million lower
amortization and $6.8 million less interest earned under the
cap/corridor agreements.
PAGE 27
Net provision for certificate reserves decreased 2.5% due primarily
to the net of lower accrual rates and a slightly higher average
balance of certificate reserves during 1996.
The decrease in income tax benefit resulted primarily from a lesser
portion of net investment income before income tax benefit being
attributable to tax-advantaged income.
1995 Compared to 1994:
Gross investment income increased 24% due primarily to a higher
average balance of invested assets and slightly higher investment
yields.
The 7.1% increase in investment expenses resulted primarily from
higher distribution fees due to higher sales of certificates that
provide for no deferral of those fees, and higher investment
advisory and services fee due to a higher asset base on which the
fee is calculated. These increases were partially offset by lower
amortization of the cost of options and interest rate
caps/corridors. The lower amortization of interest rate
caps/corridors reflects the net of $1.7 million of accelerated
amortization and $5.6 million higher interest earned under the
cap/corridor agreements.
Net provision for certificate reserves increased 65% reflecting a
higher average balance of certificate reserves and higher accrual
rates.
The increase in income tax benefit resulted primarily from a
greater portion of net investment income before income tax benefit
being attributable to tax-advantaged income.
Liquidity and cash flow:
IDSC's principal sources of cash are payments from sales of
face-amount certificates and cash flows from investments. In turn,
IDSC's principal uses of cash are payments to certificate owners
for matured and surrendered certificates, purchase of investments
and payments of dividends to its Parent.
Although total certificate sales decreased 41% in 1996 compared to
1995, certificate sales remained strong reflecting clients' ongoing
desire for safety of principal. Sales of certificates totaled
$1.0 billion in 1996 compared to $1.8 billion in 1995 and $1.5
billion during 1994. Certificate sales in 1995 benefited from the
special introductory promotion of IDSC's 11-month term Flexible
Savings certificate which generated sales of $562 million.
The special promotion of the 11-month term Flexible Savings
certificate was offered from May 10, 1995 to July 3, 1995, and
applied only to sales of new certificate accounts during the
promotion period. Certificates sold during the promotion period
received a special interest rate of 7.0% for the 11-month term.
Certificate maturities and surrenders totaled $1.7 billion during
1996 compared to $1.0 billion in 1995 and $1.2 billion in 1994.
The higher certificate maturities and surrenders in 1996 resulted
PAGE 28
primarily from $461 million of surrenders of the 11-month Flexible
Savings certificate. The surrenders of the 11-month Flexible
Savings certificate resulted primarily from lower accrual rates
declared by IDSC at term renewal, reflecting interest rates
available in the marketplace.
IDSC, as an issuer of face-amount certificates, is affected
whenever there is a significant change in interest rates. In view
of the uncertainty in the investment markets and due to the
short-term repricing nature of certificate reserve liabilities,
IDSC continues to invest in securities that provide for more
immediate, periodic interest/principal payments, resulting in
improved liquidity. To accomplish this, IDSC continues to invest
much of its cash flow in mortgage-backed securities and
intermediate-term bonds.
IDSC's investment program is designed to maintain an investment
portfolio that will produce the highest possible after-tax yield
within acceptable risk standards with additional emphasis on
liquidity. The program considers investment securities as
investments acquired to meet anticipated certificate owner
obligations.
Under Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
debt securities that IDSC has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities
IDSC does not have the positive intent to hold to maturity, as well
as all marketable equity securities, are classified as available
for sale and carried at fair value. The available-for-sale
classification does not mean that IDSC expects to sell these
securities, but that under SFAS No. 115 positive intent criteria,
these securities are available to meet possible liquidity needs
should there be significant changes in market interest rates
or certificate owner demand. See notes 1 and 3 to the financial
statements for additional information relating to SFAS No. 115.
At Dec. 31, 1996, securities classified as held to maturity and
carried at amortized cost were $.9 billion. Securities classified
as available for sale and carried at fair value were $2.2
billion. These securities, which comprise 88% of IDSC's total
invested assets, are well diversified. Of these securities, 98%
have fixed maturities of which 93% are of investment grade. Other
than U.S. Government Agency mortgage-backed securities, no one
issuer represents more than 1% of total securities. See note 3 to
financial statements for additional information on ratings and
diversification.
During the year ended Dec. 31, 1996, IDSC sold held-to-maturity
securities with an amortized cost and fair value of $2.3 million
and $1.8 million, respectively. The securities were sold due to
significant deterioration in the issuers' creditworthiness. In
addition, a held-to-maturity security with an amortized cost of $20
million was tendered for $23.2 million. By not accepting the
tender offer, Management believes it would have left IDSC
vulnerable to issuer's credit deterioration and it is reasonably
probable, impairment of investment and /or dividends would occur.
During the same period in 1996, securities classified as available
PAGE 29
for sale were sold with an amortized cost and fair value of $319
million and $314 million, respectively. The securities were sold
primarily to cover the cash outflows from surrenders of the
11-month Flexible Savings certificate.
During the year ended Dec. 31, 1995, investment securities,
primarily municipal bonds, with an amortized cost and fair value of
$112 million and $117 million, respectively, were reclassified
from held to maturity to available for sale. The reclassification
was made on Dec. 4, 1995, as a result of IDSC adopting the FASB
Special Report, A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities.
There were no other transfers of securities during the years 1996
and 1995.
Derivative financial instruments:
IDSC enters into transactions involving interest rate caps, and
purchased and written call options to manage its exposure to rising
interest rates. IDSC does not enter into such transactions for
trading purposes. There is a possibility that the value of these
instruments will change due to fluctuations in a factor from which
the instruments derive their values. IDSC is not subject to this
market risk because these instruments are largely used to hedge
such risks, and therefore, the cash flow and income effects of the
instruments are inverse to the effects of the underlying
transactions. See note 9 to financial statements for additional
information regarding derivative financial instruments.
Dividends:
Cash dividends of $65 million were paid to IDSC's Parent in 1996.
Ratios:
The ratio of stockholder's equity, excluding net unrealized holding
gains on investment securities, to total assets less certificate
loans and net unrealized holding gains on investment securities
at Dec. 31, 1996 was 5.2% compared to 5.8% in 1995. IDSC's current
regulatory requirement is a ratio of 5.0%.
PAGE 30
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 31
Annual Financial Information
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheets of IDS Certificate
Company, a wholly owned subsidiary of American Express Financial
Corporation, as of December 31, 1996 and 1995, and the related
statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the management
of IDS Certificate Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of
December 31, 1996 and 1995 by correspondence with custodians and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Certificate Company at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the financial statements, IDS Certificate
Company changed its method of accounting for certain investments in
debt and equity securities in 1994.
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 7, 1997
PAGE 32
Balance Sheets, Dec. 31,
Assets
Qualified Assets (note 2) 1996 1995
($ thousands)
Investments in unaffiliated issuers (notes 3, 4 and 10):
Cash and cash equivalents $111,331 $56,873
Held-to-maturity securities 863,921 1,002,905
Available-for-sale securities 2,212,968 2,408,491
First mortgage loans on real estate 218,697 233,394
Certificate loans - secured by certificate reserves 43,509 51,147
Investments in and advances to affiliates 6,444 5,655
Total investments 3,456,870 3,758,465
Receivables:
Dividends and interest 44,013 49,632
Investment securities sold 654 42,872
Total receivables 44,667 92,504
Other (notes 9 and 10) 36,164 32,778
Total qualified assets 3,537,701 3,883,747
Other Assets
Deferred distribution fees 25,525 28,286
Other 8 98
Total other assets 25,533 28,384
Total assets $3,563,234 $3,912,131
See notes to financial statements.
PAGE 33
Balance Sheets, Dec. 31,
Liabilities and Stockholder's Equity
Liabilities 1996 1995
($ thousands)
Certificate Reserves (notes 5 and 10):
Installment certificates:
Reserves to mature $344,344 $330,415
Additional credits and accrued interest 21,931 21,555
Advance payments and accrued interest 1,198 1,394
Other 55 55
Fully paid certificates:
Reserves to mature 2,747,690 3,127,301
Additional credits and accrued interest 167,673 147,468
Due to unlocated certificate holders 300 386
Total certificate reserves 3,283,191 3,628,574
Accounts Payable and Accrued Liabilities:
Due to Parent (note 7A) 1,424 1,541
Due to Parent for federal income taxes 1,737 103
Due to affiliates (note 7B, 7C and 7D) 279 2,068
Payable for investment securities purchased 61,979 -
Accounts payable, accrued expenses and other (notes 9 and 10) 11,977 12,249
Total accounts payable and accrued liabilities 77,396 15,961
Deferred federal income taxes (note 8) 8,097 17,289
Total liabilities 3,368,684 3,661,824
Commitments (note 4)
Stockholder's Equity (notes 5B, 5C, and 6):
Common stock, $10 par - authorized and issued 150,000 shares 1,500 1,500
Additional paid-in capital 143,844 168,844
Retained earnings:
Appropriated for predeclared additional credits/interest 11,989 18,878
Appropriated for additional interest on advance payments 50 50
Unappropriated 22,728 31,612
Unrealized holding gains on investment
securities - net (note 3A) 14,439 29,423
Total stockholder's equity 194,550 250,307
Total liabilities and stockholder's equity $3,563,234 $3,912,131
See notes to financial statements.
PAGE 34
Statements of Operations
Year ended Dec. 31, 1996 1995 1994
($thousands)
Investment Income:
Interest income from investments:
Bonds and notes:
Unaffiliated issuers $184,653 $181,902 $125,546
Mortgage loans on real estate:
Unaffiliated 19,583 22,171 24,006
Affiliated 36 56 68
Certificate loans 2,533 2,963 3,342
Dividends 44,100 48,614 54,170
Other 576 1,207 843
Total investment income 251,481 256,913 207,975
Investment Expenses:
Parent and affiliated company fees (note 7):
Distribution 32,732 33,977 27,007
Investment advisory and services 16,989 16,472 13,565
Depositary 228 242 183
Options (note 9) 10,156 8,038 9,854
Interest rate caps/corridors (note 9) 2,351 3,725 7,608
Other 395 363 473
Total investment expenses 62,851 62,817 58,690
Net investment income before provision
for certificate reserves and income
tax benefit $188,630 $194,096 $149,285
See notes to financial statements.
PAGE 35
Statements of Operations (continued)
Year ended Dec. 31, 1996 1995 1994
($thousands)
Provision for Certificate Reserves (notes 5 and 9):
According to the terms of the certificates:
Provision for certificate reserves $10,445 $11,009 $13,317
Interest on additional credits 1,487 2,300 3,174
Interest on advance payments 61 73 61
Additional credits/interest authorized by IDSC:
On fully paid certificates 155,411 157,857 85,101
On installment certificates 5,637 6,288 6,741
Total provision before reserve recoveries 173,041 177,527 108,394
Reserve recoveries from terminations
prior to maturity (1,073) (1,120) (1,106)
Net provision for certificate reserves 171,968 176,407 107,288
Net investment income before income tax benefit 16,662 17,689 41,997
Income tax benefit (note 8) 6,537 9,097 2,663
Net investment income 23,199 26,786 44,660
Realized gain (loss) on investments - net:
Securities of unaffiliated issuers (444) 452 (7,514)
Other-unaffiliated 101 (120) 1,638
Total gain (loss) on investments (343) 332 (5,876)
Income tax benefit (expense) (note 8):
Current 772 160 2,414
Deferred (652) (277) (367)
Total income tax benefit (expense) 120 (117) 2,047
Net realized gain (loss) on investments (223) 215 (3,829)
Net income - wholly owned subsidiary 1,251 373 241
Net income $24,227 $27,374 $41,072
See notes to financial statements.
PAGE 36
Statements of Stockholder's Equity
Year ended Dec. 31, 1996 1995 1994
($thousands)
Common Stock:
Balance at beginning and end of year $1,500 $1,500 $1,500
Additional Paid-in Capital:
Balance at beginning of year $168,844 $140,344 $147,144
Contribution from Parent - 28,500 3,000
Cash dividends declared (25,000) - (9,800)
Balance at end of year $143,844 $168,844 $140,344
Retained Earnings:
Appropriated for predeclared additional credits/interest (note 5B):
Balance at beginning of year $18,878 $18,398 $2,726
Transferred from (to) unappropriated
retained earnings (6,889) 480 15,672
Balance at end of year $11,989 $18,878 $18,398
Appropriated for additional interest on advance payments (note 5C):
Balance at beginning of year $50 $50 $25
Transferred from (to) unappropriated
retained earnings - - 25
Balance at end of year $50 $50 $50
Unappropriated (note 6):
Balance at beginning of year $31,612 $4,718 $9,743
Net income 24,227 27,374 41,072
Transferred (to) from appropriated
retained earnings 6,889 (480) (15,697)
Cash dividends declared (40,000) - (30,400)
Balance at end of year $22,728 $31,612 $4,718
Unrealized holding gains and losses on investment securities -
net (notes 1 and 3A):
Balance at beginning of year $29,423 ($23,158) $-
Adjustment due to initial application of SFAS 115 - - 8,827
Change during year (14,984) 52,581 (31,985)
Balance at end of year $14,439 $29,423 ($23,158)
Total stockholder's equity $194,550 $250,307 $141,852
See notes to financial statements.
PAGE 37
Statements of Cash Flows
Year ended Dec. 31, 1996 1995 1994
($ thousands)
Cash flows from operating activities:
Net income $24,227 $27,374 $41,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (1,251) (373) (241)
Provision for certificate reserves 171,968 176,407 107,288
Interest income added to certificate loans (1,631) (1,902) (2,133)
Amortization of premium/discount-net 14,039 19,232 22,114
Net loss (gain) on investments 343 (332) 5,876
Decrease (increase) in dividends and
interest receivable 5,619 (7,371) (1,829)
Decrease (increase) in deferred
distribution fees 2,761 (1,144) (7,527)
Decrease (increase) in other assets - 466 (466)
Decrease (increase) in deferred federal
income taxes (1,124) (2,652) 4,263
Decrease in other liabilities (679) (1,549) (3,210)
Net cash provided by operating activities 214,272 208,156 165,207
Cash flows from investing activities:
Maturity and redemption of investments:
Held-to-maturity securities 163,066 315,766 350,411
Available-for-sale securities 537,565 325,521 173,547
Other investments 52,189 46,004 35,130
Sale of investments:
Held-to-maturity securities 24,984 22,305 3,164
Available-for-sale securities 356,194 48,372 267,808
Other investments 385 21 -
Certificate loan payments 6,003 6,061 7,508
Purchase of investments:
Held-to-maturity securities (49,984) (208,140) (46,080)
Available-for-sale securities (617,138) (1,397,983) (830,826)
Other investments (28,617) (17,234) (9,208)
Certificate loan fundings (5,288) (7,776) (7,603)
Investment in subsidiary - - (450)
Net cash provided by (used in)
investing activities $439,359 ($867,083) ($56,599)
See notes to financial statements.
PAGE 38
Statements of Cash Flows (continued)
Year ended Dec. 31, 1996 1995 1994
($ thousands)
Cash flows from financing activities:
Payments from certificate owners $1,129,023 $1,577,884 $1,185,762
Capital contribution from Parent - 28,500 3,000
Certificate maturities and cash surrenders (1,663,196) (1,030,712) (1,171,101)
Dividends paid (65,000) - (40,200)
Net cash provided by (used in)
financing activities (599,173) 575,672 (22,539)
Net increase (decrease) in cash and
cash equivalents 54,458 (83,255) 86,069
Cash and cash equivalents beginning of year 56,873 140,128 54,059
Cash and cash equivalents end of year $111,331 $56,873 $140,128
Supplemental disclosures including non-cash transactions:
Cash received for income taxes $7,195 $6,854 $2,416
Certificate maturities and surrenders through
loan reductions 8,554 10,673 11,454
See notes to financial statements.
PAGE 39
Notes to Financial Statements ($ in thousands unless indicated
otherwise)
1. Nature of business and summary of significant accounting
policies
Nature of business
IDS Certificate Company (IDSC) is a wholly owned subsidiary of
American Express Financial Corporation (Parent), which is a wholly
owned subsidiary of American Express Company. IDSC is registered
as an investment company under the Investment Company Act of 1940
(the 1940 Act) and is in the business of issuing face-amount
investment certificates. The certificates issued by IDSC are not
insured by any government agency. IDSC's certificates are sold
primarily by American Express Financial Advisors Inc.'s (an
affiliate) field force operating in 50 states, the District of
Columbia and Puerto Rico. IDSC's Parent acts as investment advisor
for IDSC.
IDSC currently offers nine types of certificates with specified
maturities ranging from four to twenty years. Within their
specified maturity, most certificates have interest rate terms of
one to thirty-six months. In addition, one type of certificate has
interest tied, in whole or in part, to any upward movement in a
broad-based stock market index. Except for three types of
certificates, all of the certificates are available as qualified
investments for Individual Retirement Accounts or 401(k) plans and
other qualified retirement plans.
IDSC's gross income is derived primarily from interest and
dividends generated by its investments. IDSC's net income is
determined by deducting from such gross income its provision for
certificate reserves, and other expenses, including taxes, the fee
paid to Parent for investment advisory and other services, and the
distribution fees paid to American Express Financial Advisors Inc.
Described below are certain accounting policies that are important
to an understanding of the accompanying financial statements.
Basis of financial statement presentation
The accompanying financial statements are presented in accordance
with generally accepted accounting principles. IDSC uses the
equity method of accounting for its wholly owned unconsolidated
subsidiary, which is the method prescribed by the Securities and
Exchange Commission (SEC) for issuers of face-amount certificates.
Certain amounts from prior years have been reclassified to
conform to the current year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities and the reported amounts of income and expenses during
the year then ended. Actual results could differ from those
estimates.
PAGE 40
Notes to Financial Statements (continued)
Fair values of financial instruments
The fair values of financial instruments disclosed in the notes to
financial statements are estimates based upon current market
conditions and perceived risks, and require varying degrees of
management judgment.
Preferred stock dividend income
IDSC recognizes dividend income from cumulative redeemable
preferred stocks with fixed maturity amounts on an accrual basis
similar to that used for recognizing interest income on debt
securities. Dividend income from perpetual preferred stock is
recognized on an ex-dividend basis.
Securities
Cash equivalents are carried at amortized cost, which approximates
fair value. IDSC has defined cash and cash equivalents as cash in
banks and highly liquid investments with a maturity of three months
or less at acquisition and are not interest rate sensitive.
As of Jan. 1, 1994, IDSC adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Under the new rules, debt securities
that IDSC has both the positive intent and ability to hold to
maturity are carried at amortized cost. Debt securities IDSC does
not have the positive intent to hold to maturity, as well as all
marketable equity securities, are classified as available for
sale and carried at fair value. Unrealized holding gains and
losses on securities classified as available for sale are carried,
net of deferred income taxes, as a separate component of
stockholder's equity. The opening balance of stockholder's equity
was incresed by $8,827 (net of $4,752 in deferred income taxes) to
reflect the net unrealized holding gains on securities classified
as available for sale previously carried at amortized cost or the
lower of cost or market.
The basis for determining cost in computing realized gains and
losses on securities is specific identification. When there is a
decline in value that is other than temporary, the securities are
carried at estimated realizable value with the amount of adjustment
included in income.
First mortgage loans on real estate
Mortgage loans are carried at amortized cost, less reserves for
losses, which is the basis for determining any realized gains or
losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage
interest rates currently offered for mortgages of similar
maturities.
PAGE 41
Notes to Financial Statements (continued)
Impairment is measured as the excess of the loan's recorded
investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate,
or the fair value of collateral. The amount of the impairment is
recorded in a reserve for mortgage loan losses.
The reserve for mortgage loan losses is maintained at a level that
management believes is adequate to absorb estimated losses in the
portfolio. The level of the reserve account is determined based on
several factors, including historical experience, expected future
principal and interest payments, estimated collateral values, and
current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the reserve for
mortgage loan losses.
IDSC generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
Management's judgement as to the ultimate collectibility of
principal, interest payments received are either recognized as
income or applied to the recorded investment in the loan.
Certificates
Investment certificates may be purchased either with a lump-sum
payment or by installment payments. Certificate owners are
entitled to receive at maturity a definite sum of money. Payments
from certificate owners are credited to investment certificate
reserves. Investment certificate reserves accumulate at specified
percentage rates as declared by IDSC. Reserves also are maintained
for advance payments made by certificate owners, accrued interest
thereon, and for additional credits in excess of minimum guaranteed
rates and accrued interest thereon. On certificates allowing
for the deduction of a surrender charge, the cash surrender values
may be less than accumulated investment certificate reserves prior
to maturity dates. Cash surrender values on certificates allowing
for no surrender charge are equal to certificate reserves. The
payment distribution, reserve accumulation rates, cash surrender
values, reserve values and other matters are governed by the 1940
Act.
Deferred distribution fee expense
On certain series of certificates, distribution fees are deferred
and amortized over the estimated lives of the related certificates,
which is approximately 10 years. Upon surrender, unamortized
deferred distribution fees and any related surrender charges are
recognized in income.
Federal income taxes
IDSC's taxable income or loss is included in the consolidated
federal income tax return of American Express Company. IDSC
provides for income taxes on a separate return basis, except that,
under an agreement between Parent and American Express Company, tax
benefits are recognized for losses to the extent they can be used
PAGE 42
Notes to Financial Statements (continued)
in the consolidated return. It is the policy of Parent and its
subsidiaries that Parent will reimburse a subsidiary for any tax
benefits recorded.
2. Deposit of assets and maintenance of qualified assets
A) Under the provisions of its certificates and the 1940 Act, IDSC
was required to have qualified assets (as that term is defined in
Section 28(b) of the 1940 Act) in the amount of $3,259,260 and
$3,619,188 at Dec. 31, 1996 and 1995, respectively. IDSC had
qualified assets of $3,453,508 at Dec. 31, 1996 and $3,838,482 at
Dec. 31, 1995, excluding net unrealized appreciation on
available-for-sale securities of $22,214 and $45,265 at Dec.
31,1996 and 1995, respectively and payable for securities purchased
of $61,979 and $nil at Dec. 31, 1996 and 1995,
respectively.
Qualified assets are valued in accordance with such provisions of
Minnesota Statutes as are applicable to investments of life
insurance companies. Qualified assets for which no provision for
valuation is made in such statutes are valued in accordance with
rules, regulations or orders prescribed by the SEC. These values
are the same as financial statement carrying values, except for
debt securities classified as available for sale and all marketable
equity securities, which are carried at fair value in the financial
statements but are valued at amortized cost for qualified asset and
deposit maintenance purposes.
B) Pursuant to provisions of the certificates, the 1940 Act, the
central depositary agreement and to requirements of various states,
qualified assets of IDSC were deposited as follows:
Dec. 31, 1996
Required
Deposits deposits Excess
Deposits to meet certificate
liability requirements:
States $362 $330 $32
Central Depositary 3,355,041 3,203,076 151,965
Total $3,355,403 $3,203,406 $151,997
PAGE 43
Notes to Financial Statements (continued)
Dec. 31, 1995
Required
Deposits deposits Excess
Deposits to meet certificate
liability requirements:
States $414 $384 $30
Central Depositary 3,678,295 3,548,334 129,961
Total $3,678,709 $3,548,718 $129,991
The assets on deposit at Dec. 31, 1996 and 1995 consisted of
securities having a deposit value of $3,117,715 and $3,435,074,
respectively; mortgage loans of $218,697 and $229,554,
respectively; and other assets of $18,991 and $14,081,
respectively. Mortgage loans on deposit include an affiliated
mortgage loan at Dec. 31, 1995.
American Express Trust Company is the central depositary for IDSC.
See note 7C.
3. Investments in securities
A) Fair values of investments in securities represent market
prices or estimated fair values when quoted prices are not
available. Estimated fair values are determined by IDSC using
established procedures, involving review of market indexes, price
levels of current offerings and comparable issues, price estimates
and market data from independent brokers and financial files. The
procedures are reviewed annually. IDSC's vice president -
investments reports to the board of directors on an annual basis
regarding such pricing sources and procedures to provide assurance
that fair value is being achieved.
The following is a summary of securities held to maturity and
securities available for sale at Dec. 31, 1996 and Dec. 31, 1995.
Dec. 31, 1996
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
HELD TO MATURITY
U.S. Government and agencies obligations $362 $365 $4 $1
Mortgage-backed securities 38,435 38,834 743 344
Corporate debt securities 266,642 274,235 8,447 854
Stated maturity preferred stock 558,482 576,603 19,513 1,392
$863,921 $890,037 $28,707 $2,591
AVAILABLE FOR SALE
Mortgage-backed securities $1,009,738 $1,021,603 $14,164 $2,299
State and municipal obligations 55,876 57,726 1,850 -
Corporate debt securities 1,000,316 1,008,077 10,808 3,047
Stated maturity preferred stock 52,458 52,139 109 428
Perpetual preferred stock 68,000 68,282 317 35
Common stock 4,366 5,141 775 -
$2,190,754 $2,212,968 $28,023 $5,809
PAGE 44
Notes to Financial Statements (continued)
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
The amortized cost and fair value of securities held to maturity
and available for sale, by contractual maturity, at Dec. 31, 1996,
are shown below. Cash flows will differ from contractual
maturities because issuers may have the right to call or prepay
obligations.
Amortized Fair
cost value
HELD TO MATURITY
Due within 1 year $34,448 $34,948
Due after 1 through 5 years 400,592 414,987
Due after 5 years through 10 years 211,557 217,449
Due after 10 years 178,889 183,819
825,486 851,203
Mortgage-backed securities 38,435 38,834
$863,921 $890,037
AVAILABLE FOR SALE
Due within 1 year $109,402 $109,963
Due after 1 through 5 years 642,863 647,886
Due after 5 years through 10 years 204,675 207,250
Due after 10 years 151,710 152,843
1,108,650 1,117,942
Mortgage-backed securities 1,009,738 1,021,603
Perpetual preferred stock 68,000 68,282
Common stock 4,366 5,141
$2,190,754 $2,212,968
During the years ended Dec. 31, 1996 and 1995, there were no
securities classified as trading securities.
PAGE 45
Notes to Financial Statements (continued)
The proceeds from sales of available-for-sale securities and the
gross realized gains and gross realized losses on those sales
during the years ended Dec. 31, 1996, 1995 and 1994, were as
follows:
1996 1995 1994
Proceeds $313,976 $83,970 $265,008
Gross realized gains 456 36 363
Gross realized losses 5,836 1,854 10,140
Sales of held-to-maturity securities, due to significant credit
deterioration, during the years ended Dec. 31, 1996, 1995 and 1994,
were as follows:
1996 1995 1994
Amortized cost $22,297 $22,782 $3,158
Gross realized gains 3,200 2 5
Gross realized losses 513 479 -
During the year ended Dec. 31, 1996, no securities were
reclassified from held to maturity to available for sale. During
the year ended Dec. 31, 1995, securities with an amortized cost
and fair value of $111,967 and $116,882, respectively, were
reclassified from held to maturity to available for sale. The
reclassification was made on Dec. 4, 1995, as a result of
adopting the FASB Special Report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities.
B) Investments in securities with fixed maturities comprised 85%
and 90% of IDSC's total invested assets at Dec. 31, 1996 and 1995,
respectively. Securities are rated by Moody's and Standard & Poors
(S&P), or by Parent's internal analysts, using criteria similar to
Moody's and S&P, when a public rating does not exist. A summary of
investments in securities with fixed maturities by rating of
investment is as follows:
Rating 1996 1995
Aaa/AAA 41% 44%
Aa/AA 1 2
Aa/A 1 2
A/A 20 23
A/BBB 6 6
Baa/BBB 24 20
Below investment grade 7 3
100% 100%
PAGE 46
Notes to Financial Statements (continued)
Of the securities rated Aaa/AAA, 87% at Dec. 31, 1996 and 92% at
Dec. 31, 1995 are U.S. Government Agency mortgage-backed securities
that are not rated by a public rating agency. Approximately 11% at
Dec. 31, 1996 and 1995 of other securities with fixed maturities
are rated by Parent's internal analysts. At Dec. 31, 1996 and 1995
no one issuer, other than U.S. Government Agency mortgage-backed
securities, is greater than 1% of IDSC's total investment in
securities with fixed maturities.
C) IDSC reserves freedom of action with respect to its acquisition
of restricted securities that offer advantageous and desirable
investment opportunities. In a private negotiation, IDSC may
purchase for its portfolio all or part of an issue of restricted
securities. Since IDSC would intend to purchase such securities
for investment and not for distribution, it would not be acting as
a distributor if such securities are resold by IDSC at a later
date.
The fair values of restricted securities are determined by the
board of directors using the procedures and factors described in
note 3A.
In the event IDSC were to be deemed to be a distributor of the
restricted securities, it is possible that IDSC would be required
to bear the costs of registering those securities under the
Securities Act of 1933, although in most cases such costs would be
borne by the issuer of the restricted securities.
4. Investments in first mortgage loans on real estate
At Dec. 31, 1996 and 1995, IDSC's recorded investment in impaired
mortgage loans was $847 and $1,004, respectively, and the reserve
for loss on those amounts was $611. During 1996 and 1995, the
average recorded investment in impaired mortgage loans was $925 and
$1,052, respectively.
IDSC recognized $88 and $53 of interest income related to impaired
mortgage loans for the years ended Dec. 31, 1996 and 1995,
respectively.
There were no changes in the reserve for loss on mortgage loans of
$611 during the years ended Dec. 31, 1996 and 1995.
At Dec. 31, 1996 and 1995, approximately 6% of IDSC's invested
assets were first mortgage loans on real estate. A summary of
first mortgage loans by region and type of real estate is as
follows:
Region 1996 1995
South Atlantic 22% 22%
East North Central 21 22
West North Central 17 19
Mountain 15 9
Middle Atlantic 14 17
PAGE 47
Notes to Financial Statements (continued)
West South Central 5 5
Pacific 3 3
New England 3 3
100% 100%
Property Type 1996 1995
Retail/shopping centers 36% 32%
Apartments 33 39
Industrial buildings 13 12
Office buildings 9 8
Retirement homes - 1
Other 9 8
100% 100%
The carrying amounts and fair values of first mortgage loans on
real estate are as follows at Dec. 31. The fair values are
estimated using discounted cash flow analysis, using market
interest rates currently being offered for loans with similar
maturities.
Dec. 31, 1996 Dec. 31, 1995
Carrying Fair Carrying Fair
amount value amount value
First mortgage loans on real estate $219,308 $221,253 $234,005 $248,860
Reserve for losses (611) - (611) -
Net first mortgage loans on real estate $218,697 $221,253 $233,394 $248,860
At Dec. 31, 1996 and 1995, commitments for fundings of first
mortgage loans, at market interest rates, aggregated $9,300 and
$nil, respectively. IDSC employs policies and procedures to
ensure the creditworthiness of the borrowers and that funds will be
available on the funding date. IDSC's loan fundings are restricted
to 80% or less of the market value of the real estate at the time
of the loan funding. Management believes there is no fair value
for these commitments.
5. Certificate reserves
Reserves maintained on outstanding certificates have been computed
in accordance with the provisions of the certificates and Section
28 of the 1940 Act. The average rates of accumulation on
certificate reserves at Dec. 31, 1996 and 1995 were:
1996
Average Average
gross additional
Reserve accumulation credit
balance rate rate
Installment certificates:
Reserves to mature:
With guaranteed rates $32,512 3.50% 1.35%
Without guaranteed rates (A) 311,832 - 2.97
Additional credits and accrued interest 21,931 3.14 -
Advance payments and accrued interest (C) 1,198 3.15 1.70
PAGE 48
Notes to Financial Statements (continued)
Other 55 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates 187,272 3.23 1.79
Without guaranteed rates (A) and (D) 2,560,418 - 5.03
Additional credits and accrued interest 167,673 3.23 -
Due to unlocated certificate holders 300 - -
$3,283,191
1995
Average Average
gross additional
Reserve accumulation credit
balance rate rate
Installment certificates:
Reserves to mature:
With guaranteed rates $40,232 3.50% 1.35%
Without guaranteed rates (A) 290,183 - 3.23
Additional credits and accrued interest 21,555 3.13 -
Advance payments and accrued interest 1,394 3.13 1.72
Other 55 - -
Fully paid certificates:
Reserves to mature:
With guaranteed rates 210,365 3.24 1.85
Without guaranteed rates (A) and (D) 2,916,936 - 5.70
Additional credits and accrued interest 147,468 3.26 -
Due to unlocated certificate holders 386 - -
$3,628,574
A) There is no minimum rate of accrual on these reserves. Interest
is declared periodically, quarterly or annually, in accordance with
the terms of the separate series of certificates.
B) On certain series of single payment certificates, additional
interest is predeclared for periods greater than one year. At Dec.
31, 1996, $11,989 of retained earnings had been appropriated for
the predeclared additional interest, which represents the
difference between certificate reserves on these series, calculated
on a statutory basis, and the reserves maintained per books.
C) Certain series of installment certificates guarantee accrual of
interest on advance payments at an average of 3.15%. IDSC has
increased the rate of accrual to 4.85% through April 30, 1998. An
appropriation of retained earnings amounting to $50 has been made,
which represents the estimated additional accrual that will result
from the increase granted by IDSC.
D) IDS Stock Market Certificate enables the certificate owner to
participate in any relative rise in a major stock market index
without risking loss of principal. Generally the certificate has a
term of 12 months and may continue for up to 14 successive terms.
The reserve balance at Dec. 31, 1996 and 1995 was $309,570 and
$211,093, respectively.
E) The carrying amounts and fair values of certificate reserves
consisted of the following at Dec. 31, 1996 and 1995. Fair values
of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender
charges.
PAGE 49
Notes to Financial Statements (continued)
The fair values for other certificate reserves are determined by a
discounted cash flow analysis using interest rates currently
offered for certificates with similar remaining terms, less
any applicable surrender charges.
1996 1995
Carrying Fair Carrying Fair
amount value amount value
Reserves with terms of one year or less $2,637,144 $2,635,835 $2,900,947 $2,899,542
Other 646,047 630,141 727,627 765,110
Total certificate reserves 3,283,191 3,265,976 3,628,574 3,664,652
Unapplied certificate transactions 1,217 1,217 1,545 1,545
Certificate loans and accrued interest (43,980) (43,980) (51,707) (51,707)
Total $3,240,428 $3,223,213 $3,578,412 $3,614,490
6. Dividend restriction
Certain series of installment certificates outstanding provide that
cash dividends may be paid by IDSC only in calendar years for which
additional credits of at least one-half of 1% on such series of
certificates have been authorized by IDSC. This restriction has
been removed for 1997 and 1998 by IDSC's declaration of additional
credits in excess of this requirement.
7. Fees paid to Parent and affiliated companies ($ not in
thousands)
A) The basis of computing fees paid or payable to Parent for
investment advisory and other general and administrative services
is:
The investment advisory and services agreement with Parent provides
for a graduated scale of fees equal on an annual basis to 0.75% on
the first $250 million of total book value of assets of IDSC, 0.65%
on the next $250 million, 0.55% on the next $250 million, 0.50% on
the next $250 million and 0.45% on the amount in excess of $1
billion. The fee is payable monthly in an amount equal to
one-twelfth of each of the percentages set forth above. Excluded
from assets for purposes of this computation are first mortgage
loans, real estate and any other asset on which IDSC pays an
outside service fee.
B) The basis of computing fees paid or payable to American Express
Financial Advisors Inc. (an affiliate) for distribution services
is:
Fees payable to American Express Financial Advisors Inc. on sales
of IDSC's certificates are based upon terms of agreements giving
American Express Financial Advisors Inc. the exclusive right to
distribute the certificates covered under the agreements. The
agreements provide for payment of fees over a period of time. The
aggregate fees payable under the agreements per $1,000 face amount
of installment certificates and $1,000 purchase price of single
payments, and a summary of the periods over which the fees are
payable, shown by series are:
PAGE 50
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 - -
(a) At the end of the sixth through the 10th year, an additional
fee is payable of 0.5% of the daily average balance of the
certificate reserve maintained during the sixth through the 10th
year, respectively.
Fees on Cash Reserve and Flexible Savings certificates are paid at
a rate of 0.25% of the purchase price at the time of issuance and
0.25% of the reserves maintained for these certificates at the
beginning of the second and subsequent quarters from issue date.
Fees on the Investors Certificate are paid at an annualized rate of
1% of the reserves maintained for the certificates. Fees are paid
at the end of each term on certificates with a one, two or
three-month term. Fees are paid each quarter from date of issuance
on certificates with a six, 12, 24 or 36-month term.
Fees on the Preferred Investors Certificate are paid at an
annualized rate of 0.66% of the reserves maintained for the
certificates. Fees are paid at the end of each term on
certificates with a one, two or three-month term. Fees are paid
each quarter from date of issuance on certificates with a six, 12,
24 or 36-month term.
Fees on the Stock Market Certificate are paid at a rate of 1.25% of
the purchase price on the first day of the certificate's term and
1.25% of the reserves maintained for these certificates at the
beginning of each subsequent term.
C) The basis of computing depositary fees paid or payable to
American Express Trust Company (an affiliate) is:
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 51
Notes to Financial Statements (continued)
D) The basis for computing fees paid or payable to American
Express Bank Ltd. (an affiliate) for the distribution of the IDS
Special Deposits certificate on an annualized basis is:
1.25% of the reserves maintained for the certificates on an amount
from $100,000 to $249,000, 0.80% on an amount from $250,000 to
$499,000, 0.65% on an amount from $500,000 to $999,000 and 0.50% on
an amount $1,000,000 or more. Fees are paid at the end of each
term on certificates with a one, two or three-month term. Fees are
paid at the end of each quarter from date of issuance on
certificates with a six, 12, 24 or 36-month term.
8. Income taxes
Income tax expense (benefit) as shown in the statement of
operations for the three years ended Dec. 31, consists of:
1996 1995 1994
Federal:
Current ($5,560) ($6,285) ($8,743)
Deferred (1,124) (2,652) 3,933
(6,684) (8,937) (4,810)
State 27 (43) 100
Total tax benefit ($6,657) ($8,980) ($4,710)
Income tax expense (benefit) differs from that computed by using
the U.S. Statutory rate of 35%. The principal causes of the
difference in each year are shown below:
1996 1995 1994
Federal tax expense at U.S. statutory rate $5,711 $6,307 $12,642
Tax-exempt interest (1,517) (3,339) (4,205)
Dividend exclusion (10,865) (12,166) (13,862)
Other, net (13) 261 615
Federal tax benefit ($6,684) ($8,937) ($4,810)
Deferred income taxes result from the net tax effects of temporary
differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements that will result in differences between income
for tax purposes and income for financial statement purposes in
future years. Principal components of IDSC's deferred tax assets
and liabilities as of Dec. 31, are as follows.
PAGE 52
Notes to Financial Statements (continued)
Deferred tax assets: 1996 1995
Certificate reserves $13,028 $10,312
Investment reserves 540 843
Investments - 348
Other, net 19 -
Total deferred tax assets $13,587 $11,503
Deferred tax liabilities: 1996 1995
Deferred distribution fees $8,934 $9,900
Investment unrealized gains 7,775 15,843
Purchased/written call options 3,429 1,623
Dividends receivable 745 892
Investments 714 -
Return of capital dividends 87 305
Other, net - 229
Total deferred tax liabilities 21,684 28,792
Net deferred tax liabilities $8,097 $17,289
9. Derivative financial instruments
IDSC enters into transactions involving derivative financial
instruments as an end user(nontrading). IDSC uses these
instruments to manage its exposure to interest rate risk, including
hedging specific transactions. IDSC manages risks associated with
these instruments as described below.
Market risk is the possibility that the value of the derivative
financial instrument will change due to fluctuations in a factor
from which the instrument derives its value, primarily an interest
rate or a major market index. IDSC is not impacted by market risk
related to derivatives held because derivatives are largely used to
manage risk and, therefore, the cash flows and income effects of
the derivatives are inverse to the effects of the underlying hedged
transactions.
Credit exposure is the possibility that the counterparty will not
fulfill the terms of the contract. IDSC monitors credit exposure
related to derivative financial instruments through established
approval procedures, including setting concentration limits by
counterparty, reviewing credit ratings and requiring collateral
where appropriate. At Dec. 31, 1996, IDSC's counterparties to the
interest rate corridors are rated AA or better by nationally
recognized rating agencies. The counterparties to the call options
are seven major broker/dealers.
The notional or contract amount of a derivative financial
instrument is generally used to calculate the cash flows that are
received or paid over the life of the agreement. Notional amounts
do not represent market risk or credit exposure and are not
recorded on the balance sheet.
PAGE 53
Notes to Financial Statements (continued)
Credit exposure related to derivative financial instruments is
measured by the replacement cost of those contracts at the balance
sheet date. The replacement cost represents the fair value
of the instrument, and is determined by market values, dealer
quotes or pricing models.
IDSC's holdings of derivative financial instruments were as follows
at Dec. 31, 1996 and 1995.
1996
Notional Total
or contract Carrying Fair credit
amount value value exposure
Assets:
Interest rate corridors $200,000 $- $188 $188
Purchased call options 242,243 36,164 34,987 34,987
Total $442,243 $36,164 $35,175 $35,175
Liabilities:
Written call options $225,386 $9,552 $17,571 $-
1995
Notional Total
or contract Carrying Fair credit
amount value value exposure
Assets:
Interest rate caps and corridors $970,000 $3,362 $2,128 $2,128
Purchased call options 152,406 27,138 24,161 24,161
Total $1,122,406 $30,500 $26,289 $26,289
Liabilities:
Written call options $141,782 $9,333 $10,394 $-
The fair values of derivative financial instruments are based on
market values, dealer quotes or pricing models. The interest rate
corridors expire in Jan. and Feb. of 1997. The options expire
throughout 1997.
Interest rate caps/corridors and options are used to manage IDSC's
exposure to rising interest rates. These instruments are used
primarily to protect the margin between the interest rate
earned on investments and the interest rate credited to related
investment certificate owners.
The interest rate caps/corridors are reset quarterly and IDSC earns
interest on the notional amount to the extent the London Interbank
Offering Rate exceeds the reference rates specified in the
cap/corridor agreements. These reference rates ranged from 4% to
9%. The cost of interest rate caps/corridors is amortized over the
terms of the agreements on a straight line basis and is included in
other qualified assets. The amortization, net of any interest
earned, is included in investment expenses.
IDSC offers a series of certificates which pay interest based upon
the relative change in a major stock market index between the
beginning and end of the certificates' term. The certificate
owners have the option of participating in the full amount of
increase in the index during the term (subject to a specified
maximum) or a lesser percentage of the increase plus a guaranteed
minimum rate of interest. As a means of hedging its obligations
under the provisions of these certificates, IDSC purchases and
PAGE 54
Notes to Financial Statements (continued)
writes call options on the major market index. The options are
cash settlement options, that is, there is no underlying security
to deliver at the time the contract is closed out.
The option contracts are less than one year in term. The premiums
paid or received on these index options are reported in other
qualified assets or other liabilities, as appropriate, and are
amortized into investment expense over the life of the option. The
intrinsic value of these index options is also reported in other
qualified assets or other liabilities, as appropriate. The
unrealized gains and losses related to the changes in the intrinsic
value of these options are recognized currently in provision for
certificate reserves.
Following is a summary of open option contracts at Dec. 31, 1996
and 1995.
1996
Face Average Index at
amount strike price Dec.31,1996
Purchased call options $242,243 669 741
Written call options 225,386 736 741
1995
Face Average Index at
amount strike price Dec.31,1995
Purchased call options $152,406 539 616
Written call options 141,782 601 616
10. Fair values of financial instruments
IDSC discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate
that value. The fair value of the financial instruments presented
may not be indicative of their future fair values. The estimated
fair value of certain financial instruments such as cash and cash
equivalents, receivables for dividends and interest, investment
securities sold and other trade receivables, accounts payable due
to Parent and affiliates, payable for investment securities
purchased and other accounts payable and accrued expenses are
approximated to be the carrying amounts disclosed in the balance
sheets. Non-financial instruments, such as deferred distribution
fees, are excluded from required disclosure. IDSC's off-balance
sheet intangible assets, such as IDSC's name and future earnings of
the core business are also excluded. IDSC's management believes
the value of these excluded assets is significant. The fair value
of IDSC, therefore, cannot be estimated by aggregating the amounts
presented.
PAGE 55
A summary of fair values of financial instruments as of Dec. 31, is
as follows:
1996 1995
Carrying Fair Carrying Fair
value value value value
Financial assets
Assets for which carrying values
approximate fair values $155,396 $155,396 $148,746 $148,746
Investment securities (note 3) 3,076,889 3,103,005 3,411,396 3,456,922
First mortgage loans on real estate (note 4) 218,697 221,253 233,394 248,860
Derivative financial instruments (note 9) 36,164 35,175 30,500 26,289
Financial liabilities
Liabilities for which carrying values
approximate fair values 76,040 76,040 14,247 14,247
Certificate reserves (note 5) 3,240,428 3,223,213 3,578,412 3,614,490
Derivative financial instruments (note 9) 9,552 17,571 9,333 10,394
PAGE 56
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 IDS Special Deposits* 41,064,846.74
* Renamed American Express Special Deposits in April 1996.
(b) Underwriters and other purchasers
IDS Special Deposits are marketed by American Express Bank Ltd.
(AEB), an affiliate of IDS Certificate Company, to private banking
clients of AEB in the United Kingdom and Hong Kong.
(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 AEB were $153,318.21 in 1993,
$88,686.14 in 1994, $172,633.41 in 1995 and $301,946.44 in 1996.
PAGE 57
(d) Exemption from registration claimed
American Express Special Deposits are marketed, pursuant to the
exemption in Regulation S under the Securities Act of 1933, by AEB
in the United Kingdom and Hong Kong 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. 40 to Registration Statement No. 2-
55252 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.
2. Not Applicable.
3. (a) Certificate of Incorporation, dated
December 31, 1977, filed electronically as
Exhibit 3(a) to Post-Effective Amendment
No. 10 to Registration Statement No. 2-
89507, is incorporated herein by
reference.
(b) Certificate of Amendment, dated April 2,
1984, filed electronically as Exhibit 3(b)
to Post-Effective Amendment No. 10 to
Registration Statement No. 2-89507, is
incorporated herein by reference.
(c) By-Laws, dated December 31, 1977, filed
electronically as Exhibit 3(c) to Post-
Effective Amendment No. 10 to Registration
Statement No. 2-89507, are incorporated
herein by reference.
4. Not Applicable.
5. An Opinion and consent of counsel as to the
legality of the securities being registered is
filed with the Registrant's most recent 24f-2
notice.
6 through 9. -- None.
PAGE 58
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. (a) Continued
10.
(a) Investment Advisory and Services Agreement
between Registrant and IDS/American
Express Inc. dated January 12, 1984, filed
as Exhibit 10(a) to Registration Statement
No. 2-89507, is incorporated herein by
reference.
(b) Depositary and Custodial Agreement dated
September 30, 1985 between IDS Certificate
Company and IDS Trust Company, filed as
Exhibit 10(b) to Registrant's Post-
Effective Amendment No. 3 to Registration
Statement No. 2-89507, is incorporated
herein by reference.
(c) Foreign Deposits Agreement dated November
21, 1990, between IDS Certificate Company
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.
(d) Copy of Distribution Agreement dated March
29, 1996 between Registrant and American
Express Service Corporation filed
electronically as Exhibit 1(b) to Post-
Effective Amendment No. 17 to Registration
Statement No. 2-95577, is incorporated
herein by reference.
(e) Selling Agent Agreement dated
June 1, 1990, between American Express
Bank International and IDS Financial
Services Inc. for the American Express
Investors and American Express Stock
Market Certificates, filed electronically
as Exhibit 1(c) to the Post-Effective
Amendment No. 5 to Registration Statement
No. 33-26844, 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.
PAGE 59
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. (a) Continued
(g) Amendment to the Selling Agent Agreement
dated December 12, 1994, between IDS
Financial Services Inc. and American
Express Bank International, filed
electronically as Exhibit 16(d) to Post-
Effective Amendment No. 13 to Registration
Statement No. 2-95577, is incorporated
herein by reference.
(h) Selling Agent Agreement dated December 31,
1994, between IDS Financial Services Inc.
and Coutts & Co. (USA) International,
filed electronically as Exhibit 16(e) to
Post-Effective Amendment No. 13 to
Registration Statement No. 2-95577, is
incorporated herein by reference.
(i) Consulting Agreement dated December 12,
1994, between IDS Financial Services Inc.
and American Express Bank International,
filed electronically as Exhibit 16(f) to
Post-Effective Amendment No. 13 to
Registration Statement No. 2-95577
incorporated herein by reference.
(j) Letter amendment date January 9, 1997 to
the Marketing Agreement dated October 10,
1991, between Registrant and American
Express Bank Ltd. is filed electronically
herewith.
11 through 22. -- None.
23. Consent of Independent Auditor's is filed
electronically herewith as Exhibit 23.
24. (a) Officers' Power of Attorney, dated May 17,
1994, filed electronically as Exhibit
25(a) to Post-Effective Amendment No. 37
to Registration Statement No. 2-55252 is
incorporated herein by reference.
(b) Directors' Power of Attorney, dated
February 29, 1996, electronically as
Exhibit 24(b) to Post-Effective Amendment
No. 39 to Registration Statement No. 2-
55252 is incorporated herein by reference.
25 through 28. -- None.
(b) The financial statement schedules for IDS
Certificate Company are filed
electronically:
PAGE 60
I. Investments in Securities of
Unaffiliated Issuers December 31,
1996.
II. Investments in and Advances to
Affiliates and Income Thereon,
December 31, 1996, 1995 and 1994.
III. Mortgage Loans on Real Estate and
Interest Earned on Mortgages - Year
ended December 31, 1996.
V. Qualified Assets on Deposit -
December 31, 1996.
VI. Certificate Reserves - Year ended
December 31, 1996.
VII. Valuation and Qualifying Accounts -
Years ended December 31, 1996, 1995
and 1994.
Schedule III and Schedule VI for the year ended
Dec. 31, 1995 are incorporated by reference to
Post-Effective Amendment No. 38 to Registration
Statement No. 2-55252 for Series D-1 Investment
Certificate. Schedule VI for the year ended
Dec. 31, 1994, is incorporated by reference to
Post-Effective Amendment No. 37 to Registration
Statement No. 2-55252.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
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,
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 its 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 its 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. 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
PAGE 61
material fact, on the part of the agents of IDS Financial
Services Inc. 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 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis and State of Minnesota, on the 14th day of March,
1997.
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 14th day of March, 1997.
Signature Capacity
/s/ Stuart A. Sedlacek* ** President and Director
Stuart A. Sedlacek (Principal Executive
Officer)
/s/ Morris Goodwin* Vice President and Treasurer
Morris Goodwin (Principal Financial
Officer)
/s/ Jay C. Hatlestad* Vice President and Controller
Jay C. Hatlestad (Principal Accounting
Officer)
/s/ David R. Hubers** Director
David R. Hubers
/s/ Charles W. Johnson** Director
Charles W. Johnson
/s/ Richard W. Kling** Director
Richard W. Kling
/s/ Edward Landes** Director
Edward Landes
Signatures continued on next page.
PAGE 63
Signatures continued from previous page.
Signature Capacity
/s/ John V. Luck** Director
John V. Luck
/s/ James A. Mitchell** Chairman of the Board
James A. Mitchell of Directors and Director
/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. 37 to Registration Statement No. 2-55252, incorporated herein
by reference.
_________________________.
Bruce A. Kohn
**Signed pursuant to Directors' Power of Attorney dated
February 29, 1996, filed electronically as Exhibit 24(b) to Post-
Effective Amendment No. 39 to Registration Statement No. 2-55252,
incorporated herein by reference.
_________________________.
Bruce A. Kohn
PAGE 64
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 40 TO
REGISTRATION STATEMENT NO. 2-55252
Cover Page
Prospectus
Auditor's Report
Financial Statements
Part II Information
Signatures
Exhibits