SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
POST-EFFECTIVE AMENDMENT NUMBER 27 TO
REGISTRATION STATEMENT NUMBER 2-95577
American Express Flexible Savings Certificate
UNDER
THE SECURITIES ACT OF 1933
AMERICAN EXPRESS CERTIFICATE COMPANY
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(Exact name of registrant as specified in charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
6725
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(Primary Standard Industrial Classification Code Number)
41-6009975
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(I.R.S. Employer Identification No.)
200 AXP Financial Center, Minneapolis, MN 55474, (612) 671-3131
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Monica P. Vickman - 50605 AXP Financial Center,
Minneapolis, MN 55474, (612) 671-4085
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 27 TO
REGISTRATION STATEMENT NO. 2-95577
Cover Page
Prospectus
Part II Information
Signatures
Exhibits
American Express Flexible Savings Certificate
PROSPECTUS APRIL 25, 2001
Earn competitive rates guaranteed by American Express Certificate Company for
the term you choose.
American Express Certificate Company (AECC), formerly IDS Certificate Company,
issues American Express Flexible Savings Certificates. You may:
o Purchase this certificate in any amount from $1,000 through $1 million.
o Select a term of six, 12, 18, 24, 30 or 36 months.
o Invest in successive terms up to a total of 20 years from the issue date of
the certificate.
Purchases through some distribution channels and recipients of promotional
coupons may be eligible for special rates. See "Initial Interest Rates" on page
2p and "Rates for New Purchases" under "About the Certificate."
Like all investment companies, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
This certificate is backed solely by the assets of AECC. See "Risk Factors" on
page 2p.
AECC is not a bank or financial institution, and the securities it offers are
not deposits or obligations of, or backed or guaranteed or endorsed by, any bank
or financial institution, nor are they insured by the Federal Deposit Insurance
Corporation (FDIC), the Federal Reserve Board or any other agency.
The distributor is not required to sell any specific amount of certificates.
Issuer:
American Express Certificate Company
70100 AXP Financial Center
Minneapolis, MN 55474
(800) 862-7919 (toll free)
Distributor:
American Express Financial Advisors Inc.
American Express companies
Initial Interest Rates
AECC guarantees a fixed rate of interest for each term. For the initial term,
the rate will be within a specified range of certain average certificates of
deposit interest rates, as published in the most recent BANK RATE MONITOR(R)
(BRM) Top 25 Market Average(R). BANK RATE MONITOR and National Index are marks
owned by BankRate.comSM, a division of ilife.com, Inc., N. Palm Beach, FL 33408.
See "About the Certificate" for more explanation.
Here are the interest rates in effect April 25, 2001:
Term Simple interest rate* Effective annualized yield**
6 month 4.96% 5.07%
12 month 5.05% 5.16%
18 month 5.08% 5.19%
24 month 5.16% 5.28%
30 month 5.19% 5.31%
36 month 5.26% 5.38%
*These are the rates for investments under $100,000. Rates may depend on the
factors described in "Rates for New Purchases" and "Promotions and Pricing
Flexibility" under "About the Certificate."
**Assuming monthly compounding.
These rates may or may not have changed when you apply to purchase your
certificate. Rates for future terms are set at the discretion of AECC and may
also differ from the rates shown here. Recipients of promotional coupons may be
eligible for special rates. See "Rates for New Purchases" under "About the
Certificate" for more explanation.
AECC may offer different rates for different distribution channels. For more
information call (800) 862-7919. Certificates of deposits (CDs) with different
rates may be available from American Express Centurion Bank, an affiliate of
AECC, including high rate CDs through Membership B@nking(SM).
RISK FACTORS
You should consider the following when investing in this certificate:
This certificate is backed solely by the assets of AECC. Most of our assets are
debt securities and are subject to the following risks:
Interest rate risk: The price of debt securities generally falls as interest
rates increase, and rises as interest rates decrease. In general, the longer the
maturity of a bond, the greater its loss of value as interest rates increase,
and the greater its gain in value as interest rates decrease. See "How Your
Money Is Used and Protected."
Credit risk: This is the risk that the issuer of a security, or the counterparty
to a contract, will default or otherwise become unable to honor a financial
obligation (such as payments due on a bond or note). Credit ratings of the
issuers of securities in our portfolio vary. See "How Your Money Is Used and
Protected."
Table of Contents
Initial Interest Rates 2p
Risk Factors 2p
About the Certificate 4p
Read and Keep This Prospectus 4p
Investment Amounts and Terms 4p
Face Amount and Principal 4p
Value at Maturity 5p
Receiving Cash During the Term 5p
Interest 5p
Rates for New Purchases 5p
Promotions and Pricing Flexibility 8p
Additional Investments 8p
How to Invest and Withdraw Funds 9p
Buying Your Certificate 9p
Two Ways to Make Investments 10p
Full and Partial Withdrawals 10p
When Your Certificate Term Ends 12p
Transfers to Other Accounts 13p
Two Ways to Request a Withdrawal or Transfer 13p
Three Ways to Receive Payment When You Withdraw Funds 14p
Retirement Plans: Special Policies 14p
Withdrawal at Death 15p
Transfer of Ownership 15p
For More Information 15p
Taxes on Your Earnings 15p
Retirement Accounts 15p
Gifts to Minors 16p
Your TIN and Backup Withholding 16p
Foreign Investors 16p
How Your Money Is Used and Protected 18p
Invested and Guaranteed by AECC 18p
Regulated by Government 19p
Backed by Our Investments 19p
Investment Policies 20p
How Your Money Is Managed 22p
Relationship Between AECC
and American Express Financial
Corporation 22p
Capital Structure and Certificates Issued 23p
Investment Management and Services 23p
Distribution 24p
Transfer Agent 24p
Employment of Other American Express Affiliates 25p
Directors and Officers 25p
Independent Auditors 27p
American Express Certificates 27p
Appendix 28p
Annual Financial Information 29p
Summary of Selected Financial Information 29p
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 30p
American Express Certificate Company
Responsibility for Preparation
of Financial Statements 34p
Report of Independent Auditors 35p
Financial Statements 36p
Notes to Financial Statements 42p
About the Certificate
READ AND KEEP THIS PROSPECTUS
This prospectus describes terms and conditions of your American Express Flexible
Savings Certificate. It contains facts that can help you decide if the
certificate is the right investment for you. Read the prospectus before you
invest and keep it for future reference. No one has the authority to change the
terms and conditions of the American Express Flexible Savings Certificate as
described in the prospectus, or to bind AECC by any statement not in it.
INVESTMENT AMOUNTS AND TERMS
You may purchase the American Express Flexible Savings Certificate in any amount
from $1,000 payable in U.S. currency. Unless you receive prior approval from
AECC, your total amount paid in over the life of the certificate, less
withdrawals, cannot exceed $1 million.
After determining the amount you wish to invest, you select a term of six, 12,
18, 24, 30 or 36 months for which AECC will guarantee an interest rate. AECC
guarantees your principal and interest. Generally, you will be able to select
any of the terms offered. But if your certificate is nearing its 20-year
maturity, you will not be allowed to select a term that would carry the
certificate past its maturity date.
The certificate may be used as an investment for your Individual Retirement
Account (IRA), 401(k) plan account or other qualified retirement plan account.
If so used, the amount of your contribution (investment) will be subject to any
limitations of the plan and applicable federal law.
FACE AMOUNT AND PRINCIPAL
The face amount of the certificate is the amount of your initial investment, and
will remain the same over the life of the certificate. Any investment or
withdrawal within 15 days of the end of a term will be added on or deducted to
determine principal for the new term. A withdrawal at any other time is taken
first from interest credited to your investment during that term. The principal
is the amount that is reinvested at the beginning of each subsequent term, and
is calculated as follows:
Principal equals Face amount (initial investment)
plus At the end of a term, interest credited to your account
during the term
minus Any interest paid to you in cash
plus Any additional investments to your certificate
minus Any withdrawals, fees and applicable penalties
Principal may change during a term as described in "Add-on feature" under
"Additional Investments," and "Full and Partial Withdrawals."
For example: Assume your initial investment (face amount) of $5,000 has earned
$75 of interest during the term. You have not taken any interest as cash, or
made any withdrawals. You have invested an additional $2,500 prior to the
beginning of the next term. Your principal for the next term will equal:
$5,000 Face amount (initial investment)
plus $ 75 Interest credited to your account
minus $ (0) Interest paid to you in cash
plus $2,500 Additional investment to your certificate
minus $ (0) Withdrawals and applicable penalties or fees
$7,575 Principal at the beginning of the next term
VALUE AT MATURITY
You may continue to invest for successive terms for up to a total of 20 years.
Your certificate matures at 20 years from its issue date. At maturity, you will
receive a distribution for the value of your certificate. This will be the total
of your purchase price, plus additional investments and any credited interest
not paid to you in cash, less any withdrawals and penalties. Certain other fees
may apply as described in "How to Invest and Withdraw Funds."
RECEIVING CASH DURING THE TERM
If you need your money before your certificate term ends, you may withdraw part
or all of its value at any time, less any penalties that apply. Procedures for
withdrawing money, as well as conditions under which penalties apply, are
described in "How to Invest and Withdraw Funds."
INTEREST
Your investments earn interest from the date they are credited to your account.
Interest is compounded and credited at the end of each certificate month (on the
monthly anniversary of the issue date).
AECC declares and guarantees a fixed rate of interest for each term during the
life of your certificate. We calculate the amount of interest you earn each
certificate month by:
o applying the interest rate then in effect to your balance each day,
o adding these daily amounts to get a monthly total, and
o subtracting interest accrued on any amount you withdraw during the certificate
month.
Interest is calculated on a 30-day month and 360-day year basis.
This certificate may be available through other distributors or selling agents
with different interest rates or related features and consequently with
different returns. You may obtain information about other such distributors or
selling agents by calling the Client Service Organization at the telephone
numbers listed on the back cover.
RATES FOR NEW PURCHASES
AECC has complete discretion to determine whether to accept an application and
sell a certificate. When your application is accepted and we have received your
initial investment, we will send you a confirmation of your purchase showing the
rate that your investment will earn. AECC guarantees that when rates for new
purchases take effect, the rates will be within a range based on the average
interest rates then published in the BRM Top 25 Market Average(R).
In the case of the six-, 12-, 24-, 30-, and 36-month terms AECC guarantees that,
for purchases of certificates for less than $100,000, your rate for your initial
term will be 50 basis points (.50%) above to 150 basis points (1.50%) above such
rates for comparable length CDs. In the case of these terms, for purchases of
certificates for $100,000 or more, AECC guarantees that your rate for your
initial term will be within a range of 65-165 basis points above such rates for
comparable length CDs.
In the case of the 18-month term, because the BRM Top 25 Market Average(R)
doesn't typically publish rates for comparable length CDs, AECC guarantees that,
for purchases of certificates for less than $100,000, the rate for your initial
term will be within a range of 60-160 basis points above the rates for the
12-month CDs. In the case of the 18-month term, for purchases of certificates of
$100,000 or more, AECC guarantees that your rate for your initial term will be
within a range of 75-175 basis points above the rates for 12-month CDs.
However, AECC guarantees that, for persons who have received a special
promotional coupon from AECC for purchase of a Flexible Savings Certificate with
an initial term of six, 12, 24, 30 or 36 months and have satisfied any
requirement stated in the coupon, when rates for new purchases take effect, the
rate for the initial term will be within a range from 100 basis points (1%) to
200 basis points (2%) above the average interest rate published for comparable
length CDs in the BRM Top 25 Market Average(R). Similarly, AECC guarantees that,
for persons who have received a special promotional coupon from AECC for
purchase of a Flexible Savings Certificate with an initial term of 18 months and
have satisfied the conditions in the coupon, when rates for new purchases take
effect, the rate for an initial term of 18 months will be within a range from
100 basis points (1%) to 200 basis points (2%) above the average interest rate
published for 12-month CDs in the BRM Top 25 Market Average(R). For example, the
coupon may require that you make a minimum investment and that you are not an
existing client of AEFC, American Express Financial Advisors Inc., or another
subsidiary of AEFC. AECC or AEFC will select persons to receive the coupon based
on a business strategy to build relationships with persons who work for
particular employers or with new clients in selected market segments who AECC or
AEFC believes meet threshold requirements for such factors as household income
and home values. Coupons may be sent only to persons who both fit such a
strategy and live in particular parts of the country or are affiliated with
particular organizations such as an automobile club. AECC also may give such a
coupon to active or retired AEFC employees, American Express financial advisors,
their immediate families and any U.S. employee of any affiliated company of
AECC. This promotional rate will only be available if the recipient of the
coupon presents it to American Express Financial Advisors Inc. (AEFA) at the
time of applying to purchase the certificate.
For your initial term, AECC may offer certificates with different terms than
those described above. Such terms may be from seven, 11, 13, 19, 25, 31 or 37
months. For these terms, AECC guarantees that, for purchases of certificates for
less than $100,000, your rate for your initial term will be within a range of
125-225 basis points above the rates published in the BRM Top 25 Market
Average(R) for the CDs specified above that have the maturity that is closest to
the term of the American Express Certificate in question. If two different BRM
Top 25 Market Average(R) have the closest maturities, we will use the longest
maturity that is shorter than the term of the American Express Certificate in
question. For purchases of certificates of $100,000 or more, the range for your
initial term will be 140-240 basis points above the same rate. For example, in
the case of a seven-month term, AECC guarantees that, for purchases of
certificates less than $100,000, your rate for your initial term will be within
a range of 125-225 basis points above the rates for the six-month CDs, and for
purchases of certificates for $100,000 or more, your rate for your initial term
will be within a range of 140-240 basis points above the rates for the six-month
CDs. Purchase of a certificate in one of these special offers may result in a
later term of less than six months in order to permit your certificate to mature
20 years from its issue date. AECC may limit the offering of these certificates
to persons who have received a coupon as a promotion, based on a business
strategy to build relationships with new clients in related market segments or
persons who AEFC believes meet threshold requirements for such factors as
household income and home values or persons who fit this strategy and live in
particular areas of the country or are affiliated with particular organizations.
AECC may also offer different rates or terms to new clients, existing clients,
or to individuals who have purchased other products or used other services of
American Express Company or its subsidiaries, and may offer some terms only in
selected distribution channels. We also may offer different rates based on your
amount invested, your geographic location and whether the certificate is
purchased for an IRA or for a qualified retirement account.
The BRM is a weekly magazine published by Advertising News Service Inc., an
independent national news organization that collects and disseminates
information about bank products and interest rates. Advertising News Service
Inc. has no connection with AECC, AEFC or any of their affiliates.
The BRM Top 25 Market Average(R) is an index of rates and annual effective
yields offered on various length CDs by large banks and thrifts in 25
metropolitan areas. The frequency of compounding varies among the banks and
thrifts. CDs in the BRM Top 25 Market Average(R) are government insured
fixed-rate time deposits.
The BRM may be available in your local library. To obtain information on current
BRM Top 25 Market Average(R) rates, call the Client Service Organization at the
telephone numbers listed on the back cover.
Rates for new purchases are reviewed and may change weekly. Normally, the rate
you receive will be the higher of:
o the rate in effect for your chosen term on the date of your application, or
o the rate in effect on the date your application is accepted by AECC.
However, if your application bears a date more than seven days before its
receipt by AECC, the rate you receive will be the higher of:
o the rate in effect on the date your application is accepted by AECC, or
o the rate in effect seven days before receipt.
Except for specific promotions, AECC guarantees an initial rate 25 basis points
above the rate offered to the general public on this American Express
Certificate if it is purchased by using the CD transfer service offered by
American Express Financial Advisors Inc. to help you transfer money from a bank
or thrift CD account into AECC investments. Consequently, the highest and lowest
rate in the range of rates for initial terms of such certificates purchased
using the CD transfer service will be 25 basis points higher than the comparable
rates described at the beginning of this section for ranges of rates for initial
terms. To be eligible for this rate, you must transfer at least $10,000 from a
CD account to AECC to purchase one or more American Express Cash Reserve
Certificates and/or American Express Flexible Savings Certificates, and this
rate will only apply to those certificates.
Rates for future terms: Interest on your certificate for future terms may be
greater or less than the rates you receive during your first term. In setting
future interest rates, a primary consideration will be the prevailing investment
climate, including CD yields as reflected in the BRM Top 25 Market Average(R).
Nevertheless, we have complete discretion as to what interest rate shall be
declared beyond the initial term. At least six days in advance of each term, we
will send you notice of the rate that your certificate will earn for that term.
If the BRM Top 25 Market Average(R) is no longer publicly available or feasible
to use, AECC may use another, similar index as a guide for setting rates.
Performance: From February 1996 through February 2001, American Express Flexible
Savings Certificate one year CD yields were generally higher than average bank
and thrift one year CD yields as measured by the BRM Top 25 Market Average(R).
Yields from February 1996 through February 2001
AXP Flexible
8% Savings Certificate
X
6%
X Certificate of
4% Deposit
2%
'96 '97 '98 '99 '00 '01
The graph compares past yields and should not be considered a prediction of
future performance.
PROMOTIONS AND PRICING FLEXIBILITY
AECC may sponsor or participate in promotions involving the certificate and its
respective terms. For example, we may offer different rates to new clients, to
existing clients, or to individuals who have purchased other products or used
other services of American Express Company or its subsidiaries.
We also may offer different rates based on the amount invested and/geographic
location and whether the certificate is purchased for an IRA or a qualified
retirement account.
These promotions will generally be for a specified period of time. If we offer a
promotion, the rates for new purchases will be within the range of rates
described under "Rates for New Purchases."
ADDITIONAL INVESTMENTS
You may make investments within 15 calendar days after the end of a term (the
grace period). Investments added to your certificate during the grace period
will increase the principal balance for purposes of the 25% add-on feature
described below and the 10% withdrawal feature described under "Full and Partial
Withdrawals." Additional investments may be in any amount so long as your total
investment, less withdrawals, does not exceed $1 million (unless you receive
prior approval from AECC to invest more). You will earn interest on additional
investments from the date we accept them. AECC will send a confirmation of
additional investments.
If you add to a certificate purchased other than through an American Express
financial advisor, you may be given different instructions regarding additional
investments.
Add-on feature: You may also add to your certificate during the term. These
additional investments may not exceed 25% of the certificate's initial principal
balance at the end of the grace period. This principal includes the balance at
the end of the previous term, plus or minus any deposits or withdrawals during
the grace period.
Any add-on or withdrawal during the grace period will change the principal
amount used to determine the amount available for the 25% add-on feature.
For example, suppose your original balance is $9,000. During the grace period,
you add $1,000. At any time during the current term, you could add up to 25% of
principal ($9,000 + $1,000 = $10,000), or $2,500 to your certificate.
The interest rate for these additional investments is the rate then in effect
for your account. If your additional investment increases the principal of your
certificate so that your certificate's principal has exceeded a break point for
a higher interest rate, the certificate will earn this higher interest rate for
the remainder of the term, from the date the additional investment is accepted.
How to Invest and Withdraw Funds
BUYING YOUR CERTIFICATE
Your American Express financial advisor will help you fill out and submit an
application to open an account with us and purchase a certificate. If you
purchase your certificate other than through an American Express financial
advisor -- for example, through a direct marketing channel -- you may be given
different purchase instructions. We will process the application at our
corporate offices in Minneapolis, Minnesota. When we have accepted your
application and we have received your initial investment, we will send you a
confirmation of your purchase, indicating your account number and applicable
rate of interest for your first term, as described under "Rates for New
Purchases." See "Purchase policies" below.
Important: When you open an account, you must provide AECC with your correct
Taxpayer Identification Number (TIN), which is either your Social Security or
Employer Identification number. See "Taxes on Your Earnings."
Purchase policies:
o Investments must be received and accepted in the Minneapolis headquarters
on a business day before 3 p.m. Central time to be included in your account
that day. Otherwise your purchase will be processed the next business day.
o You have 15 days from the date of purchase to cancel your investment without
penalty by either writing or calling the Client Service Organization at the
address or phone number on the back of this prospectus. If you decide to
cancel your certificate within this 15-day period, you will not earn any
interest.
o If you purchase a certificate with a personal check or other non-guaranteed
funds, AEFC will wait one day for the process of converting your check to
federal funds (e.g., monies of member banks within the Federal Reserve Bank)
before your purchase will be accepted and you begin earning interest.
o AECC has complete discretion to determine whether to accept an application and
sell a certificate.
A number of special policies apply to purchases, withdrawals and exchanges
within IRAs, 401(k) plans and other qualified retirement plans. See "Retirement
Plans: Special Policies."
TWO WAYS TO MAKE INVESTMENTS
1 By mail:
Send your check, by regular or express mail, along with your name and account
number to:
American Express Financial Advisors Inc.
70200 AXP Financial Center
Minneapolis, MN 55474
2 By wire:
For investment into an established account, you may wire money to:
Wells Fargo Bank Minnesota, N.A.
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions: Credit American Express Financial Advisors Account
#0000030015 for personal account # (your account number) for (your name).
If this information is not included, the order may be rejected and all money
received, less any costs AECC incurs, will be returned promptly.
o Minimum amount you may wire: $1,000.
o Wire orders can be accepted only on days when your bank, AEFC, AECC and Wells
Fargo Bank Minnesota, N.A. are open for business.
o Wire purchases are completed when wired payment is received and we accept the
purchase.
o Wire investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be credited that
day. Otherwise your purchase will be processed the next business day.
o AECC, AEFC and its other subsidiaries are not responsible for any delays that
occur in wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
FULL AND PARTIAL WITHDRAWALS
You may withdraw your certificate for its full value or make a partial
withdrawal of $100 or more at any time. If you purchase this certificate for an
IRA, 401(k) or other retirement plan account, early withdrawals or cash payments
of interest taken prematurely may be subject to IRS penalty taxes.
o Complete withdrawal of your certificate is made by giving us proper
instructions. To complete these transactions, see "Two Ways to Request a
Withdrawal or Transfer."
o If your withdrawal request is received in the Minneapolis headquarters on a
business day before 3 p.m. Central time, it will be processed that day and
payment will be sent the next business day. Otherwise, your request will be
processed one business day later.
o Full and partial withdrawals of principal are subject to penalties, described
below.
o Interest payments in cash may be sent to you at the end of each certificate
month, quarter, or on a semiannual or annual basis.
o If a withdrawal reduces your account value to a point where we pay a lower
interest rate, you will earn the lower rate from the date of the withdrawal.
o You may not otherwise make a partial withdrawal if it would reduce your
certificate balance to less than $1,000. If you request such a withdrawal, we
will contact you for revised instructions.
o Scheduled partial withdrawals may be made monthly, quarterly, semiannually,
annually and at term end.
o Because we credit interest on your certificate's monthly anniversary,
withdrawals before the end of the certificate month will result in loss of
accrued interest on the amount withdrawn. You'll get the best result by
timing a withdrawal at the end of the certificate month -- that is, on an
interest crediting date.
Penalties for early withdrawal during a term: When you request a full or partial
withdrawal, we pay the amount you request:
o first from interest credited during the current term,
o then from the principal of your certificate.
Any additional investments or withdrawals during a term are added to or deducted
from the principal and are used in determining any withdrawal charges.
You may not make a partial withdrawal if it would reduce your certificate
balance to less than $1,000. If you request such a withdrawal, we will contact
you for revised instructions.
Withdrawal penalties: For withdrawals during the term of more than the interest
credited that term and over 10% of the certificate's principal, a 2% withdrawal
penalty will be deducted from the account's remaining balance.
For example, assume you invest $20,000 in a certificate and select a two-year
term. A little over a year later assume you have earned $1,600 in interest. The
following demonstrates how the withdrawal charge is deducted:
When you withdraw a specific amount of money in excess of the interest credited,
we would have to withdraw somewhat more from your account to cover the
withdrawal charge. For instance, suppose you request a $5,000 check. The first
$1,600 paid to you is interest earned that term, the next $2,000 is 10% of
principal, and not subject to the withdrawal penalty, and the remaining $1,400
paid to you is principal over the 10% limit. We would send you a check for
$5,000 and deduct a withdrawal charge of $28.00 ($1,400 x 2%) from the remaining
balance of your certificate account. Your new balance would be $16,572 ($21,600
- - $5,028).
Total investments $ 20,000
Interest credited $ 1,600
Total balance $ 21,600
Requested check $ 5,000
Credited interest withdrawn $ (1,600)
10% of principal-- not subject to penalty $ (2,000)
Remaining portion of requested withdrawal-- subject to penalty $ 1,400
Withdrawal penalty percent 2%
Actual withdrawal penalty $ 28
Balance prior to withdrawal $ 21,600
Requested withdrawal check $ (5,000)
Withdrawal penalty $ (28)
Total balance after withdrawal $ 16,572
Additionally, if you withdraw during a certificate month, you will not earn
interest for the month on the amount withdrawn.
Penalty exceptions: There is never a penalty for withdrawal of interest. In
addition, you may withdraw up to 10% of your principal during the term without a
withdrawal penalty. The principal available for the 10% no-penalty withdrawal
feature is the balance in the certificate at the beginning of the term plus or
minus any deposits or withdrawals made during the grace period.
The following example demonstrates how this feature works:
Suppose your certificate balance is $1,000. During the grace period you add
$500, bringing the principal to $1,500. At any time during the term you could
withdraw up to $150 of principal with no penalty.
Any additional investments or withdrawals following the grace period will not
change the principal amount used to determine the amount available for the 10%
no-penalty withdrawal feature.
The 2% penalty is waived upon death of the certificate owner. When this
certificate is owned by a revocable trust, this penalty also is waived upon
death of any grantor of the revocable trust. We will also waive withdrawal
penalties on withdrawals for IRA certificate accounts for your required
distributions. See "Retirement Plans: Special Policies."
For more information on withdrawal charges, talk with your American Express
financial advisor or call the Client Service Organization at the number on the
back cover.
WHEN YOUR CERTIFICATE TERM ENDS
Shortly before the end of the term you have selected for your certificate, we
will send you a notice indicating the interest rate that will apply to the
certificate for the new term. When your certificate term ends we will
automatically renew your certificate for the standard term (six, 12, 18, 24, 30
or 36 month) nearest in length to your initial term. If your initial term is
equidistant from two standard terms, we will automatically renew your
certificate to the term with the longest maturity that is shorter than your
initial term. If you wish to select a different term, you must notify us in
writing before the end of the grace period. You will not be allowed to select a
term that would carry the certificate past its maturity date.
The interest rates that will apply to your new term will be those in effect on
the day the new term begins. We will send you a confirmation showing the rate of
interest that will apply to the new term you have selected. This rate of
interest will not be changed during that term.
If you want to withdraw your certificate without a withdrawal charge, you must
notify us within 15 calendar days following the end of a term. However, you will
lose any interest accrued since the end of the term.
You may also add to your investment within the 15 calendar days following the
end of your term. See "Additional Investments" under "About the Certificate."
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate recently
purchased or added to by a check or money order that is not guaranteed, we
will wait for your check to clear. Please expect a minimum of 10 days from
the date of your payment before AECC mails a check to you. We may mail a
check earlier if the bank provides evidence that your check has cleared.
o If your certificate is pledged as collateral, any withdrawal will be delayed
until we get approval from the secured party.
o Any payments to you may be delayed under applicable rules, regulations or
orders of the Securities and Exchange Commission (SEC).
TRANSFERS TO OTHER ACCOUNTS
You may transfer part or all of your certificate to any other American Express
Certificate or into another new or existing American Express Financial Advisors
Inc. account that has the same ownership (subject to any terms and conditions
that may apply).
TWO WAYS TO REQUEST A WITHDRAWAL OR TRANSFER
1 By phone:
Call the Client Service Organization at the telephone numbers listed on the back
cover.
o Maximum phone request: $50,000.
o Transfers into an American Express Financial Advisors Inc. account with the
same ownership.
o A telephone withdrawal request will not be allowed within 30 days of a
phoned-in address change.
o We will honor any telephone withdrawal or transfer request believed to be
authentic and will use reasonable procedures to confirm authenticity.
You may request that telephone withdrawals not be authorized from your account
by writing the Client Service Organization.
2 By mail:
Send your name, account number and request for a withdrawal or transfer, by
regular or express mail, to:
American Express Financial Advisors Inc.
70100 AXP Financial Center
Minneapolis, MN 55474
Written requests are required for:
o Transactions over $50,000.
o Pension plans and custodial accounts where the minor has reached the age at
which custodianship should terminate.
o Transfers to another American Express Financial Advisors Inc. account with
different ownership (all current registered owners must sign the request).
THREE WAYS TO RECEIVE PAYMENT WHEN YOU WITHDRAW FUNDS
1 By regular or express mail:
o Mailed to address on record; please allow seven days for mailing.
o Payable to name(s) you requested.
o We will charge a fee if you request express mail delivery. We will deduct the
fee from your remaining certificate balance, provided that balance would not
be less than $1,000. If the balance would be less than $1,000, we will deduct
the fee from the proceeds of the withdrawal.
2 By wire:
o Minimum wire withdrawal: $1,000.
o Request that money be wired to your bank.
o Bank account must be in same ownership as AECC account.
o Pre-authorization required. Complete the bank wire authorization section in
the application or use a form supplied by your American Express financial
advisor. All registered owners must sign.
o We may deduct a service fee from your balance (for partial withdrawals) or
from the proceeds of a full withdrawal.
3 By electronic transfer:
o Available only for pre-authorized scheduled partial withdrawals and other full
or partial withdrawals.
o No charge.
o Deposited electronically in your bank account.
o Allow two to five business days from request to deposit.
RETIREMENT PLANS: SPECIAL POLICIES
o If the certificate is purchased for a 401(k) plan or other qualified
retirement plan account, the terms and conditions of the certificate apply to
the plan as the owner of this certificate. However, the terms of the plan, as
interpreted by the plan trustee or administrator, will determine how a
participant's benefit under the plan is administered. These terms may differ
from the terms of the certificate.
o If your certificate is held in a custodial or trusteed retirement plan
(including a Keogh plan), special rules may apply at maturity. If no other
investment instructions are provided directing how to handle your certificate
at maturity, the full value of the certificate will automatically transfer to
a new or existing cash management account according to rules outlined in the
plan document or as otherwise provided in the plan document.
o The annual custodial fee for non-401(k) qualified retirement plans or IRAs
may be deducted from your certificate account. It may reduce the amount
payable at maturity or the amount received upon an early withdrawal.
o Retirement plan withdrawals may be subject to withdrawal penalties or loss of
interest even if they are not subject to federal tax penalties.
o We will waive withdrawal penalties on withdrawals for qualified retirement
plan or IRA certificate accounts for your required minimum distributions.
o If you withdraw all funds from your last account in an IRA at American
Express Trust Company, a termination fee will apply as set out in Your Guide
to IRAs, the IRS disclosure information received when you opened your
account.
o The IRA termination fee will be waived if a withdrawal occurs after you have
reached age 701/2 or upon the owner's death.
WITHDRAWAL AT DEATH
If a certificate is surrendered upon the client's death, any applicable
surrender charge will be waived. In addition, if an IRA termination fee is
applicable, it will also be waived.
TRANSFER OF OWNERSHIP
While this certificate is not negotiable, AECC will transfer ownership upon
written notification to our Client Service Organization. However, if you have
purchased your certificate for a 401(k) plan or other qualified retirement plan,
or an IRA you may be unable to transfer or assign the certificate without losing
the account's favorable tax status. Please consult your tax advisor.
FOR MORE INFORMATION
For information on purchases, withdrawals, exchanges, transfers of ownership,
proper instructions and other service questions regarding your certificate,
please consult your American Express financial advisor or call the Client
Service Organization at the telephone numbers listed on the back cover. If you
purchase your certificate other than through a financial advisor, you may be
given different purchase and withdrawal instructions.
Taxes on Your Earnings
Interest on your certificate is taxable when credited to your account. Each
calendar year we provide the certificate account owner and the IRS with reports
of all earnings equal to and over $10 (Form 1099). Withdrawals are reported to
the certificate account owner and the IRS on Form 1099-B, "Proceeds from Broker
and Barter Exchange Transactions."
RETIREMENT ACCOUNTS
If you are using the certificate as an investment for a 401(k) plan account or
other qualified retirement plan account or an IRA, income tax rules for your
qualified plan or IRA apply. Generally, you will pay no income taxes on your
investment's earnings -- and, in many cases, on part or all of the investment
itself -- until you begin to make withdrawals.
AECC will withhold federal income taxes of 10% on a qualified plan or IRA
withdrawals unless you tell us not to. AECC 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.
Withdrawals from retirement accounts are generally subject to a 10% early
withdrawal penalty by the IRS if you make them before age 591/2, unless you are
disabled or if they are made by your beneficiary in the event of your death.
Other exceptions may also apply. (Also, withdrawals of principal during a
certificate month may be subject to the certificate's provision for loss of
interest).
Consult your tax advisor to see how these rules apply to you before you request
a distribution from your plan or IRA.
GIFTS TO MINORS
The certificate may be given to a minor under either the Uniform Gifts or
Uniform Transfers to Minors Act (UGMA/UTMA), whichever applies in your state.
UGMAs/UTMAs are irrevocable. Generally, under federal tax laws, income over
$1,500 for the year 2001 on property owned by children under age 14 will be
taxed at the parents' marginal tax rate, while income on property owned by
children 14 or older will be taxed at the child's rate.
YOUR TIN AND BACKUP WITHHOLDING
As with any financial account you open, you must list your current and correct
TIN, which is either your Social Security or Employer Identification number. You
must certify your TIN under penalties of perjury on your application when you
open an account.
If you don't provide and certify the correct TIN, you could be subject to backup
withholding of 31% of your interest earnings. You could also be subject to
further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN;
o a civil penalty of $500 if you make a false statement that results in no
backup withholding; and
o criminal penalties for falsifying information.
You could also be subject to backup withholding because you failed to report
interest on your tax return as required.
To help you determine the correct TIN to use on various types of accounts,
please use this chart:
How to Determine the Correct TIN
- ---------------------------------------------------------------- --------------------------------------------------------------
For this type of account: Use the Social Security or Employer Identification Number of:
- ---------------------------------------------------------------- --------------------------------------------------------------
Individual or joint account The individual or one of the owners listed on the joint
account
- ---------------------------------------------------------------- --------------------------------------------------------------
Custodian account of a minor (Uniform Gifts/Transfers to The minor
Minors Act)
- ---------------------------------------------------------------- --------------------------------------------------------------
A revocable living trust The grantor-trustee (the person who puts the money into the
trust)
- ---------------------------------------------------------------- --------------------------------------------------------------
An irrevocable trust, pension trust or estate The legal entity (not the personal representative or
trustee, unless no legal entity is designated in the account
title)
- ---------------------------------------------------------------- --------------------------------------------------------------
Sole proprietorship The owner
- ---------------------------------------------------------------- --------------------------------------------------------------
Partnership The partnership
- ---------------------------------------------------------------- --------------------------------------------------------------
Corporate The corporation
- ---------------------------------------------------------------- --------------------------------------------------------------
Association, club or tax-exempt organization The organization
- ---------------------------------------------------------------- --------------------------------------------------------------
For details on TIN requirements, ask your financial advisor or contact your
local American Express Financial Advisors Inc. office for federal Form W-9,
"Request for Taxpayer Identification Number and Certification." You also may
obtain the form on the Internet at (http://www.irs.gov/prod/forms_pubs/).
FOREIGN INVESTORS
Also, the U.S. Internal Revenue Service (IRS) has issued new nonresident alien
regulations that significantly change the withholding and reporting rules on
foreign accounts. The IRS requires that nonresident alien investors certifying
non-U.S. status and, if applicable, treaty eligibility, complete one of the
Forms W-8.
Interest on your certificate is "portfolio interest" as defined in U.S. Internal
Revenue Code Section 871(h) if earned by a nonresident alien. Even though your
interest income is not taxed by the U.S. government, it will be reported at year
end to you and to the U.S. government on a Form 1042-S, Foreign Person's U.S.
Source Income Subject to Withholding. The United States participates in various
tax treaties with foreign countries, which provide for sharing of tax
information between the United States and such foreign countries. Individuals
applying for benefits under a tax treaty may have additional requirements.
Tax treatment of your investment: Interest paid on your certificate is
"portfolio interest" as defined in U.S. Internal Revenue Code Section 871(h) if
earned by a nonresident alien who has supplied AECC with one of the Forms W-8.
Form W-8 must be supplied with an address of foreign residency and a current
mailing address, if different. (Form W-8BEN must be signed and dated by the
beneficial owner, an authorized representative or officer of the beneficial
owner or an agent acting under and providing us with a duly authorized power of
attorney.) AECC will not accept purchases of certificates by nonresident aliens
without an appropriately certified Form W-8 (or approved substitute). If you
have supplied a Form W-8 that certifies that you are a nonresident alien, the
interest income will be reported at year end to you and to the U.S. government
on a Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding.
To help you determine the form that is appropriate for you, please note the
following description of the Forms W-8:
Form W-8BEN
(Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding) This form should be completed by any foreign persons or
organizations, if they are the beneficial owner of the income, whether or not
they are claiming a reduced rate of, or exemption from, withholding. (Foreign
persons or organizations also may be required to fill out other of the forms
that follow.)
Form W-8ECI
(Certificate of Foreign Person's Claim for Exemption From Withholding on Income
Effectively Connected With the Conduct of a Trade or Business in the United
States) This form should be completed by any foreign person or organization if
they claim that the income is effectively connected with the conduct of a trade
or business within the United States.
Form W-8EXP
(Certificate of Foreign Government or Other Foreign Organization for United
States Tax Withholding) This form should be completed by any foreign government,
international organization, foreign central bank of issue, foreign tax-exempt
organization, or foreign private foundation.
Form W-8IMY
(Certificate of Foreign Intermediary, Foreign Flow-Through Entity or Certain
U.S. Branches for United States Tax Withholding) This form should be completed
by an intermediary acting as custodian, broker, nominee, trustee or executor, or
other type of agent for another person.
The new Form W-8 must be resupplied every four calendar years, up from three
years with the current form.
Joint ownership: If the account is owned jointly with one or more persons, each
owner must provide a Form W-8. If AECC receives a Form W-9 from any of the joint
owners, payment will be treated as made to a U.S. person.
Withholding taxes: If you fail to provide us with a complete Form W-8 as
required above, you will be subject to 31% backup withholding on interest
payments and withdrawals from certificates.
Estate tax: If you are a nonresident alien and you die while owning a
certificate, then, depending on the circumstances, AECC generally will not act
on instructions with regard to the certificate unless AECC first receives, at a
minimum, a statement from persons AECC believes are knowledgeable about your
estate. The statement must be satisfactory to AECC and must tell us that, on
your date of death, your estate did not include any property in the United
States for U.S. estate tax purposes. In other cases, we generally will not take
action regarding your certificate until we receive a transfer certificate from
the IRS or evidence satisfactory to AECC that the estate is being administered
by an executor or administrator appointed, qualified and acting within the
United States. In general, a transfer certificate requires the opening of an
estate in the United States and provides assurance that the IRS will not claim
your certificate to satisfy estate taxes.
Trusts: If the investor is a trust, the policies and procedures described above
will apply with regard to each grantor who is a nonresident alien. Also, foreign
trusts must apply for a permanent U.S. individual tax identification number
(ITIN).
Important: The information in this prospectus is a brief and selective summary
of certain federal tax rules that apply to this certificate and is based on
current law and practice. Tax matters are highly individual and complex.
Investors should consult a qualified tax advisor about their own position.
How Your Money Is Used and Protected
INVESTED AND GUARANTEED BY AECC
AECC, a wholly owned subsidiary of AEFC issues and guarantees the American
Express Flexible Savings Certificate. We are by far the largest issuer of
face-amount certificates in the United States, with total assets of more than
$4.0 billion and a net worth in excess of $166 million on Dec. 31, 2000.
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,
o and various expenses, including taxes, fees to AEFC for advisory and other
services, distribution fees to American Express Financial Advisors Inc.,
selling agent fees to selling agents, and transfer agent fees to American
Express Client Service Corporation (AECSC).
For a review of significant events relating to our business, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations." No
national rating agency rates our certificates.
Most banks and thrifts offer investments known as CDs that are similar to our
certificates in many ways. Early withdrawals of bank CDs often result in
penalties. Banks and thrifts generally have federal deposit insurance for their
deposits and lend much of the money deposited to individuals, businesses and
other enterprises. Other financial institutions and some insurance companies may
offer investments with comparable combinations of safety and return on
investment.
REGULATED BY GOVERNMENT
Because the American Express Flexible Savings Certificate is a security, its
offer and sale are subject to regulation under federal and state securities
laws. (The American Express Flexible Savings Certificate is a face-amount
certificate. It is not a bank product, an equity investment, a form of life
insurance or an investment trust.)
The federal Investment Company Act of 1940 requires us to keep investments on
deposit in a segregated custodial account to protect all of our outstanding
certificates. These investments back the entire value of your certificate
account. Their amortized cost must exceed the required carrying value of the
outstanding certificates by at least $250,000. As of Dec. 31, 2000, the
amortized cost of these investments exceeded the required carrying value of our
outstanding certificates by more than $250 million. The law requires us to use
amortized cost for these regulatory purposes. Among other things, the law
permits Minnesota statutes to govern qualified assets of AECC as described in
Note 2 to the financial statements. In general, amortized cost is determined by
systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
As a condition to regulatory relief from the SEC, AECC has agreed to maintain
capital and surplus equal to 5% of outstanding liabilities on certificates (not
including loans made on certificates in accordance with terms of some
certificates that no longer are offered by AECC). AECC is not obligated to
continue to rely on the relief and continue to comply with the conditions of the
relief. Similarly, AECC has entered into a written informal understanding with
the Minnesota Commerce Department that AECC will maintain capital equal to 5% of
the assets of AECC (less any loans on outstanding certificates). When computing
its capital for these purposes, AECC values its assets on the basis of statutory
accounting for insurance companies rather than generally accepted accounting
principles.
BACKED BY OUR INVESTMENTS
Our investments are varied and of high quality. This was the composition of our
portfolio as of Dec. 31, 2000:
Type of investment Net amount invested
Corporate and other bonds 48%
Government agency bonds 29
Preferred stocks 12
Mortgages 9
Cash and cash equivalents 2
As of Dec. 31, 2000 about 90% of our securities portfolio (including bonds and
preferred stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3B to the financial
statements.
Most of our investments are on deposit with American Express Trust Company,
Minneapolis, although we also maintain separate deposits as required by certain
states. American Express Trust Company is a wholly owned subsidiary of AEFC.
Copies of our Dec. 31, 2000 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 AECC 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."
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 whether a company can 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, AECC relies both on independent rating agencies
and the investment manager's credit analysis. Under normal circumstances, at
least 85% of the securities in AECC's portfolio will be rated investment grade,
or in the opinion of AECC's investment advisor will be the equivalent of
investment grade. Under normal circumstances, AECC will not purchase any
security rated below B- by Moody's Investors Service, Inc. or Standard & Poor's.
Securities that are subsequently downgraded in quality may continue to be held
by AECC and will be sold only when AECC believes it is advantageous to do so.
As of Dec. 31, 2000, AECC held about 10% of its investment portfolio (including
bonds, preferred stocks and mortgages) in investments rated below investment
grade.
Purchasing securities on margin
We will not purchase any securities on margin or participate on a joint basis or
a joint-and-several basis in any trading account in securities.
Commodities
We have not and do not intend to purchase or sell commodities or commodity
contracts except to the extent that transactions described in "Financial
transactions including hedges" in this section may be considered commodity
contracts.
Underwriting
We do not intend to engage in the public distribution of securities issued by
others. However, if we purchase unregistered securities and later resell them,
we may be considered an underwriter (selling securities for others) under
federal securities laws.
Borrowing money
From time to time we have established a line of credit with banks 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. There is no limit on the extent to which we may borrow
money, except that borrowing must be through the sale of certificates, or must
be short-term and privately arranged and not intended to be publicly offered.
Real estate
We may invest in limited partnership interests in limited partnerships that
either directly, or indirectly through other limited partnerships, invest in
real estate. We may invest directly in real estate. We also invest in mortgage
loans secured by real estate. We expect that equity investments in real estate,
either directly or through a subsidiary of AECC, will be less than 5% of AECC's
assets.
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. We
expect that outstanding securities loans will not exceed 10% of AECC's assets.
When-issued securities
Some of our investments in debt securities are purchased on a when-issued or
similar basis. It may take as long as 45 days or more before these securities
are available for sale, 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. AECC's ability to invest in when-issued securities is not limited
except by its ability to set aside cash or high quality investments to meet
when-issued commitments. When-issued securities are subject to market
fluctuations and they may affect AECC's investment portfolio the same as owned
securities.
Financial transactions including hedges
We buy or sell various types of options contracts for hedging purposes or as a
trading technique to facilitate securities purchases or sales. We may 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. AECC may enter into other
financial transactions, including futures and other derivatives, for the purpose
of managing the interest rate exposures associated with AECC's assets or
liabilities. Derivatives are financial instruments whose performance is derived,
at least in part, from the performance of an underlying asset, security or
index. A small change in the value of the underlying asset, security or index
may cause a sizable gain or loss in the fair value of the derivative. There is
no limit on the AECC's ability to enter into financial transactions to manage
the interest rate risk associated with the AECC's assets and liabilities, but
AECC does not foresee a likelihood that it will be feasible to hedge most or all
of its assets or liabilities. We do not use derivatives for speculative
purposes.
Illiquid securities
A security is illiquid if it cannot be sold in the normal course of business
within seven days at approximately its current market value. Some investments
cannot be resold to the U.S. public because of their terms or government
regulations. All securities, however can be sold in private sales, and many may
be sold to other institutions and qualified buyers or on foreign markets. AECC'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
AECC's investment portfolio will be held in securities that are illiquid. In
valuing its investment portfolio to determine this 15% limit, AECC 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.
How Your Money Is Managed
RELATIONSHIP BETWEEN AECC AND AMERICAN EXPRESS FINANCIAL CORPORATION
AECC 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, changed its name to IDS Certificate
Company on April 2, 1984, and to American Express Certificate Company on April
26, 2000.
AECC files reports on Form 10-K and 10-Q with the SEC. The public may read and
copy materials we file with the SEC at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on
the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC.
Before AECC 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. AECC 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, 2000, AEFC managed or
administered investments, including its own, of more than $275 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 600 supervisory offices, and more
than 3,800 branch offices and more than 10,700 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 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) and Travelers Cheque and related services.
CAPITAL STRUCTURE AND CERTIFICATES ISSUED
AECC 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 the fiscal year ended Dec. 31, 2000, AECC had issued (in face amount)
$61,053,427 of installment certificates and $1,523,260,374 of single payment
certificates. As of Dec. 31, 2000, AECC had issued (in face amount)
$13,745,260,263 of installment certificates and $21,383,643,748 of single
payment certificates since its inception in 1941.
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,
o and 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 AECC as defined in the federal Investment Company Act of 1940.
For its services, we pay AEFC a monthly fee, equal on an annual basis to a
percentage of the total book value of certain assets (included assets).
Advisory and services fee computation
Included assets Percentage of total book value
First $250 million 0.750%
Next 250 million 0.650
Next 250 million 0.550
Next 250 million 0.500
Any amount over 1 billion 0.107
Included assets are all assets of AECC except mortgage loans, real estate, and
any other asset on which we pay an outside advisory or service fee.
Advisory and services fee for the past three years
Year Total fees Percentage of included assets
2000 $8,778,883 0.25%
1999 8,691,974 0.26
1998 9,084,332 0.24
Estimated advisory and services fees for 2001 are $9,113,000.
Other expenses payable by AECC: The Investment Advisory and Services Agreement
provides that we will pay:
o costs incurred by us in connection with real estate and mortgages;
o taxes;
o depository and custodian fees;
o brokerage commissions;
o fees and expenses for services not covered by other agreements and provided
to us at our request, or by requirement, by attorneys, auditors, examiners
and professional consultants who are not officers or employees of AEFC;
o fees and expenses of our directors who are not officers or employees of AEFC;
o provision for certificate reserves (interest accrued on certificate owner
accounts); and
o expenses of customer settlements not attributable to sales function.
DISTRIBUTION
Under a Distribution Agreement with American Express Financial Advisors Inc. we
pay for the distribution of this certificate as follows:
o 0.08% of the initial payment on the issue date of the certificate, and
o 0.08% of the certificate's reserve at the beginning of the second and
subsequent quarters from issue date.
This fee is not assessed to your certificate account.
For certificates paying a special promotional coupon rate described in "Rates
for New Purchases" under "About the Certificate," American Express Financial
Advisors Inc. waives its distribution fee.
Total distribution fees paid to American Express Financial Advisors Inc. for all
series of certificates amounted to $28,262,084 during the year ended Dec. 31,
2000. We expect to pay American Express Financial Advisors Inc. distribution
fees amounting to $29,640,000 during 2001.
See Note 1 to financial statements regarding deferral of distribution fee
expense.
In addition, AECC may pay distributors additional compensation for distribution
activities under certain circumstances. From time to time, AECC may pay or
permit other promotional incentives, in cash or credit or other compensation.
American Express Financial Advisors Inc. pays commissions to its financial
advisors and pays other selling expenses in connection with services to us. Our
board of directors, including a majority of directors who are not interested
persons of American Express Financial Advisors Inc., or AECC, approved these
distribution agreements.
TRANSFER AGENT
Under a Transfer Agency Agreement, American Express Client Service Corporation
(AECSC), a wholly owned subsidiary of AEFC, maintains certificate owner accounts
and records. AECC pays AECSC a monthly fee of one-twelfth of $10.353 per
certificate owner account for this service.
EMPLOYMENT OF OTHER AMERICAN EXPRESS AFFILIATES
AEFC may employ an affiliate of American Express Company as executing broker for
our portfolio transactions only if:
o we receive prices and executions at least as favorable as those offered by
qualified independent brokers performing similar services;
o the affiliate charges us commissions consistent with those charged to
comparable unaffiliated customers for similar transactions; and
o the affiliate's employment is consistent with the terms of the current
Investment Advisory and Services Agreement and federal securities laws.
DIRECTORS AND OFFICERS
AECC's sole shareholder, AEFC, elects the board of directors that oversees
AECC's operations. The board annually elects the directors, chairman, president
and controller for a term of one year. The president appoints the other
executive officers.
We paid a total of $29,000 during 2000 to directors not employed by AEFC.
Board of directors
Rodney P. Burwell
Born in 1939. Director beginning in 1999. Chairman, Xerxes Corporation
(fiberglass storage tanks).
Director, Fairview Corporation.
Charles W. Johnson
Born in 1929. Director since 1989. Director, Communications Holdings, Inc.
Acting president of Fisk University from 1998 to 1999. Former vice president and
group executive, Industrial Systems, with Honeywell, Inc. Retired 1989.
Jean B. Keffeler
Born in 1945. Director beginning in 1999. Independent management consultant.
Richard W. Kling*
Born in 1940. Director since 1996. Chairman of the board of directors from 1996
to 2000. 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.
Thomas R. McBurney
Born in 1938. Director beginning in 1999. President, McBurney Management
Advisors. Director, The Valspar Corporation (paints), Wenger Corporation,
Allina, Space Center Enterprises and Greenspring Corporation.
Paula R. Meyer*
Born in 1954. Director since 1998. President since 1998. Vice president and
Managing Director - American Express Funds since June 2000. Vice president of
AEFC since 1998. President of Piper Capital Management (PCM) from 1997 to 1998.
Director of Marketing of PCM from 1995 to 1997. Director of Retail Marketing of
PCM from 1993 to 1995.
Pamela J. Moret*
Born in 1956. Director since December 1999. Chair of the board of directors
since January 2000. Senior vice president - Products Group of AEFC since October
1999. Vice president - Variable Assets & Services from 1997 to 1999. Executive
vice president - Variable Assets of IDS Life Insurance Company from 1997 to
1999. Vice president - Retail Services Group from 1996 to 1997. Vice president -
Communications from 1993 to 1996.
* "Interested Person" of AECC as that term is defined in Investment Company Act
of 1940.
Executive officers
Paula R. Meyer
Born in 1954. President since 1998.
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.
Monica P. Vickman
Born in 1969. Vice president, general counsel, and secretary since February
2001. Associate counsel to AEFC since 2000. Various attorney positions in
American Express General Counsel's Office from 1996 to 2000.
Philip C. Wentzel
Born in 1961. Vice president and controller of AECC since January 2000. Vice
president - Finance, Insurance Products of AEFC since 1997. Vice president and
controller of IDS Life since 1998. Director, Financial Reporting and Analysis -
IDS Life from 1992 to 1997.
David L. Yowan
Born in 1957. Vice president and treasurer since April 2001. Senior vice
president and assistant treasurer of American Express Company since January
1999. Senior portfolio and risk management officer for the North American
Consumer Bank of Citigroup from August 1987 to January 1999.
The officers and directors as a group beneficially own less than 1% of the
common stock of American Express Company.
AECC 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 (the
1933 Act) 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 1933 Act and is therefore unenforceable.
INDEPENDENT AUDITORS
A firm of independent auditors audits our financial statements at the close of
each fiscal year (Dec. 31). Copies of our annual financial statements (audited)
and semiannual financial statements (unaudited) are available to any certificate
owner upon request.
Ernst & Young LLP, Minneapolis, has audited our financial statements at Dec. 31,
2000 and 1999 and for each of the years in the three-year period ended Dec. 31,
2000. These statements are included in this prospectus. Ernst & Young LLP is
also the auditor for American Express Company, the parent company of AEFC and
AECC.
AMERICAN EXPRESS CERTIFICATES
Other certificates issued by AECC: Your American Express financial advisor can
give you more information on five other certificates issued by AECC. These
certificates offer a wide range of investment terms and features.
American Express Cash Reserve Certificate -- A single payment certificate that
permits additional investments on which AECC guarantees interest in advance for
a three-month term.
American Express Installment Certificate -- An installment payment certificate
that declares interest in advance for a three-month period and offers bonuses in
the third through sixth years for regular investments.
American Express Market Strategy Certificate -- A certificate that pays interest
at a fixed rate or linked to one-year stock market performance, as measured by a
broad market index, for a series of one-year terms starting every month or at
other intervals the client selects.
American Express Preferred Investors Certificate -- A single payment certificate
that combines a competitive fixed rate of return with AECC's guarantee of
principal for large investments of $250,000 to $5 million.
American Express Stock Market Certificate -- A single payment certificate that
calculates all or part of your interest based on stock market performance, as
measured by a broad market index, with AECC's guarantee of return of principal.
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 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, AECC will consider the financial condition of the issuer or
the protection afforded by the terms of the security.
Annual Financial Information
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, ($ thousands)
Statement of Operations Data
2000 1999 1998 1997 1996
Investment income $266,106 $254,344 $273,135 $258,232 $251,481
Investment expenses 87,523 77,235 76,811 70,137 62,851
Net investment income before provision
for certificate reserves and income
tax (expense) benefit 178,583 177,109 196,324 188,095 188,630
Net provision for certificate reserves 155,461 138,555 167,108 165,136 171,968
Net investment income before income
tax (expense) benefit 23,122 38,554 29,216 22,959 16,662
Income tax (expense) benefit (14) (4,615) 265 3,682 6,537
Net investment income 23,108 33,939 29,481 26,641 23,199
Net realized (loss) gain on investments:
Securities of unaffiliated issuers (10,110) 1,250 5,143 980 (444)
Other-- unaffiliated -- -- -- -- 101
Net realized (loss) gain on investments
before income taxes (10,110) 1,250 5,143 980 (343)
Income tax (expense) benefit 3,539 (437) (1,800) (343) 120
Net realized (loss) gain on investments (6,571) 813 3,343 637 (223)
Net income-- wholly owned subsidiary -- 4 1,646 328 1,251
Net income $ 16,537 $ 34,756 $ 34,470 $ 27,606 $ 24,227
Cash Dividends Declared
$5,000 $40,000 $29,500 $-- $65,000
Balance Sheet Data
Total assets $4,032,745 $3,761,068 $3,834,244 $4,053,648 $3,563,234
Certificate loans 25,547 28,895 32,343 37,098 43,509
Certificate reserves 3,831,059 3,536,659 3,404,883 3,724,978 3,283,191
Stockholder's equity 166,514 141,702 222,033 239,510 194,550
American Express Certificate Company (AECC), formerly IDS Certificate Company,
is 100% owned by American Express Financial Corporation (Parent).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
American Express Certificate Company's (AECC), formerly IDS Certificate Company,
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 due to changes in the mix of fully taxable and tax-advantaged
investments in the AECC portfolio.
During 2000, total assets and certificate reserves increased $272 million and
$294 million, respectively. The increase in total assets resulted primarily from
certificate payments exceeding certificate maturities and surrenders. The
increase in certificate reserves resulted primarily from interest accruals of
$148 million and certificate sales exceeding certificate maturities and
surrenders by $146 million.
During 1999, total assets decreased $73 million whereas certificate reserves
increased $132 million. The decreases in total assets and accounts payable and
accrued liabilities resulted primarily from net repayments under reverse
repurchase agreements of $116 million. The decrease in total assets reflects
also, a decrease in net unrealized appreciation on investment securities
classified as available for sale of $115 million. The increase in certificate
reserves resulted primarily from interest accruals of $203 million offset by
certificate maturities and surrenders exceeding certificate sales by $71
million.
2000 Compared to 1999
Gross investment income increased 4.6% due primarily to a higher average balance
of invested assets.
Investment expenses increased 13.3% in 2000. The increase resulted primarily
from the net of higher amortization of premiums paid for index options of $12.3
million and lower interest expense on interest rate swap and reverse repurchase
agreements of $1.1 million and $.6 million, respectively.
Net provision for certificate reserves increased 12.2% due primarily to higher
accrual rates and a higher average balance of certificate reserves during 2000.
The decrease in income tax benefit resulted primarily from less tax-advantaged
investment income.
1999 Compared to 1998
Gross investment income decreased 6.9% due primarily to a lower average balance
of invested assets.
Investment expenses increased slightly in 1999. The slight increase resulted
primarily from the net of higher amortization of premiums paid for index options
of $10.1 million and lower interest expense on reverse repurchase and interest
rate swap agreements of $6.5 million, lower distribution fees of $2.3 million
and lower investment advisory and services and transfer agent fees of $.8
million.
Net provision for certificate reserves decreased 17.1% due primarily to lower
accrual rates during 1999.
The decrease in income tax benefit resulted primarily from less tax-advantaged
investment income.
Liquidity and cash flow
AECC's principal sources of cash are payments from sales of face-amount
certificates and cash flows from investments. In turn, AECC'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.
Certificate sales remained strong in 2000 reflecting clients' ongoing desire for
safety of principal. Sales of certificates totaled $1.5 billion in both 2000 and
1999 compared to $1.1 billion in 1998. The higher certificate sales in 1999 over
1998 resulted primarily from special promotions of the seven- and 13-month term
American Express Flexible Savings Certificate (formerly IDS Flexible Savings
Certificate) which produced sales of $295 million. Certificate sales in 1999
benefited also, from higher sales of the American Express Market Strategy
Certificate (formerly IDS Market Strategy Certificate) and American Express
Investors Certificate of $95 million and $118 million, respectively.
Certificate maturities and surrenders totaled $1.5 billion during 2000 compared
to $1.7 billion during both 1999 and 1998. The lower certificate maturities and
surrenders in 2000 compared to 1999 and 1998, resulted primarily from lower
surrenders of American Express Flexible Savings Certificates.
AECC, 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, AECC continues to invest in securities that provide for
more immediate, periodic interest/principal payments, resulting in improved
liquidity. To accomplish this, AECC continues to invest much of its cash flow in
intermediate-term bonds and mortgage-backed securities.
AECC'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
AECC has both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities AECC 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 AECC 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, 2000, securities classified as held to maturity and carried at
amortized cost were $.3 billion. Securities classified as available for sale and
carried at fair value were $3.1 billion. These securities, which comprise 87% of
AECC's total invested assets, are well diversified. Of these securities,
approximately 97% have fixed maturities of which 90% 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, 2000, write-downs of $11.4 million were recorded
on AECC's below-investment-grade securities and the reserve for possible losses
on investments in first mortgage loans on real estate was increased by $.2
million. These losses were partially offset by net realized gains of $1.5
million from investment security sales and redemptions.
At Dec. 31, 2000, approximately 8.5% of AECC's invested assets were
below-investment-grade bonds. During the year 2000, the industry-wide default
rate on below-investment-grade bonds increased significantly and this trend is
expected to continue over the next year and possibly beyond.* Additional
writedowns of AECC's below-investment-grade securities in 2001 are likely but
the amount of any such writedowns cannot be estimated at this time.* AECC's
management believes that there will be no adverse impact on the certificate
owners of any such losses.*
During the year ended Dec. 31, 2000, securities classified as available for sale
were sold with an amortized cost and fair value of $312 million and $313
million, respectively. The securities were sold in general management of the
investment portfolio.
During the year ended Dec. 31, 2000, a security classified as held to maturity
was tendered with an amortized cost and fair value of $5.0 million and $4.7
million, respectively. In addition, a held-to-maturity security with an
amortized cost and fair value of $4.0 million and $4.1 million, respectively,
was sold due to credit concerns. There were no sales or tenders of
held-to-maturity securities during the year ended Dec. 31, 1999.
There were no transfers of available-for-sale or held-to-maturity securities
during the years ended Dec. 31, 2000 and 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued, and
subsequently amended, Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," which AECC
adopted on Jan. 1, 2001. This Statement allows a one-time opportunity to
reclassify held-to-maturity investments to available-for-sale without tainting
the remaining securities in the held-to-maturity portfolio. AECC has elected to
take this opportunity to reclass its held-to-maturity investments to
available-for-sale. As of Jan. 1, 2001, the cumulative impact of applying the
Statement's accounting requirements will not have a significant impact on AECC's
financial position or results of operations.
Market risk and derivative financial instruments
The sensitivity analysis of two different tests of market risk discussed below
estimate the effects of hypothetical sudden and sustained changes in the
applicable market conditions on the ensuing year's earnings based on year-end
positions. The market changes, assumed to occur as of year-end, are a 100 basis
point increase in market interest rates and a 10% decline in a major stock
market index. Computation of the prospective effects of hypothetical interest
rate and major stock market index changes are based on numerous assumptions,
including relative levels of market interest rates and the major stock market
index level, as well as the levels of assets and liabilities. The hypothetical
changes and assumptions will be different than what actually occurs in the
future. Furthermore, the computations do not anticipate actions that may be
taken by management if the hypothetical market changes actually occurred over
time. As a result, actual earnings effects in the future will differ from those
quantified below.
* Statements in this discussion and analysis of AECC's financial condition and
results of operations marked with an asterisk are forward-looking statements
which are subject to risks and uncertainties. Important factors that could
cause results to differ materially from these forward-looking statements
include, among other things, changes in the industry-wide and AECC's default
rate on below-investment-grade bonds over the next several months and beyond,
changes in economic conditions, such as a recession or a substantial increase
in prevailing interest rates, or other factors that could cause a slowdown in
the economy, and changes in government regulation that affects the ability of
issuers to repay their debt.
AECC primarily invests in intermediate-term and long-term fixed income
securities to provide its certificate owners with a competitive rate of return
on their certificates while managing risk. These investment securities provide
AECC with a historically dependable and targeted margin between the interest
rate earned on investments and the interest rate credited to certificate owners'
accounts. AECC does not invest in securities to generate trading profits for its
own account.
AECC's Investment Committee, which comprises senior business managers, meets
regularly to review models projecting different interest rate scenarios and
their impact on AECC's profitability. The committee's objective is to structure
AECC's portfolio of investment securities based upon the type and behavior of
the certificates in the certificate reserve liabilities, to achieve targeted
levels of profitability and meet certificate contractual obligations.
Rates credited to certificate owners' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, AECC's margins
may be negatively impacted by increases in the general level of interest rates.
Part of the committee's strategies include the purchase of derivatives, such as
interest rate caps, corridors, floors and swaps, for hedging purposes. On three
series of certificates, interest is credited to the certificate owners' accounts
based upon the relative change in a major stock market index between the
beginning and end of the certificates' terms. As a means of hedging its
obligations under the provisions of these certificates, the committee purchases
and writes call options on the major stock market index. See note 9 to the
financial statements for additional information regarding derivative financial
instruments.
The negative impact on AECC's pretax earnings of the 100 basis point increase in
interest rates, which assumes repricings and customer behavior based on the
application of proprietary models to the book of business at Dec. 31, 2000 and
1999, would be approximately $3.4 million and $8.2 million for 2000 and 1999,
respectively. The 10% decrease in a major stock market index level would have a
minimal impact on AECC's pretax earnings as of Dec. 31, 2000 and 1999, because
the income effect is a decrease in option income and a corresponding decrease in
interest credited to the American Express Stock Market Certificate, American
Express Market Strategy Certificate and American Express Equity Indexed Savings
Certificate owners' accounts.
Ratios
The ratio of stockholder's equity, excluding accumulated other comprehensive
loss net of tax, to total assets less certificate loans and net unrealized
holding gains/losses on investment securities (capital to asset ratio) at Dec.
31, 2000 and 1999 was 5.4% and 5.5%, respectively. Under an informal agreement
established with the Commissioner of Commerce for the State of Minnesota, AECC
has agreed to maintain at all times a minimum capital to asset ratio of 5.0%.
AMERICAN EXPRESS CERTIFICATE COMPANY RESPONSIBILITY FOR PREPARATION OF FINANCIAL
STATEMENTS
The management of American Express Certificate Company (AECC) is responsible for
the preparation and fair presentation of its financial statements. The financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States which are appropriate in the circumstances, and
include amounts based on the best judgment of management. AECC'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, AECC 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 AECC's financial
statements. The concept of reasonable assurance is based on the notion that the
cost of internal control should not exceed the benefits derived.
Internal control 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 internal control and report
their findings to management throughout the year. AECC'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 internal controls over financial reporting.
Report of Independent Auditors
THE BOARD OF DIRECTORS AND SECURITY HOLDERS
AMERICAN EXPRESS CERTIFICATE COMPANY
We have audited the accompanying balance sheets of American Express Certificate
Company (formerly IDS Certificate Company) a wholly owned subsidiary of American
Express Financial Corporation, as of December 31, 2000 and 1999, and the related
statements of operations, comprehensive income, stockholder's equity and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the management of American
Express Certificate Company. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000
and 1999 by correspondence with custodians. 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 American Express Certificate
Company at December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 8, 2001
Financial Statements
Balance Sheets, Dec. 31,
Assets
($ thousands) 2000 1999
Qualified Assets (note 2)
Investments in unaffiliated issuers (notes 3, 4 and 10):
Cash and cash equivalents $ 58,711 $ 47,086
Held-to-maturity securities 317,732 464,648
Available-for-sale securities 3,122,950 2,620,747
First mortgage loans on real estate 358,575 378,047
Certificate loans-- secured by certificate reserves 25,547 28,895
Investments in and advances to affiliates 422 422
Total investments 3,883,937 3,539,845
Receivables:
Dividends and interest 47,901 41,584
Investment securities sold 1,070 953
Total receivables 48,971 42,537
Other (note 9) 53,015 123,845
Total qualified assets 3,985,923 3,706,227
Other Assets
Deferred federal income taxes (note 8) 30,501 42,590
Due from Parent for federal income taxes 7,016 --
Deferred distribution fees and other 9,305 12,251
Total other assets 46,822 54,841
Total assets $4,032,745 $3,761,068
Balance Sheets, Dec. 31, (continued)
Liabilities and Stockholder's Equity
($ thousands, except share amounts) 2000 1999
Liabilities
Certificate Reserves (note 5):
Installment certificates:
Reserves to mature $ 215,971 $ 263,204
Additional credits and accrued interest 7,088 10,932
Advance payments and accrued interest 697 838
Other 55 56
Fully paid certificates:
Reserves to mature 3,537,832 3,120,351
Additional credits and accrued interest 69,155 140,988
Due to unlocated certificate holders 261 290
Total certificate reserves 3,831,059 3,536,659
Accounts Payable and Accrued Liabilities:
Due to Parent (note 7A) 771 733
Due to Parent for federal income taxes -- 4,126
Due to other affiliates (notes 7B through 7E) 730 515
Reverse repurchase agreements -- 25,000
Payable for investment securities purchased 1,946 1,734
Other (notes 9 and 10) 31,725 50,599
Total accounts payable and accrued liabilities 35,172 82,707
Total liabilities 3,866,231 3,619,366
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 143,844 143,844
Retained earnings:
Appropriated for predeclared additional credits/interest 2,684 2,879
Appropriated for additional interest on advance payments 15 10
Unappropriated 70,937 59,210
Accumulated other comprehensive loss-- net of tax (note 1) (52,466) (65,741)
Total stockholder's equity 166,514 141,702
Total liabilities and stockholder's equity $4,032,745 $3,761,068
See notes to financial statements.
Statements of Operations
Year ended Dec. 31, ($ thousands) 2000 1999 1998
Investment Income
Interest income from unaffiliated investments:
Bonds and notes $204,923 $188,062 $209,408
Mortgage loans on real estate 26,675 27,294 18,173
Certificate loans 1,471 1,662 1,896
Dividends 32,478 35,228 40,856
Other 559 2,098 2,802
Total investment income 266,106 254,344 273,135
Investment Expenses
Parent and affiliated company fees (note 7):
Distribution 31,209 31,484 33,783
Investment advisory and services 8,779 8,692 9,084
Transfer agent 3,300 3,572 3,932
Depository 254 238 250
Options (note 9) 43,430 31,095 21,012
Reverse repurchase agreements 124 677 3,689
Interest rate swap agreements (note 9) 17 1,146 4,676
Other 410 331 385
Total investment expenses 87,523 77,235 76,811
Net investment income before provision for
certificate reserves and income tax (expense) benefit 178,583 177,109 196,324
Provision for Certificate Reserves (notes 5 and 9)
According to the terms of the certificates:
Provision for certificate reserves 12,599 11,493 9,623
Interest on additional credits 714 874 1,032
Interest on advance payments 33 33 44
Additional credits/interest authorized by AECC:
On fully paid certificates 134,633 118,371 146,434
On installment certificates 8,483 8,676 11,001
Total provision for certificate reserves before reserve recoveries 156,462 139,447 168,134
Reserve recoveries from terminations prior to maturity (1,001) (892) (1,026)
Net provision for certificate reserves 155,461 138,555 167,108
Net investment income before income tax (expense) benefit 23,122 38,554 29,216
Income tax (expense) benefit (note 8) (14) (4,615) 265
Net investment income 23,108 33,939 29,481
Net realized (loss) gain on investments
Securities of unaffiliated issuers before income tax expense (10,110) 1,250 5,143
Income tax (expense) benefit (note 8):
Current (537) (1,151) (1,800)
Deferred 4,076 714 --
Total income tax (expense) benefit 3,539 (437) (1,800)
Net realized (loss) gain on investments (6,571) 813 3,343
Net income-- wholly owned subsidiary -- 4 1,646
Net income $ 16,537 $ 34,756 $ 34,470
See notes to financial statements.
Statements of Comprehensive Income
Year ended Dec. 31, ($ thousands) 2000 1999 1998
Net income $ 16,537 $ 34,756 $ 34,470
Other comprehensive income (loss) (note 1)
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during year 21,840 (112,460) (32,020)
Income tax (expense) benefit (7,644) 39,361 11,207
Net unrealized holding gains (losses) arising during period 14,196 (73,099) (20,813)
Reclassification adjustment for gains included in net income (1,417) (3,058) (2,514)
Income tax expense 496 1,070 880
Net reclassification adjustment for gains included in net income (921) (1,988) (1,634)
Net other comprehensive income (loss) 13,275 (75,087) (22,447)
Total comprehensive income (loss) $29,812 $ (40,331) $ 12,023
See notes to financial statements.
Statements of Stockholder's Equity
Year ended Dec. 31, ($ thousands) 2000 1999 1998
Common Stock
Balance at beginning and end of year $ 1,500 $ 1,500 $ 1,500
Additional Paid-in Capital
Balance at beginning and end of year $143,844 $143,844 $143,844
Retained Earnings
Appropriated for predeclared additional credits/interest (note 5B)
Balance at beginning of year $ 2,879 $ 3,710 $ 6,375
Transferred to unappropriated retained earnings (195) (831) (2,665)
Balance at end of year $ 2,684 $ 2,879 $ 3,710
Appropriated for additional interest on advance payments (note 5C)
Balance at beginning of year $ 10 $ 10 $ 50
Transferred from (to) unappropriated retained earnings 5 -- (40)
Balance at end of year $ 15 $ 10 $ 10
Unappropriated (note 6)
Balance at beginning of year $ 59,210 $ 63,623 $ 55,948
Net income 16,537 34,756 34,470
Transferred from appropriated retained earnings 190 831 2,705
Cash dividends declared (5,000) (40,000) (29,500)
Balance at end of year $ 70,937 $ 59,210 $ 63,623
Accumulated other comprehensive (loss) income-- net of tax (note 1)
Balance at beginning of year $(65,741) $ 9,346 $ 31,793
Net other comprehensive income (loss) 13,275 (75,087) (22,447)
Balance at end of year $(52,466) $(65,741) $ 9,346
Total stockholder's equity $ 166,514 $ 141,702 $222,033
See notes to financial statements.
Statements of Cash Flows
Year ended Dec. 31, ($ thousands) 2000 1999 1998
Cash Flows from Operating Activities
Net income $ 16,537 $ 34,756 $ 34,470
Adjustments to reconcile net income to net cash provided by operating
activities:
Net income of wholly owned subsidiary -- (4) (1,646)
Net provision for certificate reserves 155,461 138,555 167,108
Interest income added to certificate loans (914) (1,037) (1,180)
Amortization of premiums/discounts-net 42,192 29,030 22,620
Provision for deferred federal income taxes 4,940 (1,063) (3,088)
Net realized loss (gain) on investments before income taxes 10,110 (1,250) (5,143)
(Increase) decrease in dividends and interest receivable (6,317) 4,995 2,238
Decrease in deferred distribution fees 2,946 3,533 5,310
(Increase) decrease in other assets (7,016) 1,082 (1,082)
(Decrease) increase in other liabilities (2,823) (18,390) 16,814
Net cash provided by operating activities 215,116 190,207 236,421
Cash Flows from Investing Activities
Maturity and redemption of investments:
Held-to-maturity securities 138,150 134,907 161,649
Available-for-sale securities 447,643 426,257 468,218
Other investments 68,877 73,387 76,894
Sale of investments:
Held-to-maturity securities 8,836 -- 6,245
Available-for-sale securities 312,612 107,244 344,901
Certificate loan payments 3,399 4,162 4,006
Purchase of investments:
Held-to-maturity securities (161) (6,785) (1,034)
Available-for-sale securities (1,250,487) (554,270) (663,347)
Other investments (49,460) (102,183) (189,905)
Certificate loan fundings (3,197) (3,680) (3,703)
Net cash (used in) provided by investing activities (323,788) 79,039 203,924
Cash Flows from Financing Activities
Payments from certificate owners 1,667,475 1,596,079 1,192,026
Proceeds from reverse repurchase agreements -- 123,500 919,500
Dividend from wholly owned subsidiary -- -- 8,000
Certificate maturities and cash surrenders (1,517,178) (1,662,239) (1,729,871)
Payments under reverse repurchase agreements (25,000) (239,500) (800,500)
Dividends paid (5,000) (40,000) (29,500)
Net cash provided by (used in) financing activities 120,297 (222,160) (440,345)
Net increase in cash and cash equivalents 11,625 47,086 --
Cash and cash equivalents at beginning of year 47,086 -- --
Cash and cash equivalents at end of year $ 58,711 $ 47,086 $ --
Supplemental Disclosures Including Non-cash Transactions
Cash paid (received) for income taxes $ 2,558 $ 9,233 $ (1,217)
Certificate maturities and surrenders through loan reductions 4,060 4,003 5,632
See notes to financial statements.
Notes to Financial Statements
($ in thousands unless indicated otherwise)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
American Express Certificate Company (AECC), formerly IDS Certificate Company,
is a wholly owned subsidiary of American Express Financial Corporation (Parent),
which is a wholly owned subsidiary of American Express Company. AECC 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 AECC are not insured by any government
agency. AECC's certificates are sold primarily by American Express Financial
Advisors Inc.'s (AEFA) (an affiliate) field force operating in 50 states, the
District of Columbia and Puerto Rico. AECC's Parent acts as investment advisor
for AECC.
On Jan. 28, 2000, the AECC Board of Directors approved the name change of IDS
Certificate Company to American Express Certificate Company effective April 26,
2000.
AECC currently offers ten types of certificates with specified maturities
ranging from 10 to 20 years. Within their specified maturity, most certificates
have interest rate terms of one- to 36-months. In addition, three types of
certificates have interest tied, in whole or in part, to any upward movement in
a broad-based stock market index. Except for two types of certificates, all of
the certificates are available as qualified investments for Individual
Retirement Accounts or 401(k) plans and other qualified retirement plans.
AECC's gross income is derived primarily from interest and dividends generated
by its investments. AECC'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 AEFA.
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
accounting principles generally accepted in the United States. AECC 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 non-investment company subsidiaries of issuers of face-amount certificates.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
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
AECC 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.
Investment securities
Cash equivalents are carried at amortized cost, which approximates fair value.
AECC has defined Cash and cash equivalents as cash in banks and highly liquid
investments with a maturity of three months or less at acquisition and are not
interest rate sensitive.
Debt securities that AECC has both the positive intent and ability to hold to
maturity are carried at amortized cost. Debt securities AECC 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 Accumulated other
comprehensive loss in Stockholder's Equity.
The basis for determining cost in computing realized gains and losses on
securities is specific identification. When there is a decline in value that is
other than temporary, the securities are carried at fair 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.
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.
AECC generally stops accruing interest on mortgage loans for which interest
payments are delinquent more than three months. Based on management's judgment
as to the ultimate collectibility of principal, interest payments received are
either recognized as income or applied to the recorded investment in the loan.
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
interest at specified percentage rates as declared by AECC. 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 prior to maturity, unamortized deferred distribution fees
are recognized in expense and any related surrender charges are recognized as a
reduction in Provision for certificate reserves.
Federal income taxes
AECC's taxable income or loss is included in the consolidated federal income tax
return of American Express Company. AECC provides for income taxes on a separate
return basis, except that, under an agreement between Parent and American
Express Company, tax benefits are recognized for losses to the extent they can
be used in the consolidated return. It is the policy of the Parent and its
subsidiaries that the Parent will reimburse a subsidiary for any tax benefits
recorded.
Accounting developments
In June 1998, the Financial Accounting Standards Board (FASB) issued, and
subsequently amended, Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," which AECC
adopted on Jan. 1, 2001. This Statement establishes accounting and reporting
standards for derivative instruments, including some embedded in other
contracts, and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value.
Changes in the fair value of a derivative will be recorded in income or directly
to equity, depending on the instrument's designated use. Upon adoption of SFAS
No. 133, AECC will use cash flow hedge accounting on its interest rate swaps.
A one-time opportunity to reclassify held-to-maturity investments to
available-for-sale is allowed without tainting the remaining securities in the
held-to-maturity portfolio. AECC has elected to take this opportunity to reclass
its held-to-maturity investments to available-for-sale.
As of Jan 1, 2001, the cumulative impact of applying the Statement's accounting
requirements will not have a significant impact on AECC's financial position or
results of operations.
2. DEPOSIT OF ASSETS AND MAINTENANCE OF QUALIFIED ASSETS
A) Under the provisions of its certificates and the 1940 Act, AECC was required
to have Qualified Assets (as that term is defined in Section 28(b) of the 1940
Act) in the amount of $3,829,659 and $3,476,365 at Dec. 31, 2000 and 1999,
respectively. AECC had Qualified Assets of $4,064,694 at Dec. 31, 2000 and
$3,805,634 at Dec. 31, 1999, excluding net unrealized depreciation on
Available-for-sale securities of $80,717 and $101,141 at Dec. 31, 2000 and 1999,
respectively, and Payable for investment securities purchased of $1,946 and
$1,734 at Dec. 31, 2000 and 1999, 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
depository agreement and to requirements of various states, qualified assets of
AECC were deposited as follows:
Dec. 31, 2000
Required
Deposits deposits Excess
Deposits to meet certificate liability requirements:
States $ 360 $ 320 $ 40
Central Depository 4,051,611 3,800,923 250,688
Total $4,051,971 $3,801,243 $250,728
Dec. 31, 1999
Required
Deposits deposits Excess
Deposits to meet certificate liability requirements:
States $ 364 $ 325 $ 39
Central Depository 3,682,847 3,444,056 238,791
Total $3,683,211 $3,444,381 $238,830
The assets on deposit at Dec. 31, 2000 and 1999 consisted of securities having a
deposit value of $3,589,196 and $3,217,101, respectively; mortgage loans of
$358,575 and $378,047, respectively; and other assets of $104,200 and $88,063,
respectively.
American Express Trust Company is the central depository for AECC. 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 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. AECC'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.
A summary of Held-to-maturity securities and Available-for-sale securities at
Dec. 31, is as follows:
2000
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
Held to maturity:
U.S. Government and agencies obligations $ 161 $ 169 $ 8 $ --
Mortgage-backed securities 12,604 12,764 160 --
Corporate debt securities 35,794 35,845 713 662
Stated maturity preferred stock 269,173 271,902 5,974 3,245
Total $ 317,732 $ 320,680 $ 6,855 $ 3,907
Available for sale:
U.S. Government and agencies obligations $ 199 $ 205 $ 6 $ --
Mortgage-backed securities 1,106,998 1,121,923 15,747 822
State and municipal obligations 17,911 18,281 370 --
Corporate debt securities 1,902,799 1,810,187 13,715 106,327
Stated maturity preferred stock 66,752 66,134 565 1,183
Perpetual preferred stock 109,008 106,220 533 3,321
Total $3,203,667 $3,122,950 $30,936 $111,653
1999
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
Held to maturity:
U.S. Government and agencies obligations $ 364 $ 365 $ 1 $ --
Mortgage-backed securities 16,662 16,596 178 244
Corporate debt securities 78,267 78,970 1,402 699
Stated maturity preferred stock 369,355 375,052 6,398 701
Total $ 464,648 $ 470,983 $ 7,979 $ 1,644
Available for sale:
Mortgage-backed securities $ 773,120 $ 763,195 $ 2,339 $ 12,264
State and municipal obligations 33,430 33,615 265 80
Corporate debt securities 1,743,621 1,653,271 1,944 92,294
Stated maturity preferred stock 62,708 62,370 292 630
Perpetual preferred stock 109,009 108,296 574 1,287
Total $2,721,888 $2,620,747 $ 5,414 $106,555
The Amortized cost and Fair value of Held-to-maturity securities and
Available-for-sale securities, by contractual maturity, at Dec. 31, 2000, are
shown below. Cash flows may 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 $ 50,996 $ 52,326
Due after 1 year through 5 years 105,431 105,067
Due after 5 years through 10 years 148,701 150,523
305,128 307,916
Mortgage-backed securities 12,604 12,764
Total $ 317,732 $ 320,680
Available for sale:
Due within 1 year $ 125,591 $ 125,682
Due after 1 year through 5 years 1,043,320 1,032,010
Due after 5 years through 10 years 493,840 414,700
Due after 10 years 324,910 322,415
1,987,661 1,894,807
Mortgage-backed securities 1,106,998 1,121,923
Perpetual preferred stock 109,008 106,220
Total $3,203,667 $3,122,950
During the years ended Dec. 31, 2000 and 1999, there were no securities
classified as trading securities.
The proceeds from sales of Available-for-sale securities and the gross realized
gains and gross realized losses on those sales during the years ended Dec. 31,
were as follows:
2000 1999 1998
Proceeds $312,728 $105,112 $346,353
Gross realized gains 4,447 3,270 4,487
Gross realized losses 3,136 195 1,461
During the years ended Dec. 31, 2000 and 1999, AECC recognized losses of $11,413
and $2,141, respectively, due to declines in the fair value of
available-for-sale securities that were other than temporary. These amounts are
reflected in Net unrealized loss on investments in the Statements of Operations.
No such losses were recognized during the year ended Dec. 31, 1998.
Sales of Held-to-maturity securities, due to credit concerns and acceptance of a
tender offer during the year ended Dec. 31, 2000, and acceptance of a tender
offer during the year ended Dec. 31, 1998, were as follows:
2000 1999 1998
Amortized cost $9,015 $-- $6,182
Gross realized gains 94 -- 63
Gross realized losses 273 -- --
There were no sales of Held-to-maturity securities during the year ended Dec.
31, 1999.
During the years ended Dec. 31, 2000 and 1999, no securities were reclassified
from held to maturity to available for sale.
B) Investments in securities with fixed maturities comprised 87% and 84% of
AECC's total invested assets at Dec. 31, 2000 and 1999, 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 2000 1999
Aaa/AAA 44% 36%
Aa/AA 1 2
Aa/A 1 2
A/A 13 15
A/BBB 3 3
Baa/BBB 28 31
Below investment grade 10 11
100% 100%
Of the securities rated Aaa/AAA, 73% and 72% at Dec. 31, 2000 and 1999,
respectively, are U.S. Government Agency mortgage-backed securities that are not
rated by a public rating agency. At Dec. 31, 2000 and 1999, approximately 13% of
securities with fixed maturities, other than U.S. Government Agency
mortgage-backed securities, are rated by Parent's internal analysts.
At Dec. 31, 2000 and 1999 no one issuer, other than U.S. Government Agency
mortgage-backed securities, is greater than 1% of AECC's total investment in
securities with fixed maturities.
C) AECC reserves freedom of action with respect to its acquisition of restricted
securities that offer advantageous and desirable investment opportunities. In a
private negotiation, AECC may purchase for its portfolio all or part of an issue
of restricted securities. Since AECC 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 AECC 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 AECC were to be deemed to be a distributor of the restricted
securities, it is possible that AECC 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 incurred by the issuer of the restricted securities.
4. INVESTMENTS IN FIRST MORTGAGE LOANS ON REAL ESTATE
At Dec. 31, 2000 and 1999, AECC's recorded investment in impaired mortgage loans
was $155 and $233, respectively, and the reserve for loss on those amounts was
$nil and $161, respectively. During 2000, 1999 and 1998, the average recorded
investment in impaired mortgage loans was $195, $267 and $331, respectively.
AECC recognized $13, $25 and $31 of interest income related to impaired mortgage
loans for the years ended Dec. 31, 2000, 1999 and 1998, respectively.
The reserve for loss on mortgage loans increased $233 during the year ended Dec.
31, 2000, from $511 at Dec. 31, 1999 to $744 at Dec. 31, 2000 and decreased $100
during the year ended Dec. 31, 1999, from $611 at Dec. 31, 1998, to $511 at Dec.
31, 1999. During the year ended Dec. 31, 1998, there was no change in the
reserve for loss on mortgage loans of $611.
At Dec. 31, 2000 and 1999, approximately 9% and 10%, respectively, of AECC's
invested assets were First mortgage loans on real estate. A summary of First
mortgage loans on real estate by Region and Property Type at Dec. 31, is as
follows:
Region 2000 1999
South Atlantic 20% 20%
West North Central 18 19
East North Central 16 16
Mountain 16 16
West South Central 12 12
Pacific 7 7
New England 6 5
Middle Atlantic 5 5
Total 100% 100%
Property Type 2000 1999
Office buildings 28% 29%
Retail/shopping centers 27 26
Apartments 17 17
Industrial buildings 15 15
Other 13 13
Total 100% 100%
The Carrying amounts and Fair values of First mortgage loans on real estate at
Dec. 31, follows: The Fair values are estimated using discounted cash flow
analysis, using market interest rates currently being offered for loans with
similar maturities.
Dec. 31, 2000 Dec. 31, 1999
Carrying Fair Carrying Fair
amount value amount value
First mortgage loans on real estate $359,319 $356,283 $378,558 $359,018
Reserve for losses (744) -- (511) --
Net first mortgage loans on real estate $358,575 $356,283 $378,047 $359,018
At Dec. 31, 2000 and 1999, commitments for fundings of first mortgage loans, at
market interest rates, aggregated $1,200 and $800, respectively. AECC holds the
mortgage document, which gives it the right to take possession of the property
if the borrower fails to perform according to the terms of the agreements. AECC
employs policies and procedures to ensure the creditworthiness of the borrowers
and that funds will be available on the funding date. AECC'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, were as
follows:
2000
Average Average
gross additional
Reserve accumulation credit
balance rate rate
Installment certificates:
Reserves to mature:
With guaranteed rates $ 16,217 3.50% 1.65%
Without guaranteed rates (A) 199,754 -- 4.13
Additional credits and accrued interest 7,088 3.17 --
Advance payments and accrued interest (C) 697 3.22 1.93
Other 55 -- --
Fully paid certificates:
Reserves to mature:
With guaranteed rates 113,194 3.20 1.78
Without guaranteed rates (A) and (D) 3,424,638 -- 3.06
Additional credits and accrued interest 69,155 3.12 --
Due to unlocated certificate holders 261 -- --
Total $3,831,059
1999
Average Average
gross additional
Reserve accumulation credit
balance rate rate
Installment certificates:
Reserves to mature:
With guaranteed rates $ 18,817 3.50% .50%
Without guaranteed rates (A) 244,387 -- 3.14
Additional credits and accrued interest 10,932 3.16 --
Advance payments and accrued interest (C) 838 3.20 1.30
Other 56 -- --
Fully paid certificates:
Reserves to mature:
With guaranteed rates 129,019 3.20 .95
Without guaranteed rates (A) and (D) 2,991,332 -- 4.13
Additional credits and accrued interest 140,988 3.15 --
Due to unlocated certificate holders 290 -- --
Total $3,536,659
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, 2000, $2,684 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 3.22%. AECC has increased the rate of accrual
to 5.15% through April 30, 2002. An appropriation of retained earnings amounting
to $15 has been made, which represents the estimated additional accrual that
will result from the increase granted by AECC.
D) American Express Stock Market Certificate, American Express Market Strategy
Certificate and American Express Equity Indexed Savings Certificate enable the
certificate owner to participate in any relative rise in a major stock market
index without risking loss of principal. Generally the certificates have a term
of 12 months and may continue for up to 20 successive terms. The reserve balance
on these certificates at Dec. 31, 2000 and 1999 was $1,063,383 and $886,240,
respectively.
E) Fair values of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender charges.
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.
The Carrying amounts and Fair values of certificate reserves at Dec. 31, consisted of the following:
2000 1999
Carrying Fair Carrying Fair
amount value amount value
Reserves with terms of one year or less $3,576,811 $3,575,189 $3,246,098 $3,244,495
Other 254,248 254,499 290,561 294,899
Total certificate reserves 3,831,059 3,829,688 3,536,659 3,539,394
Unapplied certificate transactions 1,255 1,255 756 756
Certificate loans and accrued interest (25,843) (25,843) (29,219) (29,219)
Total $3,806,471 $3,805,100 $3,508,196 $3,510,931
6. DIVIDEND RESTRICTION
Certain series of installment certificates outstanding provide that cash
dividends may be paid by AECC only in calendar years for which additional
credits of at least one-half of 1% on such series of certificates have been
authorized by AECC. This restriction has been removed for 2001 and 2002 by
AECC's declaration of additional credits in excess of this requirement.
7. FEES PAID TO PARENT AND AFFILIATED COMPANIES ($ NOT IN THOUSANDS)
A) The basis of computing fees paid or payable to Parent for Investment
advisory, joint facilities, technology support and treasury services is:
The investment advisory and services agreement with Parent provides for a
graduated scale of fees equal on an annual basis to 0.750% on the first $250
million of total book value of assets of AECC, 0.650% on the next $250 million,
0.550% on the next $250 million, 0.500% on the next $250 million and 0.107% on
the amount in excess of $1 billion. Effective Jan. 1, 1998, the fee on the
amount in excess of $1 billion was changed from 0.450% to 0.107%. 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 AECC pays an outside
service fee.
B) The basis of computing fees paid or payable to American Express Financial
Advisors Inc. (AEFA) (an affiliate) for Distribution services is:
Fees payable to AEFA on sales of AECC's certificates are based upon terms of
agreements giving AEFA the right to distribute the certificates covered under
the agreements. The agreements provide for payment of fees over a period of
time.
From time to time, AECC may sponsor or participate in sales promotions involving
one or more of the certificates and their respective terms. These promotions may
offer a special interest rate to attract new clients or retain existing clients.
To cover the cost of these promotions, distribution fees paid to AEFA may be
lowered. For the promotion of the seven-month interest rate term IDS Flexible
Savings Certificate which occurred March 10, 1999 to June 8, 1999, and the
promotion of the seven- and 13-month interest rate term IDS Flexible Savings
Certificate which occurred August 4, 1999 to April 25, 2000, the distribution
fee was lowered to 0.067%.
The Aggregate fees payable under the agreements per $1,000 face amount of
installment certificates and a summary of the periods over which the fees are
payable are:
Number of
certificate
years over
Aggregate fees payable which
subsequent
First Subsequent years' fees
Total year years are payable
On sales effective April 30, 1997 $25.00 $2.50 $22.50 9
Fees on the American Express Cash Reserve (formerly IDS Cash Reserve)
Certificate are paid at a rate of 0.20% of the purchase price at the time of
issuance and 0.20% of the reserves maintained for these certificates at the
beginning of the second and subsequent quarters from issue date.
Effective April 26, 2000, fees on the American Express Flexible Savings
(formerly IDS Flexible Savings) Certificate are paid at a rate of 0.08% of the
purchase price at the time of issuance and 0.08% of the reserves maintained for
these certificates at the beginning of the second and subsequent quarters from
issue date. For certificates sold from April 30, 1997 to April 25, 2000, fees
were paid at the rate of 0.20% of the purchase price at time of issuance and
0.20% of the reserves maintained for these certificates at the beginning of the
second and subsequent quarters from issue date.
Fees on the American Express 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 American Express Preferred Investors (formerly IDS Preferred
Investors) Certificate are paid at a rate of 0.165% of the initial payment on
issue date of the certificate and 0.165% of the certificate's reserve at the
beginning of the second and subsequent quarters from issue date.
Effective April 28, 1999, fees on the American Express Stock Market (formerly
IDS Stock Market), sold through AEFA, and American Express Market Strategy
(formerly IDS Market Strategy) Certificates are paid at a rate of 0.90%. For
certificates sold from April 30, 1997 to April 27, 1999, fees were paid at the
rate of 0.70%. Fees are paid on the purchase price on the first day of the
certificate's term and on the reserves maintained for these certificates at the
beginning of each subsequent term.
Effective April 26, 2000, fees on the American Express Stock Market
Certificates, sold through American Express Bank International, are paid at a
rate of 0.90%. For certificates sold from April 28, 1999 to April 25, 2000, fees
were paid at the rate of 1.00%. For certificates sold from April 30, 1997 to
April 27, 1999, fees were paid at a rate of 1.25%. Fees are paid on the purchase
price on the first day of the certificate's term and on the reserves maintained
for these certificates at the beginning of each subsequent term.
Fees on the American Express Equity Indexed Savings Certificate are paid at a
rate of 1.00% of the initial investment on the first day of each certificate's
term and 1.00% of the certificate's reserve at the beginning of each subsequent
term.
C) The basis of computing Depository 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.
D) The basis for computing fees paid or payable to American Express Bank Ltd.
(an affiliate) for the distribution of the American Express Special Deposits
Certificate on an annualized basis is:
1.25% of the reserves maintained for the certificates on an amount from $100,000
to $249,999, 0.80% on an amount from $250,000 to $499,999, 0.65% on an amount
from $500,000 to $999,999 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.
E) The basis of computing Transfer agent fees paid or payable to American
Express Client Service Corporation (AECSC) (an affiliate) is:
Under a Transfer Agency Agreement effective Jan. 1, 1998, AECSC maintains
certificate owner accounts and records. AECC pays AECSC a monthly fee of
one-twelfth of $10.353 per certificate owner account for this service. Prior to
Jan. 1, 1998, AEFC provided this service to AECC under the investment advisory
and services agreement.
8. INCOME TAXES
Income tax (expense) benefit as shown in the Statements of Operations for the
three years ended Dec. 31, consists of:
2000 1999 1998
Federal:
Current $ 8,586 $(5,978) $(5,668)
Deferred (4,941) 1,063 4,183
3,645 (4,915) (1,485)
State (120) (137) (50)
Total income tax (expense) benefit $ 3,525 $(5,052) $(1,535)
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:
2000 1999 1998
Federal tax expense at
U.S. statutory rate $(4,554) $(13,932) $(12,026)
Tax-exempt interest 82 264 394
Dividend exclusion 8,064 8,730 10,121
Other, net 53 23 26
Federal tax (expense) benefit $ 3,645 $ (4,915) $ (1,485)
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 AECC's Deferred tax
assets and Deferred tax liabilities as of Dec. 31, are as follows:
Deferred tax assets 2000 1999
Certificate reserves $ 1,869 $21,741
Investment reserves 5,081 1,005
Investment unrealized losses 28,251 35,399
Investments 646 --
Other, net 18 19
Total deferred tax assets $35,865 $58,164
Deferred tax liabilities
Deferred distribution fees $ 3,255 $ 4,286
Purchased/written call options 1,523 10,494
Dividends receivable 543 490
Investments -- 261
Return of capital dividends 43 43
Total deferred tax liabilities 5,364 15,574
Net deferred tax assets $30,501 $42,590
AECC is required to establish a valuation allowance for any portion of the
Deferred tax assets that management believes will not be realized. In the
opinion of management, it is more likely than not that AECC will realize the
benefit of the Deferred tax assets and, therefore, no such valuation allowance
has been established.
9. DERIVATIVE FINANCIAL INSTRUMENTS
AECC enters into transactions involving derivative financial instruments as an
end user (nontrading). AECC uses these instruments to manage its exposure to
interest rate risk and equity price risk, including hedging specific
transactions. AECC 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. AECC 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 risk is the possibility that the counterparty will not fulfill the terms
of the contract. AECC monitors credit risk 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, 2000, AECC's counterparties to the
interest rate swaps are rated A or better by nationally recognized rating
agencies. The counterparties to the purchased call options are eight major
broker/dealers that are rated A or better by nationally recognized rating
agencies.
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 or credit risk
and are not recorded on the Balance Sheets.
Credit risk 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.
AECC's holdings of derivative financial instruments at Dec. 31, were as follows:
2000
Notional Total
or contract Carrying Fair credit
amount value value risk
Assets:
Purchased S&P 500 futures $ 3 $ -- $ 2,003 $ --
Purchased call options 620 53,015 31,105 31,105
Total $53,015 $33,108 $31,105
Liabilities:
Interest rate swaps $500,000 $ -- $ 6,332 $ --
Written call options 620 27,822 9,664 --
Total $27,822 $15,996 $ --
1999
Notional Total
or contract Carrying Fair credit
amount value value risk
Assets:
Purchased call options $532 $123,845 $112,176 $112,176
Liabilities:
Written call options $532 $ 47,911 $ 65,625 $ --
Interest rate caps, corridors, floors and swaps, and options may be used to
manage AECC's exposure to changing interest rates. These instruments are used
primarily to protect the margin between the interest earned on investments and
the interest rate credited to investment certificate owners.
Interest rate swaps at Dec. 31, 2000, with a notional amount of $250,000 reset
monthly and $250,000 reset quarterly. AECC pays a fixed rate on the notional
amount ranging from 7.07% to 7.31% and receives a floating rate on the notional
amount tied to the London Interbank Offered Rate. There is no amount carried on
the Balance Sheets. Interest earned and interest expensed under the agreements
are shown net in Investment Expenses or Other Investment Income, as appropriate.
AECC offers a series of certificates which pays 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, AECC purchases and writes call options on the major market index.
The options are cash settlement options, that is, there is no underlying
security to deliver at the time the contract is closed out.
Each purchased (written) call option contract confers upon the holder the right
(obligation) to receive (pay) an amount equal to one hundred dollars times the
difference between the level of the major stock market index on the date the
call option is exercised and the strike price of the option.
The option contracts are less than one year in term. The premiums paid or
received on these index options are reported in Other Qualified Assets or Other
Liabilities, as appropriate, and are amortized into Investment Expenses over the
life of the option. The intrinsic value of these index options is also reported
in Other Qualified Assets or Other Liabilities, as appropriate. Changes in the
intrinsic value of these options are recognized currently in Provision for
certificate reserves.
On the same series of certificates, AECC also purchases futures on the index to
hedge its obligations. The futures are marked-to-market daily and exchange
traded, exposing AECC to no counterparty risk. For futures contracts that meet
the criteria for hedge accounting, gains and losses are deferred in Other
comprehensive income and will be recognized in Provision for certificate
reserves upon sale or disposition of the hedged investment. For futures that do
not meet the criteria for hedge accounting, gains and losses are recognized
currently in Provision for certificate reserves.
A summary of open option contracts at Dec. 31, is as follows:
2000
Contract Average Index at
amount strike price Dec. 31, 2000
Purchased call options $620 1,428 1,320
Written call options 620 1,580 1,320
1999
Contract Average Index at
amount strike price Dec. 31, 1999
Purchased call options $532 1,326 1,469
Written call options 532 1,453 1,469
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
AECC 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, and
Investment securities sold, Accounts Payable Due to Parent and other 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. AECC's off-balance sheet intangible
assets, such as AECC's name and future earnings of the core business are also
excluded. AECC's management believes the value of these excluded assets is
significant. The fair value of AECC, therefore, cannot be estimated by
aggregating the amounts presented.
A summary of fair values of financial instruments as of Dec. 31, is as follows:
2000 1999
Carrying Fair Carrying Fair
value value value value
Financial assets:
Assets for which carrying values
approximate fair values $ 107,309 $ 107,309 $ 89,206 $ 89,206
Investment securities (note 3) 3,440,682 3,443,630 3,085,395 3,091,730
First mortgage loans on real estate (note 4) 358,575 356,283 378,047 359,018
Derivative financial instruments (note 9) 53,015 33,108 123,845 112,176
Financial liabilities:
Liabilities for which carrying values
approximate fair values 4,516 4,516 33,944 33,944
Certificate reserves (note 5) 3,806,471 3,805,100 3,508,196 3,510,931
Derivative financial instruments (note 9) 27,822 15,996 47,911 65,625
Quick telephone reference*
800-862-7919 American Express Easy Access Line
Account value, cash transaction information,
current rate information (automated response
for Touchtone(R) phones only)
800-862-7919 Client Service Organization
Withdrawals, transfers, inquiries
800-846-4852 TTY Service
For the hearing impaired
* You may experience delays when call volumes are highAmerican Express
Certificate Company.
70100 AXP Financial Center Minneapolis, MN 55474 Web site address:
http://www.americanexpress.com/advisors
Distributed by
American Express
Financial Advisors Inc.
S-6013 P (4/01)
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
1996 IDS Special Deposits* 41,064,846.74
1997 American Express Special Deposits 182,788,631.00
1998 American Express Special Deposits 91,416,078.00
1999 American Express Special Deposits 50,132,542.00
2000 American Express Special Deposits 29,882,177.00
* Renamed American Express Special Deposits in April 1996.
(b) Underwriters and other purchasers
American Express Special Deposits are marketed by American Express Bank Ltd.
(AEB), an affiliate of American Express Certificate Company, to private banking
clients of AEB in the United Kingdom and Hong Kong.
(c) Consideration
All American Express 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 $301,946.44 in 1996, $592,068.70 in 1997, $967,791.95 in 1998,
$877,981.60 in 1999, and $807,408.63 in 2000.
(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) Exhibits
1. (a) Distribution Agreement dated November 18, 1988, between
Registrant and IDS Financial Services Inc., filed
electronically as Exhibit 1(a) to the Registration Statement
No. 33-26844, 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) Certificate of Amendment, dated September 12, 1995, filed
electronically as Exhibit 3(c) to Post-Effective Amendment
No. 44 to Registration Statement No. 2-55252, is
incorporated herein by reference.
(d) Certificate of Amendment, dated April 30, 1999, filed
electronically as Exhibit 3(a) to Registrant's March 31,
1999 Quarterly Report on Form 10-Q is incorporated herein by
reference.
(e) Certificate of Amendment, dated January 28, 2000, filed
electronically as Exhibit 3(e) to Post-Effective Amendment
No. 47 to Registration Statement No. 2-55252 is incorporated
herein by reference.
(f) Current By-Laws, filed electronically as Exhibit 3(e) to
Post-Effective Amendment No. 19 to Registration Statement
No. 33-26844, are incorporated herein by reference.
4. Not Applicable.
5. An opinion and consent of counsel as to the legality of the
securities being registered, filed electronically as Exhibit
16(a)5 to Post-Effective Amendment No. 24 to Registration
Statement No. 2-95577 is incorporated by reference.
6. through 9. -- None.
10. (a) Investment Advisory and Services Agreement between
Registrant and IDS/American Express Inc. dated January 12,
1984, filed electronically as Exhibit 10(b) to Registrant's
Post-Effective Amendment No. 3 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
electronically 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 Deposit 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) 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.
(e) Second amendment to Selling Agent Agreement between American
Express Financial Advisors Inc. and American Express Bank
International dated as of May 2, 1995, filed electronically
as Exhibit (1) to Registrant's June 30, 1995, Quarterly
Report on Form 10-Q, 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.
(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
1(d) to Post-Effective Amendment No. 13 to Registration
Statement No. 2-95577, is incorporated herein by reference.
(h) Selling Agent Agreement dated December 12, 1994, between IDS
Financial Services Inc. and Coutts & Co. (USA)
International, filed electronically as Exhibit 1(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 is incorporated herein by reference.
(j) Letter amendment dated January 9, 1997 to the Marketing
Agreement dated October 10, 1991, between Registrant and
American Express Bank Ltd. filed electronically as Exhibit
10(j) to Post-Effective Amendment No. 40 to Registration
Statement No. 2-55252, is incorporated herein by reference.
(k) Letter amendment dated April 7, 1997 to the Selling Agent
Agreement dated June 1, 1990 between American Express
Financial Advisors Inc. and American Express Bank
International, filed electronically as Exhibit 10 (j) to
Post-Effective Amendment No. 14 to Registration Statement
33-26844, is incorporated herein by reference.
(l) Letter Agreement dated July 28, 1999 amending the Selling
Agent Agreement dated June 1, 1990, or a schedule thereto,
as amended, between American Express Financial Advisors Inc.
(formerly IDS Financial Services Inc.) and American Express
Bank International, filed electronically to Registrant's
June 30, 1999 Quarterly Report on Form 10-Q, is incorporated
herein by reference.
(m) Letter Agreement dated July 28, 1999, amending the Marketing
Agreement dated October 10, 1991, or a schedule thereto, as
amended, between IDS Certificate Company and American
Express Bank Ltd., filed electronically to Registrant's June
30, 1999 Quarterly Report on Form 10-Q, is incorporated
herein by reference.
(n) Selling Agent Agreement, dated March 10, 1999 between
American Express Financial Advisors Inc. and Securities
America, Inc., filed electronically as Exhibit 10 (l) to
Post-Effective Amendment No. 18 to Registration Statement
33-26844, is incorporated herein by reference.
(o) Letter Agreement, dated April 10, 2000, amending the Selling
Agent Agreement, dated March 10, 1999, between American
Express Financial Advisors Inc. and Securities America,
Inc., filed electronically as Exhibit 10(o) to
Post-Effective Amendment No. 20 to Registration Statement
33-26844, is incorporated herein by reference.
(p) Form of Selling Dealer Agreement of American Express
Financial Advisors Inc., filed electronically as Exhibit
10(o) to Pre-Effective Amendment No. 2 to Registration
Statement No. 333-34982, is incorporated herein by
reference.
(q)(1) Code of Ethics under rule 17j-1 for Registrant, filed
electronically as Exhibit 10(p)(1) to Pre-Effective
Amendment No. 1 to Registration Statement No. 333-34982, is
incorporated herein by reference.
(q)(2) Code of Ethics under rule 17j-1 for Registrant's investment
advisor and principal underwriters, filed electronically as
Exhibit 10p(2) to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-34982, is incorporated herein
by reference.
(r) Letter of Representations, dated August 22, 2000, between
Registrant and The Depository Trust Company, filed
electronically as Exhibit 10(r) to Post-Effective Amendment
No. 49 to Registration Statement No. 2-55252, is incorporated
herein by reference.
11. through 22. -- None.
23. Consent of Independent Auditors' Report is filed electronically herewith.
24. (a) Officers' Power of Attorney dated April 16, 2001, filed
electronically as Exhibit 24(a) to Post-Effective Amendment
No. 28 to Registration Statement No. 2-68296, is incorporated
herein by reference.
(b) Directors' Power of Attorney dated October 12, 2000, filed
electronically as Exhibit 24(a) to Registrant's September
30, 2000 Quarterly Report on Form 10-Q, is incorporated
herein by reference.
25. through 27. -- None.
(b) The financial statement schedules for American Express Certificate
Company (formerly IDS Certificate Company), filed electronically as
Exhibit 16(b) in Post-Effective Amendment No. 49 to Registration
Statement No. 2-55252, are incorporated by reference.
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 material fact, on the part of the agents of American
Express Financial Advisors 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.
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, State of Minnesota, on
April 18, 2001.
AMERICAN EXPRESS CERTIFICATE COMPANY
By: /s/ Paula R. Meyer*
-----------------------
Paula R. Meyer, President
Pursuant to the requirements of the Securities Act of 1933, this amendment has
been signed below by the following persons in the capacities indicated on April
18, 2001.
Signature Capacity
/s/ Paula R. Meyer* ** President and Director
- ---------------------- (Principal Executive Officer)
Paula R. Meyer
/s/ David L. Yowan * Vice President and Treasurer
- ---------------------- (Principal Financial Officer)
David L. Yowan
/s/ Philip C. Wentzel* Vice President and Controller
- ---------------------- (Principal Accounting Officer)
Philip C. Wentzel
/s/ Rodney P. Burwell** Director
- -----------------------
Rodney P. Burwell
/s/ Charles W. Johnson** Director
- ------------------------
Charles W. Johnson
/s/ Jean B. Keffeler** Director
- ----------------------
Jean B. Keffeler
/s/ Richard W. Kling** Director
- ----------------------
Richard W. Kling
/s/ Pamela J. Moret** Director
- ---------------------
Pamela J. Moret
/s/ Thomas R. McBurney** Director
- ------------------------
Thomas R. McBurney
*Signed pursuant to Officers' Power of Attorney dated April 16, 2001, filed
electronically as Exhibit 24(a) to Post-Effective Amendment No. 28 to
Registrantion Statement 2-68296, is incorporated herein by reference.
/s/ Monica P. Vickman
- -----------------
Monica P. Vickman
**Signed pursuant to Directors' Power of Attorney dated October 12, 2000, filed
electronically as Exhibit 24(a) to Registrant's September 30, 2000 Quarterly
Report on Form 10-Q, incorporated herein by reference.
/s/ Monica P. Vickman
- -----------------
Monica P. Vickman