SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
POST-EFFECTIVE AMENDMENT NUMBER 30 TO
REGISTRATION STATEMENT NUMBER 33-22503
American Express Stock Market 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.)
70100 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)
H. Bernt von Ohlen - 50605 AXP Financial Center,
Minneapolis, MN 55474, (612) 671-7981
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
EXPLANATORY NOTE
The prospectuses contained in Part 1 of the Registration Statement are
substantially similar and are for the same product. They reflect differences in
the distribution of the products. The prospectus used by American Express Bank
International (AEBI), refers to AEBI and relationship managers. The prospectus
distributed by American Express Financial Adviors Inc. refers to financial
advisors.
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 30 TO
REGISTRATION STATEMENT NO. 33-22503
Cover Page
Prospectus
Part II Information
Signatures
Exhibits
(logo)
American
Express(R)
Certificates
American Express
Stock Market
Certificate
Prospectus April 28, 2004
Potential for stock market growth with safety of principal.
American Express Certificate Company (AECC) issues American Express Stock Market
Certificates. You may:
o Purchase this certificate in any amount from $1,000 through $1 million.
o Participate in any increase of the stock market based on the S&P 500 Index
while protecting your principal, up to a maximum return between 4% and 5%,
for a 52-week term (see page 2p).
o Decide whether AECC will guarantee part of your return or whether to link
all of it to the market.
o Keep your certificate for up to successive 14 terms.
Special rates may be offered through some distribution channels. See "Initial
Interest and Participation Rates" on page 2p and "Maximum return" in "Interest"
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. To the extent you link
your interest to the S&P 500 Index, you might earn no interest. See ORisk
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 and selling agent are 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.
(logo)
AMERICAN
EXPRESS
(R)
Initial Interest and Participation Rates
AECC guarantees return of your principal. The interest on your certificate is
linked to stock market performance as measured by the Standard & Poor's 500
Composite Stock Price Index (S&P 500 Index). See "About the Certificate" for
more explanation.
Here are the interest rates and market participation percentages in effect April
28, 2004:
Maximum return Market participation percentage Minimum interest
5%* 100% (full) None
5%* 25% (partial) 1%*
* Effective for terms beginning May 12, 2004, the maximum return will decrease
to 4%, and the minimum interest rate guaranteed by AECC for a partial
participation option will decrease to 0.75%.
These rates may or may not have changed when you apply to purchase your
certificate. For your first term, your maximum return will be between 4% and 5%.
However, if you have received a special promotional rate and comply with the
requirements as described in "Maximum return" in "Interest" under "About the
Certificate," then your maximum return for your first term will be between 5%
and 6%. Rates for later terms are set at the discretion of the Issuer and may
differ from the rates shown here.
AECC may offer different rates for different distribution channels. For more
information call (800) 862-7919.
RISK FACTORS
You should consider the following when investing in this certificate:
To the extent you link your interest to the S&P 500 Index, you might earn no
interest. If you choose to link all of your return on this certificate to the
S&P 500 Index, you earn interest only if the value of the S&P 500 Index is
higher on the last day of your term than it was on the first day of your term.
See "Interest" under "About the 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."
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2p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Table of Contents
Initial Interest and
Participation Rates..................2p
Risk Factors............................2p
About the Certificate...................4p
Read and Keep This Prospectus...........4p
Investment Amounts......................4p
Face Amount and Principal...............4p
Certificate Term........................5p
Value at Maturity.......................5p
Receiving Cash Before the End of Term..5p
Interest................................5p
Promotions and Pricing Flexibility......8p
Historical Data on the S&P 500 Index...8p
Calculation of Return..................11p
About the S&P 500 Index................14p
Opportunities at the End of a Term.....15p
How to Invest and Withdraw Funds.......16p
Buying Your Certificate................16p
Two Ways to Make Investments...........17p
Full and Partial Withdrawals...........17p
Transfers to Other Accounts............19p
Two Ways to Request a
Withdrawal or Transfer.............19p
Three Ways to Receive Payment
When You Withdraw Funds............20p
Retirement Plans: Special Policies.....21p
Transfer of Ownership..................21p
For More Information...................21p
Taxes on Your Earnings.................22p
Retirement Accounts....................22p
Gifts to Minors........................23p
Your TIN and Backup Withholding........23p
Foreign Investors......................24p
How Your Money Is Used
and Protected......................26p
Invested and Guaranteed by AECC........26p
Regulated by Government................26p
Backed by Our Investments..............27p
Investment Policies....................27p
How Your Money Is Managed..............30p
Relationship Between AECC and
American Express Financial
Corporation .......................30p
Capital Structure and
Certificates Issued................30p
Investment Management
and Services.......................31p
Distribution...........................32p
Selling Agent Agreement
American Express Bank
International......................33p
Other Selling Agents...................33p
Transfer Agent.........................34p
Employment of Other
American Express Affiliates........34p
Directors and Officers.................35p
Independent Auditors...................38p
American Express Certificates..........39p
Appendix...............................40p
Annual Financial Information...........41p
Summary of Selected
Financial Information..............41p
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..........42p
American Express Certificate Company
Responsibility of Management.......48p
Report of Ernst & Young LLP
Independent Auditors...............49p
Financial Statements...................50p
Notes to Financial Statements..........57p
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3p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
About the Certificate
READ AND KEEP THIS PROSPECTUS
This prospectus describes terms and conditions of your American Express Stock
Market Certificate. It contains facts that can help you decide if the
certificate is the right investment for you. Read the prospectus before you
invest and keep it for future reference. No one has the authority to change the
terms and conditions of the American Express Stock Market Certificate as
described in the prospectus, or to bind AECC by any statement not in it.
INVESTMENT AMOUNTS
You may purchase the American Express Stock Market Certificate in any amount
from $1,000 through $1 million (unless you receive prior approval from AECC to
invest more) payable in U.S. currency. You may also make additional lump-sum
investments in any amount at the end of any term as long as your total amount
paid in is not more than the $1 million (unless you receive prior approval from
AECC to invest more).
The certificate may be used as an investment for your Individual Retirement
Account (IRA). If so used, the amount of your contribution (investment) will be
subject to limitations in applicable federal law.
FACE AMOUNT AND PRINCIPAL
The face amount of your certificate is the amount of your initial investment.
Your principal is the value of your certificate at the beginning of each
subsequent term. AECC guarantees your principal. It consists of the amount you
actually invest plus interest credited to your account and any additional
investment you make less withdrawals, penalties and any interest paid to you in
cash.
For example: Assume your initial investment (face amount) of $10,000 has earned
a return of 5.00%. AECC credits interest to your account at the end of the term.
You have not taken any interest as cash, or made any withdrawals. You have
invested an additional $2,500 prior to the beginning of the next term. Your
principal for the next term will equal:
$10,000 Face amount (initial investment)
plus 500 Interest credited to your account at the end of the term
plus 5 Interim interest (See "Interim interest" under "Interest")
minus (0) Interest paid to you in cash
plus 2,500 Additional investment to your certificate
minus (0) Withdrawals and applicable penalties
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$13,005 Principal at the beginning of the next term
================================================================================
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4p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
CERTIFICATE TERM
Your first certificate term is a 52-week period. It begins on the Wednesday
after AECC accepts your application and ends the Tuesday before the 52-week
anniversary of its acceptance. AECC has complete discretion to determine whether
to accept an application and sell a certificate. For example, if AECC accepts
your application on a Wednesday, your first term would begin the next Wednesday.
Your certificate will earn interest at the interim interest rate then in effect
until the term begins. See "Interim interest" under "Interest." It will not earn
any participation interest until the term begins. If you choose to continue to
receive participation interest, subsequent terms are 52-week periods that begin
on the Wednesday following the 14-day grace period at the end of the prior
52-week term. You may begin your next term on any Wednesday during the 14-day
period by providing prior written instructions to AECC. If you choose to receive
fixed interest, subsequent terms will be up to 52 weeks as described in "Fixed
interest" under "Interest" below.
VALUE AT MATURITY
Your certificate matures after 14 terms. Then you will receive a distribution
for its value. Participation terms are always 52 weeks. Fixed interest terms may
be less than 52 weeks if you change to participation before the end of the
52-week period. At maturity, the value of your certificate will be the total of
your actual investments, plus credited interest not paid to you in cash, less
any withdrawals and withdrawal penalties. Certain other fees may apply.
RECEIVING CASH BEFORE THE END OF TERM
If you need money before your certificate term ends, you may withdraw part or
all of its value at any time, less any penalties that apply. Procedures for
withdrawing money, as well as conditions under which penalties apply, are
described in "How to Invest and Withdraw Funds."
INTEREST
You choose from two types of participation interest for your first term: 1) full
participation, or 2) partial participation together with minimum interest.
Interest earned under both of these options has an upper limit which is the
maximum annual return explained below. After your first term, you may choose
full or partial participation; or not to participate in any market movement and
receive a fixed rate of interest.
Full participation interest: With this option:
o you participate 100% in any percentage increase in the S&P 500 Index up to
the maximum return. For the maximum return in effect on the date of this
prospectus, see "Initial Interest and Participation Rates" on page 2p;
o you earn interest only if the value of the S&P 500 Index is higher on the
last day of your term than it was on the first day of your term; and
o your return is linked to stock market performance.
The S&P 500 Index is frequently used to measure the relative performance of the
stock market. For a more detailed discussion of the S&P 500 Index, see "About
the S&P 500 Index."
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5p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Partial participation and minimum interest: This option allows you to
participate in a specified part (market participation rate) of any increase in
the S&P 500 Index together with a rate of interest guaranteed by AECC in advance
for each term (minimum interest). Your return consists of two parts:
o a percentage of any increase in the S&P 500 Index, and
o a rate of interest guaranteed by AECC in advance for each term.
Together, they cannot exceed the maximum return. For the maximum return in
effect on the date of this prospectus, see "Initial Interest and Participation
Rates" on page 2p.
The market participation rate and the minimum interest rate on the date of this
prospectus are listed on the inside cover under "Initial Interest and
Participation Rates."
Fixed interest: After your first term, this fixed interest option allows you to
stop participating in the market entirely for some period of time. A fixed
interest term is 52 weeks unless you choose to start a new participation term
before your 52 week term ends. You may choose to receive a fixed rate of
interest for any term after the first term. During the term when you are
receiving fixed interest, you can change from your fixed interest selection to
again participate in the market. If you make the change from fixed interest to
participation interest, your next term would begin on the Wednesday following
our receipt of notice of your new selection. In this way, you may have a term
(during which you would earn fixed interest) that is less than 52 weeks. You may
not change from participation interest to fixed interest during a term.
Maximum return: This is the cap, or upper limit, of your return. Your total
return including both participation and minimum interest for a term for which
you have chosen participation interest will be limited to this maximum return
percentage. For the maximum return in effect on the date of this prospectus, see
"Initial Interest and Participation Rates" on page 2p.
However, AECC guarantees that, for persons who have received a special
promotional coupon from AECC for purchase of a Stock Market Certificate and have
satisfied any requirement stated in the coupon, the maximum return for the
initial term will be the maximum return for special promotional coupons set out
on page 2p. For example, the coupon may require that you make a minimum
investment and that you are not an existing client of AEFC, or another affiliate
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 the distributor or selling agent at the time of applying to purchase the
certificate.
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6p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Determining the S&P 500 Index value: The stock market closes at 3 p.m. Central
time. The S&P 500 Index value is available at approximately 4:30 p.m Central
time. This is the value we currently use to determine participation interest.
Occasionally, Standard & Poor's (S&P) makes minor adjustments to the closing
value after 4:30 p.m., and the value we use may not be exactly the one that is
published the next business day. In the future, we may use a later time cut-off
if it becomes feasible to do so. If the stock market is not open or the S&P 500
Index is unavailable as of the last day of your term, the preceding business day
for which a value is available will be used instead. Each Tuesday's closing
value of the S&P 500 Index is used for establishing the term start and the term
end values each week.
Interim interest: When we accept your application, we pay interim interest to
your account for the time before your first term begins. We also pay interim
interest for the 14-day period between terms unless you write or call to ask us
to begin your next term earlier. You may withdraw this interest in cash at any
time before it becomes part of your certificate's principal without a withdrawal
penalty. If it is not withdrawn, the interest will become part of your
certificate's principal at the start of the next succeeding term. For example,
the interest you earn between the end of the first and the beginning of the
second term will become part of the principal at the start of your third term.
Interim interest rates for the time before your first term begins will be within
a range 50 basis points (.50%) below to 50 basis points (.50%) above the average
interest rate published for 12-month certificates of deposit (CDs) in the BANK
RATE MONITOR(R) (BRM), Top 25 Market Average(R). BANK RATE MONITOR and National
Index are marks owned by BankRate.COMSM, a publication of Bankrate, Inc., N.
Palm Beach, FL 33408. If the BRM Average is no longer publicly available or
feasible to use, AECC may use another, similar index as a guide for setting
rates.
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 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 Average are government insured fixed-rate time deposits.
The BRM may be available in your local library. To obtain information or current
BRM Average rates, call American Express Client Service Corporation (AECSC) at
the telephone numbers listed on the back cover.
Earning interest: AECC calculates, credits and compounds participation interest
at the end of your certificate term. Minimum interest accrues daily and is
credited and compounded at the end of your certificate term. Fixed interest
accrues and is credited daily and compounds at the end of your term. Both
minimum and fixed interest are calculated on a 30-day month and 360-day year
basis. Interim interest accrues and is credited daily and compounds at the end
of your term immediately following the period in which interim interest is
credited.
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7p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Rates for future periods: After the initial term, the maximum return, market
participation percentage or minimum interest rate on your certificate may be
greater or less than those shown on the front of this prospectus. We review
rates weekly, and have complete discretion to decide what interest rate will be
declared.
To find out what your certificate's new maximum return, market participation
percentage and minimum interest rate will be for your next term, please consult
your American Express financial advisor, or AECSC at the telephone numbers
listed on the back cover.
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 AECSC at the telephone numbers listed on the back
cover.
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 purchase or use other products or
services offered by American Express Company or its affiliates. These promotions
will generally be for a specified period of time.
We also may offer different rates based on your amount invested, geographic
location and whether the certificate is purchased for an IRA or a qualified
retirement account.
HISTORICAL DATA ON THE S&P 500 INDEX
The following chart illustrates the month-end closing values of the Index from
Dec. 31, 1984 through Feb. 27, 2004. The values of the S&P 500 Index are
reprinted with the permission of S&P.
S&P 500 Index Values - December 1984 to February 2004
(line graph)
S&P 500
Index
Date Value
Dec-84 167.24
Jan-85 179.63
Feb-85 181.18
Mar-85 180.66
Apr-85 179.83
May-85 189.55
Jun-85 191.85
Jul-85 190.92
Aug-85 188.63
Sep-85 182.08
Oct-85 189.82
Nov-85 202.17
Dec-85 211.28
Jan-86 211.78
Feb-86 226.92
Mar-86 238.90
Apr-86 235.52
May-86 247.35
Jun-86 250.84
Jul-86 236.12
Aug-86 252.93
Sep-86 231.32
Oct-86 243.98
Nov-86 249.22
Dec-86 242.17
Jan-87 274.08
Feb-87 284.20
Mar-87 291.70
Apr-87 288.36
May-87 290.10
Jun-87 304.00
Jul-87 318.66
Aug-87 329.80
Sep-87 321.83
Oct-87 251.79
Nov-87 230.30
Dec-87 247.08
Jan-88 257.07
Feb-88 267.82
Mar-88 258.89
Apr-88 261.33
May-88 262.16
Jun-88 273.50
Jul-88 272.02
Aug-88 261.52
Sep-88 271.91
Oct-88 278.97
Nov-88 273.70
Dec-88 277.72
Jan-89 297.47
Feb-89 288.86
Mar-89 294.87
Apr-89 309.64
May-89 320.52
Jun-89 317.98
Jul-89 346.08
Aug-89 351.45
Sep-89 349.15
Oct-89 340.36
Nov-89 345.99
Dec-89 353.40
Jan-90 329.08
Feb-90 331.89
Mar-90 339.94
Apr-90 330.80
May-90 361.23
Jun-90 358.02
Jul-90 356.15
Aug-90 322.56
Sep-90 306.05
Oct-90 304.00
Nov-90 322.22
Dec-90 330.22
Jan-91 343.93
Feb-91 367.07
Mar-91 375.22
Apr-91 375.35
May-91 389.83
Jun-91 371.16
Jul-91 387.81
Aug-91 395.43
Sep-91 387.86
Oct-91 392.46
Nov-91 375.22
Dec-91 417.09
Jan-92 408.79
Feb-92 412.70
Mar-92 403.69
Apr-92 414.95
May-92 415.35
Jun-92 408.14
Jul-92 424.21
Aug-92 414.03
Sep-92 417.80
Oct-92 418.67
Nov-92 431.35
Dec-92 435.71
Jan-93 438.78
Feb-93 443.38
Mar-93 451.67
Apr-93 440.19
May-93 450.21
Jun-93 450.53
Jul-93 448.13
Aug-93 463.56
Sep-93 458.93
Oct-93 467.83
Nov-93 461.79
Dec-93 466.50
Jan-94 481.61
Feb-94 467.14
Mar-94 445.77
Apr-94 450.91
May-94 456.51
Jun-94 444.27
Jul-94 458.25
Aug-94 475.50
Sep-94 462.71
Oct-94 472.35
Nov-94 453.69
Dec-94 459.27
Jan-95 470.42
Feb-95 487.39
Mar-95 500.71
Apr-95 514.71
May-95 533.41
Jun-95 544.75
Jul-95 562.06
Aug-95 561.88
Sep-95 584.41
Oct-95 581.50
Nov-95 605.37
Dec-95 615.93
Jan-96 636.02
Feb-96 640.44
Mar-96 645.50
Apr-96 654.18
May-96 669.14
Jun-96 670.63
Jul-96 639.95
Aug-96 651.99
Sep-96 687.33
Oct-96 705.27
Nov-96 757.02
Dec-96 740.74
Jan-97 786.16
Feb-97 790.82
Mar-97 757.41
Apr-97 801.34
May-97 848.28
Jun-97 885.76
Jul-97 954.31
Aug-97 899.48
Sep-97 947.28
Oct-97 914.62
Nov-97 955.40
Dec-97 970.43
Jan-98 980.28
Feb-98 1049.34
Mar-98 1101.76
Apr-98 1111.77
May-98 1090.82
Jun-98 1133.84
Jul-98 1120.73
Aug-98 957.68
Sep-98 1017.07
Oct-98 1098.69
Nov-98 1163.74
Dec-98 1230.59
Jan-99 1279.28
Feb-99 1238.33
Mar-99 1286.39
Apr-99 1335.18
May-99 1301.85
Jun-99 1371.65
Jul-99 1328.71
Aug-99 1320.35
Sep-99 1282.72
Oct-99 1363.17
Nov-99 1388.95
Dec-99 1469.25
Jan-00 1394.46
Feb-00 1366.41
Mar-00 1507.78
Apr-00 1452.43
May-00 1420.65
Jun-00 1454.6
Jul-00 1430.84
Aug-00 1517.68
Sep-00 1436.48
Oct-00 1429.4
Nov-00 1314.95
Dec-00 1320.28
Jan-01 1366.01
Feb-01 1239.94
Mar-01 1160.34
Apr-01 1249.48
May-01 1255.82
Jun-01 1224.38
Jul-01 1211.23
Aug-01 1133.58
Sep-01 1040.94
Oct-01 1059.78
Nov-01 1139.45
Dec-01 1148.08
Jan-02 1130.2
Feb-02 1106.74
Mar-02 1147.39
Apr-02 1076.92
May-02 1067.14
Jun-02 989.82
Jul-02 911.62
Aug-02 916.07
Sep-02 815.28
Oct-02 885.76
Nov-02 936.31
Dec-02 879.82
Jan-03 855.7
Feb-03 841.15
Mar-03 848.18
Apr-03 916.92
May-03 963.59
Jun-03 974.51
Jul-03 990.31
Aug-03 1008.01
Sep-03 995.97
Oct-03 1050.71
Nov-03 1058.2
Dec-03 1111.92
Jan-04 1131.13
Feb-04 1144.94
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8p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
S&P 500 Index Average Annual Return
Beginning date Dec. 31, Period held in years Average annual return
1993 10 9.1%
1998 5 -2.0%
2002 1 26.4%
The next chart illustrates, on a moving 52-week basis, the price return of the
S&P 500 Index measured for every 52-week period beginning with the period ended
Dec. 31, 1985. The price return is the percentage return for each period using
month-end closing prices of the S&P 500 Index. Dividends and other distributions
on the securities comprising the S&P 500 Index are not included in calculating
the price return.
S&P 500 Index - December 1985 to February 2004
52-Week Moving Price Return
(line graph)
S&P 500
12 Mth
Date Return
Dec-85 26.33%
Jan-86 17.90%
Feb-86 25.25%
Mar-86 32.24%
Apr-86 30.97%
May-86 30.49%
Jun-86 30.75%
Jul-86 23.67%
Aug-86 34.09%
Sep-86 27.04%
Oct-86 28.53%
Nov-86 23.27%
Dec-86 14.62%
Jan-87 29.42%
Feb-87 25.24%
Mar-87 22.10%
Apr-87 22.44%
May-87 17.28%
Jun-87 21.19%
Jul-87 34.96%
Aug-87 30.39%
Sep-87 39.13%
Oct-87 3.20%
Nov-87 -7.59%
Dec-87 2.03%
Jan-88 -6.21%
Feb-88 -5.76%
Mar-88 -11.25%
Apr-88 -9.37%
May-88 -9.63%
Jun-88 -10.03%
Jul-88 -14.64%
Aug-88 -20.70%
Sep-88 -15.51%
Oct-88 10.79%
Nov-88 18.84%
Dec-88 12.40%
Jan-89 15.72%
Feb-89 7.86%
Mar-89 13.90%
Apr-89 18.49%
May-89 22.26%
Jun-89 16.26%
Jul-89 27.23%
Aug-89 34.39%
Sep-89 28.41%
Oct-89 22.01%
Nov-89 26.41%
Dec-89 27.25%
Jan-90 10.63%
Feb-90 14.90%
Mar-90 15.28%
Apr-90 6.83%
May-90 12.70%
Jun-90 12.59%
Jul-90 2.91%
Aug-90 -8.22%
Sep-90 -12.34%
Oct-90 -10.68%
Nov-90 -6.87%
Dec-90 -6.56%
Jan-91 4.51%
Feb-91 10.60%
Mar-91 10.38%
Apr-91 13.47%
May-91 7.92%
Jun-91 3.67%
Jul-91 8.89%
Aug-91 22.59%
Sep-91 26.73%
Oct-91 29.10%
Nov-91 16.45%
Dec-91 26.31%
Jan-92 18.86%
Feb-92 12.43%
Mar-92 7.59%
Apr-92 10.55%
May-92 6.55%
Jun-92 9.96%
Jul-92 9.39%
Aug-92 4.70%
Sep-92 7.72%
Oct-92 6.68%
Nov-92 14.96%
Dec-92 4.46%
Jan-93 7.34%
Feb-93 7.43%
Mar-93 11.89%
Apr-93 6.08%
May-93 8.39%
Jun-93 10.39%
Jul-93 5.64%
Aug-93 11.96%
Sep-93 9.84%
Oct-93 11.74%
Nov-93 7.06%
Dec-93 7.07%
Jan-94 9.76%
Feb-94 5.36%
Mar-94 -1.31%
Apr-94 2.44%
May-94 1.40%
Jun-94 -1.39%
Jul-94 2.26%
Aug-94 2.58%
Sep-94 0.82%
Oct-94 0.97%
Nov-94 -1.75%
Dec-94 -1.55%
Jan-95 -2.32%
Feb-95 4.33%
Mar-95 12.32%
Apr-95 14.15%
May-95 16.85%
Jun-95 22.62%
Jul-95 22.65%
Aug-95 18.17%
Sep-95 26.30%
Oct-95 23.11%
Nov-95 33.43%
Dec-95 34.11%
Jan-96 35.20%
Feb-96 31.40%
Mar-96 28.92%
Apr-96 27.10%
May-96 25.45%
Jun-96 23.11%
Jul-96 13.86%
Aug-96 16.04%
Sep-96 17.61%
Oct-96 21.28%
Nov-96 25.05%
Dec-96 20.26%
Jan-97 23.61%
Feb-97 23.48%
Mar-97 17.34%
Apr-97 22.50%
May-97 26.77%
Jun-97 32.08%
Jul-97 49.12%
Aug-97 37.96%
Sep-97 37.82%
Oct-97 29.68%
Nov-97 26.21%
Dec-97 31.01%
Jan-98 24.69%
Feb-98 32.69%
Mar-98 45.46%
Apr-98 38.74%
May-98 28.59%
Jun-98 28.01%
Jul-98 17.44%
Aug-98 6.47%
Sep-98 7.37%
Oct-98 20.13%
Nov-98 21.81%
Dec-98 26.81%
Jan-99 30.50%
Feb-99 18.01%
Mar-99 16.76%
Apr-99 20.09%
May-99 19.35%
Jun-99 20.97%
Jul-99 18.56%
Aug-99 37.87%
Sep-99 26.12%
Oct-99 24.07%
Nov-99 19.35%
Dec-99 19.39%
Jan-00 9.00%
Feb-00 10.34%
Mar-00 17.21%
Apr-00 8.78%
May-00 9.13%
Jun-00 6.05%
Jul-00 7.69%
Aug-00 14.95%
Sep-00 11.99%
Oct-00 4.86%
Nov-00 -5.33%
Dec-00 -10.14%
Jan-01 -2.04%
Feb-01 -9.26%
Mar-01 -23.04%
Apr-01 -13.97%
May-01 -11.60%
Jun-01 -15.83%
Jul-01 -15.35%
Aug-01 -25.31%
Sep-01 -27.54%
Oct-01 -25.86%
Nov-01 -13.35%
Dec-01 -13.04%
Jan-02 -17.26%
Feb-02 -10.74%
Mar-02 -1.12%
Apr-02 -13.81%
May-02 -15.02%
Jun-02 -19.16%
Jul-02 -24.74%
Aug-02 -19.19%
Sep-02 -21.68%
Oct-02 -16.42%
Nov-02 -17.83%
Dec-02 -23.37%
Jan-03 -24.29%
Feb-03 -24.00%
Mar-03 -26.08%
Apr-03 -14.86%
May-03 -9.70%
Jun-03 -1.55%
Jul-03 8.63%
Aug-03 10.04%
Sep-03 22.16%
Oct-03 18.62%
Nov-03 13.02%
Dec-03 26.38%
Jan-04 32.19%
Feb-04 36.12%
- --------------------------------------------------------------------------------
9p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Using the same dates and data on price returns described above, the next graph
expands on the information in the preceding chart by illustrating the number of
weeks when the 52-week price return was in the range specified below under each
column. For example, the most common 52-week return during this time period was
in the 10% range.
S&P 500 Index - December 1985 to February 2004
Distribution of 52-Week Moving Price Returns
(bar graph)
Occurrences
-15 20
-10 13
-5 11
0 8
5 15
10 28
15 26
20 23
25 24
29.9 26
>=30 25
The last chart illustrates, on a moving weekly basis, the actual 52-week return
of the Stock Market Certificate at full and partial participation compared to
the price return of the S&P 500 Index.
Actual 52-Week Return - 1/2/96 to 2/24/04
Stock Market
Stock Market Certificate
Market Certificate 25% Participation
Date Index 100% Participation + Minimum Rate
2-Jan-96 35.20% 10.00% 10.00%
9-Jan-96 32.00% 10.00% 10.00%
16-Jan-96 29.44% 10.00% 10.00%
23-Jan-96 31.53% 10.00% 10.00%
30-Jan-96 33.95% 10.00% 10.00%
6-Feb-96 34.42% 10.00% 10.00%
13-Feb-96 36.88% 10.00% 10.00%
20-Feb-96 32.71% 10.00% 10.00%
27-Feb-96 32.79% 10.00% 10.00%
5-Mar-96 36.02% 10.00% 10.00%
12-Mar-96 29.25% 10.00% 10.00%
19-Mar-96 31.63% 10.00% 10.00%
26-Mar-96 29.58% 10.00% 10.00%
2-Apr-96 29.68% 10.00% 10.00%
9-Apr-96 27.03% 10.00% 9.50%
16-Apr-96 27.63% 10.00% 9.65%
23-Apr-96 27.22% 10.00% 9.55%
30-Apr-96 27.05% 12.00% 10.26%
7-May-96 21.90% 12.00% 8.97%
14-May-96 26.01% 12.00% 10.00%
21-May-96 27.27% 12.00% 10.31%
28-May-96 28.39% 12.00% 10.59%
4-Jun-96 25.58% 12.00% 9.89%
11-Jun-96 25.16% 12.00% 9.79%
18-Jun-96 21.48% 12.00% 8.87%
25-Jun-96 23.23% 12.00% 9.30%
2-Jul-96 23.12% 12.00% 9.28%
9-Jul-96 18.01% 12.00% 8.00%
16-Jul-96 12.52% 12.00% 6.63%
23-Jul-96 11.72% 11.72% 6.43%
30-Jul-96 13.51% 12.00% 6.87%
6-Aug-96 18.19% 12.00% 8.04%
13-Aug-96 18.19% 12.00% 8.04%
20-Aug-96 18.98% 12.00% 8.24%
27-Aug-96 18.99% 12.00% 8.24%
3-Sep-96 15.03% 12.00% 7.25%
10-Sep-96 15.14% 12.00% 7.28%
17-Sep-96 16.90% 12.00% 7.72%
24-Sep-96 17.92% 12.00% 7.98%
1-Oct-96 18.32% 12.00% 8.08%
8-Oct-96 21.31% 12.00% 8.82%
15-Oct-96 19.73% 12.00% 8.43%
22-Oct-96 20.46% 12.00% 8.61%
29-Oct-96 20.63% 12.00% 8.65%
5-Nov-96 21.80% 12.00% 8.95%
12-Nov-96 23.80% 12.00% 9.45%
19-Nov-96 23.64% 12.00% 9.41%
26-Nov-96 24.65% 12.00% 9.66%
3-Dec-96 21.14% 12.00% 8.78%
10-Dec-96 20.80% 12.00% 8.70%
17-Dec-96 18.64% 12.00% 8.16%
24-Dec-96 22.25% 12.00% 9.06%
31-Dec-96 19.33% 12.00% 8.33%
7-Jan-97 23.59% 12.00% 9.39%
14-Jan-97 26.36% 12.00% 10.09%
21-Jan-97 27.73% 10.00% 10.00%
28-Jan-97 21.40% 10.00% 8.60%
4-Feb-97 22.11% 10.00% 8.77%
11-Feb-97 19.53% 10.00% 8.13%
18-Feb-97 27.41% 10.00% 10.00%
25-Feb-97 25.46% 10.00% 9.61%
4-Mar-97 20.60% 10.00% 8.40%
11-Mar-97 27.35% 10.00% 10.00%
18-Mar-97 21.17% 10.00% 8.54%
25-Mar-97 20.84% 10.00% 8.46%
1-Apr-97 15.92% 10.00% 7.23%
8-Apr-97 19.29% 10.00% 8.07%
15-Apr-97 17.01% 10.00% 7.50%
22-Apr-97 18.87% 10.00% 7.96%
29-Apr-97 21.38% 10.00% 8.59%
6-May-97 29.69% 10.00% 10.00%
13-May-97 25.16% 10.00% 9.54%
20-May-97 25.10% 10.00% 9.52%
27-May-97 26.39% 10.00% 9.84%
3-Jun-97 25.70% 10.00% 9.67%
10-Jun-97 28.95% 10.00% 10.00%
17-Jun-97 35.09% 10.00% 10.00%
24-Jun-97 34.08% 10.00% 10.00%
1-Jul-97 32.27% 10.00% 10.00%
8-Jul-97 40.32% 10.00% 10.00%
15-Jul-97 47.32% 10.00% 10.00%
22-Jul-97 48.97% 10.00% 10.00%
29-Jul-97 48.33% 10.00% 10.00%
5-Aug-97 43.78% 10.00% 10.00%
12-Aug-97 40.34% 10.00% 10.00%
19-Aug-97 39.09% 10.00% 10.00%
26-Aug-97 37.00% 10.00% 10.00%
2-Sep-97 41.67% 10.00% 10.00%
9-Sep-97 40.64% 10.00% 10.00%
16-Sep-97 38.46% 10.00% 10.00%
23-Sep-97 38.84% 10.00% 10.00%
30-Sep-97 37.47% 10.00% 10.00%
7-Oct-97 40.31% 10.00% 10.00%
14-Oct-97 38.10% 10.00% 10.00%
21-Oct-97 37.60% 10.00% 10.00%
28-Oct-97 31.41% 10.00% 10.00%
4-Nov-97 31.73% 10.00% 10.00%
11-Nov-97 26.62% 10.00% 9.90%
18-Nov-97 26.41% 10.00% 9.85%
25-Nov-97 25.77% 10.00% 9.69%
2-Dec-97 29.85% 10.00% 10.00%
9-Dec-97 30.53% 10.00% 10.00%
16-Dec-97 33.33% 10.00% 10.00%
23-Dec-97 25.04% 10.00% 9.51%
30-Dec-97 31.06% 10.00% 10.00%
6-Jan-98 28.32% 10.00% 10.00%
13-Jan-98 23.83% 10.00% 9.20%
20-Jan-98 25.02% 10.00% 9.50%
27-Jan-98 26.66% 10.00% 9.91%
3-Feb-98 27.45% 10.00% 10.00%
10-Feb-98 29.06% 10.00% 10.00%
17-Feb-98 25.29% 10.00% 9.57%
24-Feb-98 26.90% 10.00% 9.97%
3-Mar-98 33.01% 10.00% 10.00%
10-Mar-98 31.17% 10.00% 10.00%
17-Mar-98 36.82% 10.00% 10.00%
24-Mar-98 40.12% 10.00% 10.00%
31-Mar-98 45.03% 10.00% 10.00%
7-Apr-98 44.82% 10.00% 10.00%
14-Apr-98 47.83% 10.00% 10.00%
21-Apr-98 45.41% 10.00% 10.00%
28-Apr-98 36.65% 10.00% 10.00%
5-May-98 34.77% 10.00% 10.00%
12-May-98 33.92% 10.00% 10.00%
19-May-98 31.82% 10.00% 10.00%
26-May-98 28.75% 10.00% 9.93%
2-Jun-98 29.30% 10.00% 10.00%
9-Jun-98 29.25% 10.00% 10.00%
16-Jun-98 21.58% 10.00% 8.14%
23-Jun-98 24.89% 10.00% 8.97%
30-Jun-98 27.25% 10.00% 9.56%
7-Jul-98 25.67% 10.00% 9.16%
14-Jul-98 27.20% 10.00% 9.55%
21-Jul-98 24.75% 10.00% 8.93%
28-Jul-98 19.93% 10.00% 7.73%
4-Aug-98 12.57% 10.00% 5.89%
11-Aug-98 15.37% 10.00% 6.59%
18-Aug-98 18.91% 10.00% 7.47%
25-Aug-98 19.69% 10.00% 7.67%
1-Sep-98 7.18% 7.18% 4.54%
8-Sep-98 9.62% 9.62% 5.15%
15-Sep-98 9.72% 9.72% 5.18%
22-Sep-98 8.16% 8.16% 4.79%
29-Sep-98 10.74% 10.00% 5.43%
6-Oct-98 0.15% 0.15% 2.78%
13-Oct-98 2.53% 2.53% 3.13%
20-Oct-98 9.42% 9.42% 4.85%
27-Oct-98 15.56% 10.00% 6.39%
3-Nov-98 18.08% 10.00% 7.02%
10-Nov-98 22.13% 10.00% 8.03%
17-Nov-98 21.43% 10.00% 7.85%
24-Nov-98 24.41% 10.00% 8.60%
1-Dec-98 20.95% 10.00% 7.73%
8-Dec-98 21.07% 10.00% 7.76%
15-Dec-98 20.11% 10.00% 7.52%
22-Dec-98 28.15% 10.00% 9.53%
29-Dec-98 27.90% 10.00% 9.47%
5-Jan-99 28.78% 10.00% 9.69%
12-Jan-99 30.18% 10.00% 10.00%
19-Jan-99 27.93% 10.00% 9.48%
26-Jan-99 29.22% 10.00% 9.80%
2-Feb-99 25.44% 10.00% 8.86%
9-Feb-99 19.34% 10.00% 7.33%
16-Feb-99 21.42% 10.00% 7.85%
23-Feb-99 23.34% 10.00% 8.33%
2-Mar-99 16.49% 10.00% 6.62%
9-Mar-99 20.25% 10.00% 7.56%
16-Mar-99 20.90% 10.00% 7.72%
23-Mar-99 14.15% 10.00% 6.03%
30-Mar-99 18.06% 10.00% 7.01%
6-Apr-99 18.77% 10.00% 7.19%
13-Apr-99 20.97% 10.00% 7.74%
20-Apr-99 15.96% 10.00% 6.49%
27-Apr-99 25.59% 10.00% 8.89%
4-May-99 19.39% 10.00% 7.34%
11-May-99 21.49% 10.00% 7.87%
18-May-99 20.17% 10.00% 7.54%
25-May-99 17.40% 10.00% 6.85%
1-Jun-99 18.39% 10.00% 7.09%
8-Jun-99 17.79% 10.00% 6.94%
15-Jun-99 19.64% 10.00% 7.41%
22-Jun-99 19.32% 10.00% 7.33%
29-Jun-99 19.18% 10.00% 7.29%
6-Jul-99 20.21% 10.00% 7.55%
13-Jul-99 18.33% 10.00% 7.08%
20-Jul-99 18.19% 10.00% 7.04%
27-Jul-99 20.59% 10.00% 7.64%
3-Aug-99 23.31% 10.00% 8.32%
10-Aug-99 19.87% 10.00% 7.46%
17-Aug-99 22.06% 10.00% 8.01%
24-Aug-99 24.76% 10.00% 8.69%
31-Aug-99 32.79% 10.00% 10.00%
7-Sep-99 31.94% 10.00% 10.00%
14-Sep-99 28.77% 10.00% 9.69%
21-Sep-99 26.99% 10.00% 9.24%
28-Sep-99 22.22% 10.00% 8.05%
5-Oct-99 32.17% 10.00% 10.00%
12-Oct-99 31.98% 10.00% 10.00%
19-Oct-99 18.55% 10.00% 7.13%
26-Oct-99 20.32% 10.00% 7.58%
2-Nov-99 21.32% 10.00% 7.83%
9-Nov-99 21.01% 10.00% 7.75%
16-Nov-99 24.63% 10.00% 8.65%
23-Nov-99 18.73% 10.00% 7.18%
30-Nov-99 18.17% 10.00% 7.04%
7-Dec-99 19.28% 10.00% 7.32%
14-Dec-99 20.68% 10.00% 7.67%
21-Dec-99 19.09% 9.00% 7.27%
28-Dec-99 17.38% 9.00% 6.84%
4-Jan-00 12.42% 9.00% 5.60%
11-Jan-00 16.05% 9.00% 6.51%
18-Jan-00 16.22% 9.00% 6.55%
25-Jan-00 12.59% 9.00% 5.64%
1-Feb-00 11.66% 9.00% 5.41%
8-Feb-00 18.52% 9.00% 7.13%
15-Feb-00 12.89% 9.00% 5.72%
22-Feb-00 6.37% 6.37% 4.09%
29-Feb-00 11.49% 9.00% 5.37%
7-Mar-00 5.92% 5.92% 3.98%
14-Mar-00 4.04% 4.04% 3.51%
21-Mar-00 18.35% 9.00% 7.08%
28-Mar-00 15.91% 9.00% 6.47%
4-Apr-00 13.41% 9.00% 5.85%
11-Apr-00 11.17% 9.00% 5.29%
18-Apr-00 10.35% 9.00% 5.08%
25-Apr-00 8.42% 8.42% 4.60%
2-May-00 8.57% 8.57% 4.64%
9-May-00 4.17% 4.17% 3.54%
16-May-00 9.95% 9.00% 4.98%
23-May-00 6.96% 6.96% 4.24%
30-May-00 9.89% 9.00% 4.97%
6-Jun-00 10.66% 9.00% 5.16%
13-Jun-00 12.93% 9.00% 5.73%
20-Jun-00 10.51% 9.00% 5.12%
27-Jun-00 7.33% 7.33% 4.33%
4-Jul-00 5.84% 5.84% 3.96%
11-Jul-00 6.26% 6.26% 4.06%
18-Jul-00 8.46% 8.46% 4.61%
25-Jul-00 8.18% 8.18% 4.54%
1-Aug-00 8.76% 8.76% 4.69%
8-Aug-00 15.71% 9.00% 6.42%
15-Aug-00 10.43% 9.00% 5.10%
22-Aug-00 9.87% 9.00% 4.96%
29-Aug-00 14.35% 9.00% 6.08%
5-Sep-00 11.59% 9.00% 5.39%
12-Sep-00 10.90% 9.00% 5.22%
19-Sep-00 11.64% 9.00% 5.41%
26-Sep-00 11.31% 9.00% 5.32%
3-Oct-00 9.58% 9.00% 4.89%
10-Oct-00 5.55% 5.55% 3.88%
17-Oct-00 7.02% 7.02% 4.25%
24-Oct-00 9.06% 9.00% 4.76%
31-Oct-00 6.05% 6.05% 4.01%
7-Nov-00 4.87% 4.87% 3.71%
14-Nov-00 -2.61% 0.00% 2.50%
21-Nov-00 -4.08% 0.00% 2.50%
28-Nov-00 -3.80% 0.00% 2.50%
5-Dec-00 -2.31% 0.00% 2.50%
12-Dec-00 -2.29% 0.00% 2.50%
19-Dec-00 -8.91% 0.00% 2.50%
26-Dec-00 -9.77% 0.00% 2.50%
2-Jan-01 -8.29% 0.00% 2.50%
9-Jan-01 -9.57% 0.00% 2.50%
16-Jan-01 -8.83% 0.00% 2.50%
23-Jan-01 -3.52% 0.00% 2.50%
30-Jan-01 -2.51% 0.00% 2.50%
6-Feb-01 -6.18% 0.00% 2.50%
13-Feb-01 -5.93% 0.00% 2.50%
20-Feb-01 -5.41% 0.00% 2.50%
27-Feb-01 -7.93% 0.00% 2.50%
6-Mar-01 -7.51% 0.00% 2.50%
13-Mar-01 -11.88% 0.00% 2.50%
20-Mar-01 -23.51% 0.00% 2.50%
27-Mar-01 -21.59% 0.00% 2.50%
04/03/01 -25.97% 0.00% 2.50%
04/10/01 -22.13% 0.00% 2.50%
04/17/01 -17.32% 0.00% 2.50%
04/24/01 -18.14% 0.00% 2.50%
05/01/01 -12.43% 0.00% 2.50%
5/8/01 -10.68% 0.00% 2.50%
5/15/01 -14.77% 0.00% 2.50%
5/22/01 -4.69% 0.00% 2.50%
5/29/01 -10.86% 0.00% 2.50%
6/5/01 -11.95% 0.00% 2.50%
6/12/01 -14.53% 0.00% 2.50%
6/19/01 -17.86% 0.00% 2.75%
6/26/01 -16.11% 0.00% 2.75%
7/3/01 -15.98% 0.00% 2.75%
7/10/01 -20.21% 0.00% 2.75%
7/17/01 -18.69% 0.00% 2.75%
7/24/01 -20.53% 0.00% 2.75%
7/31/01 -15.77% 0.00% 2.75%
8/7/01 -19.70% 0.00% 2.75%
8/14/01 -20.05% 0.00% 2.75%
8/21/01 -22.75% 0.00% 2.75%
8/28/01 -23.07% 0.00% 2.75%
9/4/01 -24.82% 0.00% 2.75%
9/11/01 -26.27% 0.00% 2.75%
9/18/01 -29.25% 0.00% 2.75%
9/25/01 -29.08% 0.00% 2.75%
10/2/01 -26.28% 0.00% 2.75%
10/9/01 -23.75% 0.00% 2.75%
10/16/01 -18.69% 0.00% 2.75%
10/23/01 -22.41% 0.00% 2.75%
10/30/01 -25.85% 0.00% 2.75%
11/6/01 -21.86% 0.00% 2.75%
11/13/01 -17.63% 0.00% 2.75%
11/20/01 -15.19% 0.00% 2.75%
11/27/01 -13.96% 0.00% 2.75%
12/4/01 -16.83% 0.00% 2.75%
12/11/01 -17.09% 0.00% 2.75%
12/18/01 -12.46% 0.00% 2.75%
12/25/01 -12.96% 0.00% 2.75%
1/1/02 -10.53% 0.00% 2.75%
1/8/02 -10.81% 0.00% 2.75%
1/15/02 -13.60% 0.00% 2.75%
1/22/02 -17.72% 0.00% 2.75%
1/29/02 -19.87% 0.00% 2.75%
2/5/02 -19.39% 0.00% 2.50%
2/12/02 -16.02% 0.00% 2.50%
2/19/02 -15.29% 0.00% 2.50%
2/26/02 -11.80% 0.00% 2.50%
3/5/02 -8.58% 0.00% 2.50%
3/12/02 -2.67% 0.00% 2.50%
3/19/02 2.42% 2.42% 3.10%
3/26/02 -3.69% 0.00% 2.50%
4/2/02 2.73% 2.73% 3.18%
4/9/02 -4.32% 0.00% 2.50%
4/16/02 -5.32% 0.00% 2.50%
4/23/02 -8.97% 0.00% 2.50%
4/30/02 -14.96% 0.00% 2.50%
5/7/02 -16.78% 0.00% 2.50%
5/14/02 -12.17% 0.00% 2.50%
5/21/02 -17.52% 0.00% 2.50%
5/28/02 -15.25% 0.00% 2.50%
6/4/02 -18.92% 0.00% 2.50%
6/11/02 -19.28% 0.00% 2.50%
6/18/02 -14.47% 0.00% 2.50%
6/25/02 -19.77% 0.00% 2.50%
7/2/02 -23.19% 0.00% 2.50%
7/9/02 -19.35% 0.00% 2.50%
7/16/02 -25.81% 0.00% 2.50%
7/23/02 -31.91% 0.00% 2.50%
7/30/02 -25.46% 0.00% 2.50%
8/6/02 -27.80% 0.00% 2.50%
8/13/02 -25.49% 0.00% 2.50%
8/20/02 -18.99% 0.00% 2.50%
8/27/02 -19.51% 0.00% 2.50%
9/3/02 -22.50% 0.00% 2.50%
9/10/02 -16.74% 0.00% 2.50%
9/17/02 -15.41% 0.00% 2.50%
9/24/02 -19.06% 0.00% 2.50%
10/1/02 -19.34% 0.00% 2.50%
10/8/02 -24.43% 0.00% 2.50%
10/15/02 -19.70% 0.00% 2.50%
10/22/02 -17.94% 0.00% 2.50%
10/29/02 -16.76% 0.00% 2.50%
11/5/02 -18.18% 0.00% 2.00%
11/12/02 -22.48% 0.00% 2.00%
11/19/02 -21.52% 0.00% 2.00%
11/26/02 -20.54% 0.00% 1.00%
12/3/02 -19.57% 0.00% 1.00%
12/10/02 -20.43% 0.00% 1.00%
12/17/02 -20.99% 0.00% 1.00%
12/24/02 -22.03% 0.00% 1.00%
12/31/02 -23.36% 0.00% 1.00%
1/7/03 -20.44% 0.00% 1.00%
1/14/03 -18.71% 0.00% 1.00%
1/21/03 -20.69% 0.00% 1.00%
1/28/03 -21.99% 0.00% 1.00%
2/4/03 -22.18% 0.00% 1.00%
2/11/03 -25.12% 0.00% 1.00%
2/18/03 -21.43% 0.00% 1.00%
2/25/03 -24.41% 0.00% 1.00%
3/4/03 -28.28% 0.00% 1.00%
3/11/03 -31.30% 0.00% 1.00%
3/18/03 -25.96% 0.00% 1.00%
3/25/03 -23.16% 0.00% 1.00%
4/1/03 -24.48% 0.00% 1.00%
4/8/03 -21.42% 0.00% 1.00%
4/15/03 -21.05% 0.00% 1.00%
4/22/03 -17.22% 0.00% 1.00%
4/29/03 -14.77% 0.00% 1.00%
5/6/03 -10.96% 0.00% 1.00%
5/13/03 -14.12% 0.00% 1.00%
5/20/03 -14.83% 0.00% 1.00%
5/27/03 -11.45% 0.00% 1.00%
6/3/03 -6.64% 0.00% 1.00%
6/10/03 -2.83% 0.00% 1.00%
6/17/03 -2.45% 0.00% 1.00%
6/24/03 0.74% 0.74% 1.43%
7/1/03 3.60% 3.60% 2.15%
7/8/03 5.77% 5.77% 2.69%
7/15/03 11.04% 6.00% 4.01%
7/22/03 23.86% 6.00% 6.00%
7/29/03 9.58% 6.00% 3.64%
8/5/03 12.32% 6.00% 4.33%
8/12/03 12.00% 6.00% 4.25%
8/19/03 6.92% 6.00% 2.98%
8/26/03 6.62% 6.00% 2.90%
9/2/03 16.39% 6.00% 5.34%
9/9/03 12.48% 6.00% 4.37%
9/16/03 17.83% 6.00% 5.70%
9/23/03 25.60% 6.00% 6.00%
9/30/03 17.45% 6.00% 5.61%
10/7/03 30.14% 6.00% 6.00%
10/14/03 19.08% 6.00% 6.00%
10/21/03 17.51% 5.00% 5.00%
10/28/03 18.66% 5.00% 5.00%
11/4/03 15.06% 5.00% 5.00%
11/11/03 18.53% 5.00% 5.00%
11/18/03 15.32% 5.00% 5.00%
11/25/03 15.39% 5.00% 5.00%
12/2/03 15.84% 5.00% 5.00%
12/9/03 17.21% 5.00% 5.00%
12/16/03 19.06% 5.00% 5.00%
12/23/03 22.80% 5.00% 5.00%
12/30/03 26.12% 5.00% 5.00%
1/6/04 21.75% 5.00% 5.00%
1/13/04 20.34% 5.00% 5.00%
1/20/04 28.29% 5.00% 5.00%
1/27/04 33.25% 5.00% 5.00%
2/3/04 33.93% 5.00% 5.00%
2/10/04 38.14% 5.00% 5.00%
2/17/04 35.92% 5.00% 5.00%
2/24/04 35.83% 5.00% 5.00%
The Stock Market Certificate was first available on Jan. 24, 1990. The
performance reflects the returns on the 52-week anniversary date, falling on a
Wednesday, of each of the weeks shown.
- --------------------------------------------------------------------------------
10p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Your interest earnings are tied to the movement of the S&P 500 Index. They will
be based on any increase in this Index as measured on the beginning and ending
date of each 52-week term. Of course, if this Index is not higher on the last
day of your term than it was on the first day, your principal will be secure but
you will earn no participation interest.
How an index has performed in the past does not indicate how the stock market or
the certificate will perform in the future. There is no assurance that
certificate owners will receive interest on their accounts beyond any minimum
interest or fixed interest selected. The index could decline.
CALCULATION OF RETURN
The increase or decrease in the S&P 500 Index, as well as the actual return paid
to you, is calculated as follows:
Rate of return on S&P 500 Index
Term ending value of S&P 500 Index minus
Term beginning value of S&P 500 Index divided by
Term beginning value of S&P 500 Index equals
Rate of return on S&P 500 Index
The actual return paid to you will depend on your interest participation
selection.
For example, assume:
Term ending value of S&P 500 Index 940
Term beginning value of S&P 500 Index 900
Maximum return 5%
Minimum return 1.00%
Partial participation rate 25%
940 Term ending value of S&P 500 Index
minus 900 Term beginning value of S&P 500 Index
- --------------------------------------------------------------------------------
equals 40 Difference between beginning and ending values
40 Difference between beginning and ending values
divided by 900 Term beginning value of S&P 500 Index
- --------------------------------------------------------------------------------
equals 4.44% Percent increase -- full participation return
4.44% Percent increase or decrease
times 25% Partial participation rate
- --------------------------------------------------------------------------------
equals 1.11%
plus 1.00% Minimum interest rate
- --------------------------------------------------------------------------------
equals 2.11% Partial participation rate
- --------------------------------------------------------------------------------
In both cases in the example, the return would be less than the 5% maximum.
- --------------------------------------------------------------------------------
11p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Maximum Return and Partial Participation Minimum Rate History -- The following
table illustrates the maximum annual returns and partial participation minimum
rates that have been in effect since the Stock Market Certificate was
introduced.
Start of term Maximum annual return Partial participation minimum rate
Jan. 24, 1990 18.00% 5.00%
Feb. 5, 1992 18.00 4.00
May 13, 1992 15.00 4.00
Sept. 9, 1992 12.00 3.00
Nov. 11, 1992 10.00 2.50
Nov. 2, 1994 10.00 2.75
April 26, 1995 12.00 3.50
Jan. 17, 1996 10.00 3.25
Feb. 26, 1997 10.00 3.00
May 7, 1997 10.00 2.75
Oct. 8, 1997 10.00 2.50
Dec. 16 1998 9.00 2.50
Feb. 2, 2000 10.00 2.50
June 14, 2000 11.00 2.75
Aug. 16, 2000 10.00 2.75
Jan. 31, 2001 9.00 2.50
Sept. 12, 2001 8.00 2.50
Nov. 7, 2001 8.00 2.00
Nov. 28, 2001 6.00 1.00
June 26, 2002 6.00 1.25
Oct. 23, 2002 5.00 1.25
Feb. 19, 2003 5.00 1.00
- --------------------------------------------------------------------------------
12p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Examples
To help you understand the way the Certificates work, here are some hypothetical
examples. The following are three different examples of market scenarios and how
they affect a Certificate's return. Assume for all examples that:
o you purchased a Certificate with a $10,000 original investment,
o the partial participation rate is 25%,
o the minimum interest rate for partial participation is 1.00%,
o the maximum return for full and partial participation is 5%.
1. If the S&P 500 Index value rises
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 4% increase in the S&P 500 Index Index 1,040
- -------------------------------------------------------------------------------------------------------
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 400 4% x $10,000 + 100 1.00% (Minimum interest rate) x $10,000
Participation interest + 100 25% x 4% x $10,000 Participation interest
------- -------
$10,400 Ending balance $10,200 Ending balance
(4% Total return) (2.00% Total return)
- -------------------------------------------------------------------------------------------------------
2. If the Market and the S&P 500 Index value fall
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 4% decrease in the S&P 500 Index Index 961
- -------------------------------------------------------------------------------------------------------
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 0 Participation interest + 100 1.00% (Minimum interest rate) x $10,000
-------
$10,000 Ending balance + 0 Participation interest
-------
(0% Total return) $10,100 Ending balance
(1.00% Total return)
- -------------------------------------------------------------------------------------------------------
3. If the Market and the S&P 500 Index value rise above the maximum return
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 10% increase in the S&P 500 Index Index 1,100
- -------------------------------------------------------------------------------------------------------
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 500 5% x $10,000 + 100 1.00% (Minimum interest rate) x $10,000
Maximum interest + 250 25% x 10% x $10,000 Participation interest
------- -------
$10,500 Ending balance $10,350 Ending balance
(5% Total return) (3.50% Total return)
- -------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
ABOUT THE S&P 500 INDEX
The description in this prospectus of the S&P 500 Index including its make-up,
method of calculation and changes in its components are derived from publicly
available information regarding the S&P 500 Index. AECC does not assume any
responsibility for the accuracy or completeness of such information.
The S&P 500 Index is composed of 500 common stocks, most of which are listed on
the New York Stock Exchange. The S&P 500 Index is published by S&P and is
intended to provide an indication of the pattern of common stock movement. S&P
chooses the 500 stocks to be included in the S&P 500 Index with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the U.S. common stock population. Changes in
the S&P 500 Index are reported daily in the financial pages of many major
newspapers. The index used for the American Express Stock Market Certificate
excludes dividends on the 500 stocks.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500" and
"500" are trademarks of The McGraw-Hill Companies Inc. and have been licensed
for use by AECC. The certificate is not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the owners
of the certificate or any member of the public regarding the advisability of
investing in securities generally or in the certificate particularly or the
ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to AECC is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index, which is determined, composed and
calculated by S&P without regard to AECC or the certificate. S&P has no
obligation to take the needs of AECC or the owners of the certificate into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of the certificate to be issued or in the
determination or calculation of the equation by which the certificate is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the certificate.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to the results to be obtained by AECC, owners of the certificate, or any
person or entity from the use of the S&P 500 Index or any data included therein.
S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
- --------------------------------------------------------------------------------
14p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
If for any reason the S&P 500 Index were to become unavailable or not reasonably
feasible to use, we would use a comparable stock market index for determining
participation interest. If this were to occur, we would send you a notice by a
practical means such as correspondence (which may be electronic if you and we
have so agreed) or a quarterly account statement. The notice would indicate the
comparable index and give you the option to withdraw your principal without an
early withdrawal penalty. If you chose early withdrawal, you would lose any
interest accrued during the term.
OPPORTUNITIES AT THE END OF A TERM
Grace period: When your certificate term ends, you have 14 days before a new
term automatically begins. During this 14-day grace period you can:
o change your interest selection,
o add money to your certificate,
o change your term start date,
o withdraw part or all of your money without a withdrawal penalty or loss of
interest,
o or receive your interest in cash.
By starting your new term early and waiving the 14-day grace period, you are
choosing to start your next term without knowing the ending value of your
current term.
Fixed interest only: The grace period does not apply if you made the change from
fixed interest back to participation interest during a term as discussed in
"Fixed interest" under "Interest" above. Instead, your new 52-week term will
begin on the Wednesday following our receipt of your notice of your new interest
selection.
New term: If you do not make changes, your certificate will continue with your
current selections when the new term begins 14 days later. You will earn interim
interest during this 14-day grace period. If you don't want to wait 14 days
before starting your next market participation term, you must phone or send
written instructions before your current term ends. You can tell us to start
your next term on any Wednesday that is during the grace period and immediately
following the date on which we receive your notice. Your notice may also tell us
to change your interest selection, or add to your certificate. You cannot
withdraw part of your money and skip the 14-day grace period. If you make a
withdrawal, a seven- or 14-day grace period is required. The notification that
we send you at the end of the term cannot be sent before the term ends because
indexing information and interest (if any) are included in the notice and are
not known until the term ends. Any additional payments received during the
current term will be applied at the end of the current term.
- --------------------------------------------------------------------------------
15p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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 showing the acceptance date, the date your term begins and the
interest selection you have made detailing your market participation percentage
and, if applicable, the minimum interest rate for your first term. After your
term begins, we will send you notice of the value of the S&P 500 Index on the
day your term began. The rates in effect on the date we accept your application
are the rates that apply to your certificate. See "Purchase policies" below.
Important: When 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 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. For
information on how to avoid this wait, for example by using a certified
check, please call AECSC at the telephone number listed on the back cover.
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."
- --------------------------------------------------------------------------------
16p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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). Please
be sure to include all 10 digits of the American Express Financial Advisors
account number, including the zeros.
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, American Express
Financial Corporation (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 Full and partial withdrawals of principal during a term are subject to
penalties, described below.
o You may not make a partial withdrawal if it would reduce your certificate
balance to less than $1,000. If you request such a withdrawal, we will
contact you for revised instructions.
- --------------------------------------------------------------------------------
17p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Penalties for withdrawal during a term: If you withdraw money during a term, you
will pay a penalty of 2% of the principal withdrawn. Except to the extent your
balance would be less than $1,000, this penalty will be taken from the remaining
balance, not the amount withdrawn. 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."
When you request a full or partial withdrawal during a term, we pay you from the
principal of your certificate.
Loss of interest: If you make a withdrawal at any time other than at the end of
the term, you will lose any interest accrued on the withdrawal amount since we
credit minimum and participation interest only at the end of a term. However, we
will pay accrued fixed and interim interest to the date of the withdrawal.
Following are examples describing a $2,000 withdrawal during a term for
participation and fixed interest:
Participation interest
Account balance $10,000
Interest (interest is credited at the end of the term) 0
Withdrawal of principal (2,000)
2% withdrawal penalty (40)
- ------------------------------------------------------------------
Balance after withdrawal $ 7,960
==================================================================
You will forfeit any accrued interest on the withdrawal amount.
Fixed interest
Account balance $10,000
Interest credited to date 100
Withdrawal of credited interest (100)
Withdrawal of principal (1,900)
2% withdrawal penalty (on $1,900 principal withdrawn) (38)
- ------------------------------------------------------------------
Balance after withdrawal $ 8,062
==================================================================
Retirement plans: In addition, you may be subject to IRS penalties for early
withdrawals if your certificate is in an IRA, 401(k) or other qualified
retirement plan account.
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).
- --------------------------------------------------------------------------------
18p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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
o Call AECSC at the telephone numbers listed on the back cover.
o Maximum telephone withdrawal request: $100,000.
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 and will use
reasonable procedures to confirm authenticity.
You may request that telephone withdrawals not be authorized from your account
by writing AECSC.
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 Withdrawals over $100,000.
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.)
- --------------------------------------------------------------------------------
19p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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) listed on the account.
o The express mail delivery charges you pay will vary depending on the
courier you select. 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 amount: $1,000.
o Request that money be wired to your bank.
o Bank account must be in same ownership as the 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 Applicable wire charges will be deducted 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.
- --------------------------------------------------------------------------------
20p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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 IRA's
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 70 1/2 or upon the owner's death.
TRANSFER OF OWNERSHIP
While this certificate is not negotiable, AECC will transfer ownership upon
written notification to AECSC. 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 AECSC 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.
- --------------------------------------------------------------------------------
21p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Taxes on Your Earnings
Each calendar year we provide certificate owners and the IRS with reports of all
interest of $10 and above credited to their accounts on Form 1099-INT, "Interest
Income." Withdrawals are reported to certificate owners and the IRS on Form
1099-B, "Proceeds from Broker and Barter Exchange Transactions." We also provide
information on participation and minimum interest on certificates when credited
to owners' accounts, generally at the end of each certificate term, and fixed
and interim interest accrued through the end of each calendar year. The manner
in which such income is to be reported for tax purposes by a certificate owner
will be based on the method of accounting that the owner uses in general to
report income.
Under IRS regulations governing the tax treatment of debt instruments such as
the American Express Stock Market Certificate, which provide for variable rates
of interest, the certificate is treated as either a variable rate debt
instrument (VRDI) or a contingent debt instrument (CDI). We believe there is a
sound basis under these regulations to treat and report the certfiicate as a
VRDI. As a VRDI, full participation interest or partial participation together
with minimum interest on the certificate would generally be treated as qualified
stated interest that accrues over each term. However, there can be no guarantee
that the certificate will not be treated as a CDI since, among other items, the
regulations do not address an instrument with all the features of the
certificate. If treated as CDI, interest would generally be taken into account
for each term under a "noncontingent bond method," under which an owner would
have taxable income to report under the rules similar to those for accruing
original issue discount. For cash-basis owners, this could result in income
having to be reported in advance of interest being credited to their accounts.
There also could be differences in the character of income reported if the
certificate were classified as a CDI rather than a VRDI.
The foregoing does not address the tax consequences of ownership of a
certificate through an IRA, 401(k) or other tax qualified retirement plan
account, or try to cover all tax consequences arising from the ownership of a
certificate, and it is possible that changes in tax laws or interpretations may
result in changes to the above descriptions. As always, before purchasing an
American Express Stock Market Certificate, you should consult your own tax
advisor as to all tax consequences of ownership of the certificate.
RETIREMENT ACCOUNTS
If this certificate is held in an IRA or other qualified plan account, certain
income tax rules apply to withdrawals.
Income Tax Withholding: When you take a distribution from an IRA, 10% of the
amount must be withheld for federal income taxes, unless you elect to not have
the tax withholding apply. When you take a distribution from a qualified plan
account, such as a 401(k) or 403(b), 20% of the amount must be withheld for
federal income taxes unless the distribution is directly rolled over to another
qualified plan or IRA.
Tax Penalties: In general, distributions from IRAs and other qualified plan
accounts are also subject to an IRS 10% premature distribution penalty tax
unless the distribution is made after age 59 1/2 or to your beneficiaries
following your death, or you are disabled. Other exceptions may also apply.
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22p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Consult your tax advisor to see how these rules apply to you before you request
a distribution from your plan or IRA.
This certificate may not be available for all types of retirement accounts.
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
$1,600 for the year 2004 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 28% 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.
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 The minor
Gifts/Transfers to 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 or single-owner LLC The owner
- ---------------------------------------------- ----------------------------------------------------
Partnership or multi-member LLC The partnership
- ---------------------------------------------- ----------------------------------------------------
Corporate or LLC electing corporate status The corporation
on Form 8837
- ---------------------------------------------- ----------------------------------------------------
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 www.irs.gov.
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23p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
FOREIGN INVESTORS
Also, the U.S. Internal Revenue Service (IRS) has issued 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.
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.
If the certificate is treated as a CDI, part of the earned income may be treated
as a capital gain instead of portfolio interest. Form W-8 must be supplied with
a permanent residence address 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 one of the other forms that
follow in lieu of the W-8BEN.)
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.
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24p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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,
foreign private foundation or government of a U.S. possession.
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 Form W-8 must be resupplied every four calendar years, up from three years
with the prior 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 28% backup withholding on interest
payments and withdrawals from certificates.
Transfers on death: 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) or an employer identification number, as appropriate for the trust.
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.
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25p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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 Stock Market Certificate. We are by far the largest issuer of
face-amount certificates in the United States, with total assets of more than
$5.2 billion and a net worth in excess of $323 million on Dec. 31, 2003.
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 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 Stock Market Certificate is a security, its offer
and sale are subject to regulation under federal and state securities laws. (The
American Express Stock Market 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, 2003, the
amortized cost of these investments exceeded the required carrying value of our
outstanding certificates by more than $142.2 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.
AECC has agreed with the SEC 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 also has entered into a written
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26p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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, 2003:
Type of investment Net amount invested
Government agency bonds 53%
Corporate and other bonds 34
Mortgage loans and other loans 10
Cash and cash equivalents 1
Preferred stocks 1
Structured investments 1
As of Dec. 31, 2003 about 96% of our securities portfolio (including bonds and
preferred stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3 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, 2003 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
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27p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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, 2003, AECC held about 4% 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 not a public offering 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.
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28p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
When-issued securities
Some of our investments in debt securities and loans originated by banks or
investment banks are purchased on a when-issued or similar basis. It may take as
long as 45 days or more before these investments are available for sale, issued
and delivered to us. We generally do not pay for these investments 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 investments is not limited except by its ability to set
aside cash or high quality investments to meet when-issued commitments.
When-issued investments 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 AECC's ability to enter into financial transactions to manage the
interest rate risk associated with 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 of directors
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.
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29p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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. 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 including American Express Bank International) and Travelers
Cheque and related services.
CAPITAL STRUCTURE AND CERTIFICATES ISSUED
AECC has authorized, has 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, 2003, AECC had issued (in face amount)
$772,079,620 of installment certificates and $2,468,179,643 of single payment
certificates. As of Dec. 31, 2003, AECC had issued (in face amount)
$14,940,140,606 of installment certificates and $27,649,838,539 of single
payment certificates since its inception in 1941.
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30p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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. The fee paid
to AEFC for managing and servicing bank loans is 0.35%.
Advisory and services fee for the past three years
Year Total fees Percentage of included assets
2001 $10,436,023 23%
2002 9,979,742 23
2003 9,248,275 24
Estimated advisory and services fees for 2004 are $10,533,000.
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31p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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 by American Express Financial
Advisors Inc. as follows:
o 0.90% of the initial investment on the first day of the certificate's term,
and
o 0.90% of the certificate's reserve at the beginning of each subsequent term,
for certificates sold through American Express Financial Advisors Inc., but not
for certificates sold through Securities America, Inc. (SAI) or American Express
Bank International (AEBI).
This fee is not assessed to your certificate account.
For certificates paying a special promotional rate American Express Financial
Advisors Inc. waives its distribution fee and the selling agents waive their
commissions, fees and other compensation, unless a requirement for the special
promotional rate is a minimum investment of $100,000. If a special promotional
rate is available for Stock Market Certificate, the minimum investment in any
Stock Market Certificate purchased will be $100,000.
Total distribution fees paid to American Express Financial Advisors Inc. for all
series of certificates amounted to $30,209,889 during the year ended Dec. 31,
2003. We expect to pay American Express Financial Advisors Inc. distribution
fees amounting to $27,725,000 during 2004.
See Note 1 to financial statements regarding deferral of distribution fee
expense.
American Express Financial Advisors Inc. pays commissions to its financial
advisors. American Express Financial Advisors Inc. 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.
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32p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
SELLING AGENT AGREEMENT
AMERICAN EXPRESS BANK INTERNATIONAL
Under a Selling Agent Agreement with American Express Financial Advisors Inc.,
American Express Bank International (AEBI) receives compensation for its
services as a selling agent for this certificate as follows:
o AEBI receives a fee equal to 1.0% per term of the principal amount of each
certificate for which AEBI is the selling agent.
American Express Financial Advisors Inc. has entered into a consulting agreement
with AEBI under which AEBI provides consulting services related to any selling
agent agreements between American Express Financial Advisors Inc. and other Edge
Act corporations. For these services, American Express Financial Advisors Inc.
pays AEBI a fee for this certificate equal to 0.20% per term of the principal
amount of each certificate for which another Edge Act corporation is the selling
agent.
Such payments will be made quarterly in arrears.
These fees are not assessed to your certificate account.
AEBI is an Edge Act corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act. It is a wholly owned subsidiary of American Express
Bank Ltd. (AEBL). As an Edge Act corporation, AEBI is subject to the provisions
of Section 25(a) of the Federal Reserve Act and Regulation K of the Board of
Governors of the Federal Reserve System (the Federal Reserve). It is supervised
and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that is serviced
by a marketing staff in New York and Florida. The banking and financial products
offered by AEBI include checking, money market and time deposits, credit
services, check collection services, foreign exchange, funds transfer,
investment advisory services and securities brokerage services. As of Dec. 31,
2003, AEBI had total assets of $969 million and total equity of $155 million.
Although AEBI is a banking entity, the American Express Stock Market Certificate
is not a bank product, nor is it backed or guaranteed by AEBI, by AEBL, or by
any other bank, nor is it guaranteed or insured by the FDIC or any other federal
agency. AEBI is registered where necessary as a securities broker-dealer.
OTHER SELLING AGENTS
This certificate may be sold through selling agents, under arrangements with
American Express Financial Advisors Inc. at commissions of up to:
o 0.90% of the initial investment on the first day of the certificate's term;
and
o 0.90% of the certificate's reserve at the beginning of each subsequent term.
This fee is not assessed to your certificate account.
In addition, AECC may pay distributors, and American Express Financial Advisors
Inc. may pay selling agents, additional compensation for selling and
distribution activities under certain circumstances. From time to time, AECC or
American Express Financial Advisors Inc. may pay or permit other promotional
incentives, in cash or credit or other compensation.
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33p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
TRANSFER AGENT
Under a Transfer Agency Agreement, 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 federal
securities laws.
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34p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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 $72,289 during 2003 to directors not employed by AEFC.
Independent Board Members*
Name, address, age Position held with Principal Other Committee
Registrant and occupations directorships memberships
length of service during past five
years
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Karen M. Bohn Board member President and Alerus Financial Audit
6620 Iroquois Trail since 2002 CEO, Galeo Group Corp., Ottertail
Edina, MN 55439 LLC; Independent Corporation,
Born in 1953 business American Express
consultant Bank, FSB
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Rodney P. Burwell Board member Chairman, Xerxes TCF Financial Audit, Dividend
7901 Xerxes Avenue South since 1999 Corporation
Suite 201 (fiberglass
Bloomington, MN 55431 storage tanks)
Born in 1939
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Jean B. Keffeler Board member Retired business Audit
P.O. Box 1377 since 1999 executive
Livingston, MT 59047
Born in 1945
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Thomas R. McBurney Board member President, The Valspar Audit, Dividend
4900 IDS Center since 1999 McBurney Corporation
80 South Eighth Street Management Advisors (paints)
Minneapolis, MN 55402
Born in 1938
- ------------------------------- -------------------- -------------------- ------------------- --------------------
* Mr. Burwell, Ms. Keffeler and Mr. McBurney also serve as directors of IDS
Life Series Fund, Inc., IDS Life Insurance Company of New York and American
Centurion Life Assurance Company which are indirectly controlled by AEFC.
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35p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Board Members Affiliated with American Express Certificate Company**
Name, address, age Position held with Principal Other Committee
Registrant and occupations directorships memberships
length of service during past five
years
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Kent M. Bergene Board member Vice President -
435 AXP Financial Center since 2001 Products Group of
Minneapolis, MN 55474 AEFC, since 2001;
Born in 1958 Director -
Variable Annuity
Products,
1998-2001
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Walter S. Berman Board member Executive Vice
50115 AXP Financial Center since 2002 and President and
Minneapolis, MN 55474 Treasurer since Corporate
Born in 1942 2003 Treasurer -
American Express
Company (AMEX) since
2002. Chief
Financial Officer -
AEFA since 2001.
Various senior
financial positions
including Treasurer
of IBM, at other
companies from
1996 to 2001
- ------------------------------- -------------------- -------------------- ------------------- --------------------
Paula R. Meyer Board member and Senior Vice Dividend,
596 AXP Financial Center President since President and Investment
Minneapolis, MN 55474 1998 General Manager -
Born in 1954 Mutual Funds,
AEFC, since 2002; Vice
President and Managing
Director - American Express
Funds, AEFC, 2000-2002;
Vice President, AEFC,
1998-2000
- ------------------------------- -------------------- -------------------- ------------------- --------------------
** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
36p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Executive Officers
Name, address, age Position held with Principal occupations during Other Committee
Registrant and past five years directorships memberships
length of service
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
Paula R. Meyer Board member and Senior Vice President and General Dividend,
596 AXP Financial Center President since Manager - Mutual Funds, AEFC, Investment
Minneapolis, MN 55474 1998 since 2002; Vice President and
Born in 1954 Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
Brian J. McGrane Vice President and Vice President - Lead Financial
807 AXP Financial Center Chief Financial Officer - Asset Management
Minneapolis, MN 55474 Officer since 2003 Businesses, AEFC, since 2003;
Born in 1971 Vice President - Lead Financial
Officer - Institutional and
Brokerage, AEFC, 2002-2003;
Vice President - Lead
Financial Officer - US
Brokerage, AEFC, 2001-2002;
Director, Financial
Standards and Accounting
Policy - AEFC, 1999-2001
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
Jeryl A. Millner Vice President and Vice President and Lead Financial
50807 AXP Financial Center Controller since Officer, Insurance, Annuities and
Minneapolis, MN 55474 2003 Certificates of AEFC, since 2003;
Born in 1959 ING Group, Second Vice President,
Controller - U.S. Life Group,
2000-2002; ReliaStar Financial
Corp., Second Vice President,
Controller - ReliaStar Life and
Annuity, 1999-2000; ReliaStar
Financial Corp., Vice President,
Chief Financial Officer and
Treasurer - Northern Life Ins.
Co., 1998-1999
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
Walter S. Berman Board member Executive Vice President and
50115 AXP Financial Center since 2002 and Corporate Treasurer - American
Minneapolis, MN 55474 Treasurer since Express Company (AMEX) since
Born in 1942 2003 2002. Chief Financial Officer -
AEFA since 2001. Various senior
financial positions including
Treasurer of IBM, at other
companies from 1996 to 2001
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
Lorraine R. Hart Vice President - Vice President - Investments Investment
53643 AXP Financial Center Investments Administration Officer, AEFC,
Minneapolis, MN 55474 since 2003; Vice President -
Born in 1951 Insurance Investments, AEFC,
1989-2003
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
- --------------------------------------------------------------------------------
37p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Executive Officers (continued)
Name, address, age Position held with Principal occupations during Other Committee
Registrant and past five years directorships memberships
length of service
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
Michelle M. Keeley Vice President - Senior Vice President - Fixed Investment
257 AXP Financial Center Investments since Income, AEFC, since 2002;
Minneapolis, MN 55474 2003 Managing Director, Zurich Global
Born in 1964 Assets, 2000-2002; Managing
Director, Zurich Scudder
Investments, 1999-2000
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
H. Bernt von Ohlen Vice President, Vice President and Group Counsel,
50607 AXP Financial Center General Counsel, AEFC, since 2000; Partner,
Minneapolis, MN 55474 and Secretary D'Ancona & Pflaum LLC,
Born in 1946 since September 1999-2000; Counsel, Heartland
2002 Group, Inc., 1998-1999
- ------------------------------- -------------------- ----------------------------------- ------------------- --------------------
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, independent auditors, Minneapolis, Minnesota have audited our
financial statements at December 31, 2003 and 2002 and for each of the years in
the three-year period ended Dec. 31, 2003, as set forth in their report. We have
included these financial statements in the prospectus in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing. Ernst & Young LLP is also the auditor for American Express Company,
the parent company of AEFC and AECC.
- --------------------------------------------------------------------------------
38p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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 Flexible Savings Certificate -- A single payment certificate
that permits additional investments and on which AECC guarantees interest in
advance for a term of six, 12, 18, 24, 30 or 36 months.
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.
- --------------------------------------------------------------------------------
39p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
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.
- --------------------------------------------------------------------------------
40p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Annual Financial Information
SUMMARY OF SELECTED FINANCIAL INFORMATION
The following selected financial information was derived from AECC's 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 further
information.
Year Ended December 31, (Thousands) 2003 2002 2001 2000 1999
Statements of Operations Data(a)
Investment income $ 264,238 $ 221,151 $ 204,345 $ 222,535 $ 221,426
Investment expenses 44,417 43,626 44,050 43,952 44,317
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income before provision
for certificate reserves and
income tax (expense) benefit 219,821 177,525 160,295 178,583 177,109
Net provision for certificate reserves 141,483 100,252 155,387 155,461 138,555
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income before
income tax (expense) benefit 78,338 77,273 4,908 23,122 38,554
Income tax (expense) benefit (27,296) (24,866) 3,348 (14) (4,615)
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 51,042 52,407 8,256 23,108 33,939
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
in securities of unaffiliated issuers
before income taxes 2,944 (9,899) (92,375) (10,110) 1,250
Income tax (expense) benefit (1,031) 3,631 32,331 3,539 (437)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,913 (6,268) (60,044) (6,571) 813
Net income -- wholly-owned subsidiary -- -- -- -- 4
Cumulative effect of accounting change -- -- (397) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 52,955 $ 46,139 $ (52,185) $ 16,537 $ 34,756
- ----------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
$ -- $ -- $ -- $ 5,000 $ 40,000
Capital Dividends Declared
-- -- 166,906 -- --
(Return of capital to) contributions from AEFC
(50,000) (10,000) 240,000 -- --
Balance Sheet Data(a)
Total assets $5,255,592 $5,199,769 $4,642,734 $4,043,806 $3,771,411
Certificate loans $ 15,606 $ 18,614 $ 21,807 $ 25,547 $ 28,895
Certificate reserves $4,787,817 $4,493,372 $4,159,926 $3,831,059 $3,536,659
Shareholder's equity $ 323,213 $ 359,389 $ 263,005 $ 166,514 $ 141,702
- ----------------------------------------------------------------------------------------------------------------------------
(a) Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
- --------------------------------------------------------------------------------
41p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
American Express Certificate Company's (AECC's) net income is derived primarily
from the after-tax yield on investments and realized investment gains (losses),
less investment expenses and interest credited on certificate reserve
liabilities. Changes in net income trends occur largely due to changes in
investment returns, interest crediting rates to certificate products, the mix of
fully taxable and tax-advantaged investments in AECC's portfolio and from
realization of investment gains (losses). AECC follows accounting principles
generally accepted in the United States (GAAP).
Net income increased $6.8 million, or 14.8 percent, reflecting increased
investment income, increased gross realized gains and decreased gross realized
losses on sale of investments, partially offset by slightly higher investment
expenses and a higher provision expense for certificate reserves. In 2002, the
net income was significantly higher than 2001. The 2001 results included net
pre-tax realized losses on investments of ($92.4 million), primarily due to a
($36.9 million) loss to recognize the impact of higher default assumptions used
to determine impairment on rated structured investments and a ($57.1 million)
loss on high-yield securities.
Investment income increased $43.1 million, or 19.5 percent, reflecting a $66.0
million increase in net pre-tax gains on equity index options, partially offset
by lower investment portfolio yields. The increase in net pre-tax gains on
equity index options was due to the effect of appreciation in the S&P 500 on the
value of options economically hedging stock market certificate products.
Investment income for 2002 was $16.8 million or 8.2 percent higher than 2001 as
a result of higher levels of invested assets and lower losses on interest rate
swap agreements in 2002.
The favorable impact on investment income from the equity index options was
largely offset by the increase in provision expenses for certificate reserves.
Provision for certificate reserves increased $41.2 million or 41.1 percent
reflecting the effect on stock market certificates of appreciation in the S&P
500 this year versus depreciation last year, partially offset by lower interest
crediting rates on the interest rate sensitive portion of AECC's certificate
product portfolio. The 2002 provision for certificate reserves was significantly
lower than 2001 as a result of lower client interest crediting rates, partially
offset by an increase in certificate reserves during 2002.
AECC's gross realized gains on sales of securities classified as
Available-for-Sale, using the specific identification method, were $47.1 million
and $23.4 million for the years ended December 31, 2003 and 2002, respectively.
Gross realized losses on sales were ($2.8 million) and ($15.7 million) for the
same periods. AECC also recognized losses of ($36.0 million) and ($15.8 million)
in other-than-temporary impairments on Available-for-Sale securities for the
years ended December 31, 2003 and 2002, respectively. In 2001, gross realized
gains on sales of securities classified as Available-for-Sale were $20.7 million
while gross realized losses on sales of securities classified as
Available-for-Sale were ($83.9 million). AECC also recognized
other-than-temporary impairment losses on Available-for-Sale securities of
($27.9 million) in 2001.
- --------------------------------------------------------------------------------
42p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Certain Critical Accounting Policies
AECC's significant accounting policies are described in Note 1 to the Financial
Statements. The following provides a critical accounting policy on investment
securities valuation that is important to the Financial Statements.
Investment securities valuation
Generally, investment securities are carried at fair value on the balance sheet
with unrealized gains (losses) recorded in other comprehensive income (loss)
within equity, net of income tax provisions (benefits). At December 31, 2003,
AECC had net unrealized pretax gains on Available-for-Sale securities of $74.0
million. Gains and losses are recognized in results of operations upon
disposition of the securities. In addition, losses are recognized when
management determines that a decline in value is other-than-temporary, which
requires judgment regarding the amount and timing of recovery. Indicators of
other-than-temporary impairment for debt securities include issuer downgrade,
default or bankruptcy. AECC also considers the extent to which cost exceeds fair
value, the duration and size of that gap, and management's judgment about the
issuer's current and prospective financial condition. Fair value is generally
based on quoted market prices. As of December 31, 2003, there were $19 million
in gross unrealized losses that related to $1.5 billion of securities based on
fair values, of which only $30 million has been in a continuous unrealized loss
position for twelve months or more. AECC does not believe that the unrealized
loss on any individual security at December 31, 2003 represents an
other-than-temporary impairment, and AECC has the ability and intent to hold
these securities for a time sufficient to recover its amortized cost.
Liquidity and Capital Resources
AECC's principal sources of cash are receipts from sales of face-amount
certificate products and cash flows from investments. AECC's principal uses of
cash are payments to certificate product owners for matured and surrendered
certificates, purchases of investments, and return of capital or dividend
payments to AEFC.
Cash received from sales of certificates totaled $2.6 billion for the year ended
December 31, 2003 compared to $2.0 billion for the year ended December 31, 2002.
Certificate maturities and cash surrenders totaled $2.4 billion for the year
ended December 31, 2003, compared to $1.8 billion and $1.7 billion for the years
ended December 31, 2002 and 2001, respectively.
AECC, as an issuer of face-amount certificates, is impacted by significant
changes in interest rates as interest crediting rates on certificate products
generally reset at shorter intervals than the change in the yield on AECC's
investment portfolio. In view of the continued uncertainty in the investment
markets, AECC continues to invest in securities that provide for more immediate,
periodic interest and principal payments, resulting in improved liquidity. To
accomplish this, AECC continues to invest much of its cash flow in mortgage and
asset-backed securities, and to a lesser extent, intermediate term corporate
debt securities. In addition, AECC enters into interest rate swap contracts that
effectively lengthen the interest crediting rate reset interval on certificate
products. Also, on three series of AECC's certificates, interest is credited to
certificate products based upon the relative change in a major stock market
index between the beginning and end of the certificates' terms. To meet the
obligations related to the provisions of these equity market sensitive
certificates, AECC purchases and writes index call options on a major stock
market index and, from time to time, enters into futures contracts.
- --------------------------------------------------------------------------------
43p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
AECC's investment program is designed to maintain an investment portfolio that
will produce the highest possible after-tax yield within acceptable risk and
liquidity parameters. The program considers investment securities as investments
acquired to meet anticipated certificate product owner obligations.
Debt securities and marketable equity securities are classified as
Available-for-Sale and are carried at fair value. The Available-for-Sale
classification does not mean AECC expects to sell these securities, but rather
these securities are available to meet possible liquidity needs should there be
significant changes in market interest rates or certificate owner redemptions.
At December 31, 2003, securities classified as Available-for-Sale were carried,
in the aggregate, at a fair market value of $4.5 billion. Based on amortized
costs, fixed maturity securities comprise 90 percent of AECC's total investment
portfolio. Of these securities, 96 percent are investment grade. Investments
primarily include mortgage and asset-backed securities, and to a lesser extent,
corporate debt securities. AECC's corporate debt securities are a diverse
portfolio with concentrations in the following industries: banking and finance,
utilities, communications and media, and transportation. Other than U.S.
Government Agency mortgage-backed securities, no one issuer represents more than
1 percent of AECC's total investment portfolio.
AECC paid AEFC return of capital amounts of $50 million and $10 million during
2003 and 2002, respectively. During the fourth quarter of 2001, AECC paid a $167
million capital dividend to AEFC by transferring at book value certain
collateralized debt obligation (CDO) securities owned by AECC. In part, the
dividend was paid to allow AEFC to transfer the CDO securities and related
accrued interest into a securitization trust. Additionally, and during 2001,
AECC received $240 million in cash as capital contributions from AEFC.
Cash used in investing activities was $448.7 million and $265.5 million in 2003
and 2002, respectively. This change was primarily due to decreased amounts due
to brokers in 2003, while in 2002, amounts due to brokers increased, and an
increase in purchases of Available-for-Sale securities and other investments,
partially offset by an increase in sales and maturities of such securities.
Cash provided by financing activities was $246.8 million and $332.7 million in
2003 and 2002, respectively. This decrease primarily resulted from a decrease in
net certificate inflows of $45.8 million together with an increase of $40
million of combined return of capital payments to AEFC.
Impact of Recent Market-Volatility on Results of Operations
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 percent 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 presented will be different than what
actually occurs in the future.
- --------------------------------------------------------------------------------
44p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
Furthermore, the computations do not anticipate actions that may be taken by
management if the hypothetical market changes occur over time. As a result,
actual earnings effects in the future will differ from those quantified below.
AECC primarily invests in intermediate-term and long-term fixed maturity
securities to provide its certificate owners with a competitive rate of return
on their certificate 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 short-term trading
profits for its own account.
AECC's goal is to manage interest rate sensitivity by modifying the length of
the interest crediting rate reset interval on certificate products so that
movements in interest rates do not adversely affect the interest credited to
such certificate products. AEFC holds regularly scheduled investment committee
meetings, which is comprised of senior business managers, to review models
projecting various interest rate scenarios and risk/return measures and their
effect on the profitability of AECC. The committee's objectives are 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 within defined risk parameters and to meet certificate
contractual obligations. Part of the committee's strategy includes entering into
interest rate swaps to hedge interest rate risk.
AECC is exposed to risk associated with fluctuating interest payments from
certain certificate products tied to the London Interbank Offering Rate (LIBOR).
As such, certificate product interest crediting rates reset at shorter intervals
than the changes in the investment portfolio yield related to new investments
and reinvestments. Therefore, AECC's spreads may be negatively impacted by
increases in the general level of interest rates. AECC hedges the risk of rising
interest rates by entering into pay-fixed, receive-variable (LIBOR-based)
interest rate swaps that convert fluctuating crediting rate payments to fixed
payments, effectively protecting AECC from unfavorable interest rate movements.
The interest rate swaps are treated as cash flow hedges per Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". At December 31, 2003, AECC had $900 million
notional of interest rate swaps expiring at various dates from January 2004
through February 2005.
AECC is also exposed to risk associated with fluctuations in the equity market
from three series of its certificate products. Such amounts credited to
certificate product owners' accounts are tied to the relative change in a major
stock market index between the beginning and end of the certificates' terms.
AECC purchases and writes equity index call options on a major stock market
index in order to meet such obligations. The recent appreciation in the S&P 500
caused a relatively substantial increase in AECC's provision expense for
certificate reserves, which was effectively offset by an increase in net pre-tax
gains on equity index options.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments 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 are
recorded in earnings or directly to equity, depending on the instrument's
designated use. Those derivative instruments that are designated and qualify as
hedging instruments under SFAS No. 133 are further classified as either fair
value hedges,
- --------------------------------------------------------------------------------
45p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
cash flow hedges or hedges of a net investment in a foreign operation, based
upon the exposure being hedged. See Note 9 to the Financial Statements for
further discussion of AECC's derivative and hedging activities.
The negative impact on AECC's annual pretax income of a 100 basis point increase
in interest rates, which assumes certificate product interest crediting rate
reset intervals and customer behavior based on the application of proprietary
models, to the book of business at December 31, 2003 and 2002, would be $11.8
million and $0.6 million for 2003 and 2002, respectively. A 10 percent decrease
in the level of a major stock market index would have a minimal impact on AECC's
annual pretax income related as of December 31, 2003 and 2002, because the
income effect is a decrease in option related 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 Certificates product owners' accounts.
The ratio of shareholder's equity, excluding accumulated other comprehensive
income (loss) net of tax, to total assets less certificate loans and net
unrealized gains (losses) on securities classified as Available-for-Sale (the
Capital-to-Assets Ratio) at December 31, 2003 and 2002, was 5.4 percent and 5.5
percent, respectively. In accordance with 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-Assets Ratio of 5 percent.
Other Reporting Matters
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses
consolidation by business enterprises of variable interest entities (VIEs) and
was subsequently revised in December 2003. An entity is subject to consolidation
according to the provisions of FIN 46, if, by design, either (i) the total
equity investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
or, (ii) as a group, the holders of the equity investment at risk lack: (a)
direct or indirect ability to make decisions about an entity's activities; (b)
the obligation to absorb the expected losses of the entity if they occur; or (c)
the right to receive the expected residual returns of the entity if they occur.
In general, FIN 46 requires a VIE to be consolidated when an enterprise has a
variable interest for which it is deemed to be the primary beneficiary which
means that it will absorb a majority of the VIE's expected losses or receive a
majority of the VIE's expected residual return.
FIN 46 did not impact the accounting for $27 million in a minority-owned secured
loan trust (SLT) or $6 million in a collateralized debt obligation traunche
(solely supported by a portfolio of high yield bonds), both of which are managed
by third parties, as AECC is not the primary beneficiary. AECC has a 33 percent
ownership interest in the SLT, which provides returns to investors primarily
based on the performance of an underlying portfolio of high yield loans. The
aggregate fair value of the loans related to AECC's pro rata share of this
structure approximates $92.5 million. AECC's maximum exposure to loss as a
result of its investment in this SLT is represented by the carrying value, which
was $27 million at December 31, 2003.
- --------------------------------------------------------------------------------
46p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
In April 2003, the FASB issued Statement of Financial Accounting Standards Board
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" (SFAS No. 149). SFAS No. 149 amends and clarifies accounting
for derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered
into or modified and hedging relationships designated after June 30, 2003, and
to certain preexisting contracts. SFAS No. 149 did not have a material impact on
AECC's financial statements.
Forward-Looking Statements
Certain statements in Item 7. of this Form 10-K Annual Report contain
forward-looking statements, which are subject to risks and uncertainties. The
words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim,"
"will," "should," "could," "likely," and similar expressions are intended to
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. AECC undertakes no obligation to update or revise any
forward-looking statements. Factors that could cause actual results to differ
materially from these forward-looking statements include, but are not limited
to: AECC's ability to successfully implement a business model that allows for
significant net income growth based on revenue growth that is lower than
historical levels, including the ability to improve its operating expense to
revenue ratio both in the short-term and over time, which will depend in part on
the effectiveness of reengineering and other cost control initiatives, as well
as factors impacting AECC's revenues; AECC's ability to grow its business, over
time, which will depend on AECC's ability to manage its capital needs and the
effect of business mix; the ability to increase investment spending, which will
depend in part on the equity markets and other factors affecting revenues, and
the ability to capitalize on such investments to improve business metrics; the
accuracy of certain critical accounting estimates, including the fair value of
the assets in AECC's investment portfolio (including those investments that are
not readily marketable), fluctuation in the equity and fixed income markets,
which can affect the amount and types of certificate products sold by AECC,
potential deterioration in AECC's high-yield and other investments, which could
result in further losses in AECC's investment portfolio; the ability of AECC to
sell certain high-yield investments at expected values and within anticipated
timeframes and to maintain its high-yield portfolio at certain levels in the
future; and spreads in the certificate businesses; credit trends and the rate of
bankruptcies, which can affect returns on AECC's investment portfolios;
fluctuations in foreign currency exchange rates, which could affect commercial
activities, among other businesses, or restrictions on convertibility of certain
currencies; changes in laws or government regulations, including tax laws
affecting AECC's businesses or that may affect the sales of the products and
services that it offers, and regulatory activity in the areas of customer
privacy, consumer protection, business continuity and data protection; the
adoption of recently issued accounting rules related to the consolidation of
variable interest entities, including those involving collateralized debt
obligations and secured loan trusts, that AECC invests in, which could affect
both AECC's balance sheet and results of operations; and outcomes and costs
associated with litigation and compliance and regulatory matters. A further
description of these and other risks and uncertainties can be found in AECC's
other reports filed with the SEC.
- --------------------------------------------------------------------------------
47p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
AMERICAN EXPRESS CERTIFICATE COMPANY
RESPONSIBILITY OF MANAGEMENT
The management of American Express Certificate Company (AECC) is responsible for
the preparation and fair presentation of its Financial Statements, which have
been prepared in conformity with accounting principles generally accepted in the
United States; 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 this filing.
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 which 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.
The internal control system is founded on an ethical climate and includes: (i)
an organizational structure with clearly defined lines of responsibility,
policies and procedures; (ii) a Code of Conduct; and (iii) a careful selection
and training of employees. Internal auditors monitor and assess the
effectiveness of internal control and report their findings to management and
the Board of Directors 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 control system over financial reporting to the
extent they believed necessary to support their report.
- --------------------------------------------------------------------------------
48p AMERICAN EXPRESS STOCK MARKET CERTIFICATE -- PROSPECTUS
American Express Certificate Company
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP 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, a wholly-owned subsidiary of American Express Financial Corporation, as
of December 31, 2003 and 2002, and the related statements of operations,
comprehensive income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 2003. 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, 2003
and 2002, 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, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Yound LLP
Minneapolis, Minnesota
January 26, 2004
American Express Certificate Company
- --------------------------------------------------------------------------------
Financial Statements
Balance Sheets
December 31, (Thousands, except share amount) 2003 2002
Assets
Qualified Assets (Note 2)
Investments in unaffiliated issuers (Note 3):
Cash and cash equivalents $ 25,099 $ 240,323
Available-for-Sale securities 4,509,726 4,389,396
First mortgage loans on real estate and other loans 469,309 452,243
Certificate loans -- secured by certificate reserves 15,606 18,614
- ----------------------------------------------------------------------------------------
Total investments 5,019,740 5,100,576
- ----------------------------------------------------------------------------------------
Receivables:
Dividends and interest 36,007 34,114
Investment securities sold 7,946 24,170
- ----------------------------------------------------------------------------------------
Total receivables 43,953 58,284
- ----------------------------------------------------------------------------------------
Equity index options (Note 9) 153,162 34,403
- ----------------------------------------------------------------------------------------
Total qualified assets 5,216,855 5,193,263
- ----------------------------------------------------------------------------------------
Other Assets
Due from AEFC for federal income taxes 22,963 --
Deferred taxes, net (Note 8) 9,321 --
Deferred distribution fees and other 6,453 6,506
- ----------------------------------------------------------------------------------------
Total other assets 38,737 6,506
- ----------------------------------------------------------------------------------------
Total assets $5,255,592 $5,199,769
========================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Balance Sheets (continued)
December 31, (Thousands, except share amount) 2003 2002
Liabilities and Shareholder's Equity
Liabilities
Certificate Reserves (Note 5):
Installment certificates:
Reserves to mature $ 146,052 $ 168,957
Additional credits and accrued interest 3,514 3,988
Advance payments and accrued interest 499 564
Other 32 34
Fully paid certificates:
Reserves to mature 4,573,514 4,277,348
Additional credits and accrued interest 64,114 42,311
Due to unlocated certificate holders 92 170
- --------------------------------------------------------------------------------------------------
Total certificate reserves 4,787,817 4,493,372
- --------------------------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities:
Due to AEFC (Note 7) 880 887
Due to AEFC for federal income taxes -- 3,908
Due to other affiliates (Note 7) 560 690
Deferred taxes, net (Note 8) -- 29,556
Payable for investment securities purchased 9,173 263,658
Equity index options and other liabilities (Note 9) 133,949 48,309
- --------------------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities 144,562 347,008
- --------------------------------------------------------------------------------------------------
Total liabilities 4,932,379 4,840,380
- --------------------------------------------------------------------------------------------------
Commitments (Note 4)
- --------------------------------------------------------------------------------------------------
Shareholder's Equity (Note 6)
Common stock, $10 par -- authorized and issued 150,000 shares 1,500 1,500
Additional paid-in capital 323,844 373,844
Retained earnings (accumulated deficits):
Appropriated for pre-declared additional credits and interest 184 811
Appropriated for additional interest on advance payments 15 15
Unappropriated (46,556) (100,142)
Accumulated other comprehensive income -- net of tax (Note 1) 44,226 83,361
- --------------------------------------------------------------------------------------------------
Total shareholder's equity 323,213 359,389
- --------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $5,255,592 $5,199,769
==================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Operations
Years ended December 31, (Thousands) 2003 2002 2001
Investment Income
Interest income from unaffiliated investments:
Available-for-Sale securities $204,932 $227,609 $214,534
Mortgage loans on real estate and other loans 27,093 27,719 25,133
Certificate loans 933 1,095 1,293
Dividends 5,074 9,949 19,986
Equity index options (Note 9) 29,538 (36,421) (39,510)
Interest rate swap agreements (Note 9) (5,301) (9,780) (17,616)
Other 1,969 980 525
- --------------------------------------------------------------------------------------------------------------------
Total investment income 264,238 221,151 204,345
- --------------------------------------------------------------------------------------------------------------------
Investment Expenses
AEFC and affiliated company fees (Note 7):
Distribution 29,731 29,762 30,924
Investment advisory and services 10,436 9,980 9,248
Transfer agent 3,378 3,203 3,161
Depository 349 321 285
Other 523 360 432
- --------------------------------------------------------------------------------------------------------------------
Total investment expenses 44,417 43,626 44,050
- --------------------------------------------------------------------------------------------------------------------
Net investment income before provision for certificate reserves
and income tax (expense) benefit $219,821 $177,525 $160,295
- --------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Operations (continued)
Years ended December 31, (Thousands) 2003 2002 2001
Provision for Certificate Reserves (Note 5)
According to the terms of the certificates:
Provision for certificate reserves $ 6,043 $ 7,888 $ 10,321
Interest on additional credits 425 543 597
Interest on advance payments 17 19 34
Additional credits/interest authorized by AECC:
On fully paid certificates 132,975 88,201 138,020
On installment certificates 3,379 4,757 7,559
- --------------------------------------------------------------------------------------------------------------------
Total provision for certificate reserves before reserve recoveries 142,839 101,408 156,531
Reserve recoveries from terminations prior to maturity (1,356) (1,156) (1,144)
- --------------------------------------------------------------------------------------------------------------------
Net provision for certificate reserves 141,483 100,252 155,387
- --------------------------------------------------------------------------------------------------------------------
Net investment income before income tax (expense) benefit 78,338 77,273 4,908
Income tax (expense) benefit (Note 8) (27,296) (24,866) 3,348
- --------------------------------------------------------------------------------------------------------------------
Net investment income 51,042 52,407 8,256
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
Securities of unaffiliated issuers before
income tax (expense) benefit 2,944 (9,899) (92,375)
Income tax (expense) benefit (Note 8) (1,031) 3,631 32,331
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,913 (6,268) (60,044)
- --------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change
(net of income tax benefit of $214) -- -- (397)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 52,955 $ 46,139 $(52,185)
====================================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Cash Flows
Years Ended December 31, (Thousands) 2003 2002 2001
Cash Flows from Operating Activities
Net income (loss) $ 52,955 $ 46,139 $ (52,185)
Adjustments to reconcile net income (loss) to net
cash (used in)provided by operating activities:
Cumulative effect of accounting change, net of tax (Note 1) -- -- 397
Interest income added to certificate loans (630) (738) (820)
Amortization of premiums/discounts -- net 14,907 (2,426) (1,483)
Provision for deferred federal income taxes (38,877) (3,288) (9,793)
Net deferred distribution fees (amortized) (479) 1,802 1,525
Net realized (gain) loss on equity index options (29,538) 36,421 39,510
Net realized (gain) loss on investments (2,944) 9,899 92,375
(Increase) decrease in dividends and interest receivable (1,893) 4,184 9,603
Other assets and liabilities, net (6,856) (6,004) (17,564)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (13,355) 85,989 61,565
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Available-for-Sale investments:
Sales 1,132,131 887,194 989,738
Maturities and redemptions 1,305,953 1,111,493 704,877
Purchases (2,626,239) (2,228,071) (2,435,973)
Other investments:
Sales 81,736 11,166 --
Maturities and redemptions 77,022 88,437 30,307
Purchases (182,293) (234,070) (54,927)
Certificate loans:
Payments 2,805 2,919 3,127
Fundings (1,553) (2,085) (2,830)
Changes in amounts due to and from brokers, net (238,262) 97,482 141,131
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (448,700) (265,535) (624,550)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Payments from certificate owners 2,571,209 2,031,414 1,919,769
Net provision for certificate reserves 141,483 100,252 155,387
Certificate maturities and cash surrenders (2,415,861) (1,788,995) (1,734,742)
Proceeds from repurchase agreements 337,600 -- 500
Payments under repurchase agreements (337,600) -- (500)
(Return of capital to) contribution from AEFC (50,000) (10,000) 240,000
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 246,831 332,671 580,414
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (215,224) 153,125 17,429
Cash and cash equivalents at beginning of year 240,323 87,198 69,769
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 25,099 $ 240,323 $ 87,198
=======================================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Comprehensive Income
Years Ended December 31, (Thousands) 2003 2002 2001
Net income (loss) $ 52,955 $ 46,139 $(52,185)
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income net of tax (Note 1)
Cumulative effect of accounting change (Note 1) -- -- (2,187)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized (losses) gains on Available-for-Sale securities:
Unrealized holding (losses) gains arising during period (52,669) 82,904 19,959
Income tax benefit (provision) 18,434 (29,016) (6,986)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized holding (losses) gains arising during the period (34,235) 53,888 12,973
- -----------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for (gains) losses
included in net income (loss) (8,260) 8,142 101,754
Income tax provision (benefit) 2,891 (2,850) (35,614)
- -----------------------------------------------------------------------------------------------------------------------
Net reclassification adjustment for (gains) losses
included in net income (loss) (5,369) 5,292 66,140
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized (losses) gains on Available-for-Sale securities (39,604) 59,180 79,113
- -----------------------------------------------------------------------------------------------------------------------
Unrealized losses on interest rate swaps:
Unrealized losses arising during the period (4,579) (8,141) (19,683)
Income tax benefit 1,603 2,849 6,889
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized holding losses arising during the period (2,976) (5,292) (12,794)
- -----------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for losses included in net income (loss) 5,300 9,780 17,616
Income tax benefit (1,855) (3,423) (6,166)
- -----------------------------------------------------------------------------------------------------------------------
Net reclassification adjustment for losses
included in net income (loss) 3,445 6,357 11,450
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on interest rate swaps 469 1,065 (1,344)
- -----------------------------------------------------------------------------------------------------------------------
Net other comprehensive (loss) income (39,135) 60,245 75,582
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 13,820 $106,384 $ 23,397
=======================================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Shareholder's Equity
Years Ended December 31, (Thousands) 2003 2002 2001
Common Stock $ 1,500 $ 1,500 $ 1,500
- -----------------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital
Balance at beginning of year $ 373,844 $ 383,844 $ 143,844
(Return of capital to) contribution from Parent (50,000) (10,000) 240,000
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 323,844 $ 373,844 $ 383,844
=======================================================================================================================
Retained Earnings
Appropriated for pre-declared additional credits/interest (Note 5)
Balance at beginning of year $ 811 $ 1,123 $ 2,684
Transferred to unappropriated retained earnings (627) (312) (1,561)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 184 $ 811 $ 1,123
- -----------------------------------------------------------------------------------------------------------------------
Appropriated for additional interest on advance payments $ 15 $ 15 $ 15
- -----------------------------------------------------------------------------------------------------------------------
Unappropriated (Note 6)
Balance at beginning of year $(100,142) $(146,593) $ 70,937
Net income (loss) 52,955 46,139 (52,185)
Transferred from appropriated retained earnings 627 312 1,561
Other 4 -- --
Capital dividends declared -- -- (166,906)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (46,556) $(100,142) $(146,593)
=======================================================================================================================
Accumulated other comprehensive income -- net of tax (Note 1)
Balance at beginning of year $ 83,361 $ 23,116 $ (52,466)
Net other comprehensive (loss) income (39,135) 60,245 75,582
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 44,226 $ 83,361 $ 23,116
- -----------------------------------------------------------------------------------------------------------------------
Total shareholder's equity $ 323,213 $ 359,389 $ 263,005
=======================================================================================================================
See Notes to Financial Statements
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
American Express Certificate Company (AECC), is a wholly-owned subsidiary of
American Express Financial Corporation (AEFC), 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. Face-amount
certificates issued by AECC entitle the certificate owner to receive at maturity
a stated amount of money and interest or credits declared from time to time by
AECC, at its discretion. The certificates issued by AECC are not insured by any
government agency. AECC's certificates are sold primarily by American Express
Financial Advisors Inc. (AEFAI) and American Express Bank Ltd. (AEB), both
affiliates of AECC. AEFAI is registered as a broker dealer in all 50 states, the
District of Columbia and Puerto Rico. AEFC acts as investment advisor for AECC.
As of December 31, 2003, AECC offered nine different certificate products to the
public with specified maturities ranging from ten to twenty years. Within their
specified maturity, most certificates have interest rate terms of one to
thirty-six months. In addition, three types of certificates have interest tied,
in whole or in part, to 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, 401(k) plans and other qualified retirement
plans.
AECC's net investment income is derived primarily from interest and dividends
generated by its investments. AECC's net income is determined by deducting from
net investment income provision expenses for certificate reserves, and other
expenses, including taxes, fees paid to AEFC for investment advisory and other
services, distribution fees paid to AEFAI, and marketing fees paid to AEB, a
wholly-owned indirect subsidiary of American Express Company.
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,
Investors Syndicate Development Corporation, as prescribed by the Securities and
Exchange Commission (SEC) for non-investment company subsidiaries. Certain
reclassifications of prior period amounts have been made to conform to the
current presentation.
Accounting estimates are an integral part of the Financial Statements. In part,
they are based upon assumptions concerning future events. Among the more
significant is investment securities valuation as discussed in detail below.
These accounting estimates reflect the best judgment of management and actual
results could differ.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
Interest income
Interest income is accrued as earned using the effective interest method, which
makes an adjustment for security premiums and discounts, so that the related
security recognizes a constant rate of return on the outstanding balance
throughout its term.
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.
Cash and cash equivalents
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 original maturities of ninety days or less.
Available-for-Sale investments
Debt securities and marketable equity securities are classified as
Available-for-Sale and carried at fair value. Unrealized gains (losses) on
securities classified as Available-for-Sale are reflected, net of taxes, in
other comprehensive (loss) income as part of Shareholder's Equity.
The basis for determining cost in computing realized gains (losses) on
securities is specific identification. Gains (losses) are recognized in the
results of operations upon disposition of the securities. In addition, losses
are also recognized when management determines that a decline in value is
other-than-temporary, which requires judgment regarding the amount and timing of
recovery. Indicators of other-than-temporary impairment for debt securities
include issuer downgrade, default or bankruptcy. AECC also considers the extent
to which cost exceeds fair value, the duration of time of that decline and
management's judgment as to the issuer's current and prospective financial
condition. The charges are reflected in net realized gain (loss) on investments
in the statements of operations.
Fair value is generally based on quoted market prices. However, AECC's
investment portfolio also contains structured investments of various asset
quality, which are not readily marketable. As a result, the carrying values of
these structured investments are based on future cash flow projections that
require a significant degree of management judgment as to the amount and timing
of cash payments, defaults and recovery rates of the underlying investments and
as such, are subject to change.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
First mortgage loans on real estate and other loans
First mortgage loans on real estate reflect principal amounts outstanding less
reserves for losses, which is the basis for determining realized gains (losses).
Estimated fair values of mortgage loans on real estate are determined by a
discounted cash flow analysis using mortgage interest rates currently offered
for mortgages of similar maturities. Other loans reflect amortized cost less
reserve for losses. Fair values of other loans represent estimated fair values
when quoted prices are not available.
The reserve for loan losses 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. Additionally, the level of the reserve account is determined based
on several factors, including historical experience and current economic and
political conditions. Management regularly evaluates the adequacy of the reserve
for loan losses, and believes it is adequate to absorb estimated losses in the
portfolio.
AECC generally stops accruing interest on mortgage loans on real estate 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.
Certificate Reserves
Investment certificates may be purchased either with a lump-sum payment or by
installment payments. Certificate product 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
Distribution fees on sales of certain series of certificate products are
deferred and amortized over the estimated lives of the related certificates,
which is approximately one year and can be up to 10 years. Upon surrender prior
to maturity, unamortized deferred distribution fees are reflected in expenses
and any related surrender charges are reflected as a reduction to the provision
expense for certificate reserves. Products are designed to recover such costs
within the surrender charge period.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Federal income taxes
AECC's taxable income (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 AEFC 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 AEFC and its subsidiaries that
AEFC will reimburse its subsidiaries for any tax benefits recorded.
Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses
consolidation by business enterprises of variable interest entities (VIEs) and
was subsequently revised in December 2003. An entity is subject to consolidation
according to the provisions of FIN 46, if, by design, either (i) the total
equity investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
or, (ii) as a group, the holders of the equity investment at risk lack: (a)
direct or indirect ability to make decisions about an entity's activities; (b)
the obligation to absorb the expected losses of the entity if they occur; or (c)
the right to receive the expected residual returns of the entity if they occur.
In general, FIN 46 requires a VIE to be consolidated when an enterprise has a
variable interest for which it is deemed to be the primary beneficiary which
means that it will absorb a majority of the VIE's expected losses or receive a
majority of the VIE's expected residual return.
FIN 46 did not impact the accounting for $27 million in a minority-owned secured
loan trust (SLT) or $6 million in a collateralized debt obligation traunche
(solely supported by a portfolio of high yield bonds), both of which are managed
by third parties, as AECC is not the primary beneficiary. AECC has a 33 percent
ownership interest in the SLT, which provides returns to investors primarily
based on the performance of an underlying portfolio of high yield loans. The
aggregate fair value of the loans related to AECC's pro rata share of this
structure approximates $92.5 million. AECC's maximum exposure to loss as a
result of its investment in this SLT is represented by the carrying value, which
is $27 million at December 31, 2003.
In April 2003, the FASB issued Statement of Financial Accounting Standards Board
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" (SFAS No. 149). SFAS No. 149 amends and clarifies accounting
for derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered
into or modified and hedging relationships designated after June 30, 2003, and
to certain preexisting contracts. SFAS No. 149 did not have a material impact on
AECC's financial statements.
In November 2003, the FASB ratified a consensus on the disclosure provisions of
Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments". The
disclosure provisions of this rule, which are addressed in Note 3, require
tabular presentation of certain information regarding investment securities with
gross unrealized losses.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
2. DEPOSIT OF ASSETS AND MAINTENANCE OF QUALIFIED ASSETS
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 $4.8 billion and $4.5 billion at December 31, 2003 and 2002,
respectively. AECC reported Qualified Assets of $5.1 billion and $4.8 billion at
December 31, 2003 and 2002, respectively, excluding net unrealized pretax
appreciation on Available-for-Sale securities of $74 million and $135 million at
December 31, 2003 and 2002, respectively, and unsettled investment purchases of
$9 million and $264 million at December 31, 2003 and 2002, respectively.
Qualified Assets are valued in accordance with such provisions of Minnesota
Statutes as are applicable to investments of life insurance companies. 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.
Pursuant to provisions of the certificates, the 1940 Act, the central depository
agreement and requirements of various states, qualified assets (accounted for on
a trade date basis) of AECC were deposited as follows:
December 31, 2003
-----------------------------------------
Required
(Thousands) Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate liability
requirements:
Pennsylvania (at market value) $ 162 $ 100 $ 62
Texas, Illinois, New Jersey (at par value) $ 215 $ 185 $ 30
Central Depository (at amortized cost) $5,004,553 $4,742,572 $261,981
- ---------------------------------------------------------------------------------------
December 31, 2002
-----------------------------------------
Required
(Thousands) Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate liability
requirements:
Pennsylvania (at market value) $ 166 $ 100 $ 66
Texas, Illinois, New Jersey (at par value) $ 215 $ 185 $ 30
Central Depository (at amortized cost) $5,020,340 $4,472,886 $547,454
- ---------------------------------------------------------------------------------------
The assets on deposit with the central depository at December 31, 2003 and 2002
consisted of securities and other loans having a deposit value of $4.6 billion
at both balance sheet dates, mortgage loans on real estate of $331 million and
$339 million, respectively, and other investments of $74 million and $73
million, respectively. Additionally, these assets on deposit include unsettled
purchases of investments in the amount of $9 million and $264 million at
December 31, 2003 and 2002, respectively.
American Express Trust Company is the central depository for AECC. See Note 7.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS IN UNAFFILIATED ISSUERS
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, among other things, review
of market indexes, price levels of current offerings and comparable issues,
price estimates, estimated future cash flows, and market data from independent
brokers.
Investments classified as Available-for-Sale securities at December 31 are
distributed by type as presented below:
2003
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
Mortgage and asset-backed securities $2,605,686 $35,954 $(10,975) $2,630,665
Corporate debt securities 1,710,353 53,497 (7,762) 1,756,088
Stated maturity preferred stock 44,340 1,178 (34) 45,484
Structured Investments 32,592 1,788 -- 34,380
Perpetual preferred stock 17,782 270 -- 18,052
U.S. Government & agency obligations 15,355 350 -- 15,705
State and municipal obligations 9,539 6 (214) 9,331
Common Stock -- 21 -- 21
- -------------------------------------------------------------------------------------------------------
Total $4,435,647 $93,064 $(18,985) $4,509,726
- -------------------------------------------------------------------------------------------------------
2002
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
Mortgage and asset-backed securities $2,938,348 $ 94,528 $ (1,728) $3,031,148
Corporate debt securities 1,172,446 53,394 (15,540) 1,210,300
Stated maturity preferred stock 82,554 1,876 (383) 84,047
Structured Investments 33,470 2,175 -- 35,645
Perpetual preferred stock 17,782 266 -- 18,048
State and municipal obligations 9,424 385 -- 9,809
U.S. Government & agency obligations 362 37 -- 399
- -------------------------------------------------------------------------------------------------------
Total $4,254,386 $152,661 $(17,651) $4,389,396
- -------------------------------------------------------------------------------------------------------
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
The following table provides information about Available-for-Sale securities
with gross unrealized losses and the length of time that individual securities
have been in a continuous unrealized loss position as of December 31, 2003:
(Thousands) Less than 12 months 12 months or more Total
- ------------------------------------------------------------------------------------------------------------
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
- ------------------------------------------------------------------------------------------------------------
Corporate debt securities $ 444,318 $ (7,147) $15,789 $ (615) $ 460,107 $ (7,762)
Mortgage and other
asset-backed securities 1,006,572 (9,513) 13,742 (1,462) 1,020,314 (10,975)
State and municipal obligations 8,790 (214) -- -- 8,790 (214)
Other -- -- 454 (34) 454 (34)
- ------------------------------------------------------------------------------------------------------------
Total $1,459,680 $(16,874) $29,985 $(2,111) $1,489,665 $(18,985)
- ------------------------------------------------------------------------------------------------------------
Approximately 114 investment positions were in an unrealized loss position as of
December 31, 2003. The gross unrealized losses on these securities are
attributable to a number of factors including changes in interest rates and
credit spreads, and specific credit events associated with individual issuers.
As part of its ongoing monitoring process, management has concluded that none of
these securities are other-than-temporarily impaired at December 31, 2003. AECC
has the ability and intent to hold these securities for a time sufficient to
recover its amortized cost. See the Available-for-Sale Investments section of
Note 1 for information regarding AECC's policy for determining when an
investment's decline in value is other-than-temporary.
The amortized cost and fair value of Available-for-Sale securities, by
contractual maturity at December 31, 2003 are shown below. Cash flows may differ
from contractual maturities because issuers may call or prepay obligations.
Amortized Fair
(Thousands) Cost Value
- ---------------------------------------------------------------------------
Due within one year $ 136,654 $ 138,877
Due from one to five years 1,302,466 1,343,323
Due from five to ten years 370,043 374,833
Due in more than ten years 3,016 3,955
- ---------------------------------------------------------------------------
$1,812,179 $1,860,988
Mortgage and asset-backed securities 2,605,686 2,630,665
Perpetual preferred stock 17,782 18,052
Common Stock -- 21
- ---------------------------------------------------------------------------
Total $4,435,647 $4,509,726
- ---------------------------------------------------------------------------
Mortgage and other asset-backed securities primarily reflect GNMA, FNMA, and
FHLMC securities at December 31, 2003 and 2002.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Gross realized gains on sales of securities classified as Available-for-Sale,
using the specific identification method, were $47.1 million, $23.4 million and
$20.7 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Gross realized losses on sales were ($2.8 million), ($15.7
million) and ($83.9 million) for the same periods. AECC also recognized losses
of ($36 million), ($15.8 million) and ($27.9 million) in other-than-temporary
impairments on Available-for-Sale securities for the years ended December 31,
2003, 2002 and 2001, respectively.
AECC's net losses in 2001 were primarily composed of a ($36.9 million) loss to
recognize the impact of higher default assumptions used to determine impairment
on rated structured investments and a ($57.1 million) loss on high-yield
securities. The write-downs of these investments were associated with AECC's
decision to reduce the company's holdings of high-yield investments and
rebalance the fixed maturity investment portfolio towards higher quality, less
volatile holdings.
Investments in securities with fixed maturities comprised 90 percent and 85
percent of AECC's total investments at December 31, 2003 and 2002, respectively.
Securities are rated by Moody's and Standard & Poors (S&P), or by AEFC's
internal analysts, using criteria similar to Moody's and S&P, when a public
rating does not exist. Ratings are presented using S&P's convention and if the
two agency's ratings differ, the lower rating is used. A summary of investments
in securities with fixed maturities, at amortized cost, by rating of investment
is as follows:
Rating 2003 2002
- --------------------------------------------------------------------------------
AAA 60% 69%
AA 2 1
A 16 11
BBB 18 16
Below investment grade 4 3
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
Of the securities rated AAA, 94 percent at December 31, 2003 and 2002, are U.S.
Government Agency mortgage-backed securities that are rated by a public rating
agency. At December 31, 2003 and 2002, approximately 6 percent and 9 percent,
respectively, of securities with fixed maturities, other than U.S. Government
Agency mortgage-backed securities, are rated by AEFC's internal analysts.
At December 31, 2003 and 2002 no one issuer, other than U.S. Government Agency
mortgage-backed securities, is greater than 1 percent of AECC's total investment
in securities with fixed maturities.
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. AECC's board
of directors, using the aforementioned procedures and factors, determine fair
values of such restricted securities.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
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 AND OTHER LOANS
The carrying amounts and fair values of first mortgage loans on real estate and
other loans at December 31 are below
2003 2002
------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------
First mortgage loans on real estate $337,489 $355,442 $342,147 $366,198
Other loans 141,356 138,356 114,319 113,319
Reserve for losses (9,536) -- (4,223) --
- -----------------------------------------------------------------------------------------------------
Net first mortgage and other loans $469,309 $493,798 $452,243 $479,517
- -----------------------------------------------------------------------------------------------------
During the year ended December 31, 2003, AECC held investments in impaired
mortgage or other loans totaling $9.9 million. AECC recognized $0.4 million of
interest income related to such investments for the year ended December 31,
2003. AECC did not hold any investments in impaired mortgage loans or other
loans during 2002 and 2001.
The reserve for loss on mortgage loans and other loans increased to $9.5 million
on December 31, 2003, from $4.2 million at December 31, 2002 and $1.9 million at
December 31, 2001.
At December 31, 2003 and 2002, approximately 7 percent, 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 December 31, is as follows:
Region of the United States of America 2003 2002
- --------------------------------------------------------------------------------
South Atlantic 18% 18%
West North Central 15 15
East North Central 12 13
Mountain 10 13
West South Central 17 17
Pacific 16 12
New England 7 6
Middle Atlantic 5 6
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
Property Type 2003 2002
- --------------------------------------------------------------------------------
Office buildings 42% 41%
Retail/shopping centers 23 20
Apartments 10 14
Industrial buildings 14 15
Other 11 10
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 2003 and 2002, commitments for funding of first mortgage loans
on real estate, at market interest rates, aggregated $9.8 million and $13.4
million, 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 first mortgage loans on real estate is restricted to
80 percent or less of the market value of the real estate at the time of the
loan funding. Fair values for these commitments were not substantial at December
31, 2003 and 2002.
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 December 31 were as
follows:
2003
-----------------------------------------
Average Gross Average
Reserve Accumulation Additional
(Dollars in Thousands) Balance Rates Credit Rates
- -----------------------------------------------------------------------------------------
Installment certificates:
Reserves to mature:
With guaranteed rates $ 11,153 4.00% .50%
Without guaranteed rates (a) 134,899 -- .80%
Additional credits and accrued interest 3,514 3.22% --
Advance payments and accrued interest (b) 499 3.35% --
Other 32 -- .32%
Fully paid certificates:
Reserves to mature:
With guaranteed rates 90,149 3.21% .01%
Without guaranteed rates (a) and (c) 4,483,365 -- .53%
Additional credits and accrued interest 64,114 3.05% --
Due to unlocated certificate holders 92
- -----------------------------------------------------------------------------------------
Total $4,787,817
- -----------------------------------------------------------------------------------------
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
2002
-----------------------------------------
Average Gross Average
Reserve Accumulation Additional
(Dollars in Thousands) Balance Rates Credit Rates
- -----------------------------------------------------------------------------------------
Installment certificates:
Reserves to mature:
With guaranteed rates $ 12,663 3.50% .50%
Without guaranteed rates (a) 156,294 -- 1.04%
Additional credits and accrued interest 3,988 3.20% --
Advance payments and accrued interest (b) 564 3.30% --
Other 34 -- .18%
Fully paid certificates:
Reserves to mature:
With guaranteed rates 95,941 3.20% .01%
Without guaranteed rates (a) and (c) 4,181,407 -- .73%
Additional credits and accrued interest 42,311 3.08% --
Due to unlocated certificate holders 170 -- --
- -----------------------------------------------------------------------------------------
Total $4,493,372
- -----------------------------------------------------------------------------------------
(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) Certain series of installment certificates guarantee accrual of interest on
advance payments at an average of 3.26 percent. AECC's rate of accrual is
currently set at 4 percent, which is in effect through April 30, 2004.
(c) American Express Stock Market Certificate, American Express Market Strategy
Certificate and American Express Equity Indexed Savings Certificates 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 52 weeks and may continue for up to 20 successive terms. The
reserve balance on these certificates at December 31, 2003 and 2002 was
$1.3 million and $1 million, respectively.
Certificate maturities and surrenders through loan reductions during the years
ended December 31, 2003 and 2002 were $2.4 million and $3.1 million,
respectively.
On certain series of single payment certificates, additional interest is
pre-declared for periods greater than one year. The retained earnings
appropriated for the pre-declared additional interest at December 31, 2003 and
2002 was $184 thousand and $811 thousand, respectively, which reflects the
difference between certificate reserves on these series, calculated on a
statutory basis, and the reserves maintained per books.
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 discounted cash flow
analyses using interest rates currently offered for certificates with similar
remaining terms, less any applicable surrender charges.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
The carrying amounts and fair values of certificate reserves at December 31,
consisted of the following:
2003 2002
------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------
Reserves with terms of one year or less $4,322,321 $4,320,182 $4,007,664 $4,005,622
Other 465,496 471,427 485,708 497,689
- ----------------------------------------------------------------------------------------------------
Total certificate reserves $4,787,817 $4,791,609 $4,493,372 $4,503,311
Unapplied certificate transactions 3,499 3,499 801 801
Certificate loans and accrued interest (15,798) (15,798) (18,824) (18,824)
- ----------------------------------------------------------------------------------------------------
Total $4,775,518 $4,779,310 $4,475,349 $4,485,288
- ----------------------------------------------------------------------------------------------------
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 one percent on such series of certificates have
been authorized by AECC. This restriction has been removed for 2003 and 2004 by
AECC's declaration of additional credits in excess of this requirement.
7. RELATED PARTY TRANSACTIONS
Investment advisory, joint facilities, technology support, and treasury services
The investment advisory and services agreement with AEFC provides for a
graduated scale of fees equal on an annual basis to 0.750 percent on the first
$250 million of total book
value of assets of AECC, 0.650 percent on the next $250 million, 0.550 percent
on the next $250 million, 0.500 percent on the next $250 million and 0.107
percent on the amount in excess of $1 billion. The fee is payable monthly in an
amount equal to one-twelfth of each of the percentages set forth above. Excluded
from assets for purposes of this computation are first mortgage and other loans,
real estate and any other asset on which AECC pays an outside advisory or
service fee. The fee paid to AEFC for managing and servicing bank loans is 0.35
percent.
Distribution services
Fees payable to AEFAI on sales of AECC's certificates are based upon terms of
agreements giving AEFAI 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 AEFAI may be
lowered. There were no changes to the distribution fees for the promotion of the
American Express Flexible Savings Certificate, which occurred March 26, 2003 to
May 13, 2003.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
The aggregate fees payable under the agreements is $25 per $1,000 face amount of
installment certificates sold on or after April 30, 1997. The aggregate fees
payable for the first year is $2.50 and the remaining $22.50 aggregate fees is
payable over nine subsequent years.
Fees on the American Express Investors Certificate are paid at an annualized
rate of 1 percent of the reserves maintained for the certificates. Fees are paid
at the end of each term on certificates with a one-, two- or three-month term.
Fees are paid each quarter from date of issuance on certificates with a six,
twelve, twenty-four or thirty-six month term.
Fees on the American Express Preferred Investors Certificate are paid at a rate
of 0.165 percent of the initial payment on issue date of the certificate and
0.165 percent of the certificate's reserve at the beginning of the second and
subsequent quarters from issue date.
Effective April 26, 2000, fees on the American Express Flexible Savings
Certificate are paid at a rate of 0.08 percent of the purchase price at the time
of issuance and 0.08 percent 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 percent of the purchase price at time of issuance and 0.20 percent
of the reserves maintained for these certificates at the beginning of the second
and subsequent quarters from issue date.
Effective April 25, 2001 fees on the American Express Cash Reserve Certificate
are paid at a rate of 0.0625 percent of the purchase price at the time of
issuance and 0.0625 percent 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 24, 2001, fees on the American
Express Cash Reserve Certificate are paid at a rate of 0.20 percent of the
purchase price at the time of issuance and 0.20 percent of the reserves
maintained for these certificates at the beginning of the second and subsequent
quarters from issue date.
Effective April 28, 1999, fees on the American Express Stock Market, sold
through AEFAI, and American Express Market Strategy Certificates are paid at a
rate of 0.90 percent. For certificates sold from April 30, 1997 to April 27,
1999, fees were paid at the rate of 0.70 percent. 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 percent. For certificates sold from April 28, 1999 to April 25,
2000, fees were paid at the rate of 1.00 percent. For certificates sold from
April 30, 1997 to April 27, 1999, fees were paid at a rate of 1.25 percent. 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 Certificates are paid at a
rate of 1.00 percent of the initial investment on the first day of each
certificate's term and 1.00 percent of the certificate's reserve at the
beginning of each subsequent term.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Depository fees
The basis for computing fees paid or payable to American Express Trust Company
for depository services is as follows:
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
Maintenance charge for assets held 50 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.
Distribution fees
The basis for computing fees paid or payable to American Express Bank Ltd. (an
affiliate) for the distribution of the American Express Special Deposits on an
annualized basis is 1.25 percent of the reserves maintained for the certificates
on an amount from $100,000 to $249,999, 0.80 percent on an amount from $250,000
to $499,999, 0.65 percent on an amount from $500,000 to $999,999 and 0.50
percent on an amount $1,000,000 or more. Fees are paid at the end of each term
on certificates with a one-, two- or three-month term. Fees are paid at the end
of each quarter from date of issuance on certificates with six, twelve,
twenty-four, or thirty-six month terms.
Transfer agent fees
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 January 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 January 1, 1998, AEFC
provided this service to AECC under the investment advisory and services
agreement.
Dividends
In 2001, AECC effectively paid a $167 million dividend to AEFC by transferring
at book value certain CDOs. In part, the dividend was paid to allow AEFC to
transfer the CDOs and related accrued interest into a securitization trust.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES
Income tax (expense) benefit as shown in the Statements of Operations for the
three years ended December 31 consists of:
(Thousands) 2003 2002 2001
- ----------------------------------------------------------------------------------------------------
Federal:
Current $(44,777) $(24,367) $26,007
Deferred 17,804 3,288 9,792
- ----------------------------------------------------------------------------------------------------
(26,973) (21,079) 35,799
State (1,354) (156) (120)
- ----------------------------------------------------------------------------------------------------
Total income tax (expense) benefit $(28,327) $(21,235) $35,679
- ----------------------------------------------------------------------------------------------------
Income tax (expense) benefit differs from that computed by using the federal
statutory rate of 35%. The principal causes of the difference in each year are
shown below:
(Thousands) 2003 2002 2001
- ----------------------------------------------------------------------------------------------------
Federal tax (expense) benefit at federal statutory rate $(28,449) $(23,581) $30,752
Dividend exclusion 998 2,462 4,971
Other, net 478 40 76
- ----------------------------------------------------------------------------------------------------
Federal tax (expense) benefit $(26,973) $(21,079) $35,799
- ----------------------------------------------------------------------------------------------------
Deferred income taxes result from the net tax effects of temporary 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
December 31, were:
(Thousands) 2003 2002
- --------------------------------------------------------------------------------
Deferred tax assets
Certificate reserves $18,454 $ 1,793
Investments 34,425 14,649
Purchased/written call options -- 689
Other, net 140 245
- --------------------------------------------------------------------------------
Total deferred tax assets $53,019 $ 17,376
- --------------------------------------------------------------------------------
Deferred tax liabilities
Investment unrealized gains, net $23,814 $ 44,720
Deferred distribution fees 2,259 2,091
Purchased/written call options 17,501 --
Other, net 124 121
- --------------------------------------------------------------------------------
Total deferred tax liabilities 43,698 46,932
- --------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 9,321 $(29,556)
- --------------------------------------------------------------------------------
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.
Net income taxes paid during the years ended December 31, 2003 and 2002 were
$71.6 million and $22.2 million, respectively.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
9. DERIVATIVE FINANCIAL INSTRUMENTS
AECC maintains an overall risk management strategy that incorporates the use of
derivative instruments to minimize significant unplanned fluctuations in
earnings that are caused by interest rate and equity market volatility. AECC
enters into interest rate swaps to manage interest rate sensitivity and enters
into options and futures contracts to mitigate the negative effect on earnings
that would result from an increase in the equity markets.
AECC is exposed to risk associated with fluctuating interest payments on certain
certificate products tied to the London Interbank Offering Rate (LIBOR) as the
certificate products reset at shorter intervals than the average maturity of the
investment portfolio. AECC's goal is to manage interest rate sensitivity by
modifying the length of the interest crediting rate reset interval on
certificate products so that movements in interest rates do not adversely affect
the interest credited to such certificate products. As a result of interest rate
fluctuations, the amount of interest paid on hedged liabilities will positively
or negatively impact reported earnings. Income or loss on the derivative
instruments that are linked to the hedged liabilities will generally offset the
effect of this impact. AECC views this strategy as a prudent management of
interest rate sensitivity, such that earnings are not exposed to undue risk
presented by changes in interest rates.
AECC uses interest rate swap contracts to hedge the risk of interest rate
fluctuations on a portion of the certificate products. Interest rate swaps
generally involve the exchange of fixed and variable rate interest rate payments
between two parties, based on a common notional principal amount and maturity
date. AECC is required to pay counterparties to the contracts a stream of fixed
interest payments, and in turn, receives a stream of LIBOR-based variable
interest payments.
The interest rate swaps qualify for and are designated as cash flow hedges. The
effective portions of changes in the fair value of the derivatives are recorded
in other comprehensive income. Amounts are reclassified from other comprehensive
income to investment income as interest is credited to certificate reserves. The
fair value of the interest rate swaps are included in accounts payable and
accrued liabilities on the balance sheet.
For the years ended December 31, 2003 and 2002, AECC recognized no losses on the
derivatives as a result of ineffectiveness. AECC reclassified into earnings
pretax losses of ($5.3 million) and ($9.8 million) during 2003 and 2002,
respectively. An estimated ($6 million) of the unrealized losses accumulated in
other comprehensive income related to derivatives designated as cash flow hedges
will be reclassified into earnings by December 31, 2004. This effect will occur
at the same time as AECC realizes the benefits of lower market rates of interest
on its certificates. The longest period of time over which AECC is hedging
exposure to the variability in future cash flows is 14 months.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Effective January 1, 2001, AECC adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended (SFAS No. 133), which establishes the accounting and
reporting standards for derivative instruments and hedging activities. The
adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative after-tax
reduction of $0.4 million and $2.2 million to net income and other comprehensive
income, respectively.
AECC offers American Express Stock Market Certificates ("SMC") that offer a
return based upon the relative change in a major stock market index between the
beginning and end of the SMC's term. The SMC product contains an embedded
derivative, essentially the equity based return of the certificate that must be
separated from the host contract and accounted for as a derivative instrument
per SFAS No. 133. As a result of fluctuations in equity markets, and the
corresponding changes in value of the embedded derivative, the amount of
expenses incurred by AECC related to SMC will positively or negatively impact
reported earnings. As a means of hedging its obligations under the provisions
for these certificates, AECC purchases and writes call options on the major
market index. AECC views this strategy as a prudent management of equity market
sensitivity, such that earnings are not exposed to undue risk presented by
changes in equity market levels.
On the same series of certificates, AECC also purchases futures on the major
market index to economically hedge its obligations. The futures are
marked-to-market daily and exchange traded, exposing AECC to no counterparty
risk.
The options and futures contracts do not receive special hedge accounting under
SFAS No. 133. As such, any changes in the fair value of the contracts are taken
through earnings. The fair values of the purchased and written call options are
included in other qualified assets and accounts payable and accrued liabilities,
respectively, on the balance sheet. The fair value of the embedded derivatives
is reflected in certificate reserves. Gains (losses) on options and futures are
reflected in investment income on the statements of operations. Changes in fair
values of embedded derivative instruments are reflected in provision expense for
certificate product reserves.
By using derivative instruments, AECC is exposed to credit and market risk.
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.
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
manages the market risk associated with interest rate contracts by establishing
and monitoring limits as to the types and degree of risk that may be undertaken.
AECC primarily uses derivatives to manage risk and, therefore, cash flow and
income effects of such derivatives generally offset effects of the underlying
certificate product reserves.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
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 AEFC and other affiliates,
Payable for investment securities purchased and Other accounts payable and
accrued expenses approximate the carrying amounts disclosed in the Balance
Sheets.
A summary of fair values of financial instruments as of December 31, is as
follows:
2003 2002
-----------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Value Value Value Value
- -----------------------------------------------------------------------------------------------------------
Financial assets:
Assets for which carrying values
approximate fair values $ 101,105 $ 101,105 $ 298,870 $ 298,870
Investment securities (Note 3) $4,509,726 $4,509,726 $4,389,396 $4,389,396
First mortgage loans on real estate and
Other loans (Note 4) $ 469,309 $ 493,798 $ 452,243 $ 479,517
Derivative financial instruments (Note 9) $ 153,162 $ 153,162 $ 34,403 $ 34,403
Financial liabilities:
Liabilities for which carrying values
approximate fair values $ 24,444 $ 24,444 $ 315,961 $ 315,961
Net certificate reserves (Note 5) $4,775,518 $4,779,310 $4,475,349 $4,485,288
Derivative financial instruments (Note 9) $ 116,680 $ 116,680 $ 29,579 $ 29,579
- -----------------------------------------------------------------------------------------------------------
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 American Express Client Service Corporation (AECSC)
Withdrawals, transfers, inquiries
(800) 846-4852 TTY Service
For the hearing impaired
* You may experience delays when call volumes are high.
- --------------------------------------------------------------------------------
AMERICAN
EXPRESS
(R)
- --------------------------------------------------------------------------------
American Express Certificate Company
70100 AXP Financial Center
Minneapolis, MN 55474
Web site address:
http://www.americanexpress.com
Distributed by
American Express
Financial Advisors Inc.
Investment Company Act File #811-00002
S-6009 U (4/04)
American Express Stock Market Certificate
Prospectus April 28, 2004
Potential for stock market growth with safety of principal.
- --------------------------------------------------------------------------------
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Certificates
- --------------------------------------------------------------------------------
American Express Certificate Company (the Issuer or AECC) issues American
Express Stock Market Certificates. You may:
o Purchase this certificate in any amount from $1,000 through $2 million on
the date your term starts unless you receive prior approval from the Issuer
to invest more. Additionally, the aggregate amount of your current
investments in American Express Stock Market Certificate may not exceed $24
million (unless you receive prior approval from the Issuer to invest more).
o Participate in any increase of the stock market based on the S&P 500 Index
while protecting your principal, up to a maximum return between 5% and 6%,
for a 52-week term (see page 2p).
o Decide whether the Issuer will guarantee part of your return or whether to
link all of it to the market.
o Keep your certificate for up to 14 successive terms.
Special rates may be offered through some distributions channels. See "Initial
Interest and Participation Rates" on page 2p and "Maximum return" in "Interest"
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 the Issuer. To the extent you
link your interest to the S&P 500 Index, you might earn no interest. 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
Unit 557
70100 AXP Financial Center
Minneapolis, MN 55474
(800) 862-7919 (toll free)
Distributor: American Express Financial Advisors Inc.
Selling Agent: American Express Bank International
Initial Interest and Participation Rates
AECC guarantees return of your principal. The interest on your certificate is
linked to stock market performance as measured by the Standard & Poor's 500
Composite Stock Price Index (S&P 500 Index). See "About the Certificate" for
more explanation.
Here are the interest rates and market participation percentages in effect April
28, 2004:
Maximum return Market participation percentage Minimum interest
5% 100% (full) None
5% 25% (partial) 1%
These rates may or may not have changed when you apply to purchase your
certificate. For your first term, your maximum return will be between 5% and 6%.
However, if you have received a special promotional rate and comply with the
requirements as described in "Maximum return" in "Interest" under "About the
Certificate," then your maximum return for your first term will be between 6%
and 7%. Rates for later terms are set at the discretion of AECC and may differ
from the rates shown here.
RISK FACTORS
You should consider the following when investing in this certificate:
To the extent you link your interest to the S&P 500 Index, you might earn no
interest. If you choose to link all of your return on this certificate to the
S&P 500 Index, you earn interest only if the value of the S&P 500 Index is
higher on the last day of your term than it was on the first day of your term.
See "Interest" under "About the Certificate."
This certificate is backed solely by the assets of the Issuer. 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."
- --------------------------------------------------------------------------------
2p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Table of Contents
Initial Interest and Participation Rates 2p
Risk Factors 2p
About the Certificate 5p
Read and Keep This Prospectus 5p
Investment Amounts 5p
Face Amount and Principal 5p
Certificate Term 6p
Value at Maturity 6p
Receiving Cash Before the End of Term 7p
Interest 7p
Promotions and Pricing Flexibility 11p
Historical Data on the S&P 500 Index 11p
Calculation of Return 14p
About the S&P 500 Index 17p
Opportunities at the End of a Term 18p
How to Invest and Withdraw Funds 19p
Buying Your Certificate 19p
How to Make Investments at Term End 20p
Full and Partial Withdrawals 20p
Transfers to Other Accounts 22p
Two Ways to Request a Withdrawal or Transfer 22p
Two Ways to Receive Payment When You Withdraw Funds 23p
Transfer of Ownership 24p
For More Information 24p
Taxes on Your Earnings 24p
Foreign Investors 24p
How Your Money Is Used and Protected 27p
Invested and Guaranteed by the Issuer 27p
Regulated by Government 27p
Backed by Our Investments 28p
Investment Policies 29p
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 3p
How Your Money Is Managed 32p
Relationship Between the Issuer and
American Express Financial Corporation 32p
Capital Structure and Certificates Issued 33p
Investment Management and Services 33p
Distribution 35p
Selling Agent Agreement
American Express Bank International. 36p
Other Selling Agents 37p
Transfer Agent 37p
Employment of Other
American Express Affiliates 37p
Directors and Officers 38p
Independent Auditors 43p
Appendix 44p
Annual Financial Information 45p
Summary of Selected Financial Information 45p
Management's Discussion and
Analysis of Financial Condition and
Results of Operations 46p
American Express Certificate Company
Responsibility of Management 55p
Report of Ernst & Young LLP Independent Auditors 56p
Financial Statements 58p
Notes to Financial Statements 66p
- --------------------------------------------------------------------------------
4p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
About the Certificate
READ AND KEEP THIS PROSPECTUS
This prospectus describes terms and conditions of your American Express Stock
Market Certificate. It contains facts that can help you decide if the
certificate is the right investment for you. Read the prospectus before you
invest and keep it for future reference. No one has the authority to change the
terms and conditions of the American Express Stock Market Certificate as
described in the prospectus, or to bind the Issuer by any statement not in it.
This prospectus describes the American Express Stock Market Certificate
distributed by American Express Financial Advisors Inc. and is offered to
clients who are neither citizens nor residents of the United States and to
certain U.S. trusts.
INVESTMENT AMOUNTS
You may purchase the American Express Stock Market Certificate in any amount
from $1,000 through $2 million on the date your term starts (unless you receive
prior approval from AECC to invest more) payable in U.S. currency. Additionally,
the aggregate amount of your current investments in American Express Stock
Market Certificate may not exceed $24 million (unless you receive prior approval
from AECC to invest more). You may also make additional lump-sum investments in
any amount at the end of any term as long as on the date your term starts your
investment does not exceed $2 million and the aggregate amount of your current
investments in American Express Stock Market Certificate do not exceed $24
million (unless you receive prior approval from AECC to invest more).
FACE AMOUNT AND PRINCIPAL
The face amount of your certificate is the amount of your initial investment.
Your principal is the value of your certificate at the beginning of each
subsequent term. The Issuer guarantees your principal. It consists of the amount
you actually invest plus interest credited to your account and any additional
investment you make less withdrawals, penalties and any interest paid to you in
cash.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 5p
For example: Assume your initial investment (face amount) of $10,000 has earned
a return of 5.00%. AECC credits interest to your account at the end of the term.
You have not taken any interest as cash, or made any withdrawals. You have
invested an additional $2,500 prior to the beginning of the next term. Your
principal for the next term will equal:
$10,000 Face amount (initial investment)
plus 500 Interest credited to your account at the end of the term
plus 5 Interim interest (See "Interim interest" under "Interest")
minus (0) Interest paid to you in cash
plus 2,500 Additional investment to your certificate
minus (0) Withdrawals and applicable penalties
- --------------------------------------------------------------------------------
$13,005 Principal at the beginning of the next term
================================================================================
CERTIFICATE TERM
Your first certificate term is a 52-week period. It begins on the Wednesday
after AECC accepts your application and ends the Tuesday before the 52-week
anniversary of its acceptance. AECC has complete discretion to determine whether
to accept an application and sell a certificate. For example, if AECC accepts
your application on a Wednesday, your first term would begin the next Wednesday.
Your certificate will earn interest at the interim interest rate then in effect
until the term begins. See "Interim interest" under "Interest." It will not earn
any participation interest until the term begins. If you choose to continue to
receive participation interest, subsequent terms are 52-week periods that begin
on the Wednesday following the 14-day grace period at the end of the prior
52-week term. You may begin your next term on any Wednesday during the 14-day
period by providing prior written instructions to the Issuer. If you choose to
receive fixed interest, subsequent terms will be up to 52 weeks as described in
"Fixed interest" under "Interest" below.
VALUE AT MATURITY
Your certificate matures after 14 terms. Then you will receive a distribution
for its value. Participation terms are always 52 weeks. Fixed interest terms may
be less than 52 weeks if you change to participation before the end of the
52-week period. At maturity, the value of your certificate will be the total of
your actual investments, plus credited interest not paid to you in cash, less
any withdrawals and withdrawal penalties. Certain other fees may apply.
- --------------------------------------------------------------------------------
6p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
RECEIVING CASH BEFORE THE END OF TERM
If you need money before your certificate term ends, you may withdraw part or
all of its value at any time, less any penalties that apply. Procedures for
withdrawing money, as well as conditions under which penalties apply, are
described in "How to Invest and Withdraw Funds."
INTEREST
You choose from two types of participation interest for your first term: 1) full
participation, or 2) partial participation together with minimum interest.
Interest earned under both of these options has an upper limit which is the
maximum annual return explained below. After your first term, you may choose
full or partial participation; or you may choose not to participate in any
market movement and receive a fixed rate of interest.
Full participation interest: With this option:
o you participate 100% in any percentage increase in the S&P 500 Index up to
the maximum return. For the maximum return in effect on the date of this
prospectus, see "Initial Interest and Participation Rates" on page 2p;
o you earn interest only if the value of the S&P 500 Index is higher on the
last day of your term than it was on the first day of your term; and
o your return is linked to stock market performance.
The S&P 500 Index is frequently used to measure the relative performance of the
stock market. For a more detailed discussion of the S&P 500 Index, see "About
the S&P 500 Index."
Partial participation and minimum interest: This option allows you to
participate in a specified part (market participation rate) of any increase in
the S&P 500 Index together with a rate of interest guaranteed by AECC in advance
for each term (minimum interest). Your return consists of two parts:
o a percentage of any increase in the S&P 500 Index, and
o a rate of interest guaranteed by AECC in advance for each term.
Together, they cannot exceed the maximum return. For the maximum return in
effect on the date of this prospectus, see "Initial Interest and Participation
Rates" on page 2p.
The market participation rate and the minimum interest rate on the date of this
prospectus are listed on the inside cover under "Initial Interest and
Participation Rates."
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 7p
Fixed interest: After your first term, this fixed interest option allows you to
stop participating in the market entirely for some period of time. A fixed
interest term is 52 weeks unless you choose to start a new participation term
before your 52 week term ends. You may choose to receive a fixed rate of
interest for any term after the first term. During the term when you are
receiving fixed interest, you can change from your fixed interest selection to
again participate in the market. If you make the change from fixed interest to
participation interest, your next term would begin on the Wednesday following
our receipt of notice of your new selection. In this way, you may have a term
(during which you would earn fixed interest) that is less than 52 weeks. You may
not change from participation interest to fixed interest during a term.
Maximum return: This is the cap, or upper limit, of your return. Your total
return including both participation and minimum interest for a term for which
you have chosen participation interest will be limited to this maximum return
percentage. For the maximum return in effect on the date of this prospectus, see
"Initial Interest and Participation Rates" on page 2p.
However, AECC guarantees that, for persons who have received a special
promotional rate from AECC for purchase of a Stock Market Certificate and have
satisfied all the requirements, the maximum return for the initial term will be
the maximum return for the special promotional rate set out on page 2p. For
example, the promotional rate may require that you make a minimum investment and
that you are not an existing client of AEFC, or another affiliate of AEFC. AECC
or AEFC will select persons to receive the promotional rate 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. The
promotional rates may be offered 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 offer the promotional
rate to active or retired AEFC employees, American Express financial advisors,
their immediate families and any U.S. employee of any affiliated company of
AECC.
- --------------------------------------------------------------------------------
8p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Determining the S&P 500 Index value: The stock market closes at 3 p.m. Central
time. The S&P 500 Index value is available at approximately 4:30 p.m Central
time. This is the value we currently use to determine participation interest.
Occasionally, Standard & Poor's (S&P) makes minor adjustments to the closing
value after 4:30 p.m., and the value we use may not be exactly the one that is
published the next business day. In the future, we may use a later time cut-off
if it becomes feasible to do so. If the stock market is not open or the S&P 500
Index is unavailable as of the last day of your term, the preceding business day
for which a value is available will be used instead. Each Tuesday's closing
value of the S&P 500 Index is used for establishing the term start and the term
end values each week.
Interim interest: When we accept your application, we pay interim interest to
your account for the time before your first term begins. We also pay interim
interest for the 14-day period between terms unless you write or call to ask us
to begin your next term earlier. You may withdraw this interest in cash at any
time before it becomes part of your certificate's principal without a withdrawal
penalty. If it is not withdrawn, the interest will become part of your
certificate's principal at the start of the next succeeding term. For example,
the interest you earn between the end of the first and the beginning of the
second term will become part of the principal at the start of your second term.
Interim interest rates for the time before your first term begins will be within
a range 50 basis points (.50%) below to 50 basis points (.50%) above the average
interest rate published for 12-month certificates of deposit (CDs) in the BANK
RATE MONITOR(R) (BRM), Top 25 Market Average(R). BANK RATE MONITOR and National
Index are marks owned by BANKRATE.COMSM, a publication of Bankrate, Inc., N.
Palm Beach, FL 33408. If the BRM Average is no longer publicly available or
feasible to use, AECC may use another, similar index as a guide for setting
rates.
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 has
no connection with the Issuer, AEFC or any of their affiliates.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 9p
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 Average are government insured fixed-rate time deposits.
The BRM may be available in your local library. To obtain information or current
BRM Average rates, call American Express Client Service Corporation (AECSC) in
Minneapolis at the telephone numbers listed on the back cover.
Earning interest: AECC calculates, credits and compounds participation interest
at the end of your certificate term. Minimum interest accrues daily and is
credited and compounded at the end of your certificate term. Fixed interest
accrues and is credited daily and compounds at the end of your term. Both
minimum and fixed interest are calculated on a 30-day month and 360-day year
basis. Interim interest accrues and is credited daily and compounds at the end
of your term immediately following the period in which interim interest is
credited.
Rates for future periods: After the initial term, the maximum return, market
participation percentage or minimum interest rate on your certificate may be
greater or less than those shown on the front of this prospectus. We review
rates weekly, and have complete discretion to decide what interest rate will be
declared.
To find out what your certificate's new maximum return, market participation
percentage and minimum interest rate will be for your next term, please consult:
o Your relationship manager.
o AECSC in Minneapolis at the telephone numbers listed on the back cover.
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 AECSC in Minneapolis at the telephone numbers listed
on the back cover.
- --------------------------------------------------------------------------------
10p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
PROMOTIONS AND PRICING FLEXIBILITY
The Issuer 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 purchase or use products or
services offered by American Express Company, or its affiliates. These
promotions will generally be for a specified period of time. We also may offer
different rates based on your amount invested. These rates will be within a
range described in "Rates for New Purchases."
HISTORICAL DATA ON THE S&P 500 INDEX
The following chart illustrates the month-end closing values of the Index from
Dec. 31, 1984 through Feb. 27, 2004. The values of the S&P 500 Index are
reprinted with the permission of S&P.
S&P 500 Index Values - December 1984 to February 2004
(line graph)
S&P 500
Index
Date Value
Dec-84 167.24
Jan-85 179.63
Feb-85 181.18
Mar-85 180.66
Apr-85 179.83
May-85 189.55
Jun-85 191.85
Jul-85 190.92
Aug-85 188.63
Sep-85 182.08
Oct-85 189.82
Nov-85 202.17
Dec-85 211.28
Jan-86 211.78
Feb-86 226.92
Mar-86 238.90
Apr-86 235.52
May-86 247.35
Jun-86 250.84
Jul-86 236.12
Aug-86 252.93
Sep-86 231.32
Oct-86 243.98
Nov-86 249.22
Dec-86 242.17
Jan-87 274.08
Feb-87 284.20
Mar-87 291.70
Apr-87 288.36
May-87 290.10
Jun-87 304.00
Jul-87 318.66
Aug-87 329.80
Sep-87 321.83
Oct-87 251.79
Nov-87 230.30
Dec-87 247.08
Jan-88 257.07
Feb-88 267.82
Mar-88 258.89
Apr-88 261.33
May-88 262.16
Jun-88 273.50
Jul-88 272.02
Aug-88 261.52
Sep-88 271.91
Oct-88 278.97
Nov-88 273.70
Dec-88 277.72
Jan-89 297.47
Feb-89 288.86
Mar-89 294.87
Apr-89 309.64
May-89 320.52
Jun-89 317.98
Jul-89 346.08
Aug-89 351.45
Sep-89 349.15
Oct-89 340.36
Nov-89 345.99
Dec-89 353.40
Jan-90 329.08
Feb-90 331.89
Mar-90 339.94
Apr-90 330.80
May-90 361.23
Jun-90 358.02
Jul-90 356.15
Aug-90 322.56
Sep-90 306.05
Oct-90 304.00
Nov-90 322.22
Dec-90 330.22
Jan-91 343.93
Feb-91 367.07
Mar-91 375.22
Apr-91 375.35
May-91 389.83
Jun-91 371.16
Jul-91 387.81
Aug-91 395.43
Sep-91 387.86
Oct-91 392.46
Nov-91 375.22
Dec-91 417.09
Jan-92 408.79
Feb-92 412.70
Mar-92 403.69
Apr-92 414.95
May-92 415.35
Jun-92 408.14
Jul-92 424.21
Aug-92 414.03
Sep-92 417.80
Oct-92 418.67
Nov-92 431.35
Dec-92 435.71
Jan-93 438.78
Feb-93 443.38
Mar-93 451.67
Apr-93 440.19
May-93 450.21
Jun-93 450.53
Jul-93 448.13
Aug-93 463.56
Sep-93 458.93
Oct-93 467.83
Nov-93 461.79
Dec-93 466.50
Jan-94 481.61
Feb-94 467.14
Mar-94 445.77
Apr-94 450.91
May-94 456.51
Jun-94 444.27
Jul-94 458.25
Aug-94 475.50
Sep-94 462.71
Oct-94 472.35
Nov-94 453.69
Dec-94 459.27
Jan-95 470.42
Feb-95 487.39
Mar-95 500.71
Apr-95 514.71
May-95 533.41
Jun-95 544.75
Jul-95 562.06
Aug-95 561.88
Sep-95 584.41
Oct-95 581.50
Nov-95 605.37
Dec-95 615.93
Jan-96 636.02
Feb-96 640.44
Mar-96 645.50
Apr-96 654.18
May-96 669.14
Jun-96 670.63
Jul-96 639.95
Aug-96 651.99
Sep-96 687.33
Oct-96 705.27
Nov-96 757.02
Dec-96 740.74
Jan-97 786.16
Feb-97 790.82
Mar-97 757.41
Apr-97 801.34
May-97 848.28
Jun-97 885.76
Jul-97 954.31
Aug-97 899.48
Sep-97 947.28
Oct-97 914.62
Nov-97 955.40
Dec-97 970.43
Jan-98 980.28
Feb-98 1049.34
Mar-98 1101.76
Apr-98 1111.77
May-98 1090.82
Jun-98 1133.84
Jul-98 1120.73
Aug-98 957.68
Sep-98 1017.07
Oct-98 1098.69
Nov-98 1163.74
Dec-98 1230.59
Jan-99 1279.28
Feb-99 1238.33
Mar-99 1286.39
Apr-99 1335.18
May-99 1301.85
Jun-99 1371.65
Jul-99 1328.71
Aug-99 1320.35
Sep-99 1282.72
Oct-99 1363.17
Nov-99 1388.95
Dec-99 1469.25
Jan-00 1394.46
Feb-00 1366.41
Mar-00 1507.78
Apr-00 1452.43
May-00 1420.65
Jun-00 1454.6
Jul-00 1430.84
Aug-00 1517.68
Sep-00 1436.48
Oct-00 1429.4
Nov-00 1314.95
Dec-00 1320.28
Jan-01 1366.01
Feb-01 1239.94
Mar-01 1160.34
Apr-01 1249.48
May-01 1255.82
Jun-01 1224.38
Jul-01 1211.23
Aug-01 1133.58
Sep-01 1040.94
Oct-01 1059.78
Nov-01 1139.45
Dec-01 1148.08
Jan-02 1130.2
Feb-02 1106.74
Mar-02 1147.39
Apr-02 1076.92
May-02 1067.14
Jun-02 989.82
Jul-02 911.62
Aug-02 916.07
Sep-02 815.28
Oct-02 885.76
Nov-02 936.31
Dec-02 879.82
Jan-03 855.7
Feb-03 841.15
Mar-03 848.18
Apr-03 916.92
May-03 963.59
Jun-03 974.51
Jul-03 990.31
Aug-03 1008.01
Sep-03 995.97
Oct-03 1050.71
Nov-03 1058.2
Dec-03 1111.92
Jan-04 1131.13
Feb-04 1144.94
S&P 500 Index Average Annual Return
Beginning date Period held Average annual
Dec. 31, in years return
1993 10 9.1%
1998 5 -2.0%
2002 1 26.4%
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 11p
The next chart illustrates, on a moving 52-week basis, the price return of the
S&P 500 Index measured for every 52-week period beginning with the period ended
Dec. 31, 1985. The price return is the percentage return for each period using
month-end closing prices of the S&P 500 Index. Dividends and other distributions
on the securities comprising the S&P 500 Index are not included in calculating
the price return.
S&P 500 Index - December 1985 to February 2004
52-Week Moving Price Return
(line graph)
S&P 500
12 Mth
Date Return
Dec-85 26.33%
Jan-86 17.90%
Feb-86 25.25%
Mar-86 32.24%
Apr-86 30.97%
May-86 30.49%
Jun-86 30.75%
Jul-86 23.67%
Aug-86 34.09%
Sep-86 27.04%
Oct-86 28.53%
Nov-86 23.27%
Dec-86 14.62%
Jan-87 29.42%
Feb-87 25.24%
Mar-87 22.10%
Apr-87 22.44%
May-87 17.28%
Jun-87 21.19%
Jul-87 34.96%
Aug-87 30.39%
Sep-87 39.13%
Oct-87 3.20%
Nov-87 -7.59%
Dec-87 2.03%
Jan-88 -6.21%
Feb-88 -5.76%
Mar-88 -11.25%
Apr-88 -9.37%
May-88 -9.63%
Jun-88 -10.03%
Jul-88 -14.64%
Aug-88 -20.70%
Sep-88 -15.51%
Oct-88 10.79%
Nov-88 18.84%
Dec-88 12.40%
Jan-89 15.72%
Feb-89 7.86%
Mar-89 13.90%
Apr-89 18.49%
May-89 22.26%
Jun-89 16.26%
Jul-89 27.23%
Aug-89 34.39%
Sep-89 28.41%
Oct-89 22.01%
Nov-89 26.41%
Dec-89 27.25%
Jan-90 10.63%
Feb-90 14.90%
Mar-90 15.28%
Apr-90 6.83%
May-90 12.70%
Jun-90 12.59%
Jul-90 2.91%
Aug-90 -8.22%
Sep-90 -12.34%
Oct-90 -10.68%
Nov-90 -6.87%
Dec-90 -6.56%
Jan-91 4.51%
Feb-91 10.60%
Mar-91 10.38%
Apr-91 13.47%
May-91 7.92%
Jun-91 3.67%
Jul-91 8.89%
Aug-91 22.59%
Sep-91 26.73%
Oct-91 29.10%
Nov-91 16.45%
Dec-91 26.31%
Jan-92 18.86%
Feb-92 12.43%
Mar-92 7.59%
Apr-92 10.55%
May-92 6.55%
Jun-92 9.96%
Jul-92 9.39%
Aug-92 4.70%
Sep-92 7.72%
Oct-92 6.68%
Nov-92 14.96%
Dec-92 4.46%
Jan-93 7.34%
Feb-93 7.43%
Mar-93 11.89%
Apr-93 6.08%
May-93 8.39%
Jun-93 10.39%
Jul-93 5.64%
Aug-93 11.96%
Sep-93 9.84%
Oct-93 11.74%
Nov-93 7.06%
Dec-93 7.07%
Jan-94 9.76%
Feb-94 5.36%
Mar-94 -1.31%
Apr-94 2.44%
May-94 1.40%
Jun-94 -1.39%
Jul-94 2.26%
Aug-94 2.58%
Sep-94 0.82%
Oct-94 0.97%
Nov-94 -1.75%
Dec-94 -1.55%
Jan-95 -2.32%
Feb-95 4.33%
Mar-95 12.32%
Apr-95 14.15%
May-95 16.85%
Jun-95 22.62%
Jul-95 22.65%
Aug-95 18.17%
Sep-95 26.30%
Oct-95 23.11%
Nov-95 33.43%
Dec-95 34.11%
Jan-96 35.20%
Feb-96 31.40%
Mar-96 28.92%
Apr-96 27.10%
May-96 25.45%
Jun-96 23.11%
Jul-96 13.86%
Aug-96 16.04%
Sep-96 17.61%
Oct-96 21.28%
Nov-96 25.05%
Dec-96 20.26%
Jan-97 23.61%
Feb-97 23.48%
Mar-97 17.34%
Apr-97 22.50%
May-97 26.77%
Jun-97 32.08%
Jul-97 49.12%
Aug-97 37.96%
Sep-97 37.82%
Oct-97 29.68%
Nov-97 26.21%
Dec-97 31.01%
Jan-98 24.69%
Feb-98 32.69%
Mar-98 45.46%
Apr-98 38.74%
May-98 28.59%
Jun-98 28.01%
Jul-98 17.44%
Aug-98 6.47%
Sep-98 7.37%
Oct-98 20.13%
Nov-98 21.81%
Dec-98 26.81%
Jan-99 30.50%
Feb-99 18.01%
Mar-99 16.76%
Apr-99 20.09%
May-99 19.35%
Jun-99 20.97%
Jul-99 18.56%
Aug-99 37.87%
Sep-99 26.12%
Oct-99 24.07%
Nov-99 19.35%
Dec-99 19.39%
Jan-00 9.00%
Feb-00 10.34%
Mar-00 17.21%
Apr-00 8.78%
May-00 9.13%
Jun-00 6.05%
Jul-00 7.69%
Aug-00 14.95%
Sep-00 11.99%
Oct-00 4.86%
Nov-00 -5.33%
Dec-00 -10.14%
Jan-01 -2.04%
Feb-01 -9.26%
Mar-01 -23.04%
Apr-01 -13.97%
May-01 -11.60%
Jun-01 -15.83%
Jul-01 -15.35%
Aug-01 -25.31%
Sep-01 -27.54%
Oct-01 -25.86%
Nov-01 -13.35%
Dec-01 -13.04%
Jan-02 -17.26%
Feb-02 -10.74%
Mar-02 -1.12%
Apr-02 -13.81%
May-02 -15.02%
Jun-02 -19.16%
Jul-02 -24.74%
Aug-02 -19.19%
Sep-02 -21.68%
Oct-02 -16.42%
Nov-02 -17.83%
Dec-02 -23.37%
Jan-03 -24.29%
Feb-03 -24.00%
Mar-03 -26.08%
Apr-03 -14.86%
May-03 -9.70%
Jun-03 -1.55%
Jul-03 8.63%
Aug-03 10.04%
Sep-03 22.16%
Oct-03 18.62%
Nov-03 13.02%
Dec-03 26.38%
Jan-04 32.19%
Feb-04 36.12%
Using the same dates and data on price returns described above, the next graph
expands on the information in the preceding chart by illustrating the number of
weeks when the 52-week price return was in the range specified under each
column. For example, the most common 52-week return during this time period was
in the 10% range.
S&P 500 Index - December 1985 to February 2004
Distribution of 52-Week Moving Price Returns
(bar graph)
Occurrences
-15 20
-10 13
-5 11
0 8
5 15
10 28
15 26
20 23
25 24
29.9 26
>=30 25
- --------------------------------------------------------------------------------
12p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
The last chart illustrates, on a moving weekly basis, the actual 52-week return
of the Stock Market Certificate at full and partial participation compared to
the price return of the S&P 500 Index.
The chart reflects the returns payable each week by AECC on any participation
terms ending that week. There may be weeks in which no investor actually ends a
participation term.
Actual 52-Week Return - 1/2/96 to 2/24/04
Stock Market
Stock Market Certificate
Market Certificate 25% Participation
Date Index 100% Participation + Minimum Rate
2-Jan-96 35.20% 10.00% 10.00%
9-Jan-96 32.00% 10.00% 10.00%
16-Jan-96 29.44% 10.00% 10.00%
23-Jan-96 31.53% 10.00% 10.00%
30-Jan-96 33.95% 10.00% 10.00%
6-Feb-96 34.42% 10.00% 10.00%
13-Feb-96 36.88% 10.00% 10.00%
20-Feb-96 32.71% 10.00% 10.00%
27-Feb-96 32.79% 10.00% 10.00%
5-Mar-96 36.02% 10.00% 10.00%
12-Mar-96 29.25% 10.00% 10.00%
19-Mar-96 31.63% 10.00% 10.00%
26-Mar-96 29.58% 10.00% 10.00%
2-Apr-96 29.68% 10.00% 10.00%
9-Apr-96 27.03% 10.00% 9.50%
16-Apr-96 27.63% 10.00% 9.65%
23-Apr-96 27.22% 10.00% 9.55%
30-Apr-96 27.05% 12.00% 10.26%
7-May-96 21.90% 12.00% 8.97%
14-May-96 26.01% 12.00% 10.00%
21-May-96 27.27% 12.00% 10.31%
28-May-96 28.39% 12.00% 10.59%
4-Jun-96 25.58% 12.00% 9.89%
11-Jun-96 25.16% 12.00% 9.79%
18-Jun-96 21.48% 12.00% 8.87%
25-Jun-96 23.23% 12.00% 9.30%
2-Jul-96 23.12% 12.00% 9.28%
9-Jul-96 18.01% 12.00% 8.00%
16-Jul-96 12.52% 12.00% 6.63%
23-Jul-96 11.72% 11.72% 6.43%
30-Jul-96 13.51% 12.00% 6.87%
6-Aug-96 18.19% 12.00% 8.04%
13-Aug-96 18.19% 12.00% 8.04%
20-Aug-96 18.98% 12.00% 8.24%
27-Aug-96 18.99% 12.00% 8.24%
3-Sep-96 15.03% 12.00% 7.25%
10-Sep-96 15.14% 12.00% 7.28%
17-Sep-96 16.90% 12.00% 7.72%
24-Sep-96 17.92% 12.00% 7.98%
1-Oct-96 18.32% 12.00% 8.08%
8-Oct-96 21.31% 12.00% 8.82%
15-Oct-96 19.73% 12.00% 8.43%
22-Oct-96 20.46% 12.00% 8.61%
29-Oct-96 20.63% 12.00% 8.65%
5-Nov-96 21.80% 12.00% 8.95%
12-Nov-96 23.80% 12.00% 9.45%
19-Nov-96 23.64% 12.00% 9.41%
26-Nov-96 24.65% 12.00% 9.66%
3-Dec-96 21.14% 12.00% 8.78%
10-Dec-96 20.80% 12.00% 8.70%
17-Dec-96 18.64% 12.00% 8.16%
24-Dec-96 22.25% 12.00% 9.06%
31-Dec-96 19.33% 12.00% 8.33%
7-Jan-97 23.59% 12.00% 9.39%
14-Jan-97 26.36% 12.00% 10.09%
21-Jan-97 27.73% 10.00% 10.00%
28-Jan-97 21.40% 10.00% 8.60%
4-Feb-97 22.11% 10.00% 8.77%
11-Feb-97 19.53% 10.00% 8.13%
18-Feb-97 27.41% 10.00% 10.00%
25-Feb-97 25.46% 10.00% 9.61%
4-Mar-97 20.60% 10.00% 8.40%
11-Mar-97 27.35% 10.00% 10.00%
18-Mar-97 21.17% 10.00% 8.54%
25-Mar-97 20.84% 10.00% 8.46%
1-Apr-97 15.92% 10.00% 7.23%
8-Apr-97 19.29% 10.00% 8.07%
15-Apr-97 17.01% 10.00% 7.50%
22-Apr-97 18.87% 10.00% 7.96%
29-Apr-97 21.38% 10.00% 8.59%
6-May-97 29.69% 10.00% 10.00%
13-May-97 25.16% 10.00% 9.54%
20-May-97 25.10% 10.00% 9.52%
27-May-97 26.39% 10.00% 9.84%
3-Jun-97 25.70% 10.00% 9.67%
10-Jun-97 28.95% 10.00% 10.00%
17-Jun-97 35.09% 10.00% 10.00%
24-Jun-97 34.08% 10.00% 10.00%
1-Jul-97 32.27% 10.00% 10.00%
8-Jul-97 40.32% 10.00% 10.00%
15-Jul-97 47.32% 10.00% 10.00%
22-Jul-97 48.97% 10.00% 10.00%
29-Jul-97 48.33% 10.00% 10.00%
5-Aug-97 43.78% 10.00% 10.00%
12-Aug-97 40.34% 10.00% 10.00%
19-Aug-97 39.09% 10.00% 10.00%
26-Aug-97 37.00% 10.00% 10.00%
2-Sep-97 41.67% 10.00% 10.00%
9-Sep-97 40.64% 10.00% 10.00%
16-Sep-97 38.46% 10.00% 10.00%
23-Sep-97 38.84% 10.00% 10.00%
30-Sep-97 37.47% 10.00% 10.00%
7-Oct-97 40.31% 10.00% 10.00%
14-Oct-97 38.10% 10.00% 10.00%
21-Oct-97 37.60% 10.00% 10.00%
28-Oct-97 31.41% 10.00% 10.00%
4-Nov-97 31.73% 10.00% 10.00%
11-Nov-97 26.62% 10.00% 9.90%
18-Nov-97 26.41% 10.00% 9.85%
25-Nov-97 25.77% 10.00% 9.69%
2-Dec-97 29.85% 10.00% 10.00%
9-Dec-97 30.53% 10.00% 10.00%
16-Dec-97 33.33% 10.00% 10.00%
23-Dec-97 25.04% 10.00% 9.51%
30-Dec-97 31.06% 10.00% 10.00%
6-Jan-98 28.32% 10.00% 10.00%
13-Jan-98 23.83% 10.00% 9.20%
20-Jan-98 25.02% 10.00% 9.50%
27-Jan-98 26.66% 10.00% 9.91%
3-Feb-98 27.45% 10.00% 10.00%
10-Feb-98 29.06% 10.00% 10.00%
17-Feb-98 25.29% 10.00% 9.57%
24-Feb-98 26.90% 10.00% 9.97%
3-Mar-98 33.01% 10.00% 10.00%
10-Mar-98 31.17% 10.00% 10.00%
17-Mar-98 36.82% 10.00% 10.00%
24-Mar-98 40.12% 10.00% 10.00%
31-Mar-98 45.03% 10.00% 10.00%
7-Apr-98 44.82% 10.00% 10.00%
14-Apr-98 47.83% 10.00% 10.00%
21-Apr-98 45.41% 10.00% 10.00%
28-Apr-98 36.65% 10.00% 10.00%
5-May-98 34.77% 10.00% 10.00%
12-May-98 33.92% 10.00% 10.00%
19-May-98 31.82% 10.00% 10.00%
26-May-98 28.75% 10.00% 9.93%
2-Jun-98 29.30% 10.00% 10.00%
9-Jun-98 29.25% 10.00% 10.00%
16-Jun-98 21.58% 10.00% 8.14%
23-Jun-98 24.89% 10.00% 8.97%
30-Jun-98 27.25% 10.00% 9.56%
7-Jul-98 25.67% 10.00% 9.16%
14-Jul-98 27.20% 10.00% 9.55%
21-Jul-98 24.75% 10.00% 8.93%
28-Jul-98 19.93% 10.00% 7.73%
4-Aug-98 12.57% 10.00% 5.89%
11-Aug-98 15.37% 10.00% 6.59%
18-Aug-98 18.91% 10.00% 7.47%
25-Aug-98 19.69% 10.00% 7.67%
1-Sep-98 7.18% 7.18% 4.54%
8-Sep-98 9.62% 9.62% 5.15%
15-Sep-98 9.72% 9.72% 5.18%
22-Sep-98 8.16% 8.16% 4.79%
29-Sep-98 10.74% 10.00% 5.43%
6-Oct-98 0.15% 0.15% 2.78%
13-Oct-98 2.53% 2.53% 3.13%
20-Oct-98 9.42% 9.42% 4.85%
27-Oct-98 15.56% 10.00% 6.39%
3-Nov-98 18.08% 10.00% 7.02%
10-Nov-98 22.13% 10.00% 8.03%
17-Nov-98 21.43% 10.00% 7.85%
24-Nov-98 24.41% 10.00% 8.60%
1-Dec-98 20.95% 10.00% 7.73%
8-Dec-98 21.07% 10.00% 7.76%
15-Dec-98 20.11% 10.00% 7.52%
22-Dec-98 28.15% 10.00% 9.53%
29-Dec-98 27.90% 10.00% 9.47%
5-Jan-99 28.78% 10.00% 9.69%
12-Jan-99 30.18% 10.00% 10.00%
19-Jan-99 27.93% 10.00% 9.48%
26-Jan-99 29.22% 10.00% 9.80%
2-Feb-99 25.44% 10.00% 8.86%
9-Feb-99 19.34% 10.00% 7.33%
16-Feb-99 21.42% 10.00% 7.85%
23-Feb-99 23.34% 10.00% 8.33%
2-Mar-99 16.49% 10.00% 6.62%
9-Mar-99 20.25% 10.00% 7.56%
16-Mar-99 20.90% 10.00% 7.72%
23-Mar-99 14.15% 10.00% 6.03%
30-Mar-99 18.06% 10.00% 7.01%
6-Apr-99 18.77% 10.00% 7.19%
13-Apr-99 20.97% 10.00% 7.74%
20-Apr-99 15.96% 10.00% 6.49%
27-Apr-99 25.59% 10.00% 8.89%
4-May-99 19.39% 10.00% 7.34%
11-May-99 21.49% 10.00% 7.87%
18-May-99 20.17% 10.00% 7.54%
25-May-99 17.40% 10.00% 6.85%
1-Jun-99 18.39% 10.00% 7.09%
8-Jun-99 17.79% 10.00% 6.94%
15-Jun-99 19.64% 10.00% 7.41%
22-Jun-99 19.32% 10.00% 7.33%
29-Jun-99 19.18% 10.00% 7.29%
6-Jul-99 20.21% 10.00% 7.55%
13-Jul-99 18.33% 10.00% 7.08%
20-Jul-99 18.19% 10.00% 7.04%
27-Jul-99 20.59% 10.00% 7.64%
3-Aug-99 23.31% 10.00% 8.32%
10-Aug-99 19.87% 10.00% 7.46%
17-Aug-99 22.06% 10.00% 8.01%
24-Aug-99 24.76% 10.00% 8.69%
31-Aug-99 32.79% 10.00% 10.00%
7-Sep-99 31.94% 10.00% 10.00%
14-Sep-99 28.77% 10.00% 9.69%
21-Sep-99 26.99% 10.00% 9.24%
28-Sep-99 22.22% 10.00% 8.05%
5-Oct-99 32.17% 10.00% 10.00%
12-Oct-99 31.98% 10.00% 10.00%
19-Oct-99 18.55% 10.00% 7.13%
26-Oct-99 20.32% 10.00% 7.58%
2-Nov-99 21.32% 10.00% 7.83%
9-Nov-99 21.01% 10.00% 7.75%
16-Nov-99 24.63% 10.00% 8.65%
23-Nov-99 18.73% 10.00% 7.18%
30-Nov-99 18.17% 10.00% 7.04%
7-Dec-99 19.28% 10.00% 7.32%
14-Dec-99 20.68% 10.00% 7.67%
21-Dec-99 19.09% 9.00% 7.27%
28-Dec-99 17.38% 9.00% 6.84%
4-Jan-00 12.42% 9.00% 5.60%
11-Jan-00 16.05% 9.00% 6.51%
18-Jan-00 16.22% 9.00% 6.55%
25-Jan-00 12.59% 9.00% 5.64%
1-Feb-00 11.66% 9.00% 5.41%
8-Feb-00 18.52% 9.00% 7.13%
15-Feb-00 12.89% 9.00% 5.72%
22-Feb-00 6.37% 6.37% 4.09%
29-Feb-00 11.49% 9.00% 5.37%
7-Mar-00 5.92% 5.92% 3.98%
14-Mar-00 4.04% 4.04% 3.51%
21-Mar-00 18.35% 9.00% 7.08%
28-Mar-00 15.91% 9.00% 6.47%
4-Apr-00 13.41% 9.00% 5.85%
11-Apr-00 11.17% 9.00% 5.29%
18-Apr-00 10.35% 9.00% 5.08%
25-Apr-00 8.42% 8.42% 4.60%
2-May-00 8.57% 8.57% 4.64%
9-May-00 4.17% 4.17% 3.54%
16-May-00 9.95% 9.00% 4.98%
23-May-00 6.96% 6.96% 4.24%
30-May-00 9.89% 9.00% 4.97%
6-Jun-00 10.66% 9.00% 5.16%
13-Jun-00 12.93% 9.00% 5.73%
20-Jun-00 10.51% 9.00% 5.12%
27-Jun-00 7.33% 7.33% 4.33%
4-Jul-00 5.84% 5.84% 3.96%
11-Jul-00 6.26% 6.26% 4.06%
18-Jul-00 8.46% 8.46% 4.61%
25-Jul-00 8.18% 8.18% 4.54%
1-Aug-00 8.76% 8.76% 4.69%
8-Aug-00 15.71% 9.00% 6.42%
15-Aug-00 10.43% 9.00% 5.10%
22-Aug-00 9.87% 9.00% 4.96%
29-Aug-00 14.35% 9.00% 6.08%
5-Sep-00 11.59% 9.00% 5.39%
12-Sep-00 10.90% 9.00% 5.22%
19-Sep-00 11.64% 9.00% 5.41%
26-Sep-00 11.31% 9.00% 5.32%
3-Oct-00 9.58% 9.00% 4.89%
10-Oct-00 5.55% 5.55% 3.88%
17-Oct-00 7.02% 7.02% 4.25%
24-Oct-00 9.06% 9.00% 4.76%
31-Oct-00 6.05% 6.05% 4.01%
7-Nov-00 4.87% 4.87% 3.71%
14-Nov-00 -2.61% 0.00% 2.50%
21-Nov-00 -4.08% 0.00% 2.50%
28-Nov-00 -3.80% 0.00% 2.50%
5-Dec-00 -2.31% 0.00% 2.50%
12-Dec-00 -2.29% 0.00% 2.50%
19-Dec-00 -8.91% 0.00% 2.50%
26-Dec-00 -9.77% 0.00% 2.50%
2-Jan-01 -8.29% 0.00% 2.50%
9-Jan-01 -9.57% 0.00% 2.50%
16-Jan-01 -8.83% 0.00% 2.50%
23-Jan-01 -3.52% 0.00% 2.50%
30-Jan-01 -2.51% 0.00% 2.50%
6-Feb-01 -6.18% 0.00% 2.50%
13-Feb-01 -5.93% 0.00% 2.50%
20-Feb-01 -5.41% 0.00% 2.50%
27-Feb-01 -7.93% 0.00% 2.50%
6-Mar-01 -7.51% 0.00% 2.50%
13-Mar-01 -11.88% 0.00% 2.50%
20-Mar-01 -23.51% 0.00% 2.50%
27-Mar-01 -21.59% 0.00% 2.50%
04/03/01 -25.97% 0.00% 2.50%
04/10/01 -22.13% 0.00% 2.50%
04/17/01 -17.32% 0.00% 2.50%
04/24/01 -18.14% 0.00% 2.50%
05/01/01 -12.43% 0.00% 2.50%
5/8/01 -10.68% 0.00% 2.50%
5/15/01 -14.77% 0.00% 2.50%
5/22/01 -4.69% 0.00% 2.50%
5/29/01 -10.86% 0.00% 2.50%
6/5/01 -11.95% 0.00% 2.50%
6/12/01 -14.53% 0.00% 2.50%
6/19/01 -17.86% 0.00% 2.75%
6/26/01 -16.11% 0.00% 2.75%
7/3/01 -15.98% 0.00% 2.75%
7/10/01 -20.21% 0.00% 2.75%
7/17/01 -18.69% 0.00% 2.75%
7/24/01 -20.53% 0.00% 2.75%
7/31/01 -15.77% 0.00% 2.75%
8/7/01 -19.70% 0.00% 2.75%
8/14/01 -20.05% 0.00% 2.75%
8/21/01 -22.75% 0.00% 2.75%
8/28/01 -23.07% 0.00% 2.75%
9/4/01 -24.82% 0.00% 2.75%
9/11/01 -26.27% 0.00% 2.75%
9/18/01 -29.25% 0.00% 2.75%
9/25/01 -29.08% 0.00% 2.75%
10/2/01 -26.28% 0.00% 2.75%
10/9/01 -23.75% 0.00% 2.75%
10/16/01 -18.69% 0.00% 2.75%
10/23/01 -22.41% 0.00% 2.75%
10/30/01 -25.85% 0.00% 2.75%
11/6/01 -21.86% 0.00% 2.75%
11/13/01 -17.63% 0.00% 2.75%
11/20/01 -15.19% 0.00% 2.75%
11/27/01 -13.96% 0.00% 2.75%
12/4/01 -16.83% 0.00% 2.75%
12/11/01 -17.09% 0.00% 2.75%
12/18/01 -12.46% 0.00% 2.75%
12/25/01 -12.96% 0.00% 2.75%
1/1/02 -10.53% 0.00% 2.75%
1/8/02 -10.81% 0.00% 2.75%
1/15/02 -13.60% 0.00% 2.75%
1/22/02 -17.72% 0.00% 2.75%
1/29/02 -19.87% 0.00% 2.75%
2/5/02 -19.39% 0.00% 2.50%
2/12/02 -16.02% 0.00% 2.50%
2/19/02 -15.29% 0.00% 2.50%
2/26/02 -11.80% 0.00% 2.50%
3/5/02 -8.58% 0.00% 2.50%
3/12/02 -2.67% 0.00% 2.50%
3/19/02 2.42% 2.42% 3.10%
3/26/02 -3.69% 0.00% 2.50%
4/2/02 2.73% 2.73% 3.18%
4/9/02 -4.32% 0.00% 2.50%
4/16/02 -5.32% 0.00% 2.50%
4/23/02 -8.97% 0.00% 2.50%
4/30/02 -14.96% 0.00% 2.50%
5/7/02 -16.78% 0.00% 2.50%
5/14/02 -12.17% 0.00% 2.50%
5/21/02 -17.52% 0.00% 2.50%
5/28/02 -15.25% 0.00% 2.50%
6/4/02 -18.92% 0.00% 2.50%
6/11/02 -19.28% 0.00% 2.50%
6/18/02 -14.47% 0.00% 2.50%
6/25/02 -19.77% 0.00% 2.50%
7/2/02 -23.19% 0.00% 2.50%
7/9/02 -19.35% 0.00% 2.50%
7/16/02 -25.81% 0.00% 2.50%
7/23/02 -31.91% 0.00% 2.50%
7/30/02 -25.46% 0.00% 2.50%
8/6/02 -27.80% 0.00% 2.50%
8/13/02 -25.49% 0.00% 2.50%
8/20/02 -18.99% 0.00% 2.50%
8/27/02 -19.51% 0.00% 2.50%
9/3/02 -22.50% 0.00% 2.50%
9/10/02 -16.74% 0.00% 2.50%
9/17/02 -15.41% 0.00% 2.50%
9/24/02 -19.06% 0.00% 2.50%
10/1/02 -19.34% 0.00% 2.50%
10/8/02 -24.43% 0.00% 2.50%
10/15/02 -19.70% 0.00% 2.50%
10/22/02 -17.94% 0.00% 2.50%
10/29/02 -16.76% 0.00% 2.50%
11/5/02 -18.18% 0.00% 2.00%
11/12/02 -22.48% 0.00% 2.00%
11/19/02 -21.52% 0.00% 2.00%
11/26/02 -20.54% 0.00% 1.00%
12/3/02 -19.57% 0.00% 1.00%
12/10/02 -20.43% 0.00% 1.00%
12/17/02 -20.99% 0.00% 1.00%
12/24/02 -22.03% 0.00% 1.00%
12/31/02 -23.36% 0.00% 1.00%
1/7/03 -20.44% 0.00% 1.00%
1/14/03 -18.71% 0.00% 1.00%
1/21/03 -20.69% 0.00% 1.00%
1/28/03 -21.99% 0.00% 1.00%
2/4/03 -22.18% 0.00% 1.00%
2/11/03 -25.12% 0.00% 1.00%
2/18/03 -21.43% 0.00% 1.00%
2/25/03 -24.41% 0.00% 1.00%
3/4/03 -28.28% 0.00% 1.00%
3/11/03 -31.30% 0.00% 1.00%
3/18/03 -25.96% 0.00% 1.00%
3/25/03 -23.16% 0.00% 1.00%
4/1/03 -24.48% 0.00% 1.00%
4/8/03 -21.42% 0.00% 1.00%
4/15/03 -21.05% 0.00% 1.00%
4/22/03 -17.22% 0.00% 1.00%
4/29/03 -14.77% 0.00% 1.00%
5/6/03 -10.96% 0.00% 1.00%
5/13/03 -14.12% 0.00% 1.00%
5/20/03 -14.83% 0.00% 1.00%
5/27/03 -11.45% 0.00% 1.00%
6/3/03 -6.64% 0.00% 1.00%
6/10/03 -2.83% 0.00% 1.00%
6/17/03 -2.45% 0.00% 1.00%
6/24/03 0.74% 0.74% 1.43%
7/1/03 3.60% 3.60% 2.15%
7/8/03 5.77% 5.77% 2.69%
7/15/03 11.04% 6.00% 4.01%
7/22/03 23.86% 6.00% 6.00%
7/29/03 9.58% 6.00% 3.64%
8/5/03 12.32% 6.00% 4.33%
8/12/03 12.00% 6.00% 4.25%
8/19/03 6.92% 6.00% 2.98%
8/26/03 6.62% 6.00% 2.90%
9/2/03 16.39% 6.00% 5.34%
9/9/03 12.48% 6.00% 4.37%
9/16/03 17.83% 6.00% 5.70%
9/23/03 25.60% 6.00% 6.00%
9/30/03 17.45% 6.00% 5.61%
10/7/03 30.14% 6.00% 6.00%
10/14/03 19.08% 6.00% 6.00%
10/21/03 17.51% 5.00% 5.00%
10/28/03 18.66% 5.00% 5.00%
11/4/03 15.06% 5.00% 5.00%
11/11/03 18.53% 5.00% 5.00%
11/18/03 15.32% 5.00% 5.00%
11/25/03 15.39% 5.00% 5.00%
12/2/03 15.84% 5.00% 5.00%
12/9/03 17.21% 5.00% 5.00%
12/16/03 19.06% 5.00% 5.00%
12/23/03 22.80% 5.00% 5.00%
12/30/03 26.12% 5.00% 5.00%
1/6/04 21.75% 5.00% 5.00%
1/13/04 20.34% 5.00% 5.00%
1/20/04 28.29% 5.00% 5.00%
1/27/04 33.25% 5.00% 5.00%
2/3/04 33.93% 5.00% 5.00%
2/10/04 38.14% 5.00% 5.00%
2/17/04 35.92% 5.00% 5.00%
2/24/04 35.83% 5.00% 5.00%
The Stock Market Certificate was first available on Jan. 24, 1990. The
performance reflects the returns on the 52-week anniversary date, falling on a
Wednesday, of each of the weeks shown.
Your interest earnings are tied to the movement of the S&P 500 Index. They will
be based on any increase in this Index as measured on the beginning and ending
date of each 52-week term. Of course, if this Index is not higher on the last
day of your term than it was on the first day, your principal will be secure but
you will earn no participation interest.
How an index has performed in the past does not indicate how the stock market or
the certificate will perform in the future. There is no assurance that
certificate owners will receive interest on their accounts beyond any minimum
interest or fixed interest selected. The index could decline.
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PROSPECTUS -- APRIL 28, 2004 13p
CALCULATION OF RETURN
The increase or decrease in the S&P 500 Index, as well as the actual return paid
to you, is calculated as follows:
Rate of return on S&P 500 Index
Term ending value of S&P 500 Index minus
Term beginning value of S&P 500 Index divided by
Term beginning value of S&P 500 Index equals
Rate of return on S&P 500 Index
The actual return paid to you will depend on your interest participation
selection.
For example, assume:
Term ending value of S&P 500 Index 940
Term beginning value of S&P 500 Index 900
Maximum return 5%
Minimum return 1.00%
Partial participation rate 25%
940 Term ending value of S&P 500 Index
minus 900 Term beginning value of S&P 500 Index
- --------------------------------------------------------------------------------
equals 40 Difference between beginning and ending values
40 Difference between beginning and ending values
divided by 900 Term beginning value of S&P 500 Index
- --------------------------------------------------------------------------------
equals 4.44% Percent increase -- full participation return
4.44% Percent increase or decrease
times 25% Partial participation rate
- --------------------------------------------------------------------------------
equals 1.11%
plus 1.00% Minimum interest rate
- --------------------------------------------------------------------------------
equals 2.11% Partial participation return
- --------------------------------------------------------------------------------
In both cases in the example, the return would be less than the 5% maximum.
- --------------------------------------------------------------------------------
14p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Maximum Return and Partial Participation Minimum Rate History -- The following
table illustrates the maximum annual returns and partial participation minimum
rates that have been in effect since the Stock Market Certificate was
introduced.
Partial
Maximum participation
Start of term annual return minimum rate
Jan. 24, 1990 18.00% 5.00%
Feb. 5, 1992 18.00 4.00
May 13, 1992 15.00 4.00
Sept. 9, 1992 12.00 3.00
Nov. 11, 1992 10.00 2.50
Nov. 2, 1994 10.00 2.75
April 26, 1995 12.00 3.75
Jan. 17, 1996 10.00 3.25
Feb. 26, 1997 10.00 3.00
May 7, 1997 10.00 2.75
Oct. 8, 1997 10.00 2.50
Dec. 16 1998 9.00 2.50
Feb. 2, 2000 10.00 2.50
June 14, 2000 11.00 2.75
Aug. 16, 2000 10.00 2.75
Jan. 31, 2001 9.00 2.50
Sept. 12, 2001 8.00 2.50
Nov. 7, 2001 8.00 2.00
Nov. 28, 2001 6.00 1.00
June 26, 2002 6.00 1.25
Oct. 23, 2002 5.00 1.25
Feb. 19, 2003 5.00 1.00
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PROSPECTUS -- APRIL 28, 2004 15p
Examples
To help you understand the way this certificate works, here are some
hypothetical examples. The following are three different examples of market
scenarios and how they affect the certificate's return. Assume for all examples
that:
o you purchased the certificate with a $10,000 original investment,
o the partial participation rate is 25%,
o the minimum interest rate for partial participation is 1.00%,
o the maximum total return for full and partial participation is 5%.
1. If the S&P 500 Index value rises
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 4% increase in the S&P 500 Index Index 1,040
- -------------------------------------------------------------------------------------------
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 400 4% x $10,000 + 100 1.00% (Minimum interest rate) x $10,000
Participation interest + 100 25% x 4% x $10,000 Participation interest
$10,400 Ending balance $10,200 Ending balance
(4% Total return) (2.00% Total return)
- -------------------------------------------------------------------------------------------
2. If the Market and the S&P 500 Index value fall
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 4% decrease in the S&P 500 Index Index 961
- -------------------------------------------------------------------------------------------
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 0 Participation interest + 100 1.00% (Minimum interest rate) x $10,000
$10,000 Ending balance + 0 Participation interest
(0% Total return) $10,100 Ending balance
(1.00% Total return)
- -------------------------------------------------------------------------------------------
3. If the Market and the S&P 500 Index value rise above the maximum return
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 10% increase in the S&P 500 Index Index 1,100
- -------------------------------------------------------------------------------------------
Full participation interest Partial participation interest and minimum interest
$10,000 Original investment $10,000 Original investment
+ 500 5% x $10,000 + 100 1.00% (Minimum interest rate) x $10,000
Maximum interest + 250 25% x 10% x $10,000 Participation interest
$10,500 Ending balance $10,350 Ending balance
(5% Total return) (3.50% Total return)
- -------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
ABOUT THE S&P 500 INDEX
The description in this prospectus of the S&P 500 Index including its make-up,
method of calculation and changes in its components are derived from publicly
available information regarding the S&P 500 Index. The Issuer does not assume
any responsibility for the accuracy or completeness of such information.
The S&P 500 Index is composed of 500 common stocks, most of which are listed on
the New York Stock Exchange. The S&P 500 Index is published by S&P and is
intended to provide an indication of the pattern of common stock movement. S&P
chooses the 500 stocks to be included in the S&P 500 Index with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the U.S. common stock population. Changes in
the S&P 500 Index are reported daily in the financial pages of many major
newspapers. The index used for the American Express Stock Market Certificate
excludes dividends on the 500 stocks.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500" and
"500" are trademarks of The McGraw-Hill Companies Inc. and have been licensed
for use by the Issuer. The certificate is not sponsored, endorsed, sold or
promoted by S&P. S&P makes no representation or warranty, express or implied, to
the owners of the certificate or any member of the public regarding the
advisability of investing in securities generally or in the certificate
particularly or the ability of the S&P 500 Index to track general stock market
performance.
S&P's only relationship to the Issuer is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index, which is determined, composed and
calculated by S&P without regard to the Issuer or the certificate. S&P has no
obligation to take the needs of the Issuer or the owners of the certificate into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of the certificate to be issued or in the
determination or calculation of the equation by which the certificate is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the certificate.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 17p
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to the results to be obtained by the Issuer, owners of the certificate, or
any person or entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
If for any reason the S&P 500 Index were to become unavailable or not reasonably
feasible to use, we would use a comparable stock market index for determining
participation interest. If this were to occur, we would send you a notice by a
practical means such as correspondence (which may be electronic if you and we
have so agreed) or a quarterly account statement. The notice would indicate the
comparable index and give you the option to withdraw your principal without an
early withdrawal penalty. If you chose early withdrawal, you would lose any
interest accrued during the term.
OPPORTUNITIES AT THE END OF A TERM
Grace period: When your certificate term ends, you have 14 days before a new
term automatically begins. During this 14-day grace period you can:
o change your interest selection,
o add money to your certificate,
o change your term start date,
o withdraw part or all of your money without a withdrawal penalty or loss of
interest,
o or receive your interest in cash.
By starting your new term early and waiving the 14-day grace period, you are
choosing to start your next term without knowing the ending value of your
current term.
- --------------------------------------------------------------------------------
18p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Fixed interest only: The grace period does not apply if you made the change from
fixed interest back to participation interest during a term as discussed in
"Fixed interest" under "Interest" above. Instead, your new 52-week term will
begin on the Wednesday following our receipt of your notice of your new interest
selection.
New term: If you do not make changes, your certificate will continue with your
current selections when the new term begins 14 days later. You will earn interim
interest during this 14-day grace period. If you don't want to wait 14 days
before starting your next market participation term, you must phone or send
written instructions before your current term ends. You can tell us to start
your next term on any Wednesday that is during the grace period and immediately
following the date on which we receive your notice. Your notice may also tell us
to change your interest selection, add to your certificate or withdraw part of
your money. The notification that we send you at the end of the term cannot be
sent before the term ends because indexing information and interest (if any) are
included in the notice and are not known until the term ends. Any additional
payments received during the current term will be applied at the end of the
current term.
How to Invest and Withdraw Funds
BUYING YOUR CERTIFICATE
Your relationship manager or other selling agent representative will help you
fill out and submit an application to open an account with us and purchase a
certificate. We will process the application at our corporate offices in
Minneapolis, Minnesota. When we have accepted your application and we have
received your initial investment, we will send you a confirmation showing the
acceptance date, the date your term begins and the interest selection you have
made detailing your market participation percentage and, if applicable, the
minimum interest rate for your first term. After your term begins, we will send
you notice of the value of the S&P 500 Index on the day your term began. The
rates in effect on the date we accept your application are the rates that apply
to your certificate. See "Purchase policies" below.
Important: When you open an account, you must provide a Form W-8 or approved
substitute. See "Taxes on Your Earnings."
Purchase policies
The Issuer has complete discretion to determine whether to accept an application
and sell a certificate.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 19p
HOW TO MAKE INVESTMENTS AT TERM END
By wire
Your relationship manager or other selling agent representative will handle this
transaction for you.
If you have 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 Account #0000029882 for
personal account # (your account number) for (your name). Please be sure to
include all 10 digits of the American Express account number, including the
zeros.
If this information is not included, the order may be rejected and all money
received less any costs AECC incurs will be returned promptly.
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 Purchases made by wire are accepted by AEFC only from banks located in the
United States.
o Wire purchases are completed when wired payment is received and we accept
the purchase.
o Wire investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be credited
that day. Otherwise your purchase will be processed the next business day.
o The Issuer, AEFC, its subsidiaries, and any selling agents are not
responsible for any delays that occur in wiring funds, including delays in
processing by the bank.
o You must pay any fee the bank charges for wiring.
FULL AND PARTIAL WITHDRAWALS
You may withdraw your certificate for its full value or make a partial
withdrawal of $100 or more at any time. However:
o 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 Full and partial withdrawals of principal during a term are subject to
penalties, described below.
o You may not make a partial withdrawal if it would reduce your certificate
balance to less than $1,000. If you request such a withdrawal, we will
contact you for revised instructions.
- --------------------------------------------------------------------------------
20p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Penalties for withdrawal during a term: If you withdraw money during a term, you
will pay a penalty of 2% of the principal withdrawn. Except to the extent your
balance would be less than $1,000, this penalty will be taken from the remaining
balance, not the amount withdrawn. 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.
When you request a full or partial withdrawal during a term, we pay you from the
principal of your certificate.
Loss of interest: If you make a withdrawal at any time other than at the end of
the term, you will lose any interest accrued on the withdrawal amount since we
credit minimum and participation interest only at the end of a term. However, we
will pay accrued fixed and interim interest to the date of the withdrawal.
Following are examples describing a $2,000 withdrawal during a term for
participation and fixed interest:
Participation interest
Account balance $10,000
Interest (interest is credited at the end of the term) 0
Withdrawal of principal (2,000)
2% withdrawal penalty (40)
- --------------------------------------------------------------------------------
Balance after withdrawal $ 7,960
================================================================================
You will forfeit any accrued interest on the withdrawal amount.
Fixed interest
Account balance $10,000
Interest credited to date 100
Withdrawal of credited interest (100)
Withdrawal of principal (1,900)
2% withdrawal penalty (on $1,900 principal withdrawn) (38)
- --------------------------------------------------------------------------------
Balance after withdrawal $ 8,062
================================================================================
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 21p
Other full and partial withdrawal policies
o If you request a partial or full withdrawal of a certificate recently
purchased or added to by a check or money order that is not guaranteed, we
will wait for your check to clear. Please expect a minimum of 10 days from
the date of your payment before the Issuer mails a check to you. 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 other American Express
Certificates available through your relationship manager.
TWO WAYS TO REQUEST A WITHDRAWAL OR TRANSFER
1 By phone
Your relationship manager or other selling agent representative will handle this
transaction for you. You may also call AECSC between 8 a.m. and 6 p.m.
Minneapolis time at the telephone numbers listed on the back cover.
o Maximum telephone withdrawal request: $100,000.
o A telephone withdrawal request will not be allowed within 30 days of a
phoned-in address change.
o We will honor any telephone withdrawal or transfer request and will use
reasonable procedures to confirm authenticity. We can decline the telephone
request if we do not have enough information to confirm the request is
authentic.
You may request that telephone withdrawals not be authorized from your account
by writing AECSC.
- --------------------------------------------------------------------------------
22p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
2 By mail
Your relationship manager or other selling agent representative will handle this
transaction for you. You may also send your name, account number and request for
a withdrawal or transfer, by regular or express mail, to:
American Express Financial Advisors Inc.
70200 AXP Financial Center
Minneapolis, MN 55474
Written requests are required for:
o Withdrawals over $100,000.
o Transfers to another certificate with different ownership (all current
registered owners must sign the request).
TWO WAYS TO RECEIVE PAYMENT WHEN YOU WITHDRAW FUNDS
1 By regular or express mail
o Mailed to address on record; please allow seven days for mailing.
o Payable to name(s) listed on the account.
o The express mail delivery charges you pay will vary depending on the
courier you select. For a partial withdrawal leaving a remaining balance of
more than $1,000, the fee will be deducted from the remaining balance. If
the remaining balance is less than $1,000, or if it is a full withdrawal,
we will deduct the fee from proceeds of the withdrawal.
2 By wire
o Minimum wire amount: $1,000.
o Request that money be wired to your bank.
o Bank account must be in same ownership as the Issuer's account.
o Pre-authorization required. Complete the bank wire authorization section in
the application or use a form supplied by your relationship manager or
other selling agent representative. All registered owners must sign.
o Applicable wire charges will be deducted from your balance (for partial
withdrawals) or from the proceeds of a full withdrawal.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 23p
TRANSFER OF OWNERSHIP
While this certificate is not a negotiable instrument, it may be transferred or
assigned on the Issuer's records if proper written notice is received by the
Issuer. Ownership may be assigned or transferred to individuals or an entity
who, for U.S. tax purposes, is considered to be neither a citizen nor resident
of the United States. You may also pledge the certificate to an American Express
Company affiliate or to another selling agent as collateral security. Your
relationship manager or other selling agent representative can help you transfer
ownership.
FOR MORE INFORMATION
For information on purchases, withdrawals, exchanges, transfers of ownership,
proper instructions and other service questions regarding your certificate,
please consult your relationship manager or other selling agent representative,
or call the Issuer's client service number in Minneapolis, Minnesota, listed on
the back cover.
Taxes on Your Earnings
FOREIGN INVESTORS
The U.S. Internal Revenue Service (IRS) has issued 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.
Tax treatment of your investment: Interest paid on your certificate is
"portfolio interest" as defined in U.S. Internal Revenue Code Section 871(h) if
earned by a nonresident alien who has supplied the Issuer with one of the Forms
W-8. If the certificate is treated as a contingent debt instrument (CDI), part
of the earned income may be treated as a capital gain instead of portfolio
interest. Form W-8 must be supplied with a permanent residence address and a
current mailing address, if different. (Form W-8BEN must be signed and dated by
the beneficial
- --------------------------------------------------------------------------------
24p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
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.)
The Issuer 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 one of the other forms that
follow in lieu of the W-8BEN.)
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,
foreign private foundation or government of a U.S. possession.
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.
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PROSPECTUS -- APRIL 28, 2004 25p
The Form W-8 must be resupplied every four calendar years, up from three years
with the prior form.
Joint ownership: If the account is owned jointly with one or more persons, each
owner must provide a Form W-8. If the Issuer 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 28% backup withholding on interest
payments and withdrawals from certificates.
Transfers on death: If you are a nonresident alien and you die while owning a
certificate, then, depending on the circumstances, the Issuer generally will not
act on instructions with regard to the certificate unless the Issuer first
receives, at a minimum, a statement from persons the Issuer believes are
knowledgeable about your estate. The statement must be satisfactory to the
Issuer and must tell us that, on your date of death, your estate did not include
any property in the United States for U.S. estate tax purposes. In other cases,
we generally will not take action regarding your certificate until we receive a
transfer certificate from the IRS or evidence satisfactory to the Issuer that
the estate is being administered by an executor or administrator appointed,
qualified and acting within the United States. In general, a transfer
certificate requires the opening of an estate in the United States and provides
assurance that the IRS will not claim your certificate to satisfy estate taxes.
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) or an employer identification number, as appropriate for the trust.
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.
- --------------------------------------------------------------------------------
26p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
How Your Money Is Used and Protected
INVESTED AND GUARANTEED BY THE ISSUER
The Issuer, a wholly owned subsidiary of AEFC, issues and guarantees the
American Express Stock Market Certificate. We are by far the largest issuer of
face-amount certificates in the United States, with total assets of more than
$5.2 billion and a net worth in excess of $323 million on Dec. 31, 2003.
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 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 Stock Market Certificate is a security, its offer
and sale are subject to regulation under federal and state securities laws. (The
American Express Stock Market 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, 2003, the
amortized cost of these investments exceeded the required carrying value of our
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PROSPECTUS -- APRIL 28, 2004 27p
outstanding certificates by more than $142.2 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.
AECC has agreed with the SEC 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 also 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, 2003:
Type of investment Net amount invested
Government agency bonds 53%
Corporate and other bonds 34
Mortgage loans and other loans 10
Cash and cash equivalents 1
Preferred stocks 1
Structured investments 1
As of Dec. 31, 2003 about 96% of our securities portfolio (including bonds and
preferred stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3 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, 2003 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.
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28p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
INVESTMENT POLICIES
In deciding how to diversify the portfolio -- among what types of investments in
what amounts -- the officers and directors of the Issuer use their best
judgment, subject to applicable law. The following policies currently govern our
investment decisions:
Debt securities
Most of our investments are in debt securities as referenced in the table in
"Backed by Our Investments" under "How Your Money is Used and Protected."
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, 2003, AECC held about 4% 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.
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PROSPECTUS -- APRIL 28, 2004 29p
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 not a public offering 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 our assets.
When-issued securities
Some of our investments in debt securities and loans originated by banks or
investment banks are purchased on a when-issued or similar basis. It may take as
long as 45 days or more before these investments are available for sale, issued
and delivered to us. We generally do not pay for these investments or start
earning on them until delivery. We have established procedures to ensure that
sufficient cash is
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30p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
available to meet when-issued commitments. AECC's ability to invest in
when-issued investments is not limited except by its ability to set aside cash
or high quality investments to meet when-issued commitments. When-issued
investments 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 AECC's ability to enter into financial transactions to manage the
interest rate risk associated with 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 of directors
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.
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PROSPECTUS -- APRIL 28, 2004 31p
Restrictions
There are no restrictions on concentration of investments in any particular
industry or group of industries or on rates of portfolio turnover.
How Your Money Is Managed
RELATIONSHIP BETWEEN THE ISSUER AND AMERICAN EXPRESS FINANCIAL CORPORATION
The Issuer was originally organized as Investors Syndicate of America, Inc., a
Minnesota corporation, on Oct. 15, 1940, and began business as an issuer of face
amount investment certificates on Jan. 1, 1941. The company became a Delaware
corporation on Dec. 31, 1977, changed its name to IDS Certificate Company on
April 2, 1984, and to American Express Certificate Company on April 26, 2000.
The Issuer 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 the Issuer was created, AEFC (formerly known as IDS Financial
Corporation), our parent company, had issued similar certificates since 1894. As
of Jan. 1, 1995, IDS Financial Corporation changed its name to AEFC. The Issuer
and AEFC have never failed to meet their certificate payments.
During its many years in operation, AEFC has become a leading manager of
investments in mortgages and securities. 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.
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32p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
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 including American Express Bank International) and Travelers
Cheque and related services.
CAPITAL STRUCTURE AND CERTIFICATES ISSUED
The Issuer has authorized, has 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, 2003, the Issuer had issued (in face
amount) $772,079,620 of installment certificates and $2,468,179,643 of single
payment certificates. As of Dec. 31, 2003, the Issuer had issued (in face
amount) $14,940,140,606 of installment certificates and $27,649,838,539 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 the Issuer as defined in the federal Investment Company Act of 1940.
For its services, we pay AEFC a monthly fee, equal on an annual basis to a
percentage of the total book value of certain assets (included assets).
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PROSPECTUS -- APRIL 28, 2004 33p
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 the Issuer except mortgage loans, real estate,
and any other asset on which we pay an outside advisory or service fee. The fee
paid to AEFC for managing and servicing bank loans is 0.35%.
Advisory and services fee for the past three years
Percentage of
Year Total fees included assets
2003 $10,436,023 23%
2002 9,979,742 23
2001 9,248,275 24
Estimated advisory and services fees for 2004 are $10,533,000.
Other expenses payable by the Issuer: The Investment Advisory and Services
Agreement provides that we will pay:
o costs incurred by us in connection with real estate and mortgages;
o taxes;
o depository and custodian fees;
o brokerage commissions;
o fees and expenses for services not covered by other agreements and provided
to us at our request, or by requirement, by attorneys, auditors, examiners
and professional consultants who are not officers or employees of AEFC;
o fees and expenses of our directors who are not officers or employees of
AEFC;
o provision for certificate reserves (interest accrued on certificate owner
accounts); and
o expenses of customer settlements not attributable to sales function.
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34p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
DISTRIBUTION
Under a Distribution Agreement with American Express Financial Advisors Inc., we
pay for the distribution of this certificate by American Express Financial
Advisors Inc. as follows:
o 0.90% of the initial investment on the first day of the certificate's term,
and
o 0.90% of the certificate's reserve at the beginning of each subsequent
term,
for certificates sold through American Express Financial Advisors Inc.
This fee is not assessed to your certificate account.
For certificates paying a special promotional rate American Express Financial
Advisors Inc. waives its distribution fee and the selling agents waive their
commissions, fees and other compensation, unless a requirement for the special
promotional rate is a minimum investment of $100,000. If a special promotional
rate is available for Stock Market Certificate, the minimum investment in any
Stock Market Certificate purchased will be $100,000.
Total distribution fees paid to American Express Financial Advisors Inc. for all
series of certificates amounted to $30,209,889 during the year ended Dec. 31,
2003. We expect to pay American Express Financial Advisors Inc. distribution
fees amounting to $27,725,000 during 2004.
See Note 1 to financial statements regarding deferral of distribution fee
expense.
American Express Financial Advisors Inc. pays 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
the Issuer, approved these distribution agreements.
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PROSPECTUS -- APRIL 28, 2004 35p
SELLING AGENT AGREEMENT AMERICAN EXPRESS BANK INTERNATIONAL
Under a Selling Agent Agreement with American Express Financial Advisors Inc.,
American Express Bank International (AEBI) receives compensation for its
services as a selling agent for this certificate as follows:
o AEBI receives a fee equal to 1.0% per term of the principal amount of each
certificate for which AEBI is the selling agent.
American Express Financial Advisors Inc. has entered into a consulting agreement
with AEBI under which AEBI provides consulting services related to any selling
agent agreements between American Express Financial Advisors Inc. and other Edge
Act corporations. For these services, American Express Financial Advisors Inc.
pays AEBI a fee for this certificate equal to 0.20% per term of the principal
amount of each certificate for which another Edge Act corporation is the selling
agent.
Such payments will be made quarterly in arrears.
These fees are not assessed to your certificate account.
AEBI is an Edge Act corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act. It is a wholly owned subsidiary of American Express
Bank Ltd. (AEBL). As an Edge Act corporation, AEBI is subject to the provisions
of Section 25(a) of the Federal Reserve Act and Regulation K of the Board of
Governors of the Federal Reserve System (the Federal Reserve). It is supervised
and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that is serviced
by a marketing staff in New York and Florida. The banking and financial products
offered by AEBI include checking, money market and time deposits, credit
services, check collection services, foreign exchange, funds transfer,
investment advisory services and securities brokerage services. As of Dec. 31,
2003, AEBI had total assets of $969 million and total equity of $155 million.
Although AEBI is a banking entity, the American Express Stock Market Certificate
is not a bank product, nor is it backed or guaranteed by AEBI, by AEBL, or by
any other bank, nor is it guaranteed or insured by the FDIC or any other federal
agency. AEBI is registered where necessary as a securities broker-dealer.
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36p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
OTHER SELLING AGENTS
This certificate may be sold through selling agents, under arrangements with
American Express Financial Advisors Inc. at commissions of up to:
o 0.90% of the initial investment on the first day of the certificate's term;
and
o 0.90% of the certificate's reserve at the beginning of each subsequent
term.
Selling agents also may receive marketing support fees and other compensation of
up to:
o 0.88% of the initial investment on the first day of the certificate's
initial term: and
o 0.88% of the certificate's reserve at the beginning of each subsequent
term.
These fees are not assessed to your certificate account.
In addition, AECC may pay distributors, and American Express Financial Advisors
Inc. may pay selling agents, additional compensation for selling and
distribution activities under certain circumstances. From time to time, AECC or
American Express Financial Advisors Inc. may pay or permit other promotional
incentives, in cash or credit or other compensation.
TRANSFER AGENT
Under a Transfer Agency Agreement, 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 federal
securities laws.
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PROSPECTUS -- APRIL 28, 2004 37p
DIRECTORS AND OFFICERS
The Issuer's sole shareholder, AEFC, elects the board of directors that oversees
the Issuer'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 $72,289 during 2003 to directors not employed by AEFC.
Independent Board Members*
- -------------------------------------- ----------------------------------
Name, Karen M. Bohn
address, 6620 Iroquois Trail
age Edina, MN 55439
Born in 1953
Position held with Registrant and Board member since 2002
length of service
Principal occupations during past President & CEO, Galeo Group
five years LLC; Independent business
consultant
Other directorships Alerus Financial Corp.,
Ottertail Corporation, American
Express Bank, FSB
Committee memberships Audit
- -------------------------------------- ----------------------------------
Name, address, age Rodney P. Burwell
7901 Xerxes Avenue South,
Suite 201
Bloomington, MN 55431
Born in 1939
Position held with Registrant and Board member since 1999
length of service
Principal occupations during past Chairman, Xerxes Corporation
five years (fiberglass storage tanks)
Other directorships TCF Financial
Committee memberships Audit, Dividend
- -------------------------------------- ----------------------------------
Name, Jean B. Keffeler
address, P.O. Box 1377
age Livingston, MT 59047
Born in 1945
Position held with Registrant and Board member since 1999
length of service
Principal occupations during past Retired business executive
five years
Other directorships
Committee memberships Audit
- -------------------------------------- ----------------------------------
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38p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Independent Board Members (continued)
- -------------------------------------- ----------------------------------
Name, Thomas R. McBurney
address, 4900 IDS Center
age 80 South Eighth Street
Minneapolis, MN 55402
Born in 1938
Position held with Registrant and Board member since 1999
length of service
Principal occupations during past President, McBurney Management
five years Advisors
Other directorships The Valspar Corporation (paints)
Committee memberships Audit, Dividend
- -------------------------------------- ----------------------------------
* Mr. Burwell, Ms. Keffeler and Mr. McBurney also serve as directors of IDS
Life Series Fund, Inc., IDS Life Insurance Company of New York and American
Centurion Life Assurance Company which are indirectly controlled by AEFC.
Board Members Affiliated with the Issuer**
- -------------------------------------- ----------------------------------
Name, Kent M. Bergene
address, 435 AXP Financial Center
age Minneapolis, MN 55474
Born in 1958
Position held with Registrant and Board member since 2001
length of service
Principal occupations during past Vice President - Products Group
five years of AEFC, since 2001; Director -
Variable Annuity Products,
1998-2001
Other directorships
Committee memberships
- -------------------------------------- ----------------------------------
Name, Walter S. Berman
address, 50115 AXP Financial Center
age Minneapolis, MN 55474
Born in 1942
Position held with Registrant and Board member since March 2002
length of service and Treasurer since 2003
Principal occupations during past Executive Vice President and
five years Corporate Treasurer - American
Express Company (AMEX) since 2002; Chief
Financial Officer - AEFA since 2001;
Various senior financial positions,
including Treasurer of IBM, at other
companies from 1996 to 2001
Other directorships
Committee memberships
- -------------------------------------- ----------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 39p
Board Members Affiliated with the Issuer (continued)
- -------------------------------------- ----------------------------------
Name, Paula R. Meyer
address, 596 AXP Financial Center
age Minneapolis, MN 55474
Born in 1954
Position held with Registrant and Board member and President since
length of service 1998
Principal occupations during past Senior Vice President and
five years General Manager - Mutual Funds,
AEFC, since 2002; Vice
President and Managing Director
- American Express Funds, AEFC,
2000-2002; Vice President, AEFC,
1998-2000
Other directorships
Committee memberships Dividend, Investment
- -------------------------------------- ----------------------------------
** Interested person by reason of being an officer, director and/or employee
of AEFC.
Executive Officers
- -------------------------------------- ----------------------------------
Name, Paula R. Meyer
address, 596 AXP Financial Center
age Minneapolis, MN 55474
Born in 1954
Position held with Registrant and Board member and President since
length of service 1998
Principal occupations during past Senior Vice President and
five years General Manager - Mutual Funds,
AEFC, since 2002; Vice President
and Managing Director -
American Express Funds, AEFC,
2000-2002; Vice President, AEFC,
1998-2000
Other directorships
Committee memberships Dividend, Investment
- -------------------------------------- ----------------------------------
Name, Brian J. McGrane
address, 807 AXP Financial Center
age Minneapolis, MN 55474
Born in 1971
Position held with Registrant and Vice President and Chief
length of service Financial Officer since 2003
Principal occupations during past Vice President - Lead Financial
five years Officer - Asset Management
Businesses, AEFC, since 2003; Vice
President - Lead Financial Officer -
Institutional and Brokerage, AEFC,
2002-2003; Vice President - Lead
Financial Officer - US Brokerage, AEFC,
2001-2002; Director, Financial Standards
and Accounting Policy - AEFC, 1999-2001
Other directorships
Committee memberships
- -------------------------------------- ----------------------------------
- --------------------------------------------------------------------------------
40p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Executive Officers (continued)
- -------------------------------------- ----------------------------------
Name, Jeryl A. Millner
address, 50807 AXP Financial Center
age Minneapolis, MN 55474
Born in 1959
Position held with Registrant and Vice President and Controller
length of service since 2003
Principal occupations during past Vice President and Lead
five years Financial Officer, Insurance,
Annuities and Certificates of
AEFC, since 2003; ING Group,
Second Vice President,
Controller - U.S. Life Group,
2000-2002; ReliaStar Financial
Corp., Second Vice President,
Controller - ReliaStar Life and
Annuity, 1999-2000; ReliaStar
Financial Corp., Vice President,
Chief Financial Officer and
Treasurer - Northern Life Ins.
Co., 1998-1999
Other directorships
Committee memberships
- -------------------------------------- ----------------------------------
Name, Walter S. Berman
address, 50115 AXP Financial Center
age Minneapolis, MN 55474
Born in 1942
Position held with Registrant and Board member since March 2002
length of service and Treasurer since 2003
Principal occupations during past Executive Vice President and
five years Corporate Treasurer - American
Express Company (AMEX) since 2002; Chief
Financial Officer - AEFA since 2001;
Various senior financial positions,
including Treasurer of IBM, at other
companies from 1996 to 2001
Other directorships
Committee memberships
- -------------------------------------- ----------------------------------
Name, Lorraine R. Hart
address, 53643 AXP Financial Center
age Minneapolis, MN 55474
Born in 1951
Position held with Registrant and Vice President - Investments
length of service
Principal occupations during past Vice President - Investments
five years Administration Officer, AEFC,
since 2003; Vice President -
Insurance Investments, AEFC,
1989-2003
Other directorships
Committee memberships Investment
- -------------------------------------- ----------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 41p
Executive Officers (continued)
- -------------------------------------- ----------------------------------
Name, Michelle M. Keeley
address, 257 AXP Financial Center
age Minneapolis, MN 55474
Born in 1964
Position held with Registrant and Vice President - Investments
length of service since 2003
Principal occupations during past Senior Vice President - Fixed
five years Income, AEFC, since 2002;
Managing Director, Zurich Global
Assets, 2000-2002; Managing
Director, Zurich Scudder
Investments, 1999-2000
Other directorships
Committee memberships Investment
- -------------------------------------- ----------------------------------
Name, H. Bernt von Ohlen
address, 50607 AXP Financial Center
age Minneapolis, MN 55474
Born in 1946
Position held with Registrant and Vice president, General Counsel,
length of service and Secretary since September
2002
Principal occupations during past Vice President & Group Counsel,
five years AEFC, since 2000; Partner,
D'Ancona & Pflaum LLC,
1999-2000; Counsel, Heartland
Group, Inc., 1998-1999
Other directorships
Committee memberships
- -------------------------------------- ----------------------------------
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.
- --------------------------------------------------------------------------------
42p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
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, independent auditors, Minneapolis, Minnesota have audited our
financial statements at December 31, 2003 and 2002 and for each of the years in
the three-year period ended Dec. 31, 2003, as set forth in their report. We have
included these financial statements in the prospectus in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing. Ernst & Young LLP is also the auditor for American Express Company,
the parent company of AEFC and AECC.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 43p
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, the Issuer will consider the financial condition of the
issuer or the protection afforded by the terms of the security.
- --------------------------------------------------------------------------------
44p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
Annual Financial Information
SUMMARY OF SELECTED FINANCIAL INFORMATION
The following selected financial information was derived from AECC's 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 further
information.
Year Ended December 31, (Thousands) 2003 2002 2001 2000 1999
Statements of Operations Data(a)
Investment income $ 264,238 $ 221,151 $ 204,345 $ 222,535 $ 221,426
Investment expenses 44,417 43,626 44,050 43,952 44,317
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income before provision
for certificate reserves and
income tax (expense) benefit 219,821 177,525 160,295 178,583 177,109
Net provision for certificate reserves 141,483 100,252 155,387 155,461 138,555
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income before
income tax (expense) benefit 78,338 77,273 4,908 23,122 38,554
Income tax (expense) benefit (27,296) (24,866) 3,348 (14) (4,615)
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 51,042 52,407 8,256 23,108 33,939
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
in securities of unaffiliated issuers
before income taxes 2,944 (9,899) (92,375) (10,110) 1,250
Income tax (expense) benefit (1,031) 3,631 32,331 3,539 (437)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,913 (6,268) (60,044) (6,571) 813
Net income -- wholly-owned subsidiary -- -- -- -- 4
Cumulative effect of accounting change -- -- (397) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 52,955 $ 46,139 $ (52,185) $ 16,537 $ 34,756
- ----------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
$ -- $ -- $ -- $ 5,000 $ 40,000
Capital Dividends Declared
-- -- 166,906 -- --
(Return of capital to) contributions from AEFC
(50,000) (10,000) 240,000 -- --
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 45p
Balance Sheet Data(a)
Total assets $5,255,592 $5,199,769 $4,642,734 $4,043,806 $3,771,411
Certificate loans $ 15,606 $ 18,614 $ 21,807 $ 25,547 $ 28,895
Certificate reserves $4,787,817 $4,493,372 $4,159,926 $3,831,059 $3,536,659
Shareholder's equity $ 323,213 $ 359,389 $ 263,005 $ 166,514 $ 141,702
- ----------------------------------------------------------------------------------------------------------------------------
(a) Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
American Express Certificate Company's (AECC's) net income is derived primarily
from the after-tax yield on investments and realized investment gains (losses),
less investment expenses and interest credited on certificate reserve
liabilities. Changes in net income trends occur largely due to changes in
investment returns, interest crediting rates to certificate products, the mix of
fully taxable and tax-advantaged investments in AECC's portfolio and from
realization of investment gains (losses). AECC follows accounting principles
generally accepted in the United States (GAAP).
Net income increased $6.8 million, or 14.8 percent, reflecting increased
investment income, increased gross realized gains and decreased gross realized
losses on sale of investments, partially offset by slightly higher investment
expenses and a higher provision expense for certificate reserves. In 2002, the
net income was significantly higher than 2001. The 2001 results included net
pre-tax realized losses on investments of ($92.4 million), primarily due to a
($36.9 million) loss to recognize the impact of higher default assumptions used
to determine impairment on rated structured investments and a ($57.1 million)
loss on high-yield securities.
Investment income increased $43.1 million, or 19.5 percent, reflecting a $66.0
million increase in net pre-tax gains on equity index options, partially offset
by lower investment portfolio yields. The increase in net pre-tax gains on
equity index options was due to the effect of appreciation in the S&P 500 on the
value of options economically hedging stock market certificate products.
Investment income for 2002 was $16.8 million or 8.2 percent higher than 2001 as
a result of higher levels of invested assets and lower losses on interest rate
swap agreements in 2002.
The favorable impact on investment income from the equity index options was
largely offset by the increase in provision expenses for certificate reserves.
Provision for certificate
- --------------------------------------------------------------------------------
46p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
reserves increased $41.2 million or 41.1 percent reflecting the effect on stock
market certificates of appreciation in the S&P 500 this year versus depreciation
last year, partially offset by lower interest crediting rates on the interest
rate sensitive portion of AECC's certificate product portfolio. The 2002
provision for certificate reserves was significantly lower than 2001 as a result
of lower client interest crediting rates, partially offset by an increase in
certificate reserves during 2002.
AECC's gross realized gains on sales of securities classified as
Available-for-Sale, using the specific identification method, were $47.1 million
and $23.4 million for the years ended December 31, 2003 and 2002, respectively.
Gross realized losses on sales were ($2.8 million) and ($15.7 million) for the
same periods. AECC also recognized losses of ($36.0 million) and ($15.8 million)
in other-than-temporary impairments on Available-for-Sale securities for the
years ended December 31, 2003 and 2002, respectively. In 2001, gross realized
gains on sales of securities classified as Available-for-Sale were $20.7 million
while gross realized losses on sales of securities classified as
Available-for-Sale were ($83.9 million). AECC also recognized
other-than-temporary impairment losses on Available-for-Sale securities of
($27.9 million) in 2001.
Certain Critical Accounting Policies
AECC's significant accounting policies are described in Note 1 to the Financial
Statements. The following provides a critical accounting policy on investment
securities valuation that is important to the Financial Statements.
Investment securities valuation
Generally, investment securities are carried at fair value on the balance sheet
with unrealized gains (losses) recorded in other comprehensive income (loss)
within equity, net of income tax provisions (benefits). At December 31, 2003,
AECC had net unrealized pretax gains on Available-for-Sale securities of $74.0
million. Gains and losses are recognized in results of operations upon
disposition of the securities. In addition, losses are recognized when
management determines that a decline in value is other-than-temporary, which
requires judgment regarding the amount and timing of recovery. Indicators of
other-than-temporary impairment for debt securities include issuer downgrade,
default or bankruptcy. AECC also considers the extent to which cost exceeds fair
value, the duration and size of that gap, and management's judgment about the
issuer's current and prospective financial condition. Fair value is generally
based on quoted market prices. As of
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 47p
December 31, 2003, there were $19 million in gross unrealized losses that
related to $1.5 billion of securities based on fair values, of which only $30
million has been in a continuous unrealized loss position for twelve months or
more. AECC does not believe that the unrealized loss on any individual security
at December 31, 2003 represents an other-than-temporary impairment, and AECC has
the ability and intent to hold these securities for a time sufficient to recover
its amortized cost.
Liquidity and Capital Resources
AECC's principal sources of cash are receipts from sales of face-amount
certificate products and cash flows from investments. AECC's principal uses of
cash are payments to certificate product owners for matured and surrendered
certificates, purchases of investments, and return of capital or dividend
payments to AEFC.
Cash received from sales of certificates totaled $2.6 billion for the year ended
December 31, 2003 compared to $2.0 billion for the year ended December 31, 2002.
Certificate maturities and cash surrenders totaled $2.4 billion for the year
ended December 31, 2003, compared to $1.8 billion and $1.7 billion for the years
ended December 31, 2002 and 2001, respectively.
AECC, as an issuer of face-amount certificates, is impacted by significant
changes in interest rates as interest crediting rates on certificate products
generally reset at shorter intervals than the change in the yield on AECC's
investment portfolio. In view of the continued uncertainty in the investment
markets, AECC continues to invest in securities that provide for more immediate,
periodic interest and principal payments, resulting in improved liquidity. To
accomplish this, AECC continues to invest much of its cash flow in mortgage and
asset-backed securities, and to a lesser extent, intermediate term corporate
debt securities. In addition, AECC enters into interest rate swap contracts that
effectively lengthen the interest crediting rate reset interval on certificate
products. Also, on three series of AECC's certificates, interest is credited to
certificate products based upon the relative change in a major stock market
index between the beginning and end of the certificates' terms. To meet the
obligations related to the provisions of these equity market sensitive
certificates, AECC purchases and writes index call options on a major stock
market index and, from time to time, enters into futures contracts.
- --------------------------------------------------------------------------------
48p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
AECC's investment program is designed to maintain an investment portfolio that
will produce the highest possible after-tax yield within acceptable risk and
liquidity parameters. The program considers investment securities as investments
acquired to meet anticipated certificate product owner obligations.
Debt securities and marketable equity securities are classified as
Available-for-Sale and are carried at fair value. The Available-for-Sale
classification does not mean AECC expects to sell these securities, but rather
these securities are available to meet possible liquidity needs should there be
significant changes in market interest rates or certificate owner redemptions.
At December 31, 2003, securities classified as Available-for-Sale were carried,
in the aggregate, at a fair market value of $4.5 billion. Based on amortized
costs, fixed maturity securities comprise 90 percent of AECC's total investment
portfolio. Of these securities, 96 percent are investment grade. Investments
primarily include mortgage and asset-backed securities, and to a lesser extent,
corporate debt securities. AECC's corporate debt securities are a diverse
portfolio with concentrations in the following industries: banking and finance,
utilities, communications and media, and transportation. Other than U.S.
Government Agency mortgage-backed securities, no one issuer represents more than
1 percent of AECC's total investment portfolio.
AECC paid AEFC return of capital amounts of $50 million and $10 million during
2003 and 2002, respectively. During the fourth quarter of 2001, AECC paid a $167
million capital dividend to AEFC by transferring at book value certain
collateralized debt obligation (CDO) securities owned by AECC. In part, the
dividend was paid to allow AEFC to transfer the CDO securities and related
accrued interest into a securitization trust. Additionally, and during 2001,
AECC received $240 million in cash as capital contributions from AEFC.
Cash used in investing activities was $448.7 million and $265.5 million in 2003
and 2002, respectively. This change was primarily due to decreased amounts due
to brokers in 2003, while in 2002, amounts due to brokers increased, and an
increase in purchases of Available-for-Sale securities and other investments,
partially offset by an increase in sales and maturities of such securities.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 49p
Cash provided by financing activities was $246.8 million and $332.7 million in
2003 and 2002, respectively. This decrease primarily resulted from a decrease in
net certificate inflows of $45.8 million together with an increase of $40
million of combined return of capital payments to AEFC.
Impact of Recent Market-Volatility on Results of Operations
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 percent 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 presented 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 occur over time. As a result,
actual earnings effects in the future will differ from those quantified below.
AECC primarily invests in intermediate-term and long-term fixed maturity
securities to provide its certificate owners with a competitive rate of return
on their certificate 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 short-term trading
profits for its own account.
AECC's goal is to manage interest rate sensitivity by modifying the length of
the interest crediting rate reset interval on certificate products so that
movements in interest rates do not adversely affect the interest credited to
such certificate products. AEFC holds regularly scheduled investment committee
meetings, which is comprised of senior business managers, to review models
projecting various interest rate scenarios and risk/return measures and their
effect on the profitability of AECC. The committee's objectives are to structure
AECC's portfolio of investment securities based upon the type and behavior of
the certificates in the certificate reserve liabilities, to achieve
- --------------------------------------------------------------------------------
50p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
targeted levels of profitability within defined risk parameters and to meet
certificate contractual obligations. Part of the committee's strategy includes
entering into interest rate swaps to hedge interest rate risk.
AECC is exposed to risk associated with fluctuating interest payments from
certain certificate products tied to the London Interbank Offering Rate (LIBOR).
As such, certificate product interest crediting rates reset at shorter intervals
than the changes in the investment portfolio yield related to new investments
and reinvestments. Therefore, AECC's spreads may be negatively impacted by
increases in the general level of interest rates. AECC hedges the risk of rising
interest rates by entering into pay-fixed, receive-variable (LIBOR-based)
interest rate swaps that convert fluctuating crediting rate payments to fixed
payments, effectively protecting AECC from unfavorable interest rate movements.
The interest rate swaps are treated as cash flow hedges per Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". At December 31, 2003, AECC had $900 million
notional of interest rate swaps expiring at various dates from January 2004
through February 2005.
AECC is also exposed to risk associated with fluctuations in the equity market
from three series of its certificate products. Such amounts credited to
certificate product owners' accounts are tied to the relative change in a major
stock market index between the beginning and end of the certificates' terms.
AECC purchases and writes equity index call options on a major stock market
index in order to meet such obligations. The recent appreciation in the S&P 500
caused a relatively substantial increase in AECC's provision expense for
certificate reserves, which was effectively offset by an increase in net pre-tax
gains on equity index options.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments 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 are
recorded in earnings or directly to equity, depending on the instrument's
designated use. Those derivative instruments that are designated and qualify as
hedging instruments under SFAS No. 133 are further classified as either fair
value hedges, cash flow hedges or hedges of a net investment in a foreign
operation, based upon the exposure being hedged. See Note 9 to the Financial
Statements for further discussion of AECC's derivative and hedging activities.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 51p
The negative impact on AECC's annual pretax income of a 100 basis point increase
in interest rates, which assumes certificate product interest crediting rate
reset intervals and customer behavior based on the application of proprietary
models, to the book of business at December 31, 2003 and 2002, would be $11.8
million and $0.6 million for 2003 and 2002, respectively. A 10 percent decrease
in the level of a major stock market index would have a minimal impact on AECC's
annual pretax income related as of December 31, 2003 and 2002, because the
income effect is a decrease in option related 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 Certificates product owners' accounts.
The ratio of shareholder's equity, excluding accumulated other comprehensive
income (loss) net of tax, to total assets less certificate loans and net
unrealized gains (losses) on securities classified as Available-for-Sale (the
Capital-to-Assets Ratio) at December 31, 2003 and 2002, was 5.4 percent and 5.5
percent, respectively. In accordance with 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-Assets Ratio of 5 percent.
Other Reporting Matters
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses
consolidation by business enterprises of variable interest entities (VIEs) and
was subsequently revised in December 2003. An entity is subject to consolidation
according to the provisions of FIN 46, if, by design, either (i) the total
equity investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
or, (ii) as a group, the holders of the equity investment at risk lack: (a)
direct or indirect ability to make decisions about an entity's activities; (b)
the obligation to absorb the expected losses of the entity if they occur; or (c)
the right to receive the expected residual returns of the entity if they occur.
In general, FIN 46 requires a VIE to be consolidated when an enterprise has a
variable interest for which it is deemed to be the primary beneficiary which
means that it will absorb a majority of the VIE's expected losses or receive a
majority of the VIE's expected residual return.
- --------------------------------------------------------------------------------
52p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
FIN 46 did not impact the accounting for $27 million in a minority-owned secured
loan trust (SLT) or $6 million in a collateralized debt obligation traunche
(solely supported by a portfolio of high yield bonds), both of which are managed
by third parties, as AECC is not the primary beneficiary. AECC has a 33 percent
ownership interest in the SLT, which provides returns to investors primarily
based on the performance of an underlying portfolio of high yield loans. The
aggregate fair value of the loans related to AECC's pro rata share of this
structure approximates $92.5 million. AECC's maximum exposure to loss as a
result of its investment in this SLT is represented by the carrying value, which
was $27 million at December 31, 2003.
In April 2003, the FASB issued Statement of Financial Accounting Standards Board
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" (SFAS No. 149). SFAS No. 149 amends and clarifies accounting
for derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered
into or modified and hedging relationships designated after June 30, 2003, and
to certain preexisting contracts. SFAS No. 149 did not have a material impact on
AECC's financial statements.
Forward-Looking Statements
Certain statements in Item 7. of this Form 10-K Annual Report contain
forward-looking statements, which are subject to risks and uncertainties. The
words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim,"
"will," "should," "could," "likely," and similar expressions are intended to
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. AECC undertakes no obligation to update or revise any
forward-looking statements. Factors that could cause actual results to differ
materially from these forward-looking statements include, but are not limited
to: AECC's ability to successfully implement a business model that allows for
significant net income growth based on revenue growth that is lower than
historical levels, including the ability to improve its operating expense to
revenue ratio both in the short-term and over time, which will depend in part on
the effectiveness of reengineering and other cost control initiatives, as well
as factors impacting AECC's revenues; AECC's ability to grow its business, over
time, which will depend on AECC's ability to manage its capital needs and
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 53p
the effect of business mix; the ability to increase investment spending, which
will depend in part on the equity markets and other factors affecting revenues,
and the ability to capitalize on such investments to improve business metrics;
the accuracy of certain critical accounting estimates, including the fair value
of the assets in AECC's investment portfolio (including those investments that
are not readily marketable), fluctuation in the equity and fixed income markets,
which can affect the amount and types of certificate products sold by AECC,
potential deterioration in AECC's high-yield and other investments, which could
result in further losses in AECC's investment portfolio; the ability of AECC to
sell certain high-yield investments at expected values and within anticipated
timeframes and to maintain its high-yield portfolio at certain levels in the
future; and spreads in the certificate businesses; credit trends and the rate of
bankruptcies, which can affect returns on AECC's investment portfolios;
fluctuations in foreign currency exchange rates, which could affect commercial
activities, among other businesses, or restrictions on convertibility of certain
currencies; changes in laws or government regulations, including tax laws
affecting AECC's businesses or that may affect the sales of the products and
services that it offers, and regulatory activity in the areas of customer
privacy, consumer protection, business continuity and data protection; the
adoption of recently issued accounting rules related to the consolidation of
variable interest entities, including those involving collateralized debt
obligations and secured loan trusts, that AECC invests in, which could affect
both AECC's balance sheet and results of operations; and outcomes and costs
associated with litigation and compliance and regulatory matters. A further
description of these and other risks and uncertainties can be found in AECC's
other reports filed with the SEC.
- --------------------------------------------------------------------------------
54p AMERICAN EXPRESS STOCK MARKET CERTIFICATE
AMERICAN EXPRESS CERTIFICATE COMPANY RESPONSIBILITY OF MANAGEMENT
The management of American Express Certificate Company (AECC) is responsible for
the preparation and fair presentation of its Financial Statements, which have
been prepared in conformity with accounting principles generally accepted in the
United States; 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 this filing.
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 which 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.
The internal control system is founded on an ethical climate and includes: (i)
an organizational structure with clearly defined lines of responsibility,
policies and procedures; (ii) a Code of Conduct; and (iii) a careful selection
and training of employees. Internal auditors monitor and assess the
effectiveness of internal control and report their findings to management and
the Board of Directors 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 control system over financial reporting to the
extent they believed necessary to support their report.
- --------------------------------------------------------------------------------
PROSPECTUS -- APRIL 28, 2004 55p
American Express Certificate Company
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP 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, a wholly-owned subsidiary of American Express Financial Corporation, as
of December 31, 2003 and 2002, and the related statements of operations,
comprehensive income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 2003. 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, 2003
and 2002, 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, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Yound LLP
Minneapolis, Minnesota
January 26, 2004
American Express Certificate Company
- --------------------------------------------------------------------------------
Financial Statements
Balance Sheets
December 31, (Thousands, except share amount) 2003 2002
Assets
Qualified Assets (Note 2)
Investments in unaffiliated issuers (Note 3):
Cash and cash equivalents $ 25,099 $ 240,323
Available-for-Sale securities 4,509,726 4,389,396
First mortgage loans on real estate and other loans 469,309 452,243
Certificate loans -- secured by certificate reserves 15,606 18,614
- ----------------------------------------------------------------------------------------
Total investments 5,019,740 5,100,576
- ----------------------------------------------------------------------------------------
Receivables:
Dividends and interest 36,007 34,114
Investment securities sold 7,946 24,170
- ----------------------------------------------------------------------------------------
Total receivables 43,953 58,284
- ----------------------------------------------------------------------------------------
Equity index options (Note 9) 153,162 34,403
- ----------------------------------------------------------------------------------------
Total qualified assets 5,216,855 5,193,263
- ----------------------------------------------------------------------------------------
Other Assets
Due from AEFC for federal income taxes 22,963 --
Deferred taxes, net (Note 8) 9,321 --
Deferred distribution fees and other 6,453 6,506
- ----------------------------------------------------------------------------------------
Total other assets 38,737 6,506
- ----------------------------------------------------------------------------------------
Total assets $5,255,592 $5,199,769
========================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Balance Sheets (continued)
December 31, (Thousands, except share amount) 2003 2002
Liabilities and Shareholder's Equity
Liabilities
Certificate Reserves (Note 5):
Installment certificates:
Reserves to mature $ 146,052 $ 168,957
Additional credits and accrued interest 3,514 3,988
Advance payments and accrued interest 499 564
Other 32 34
Fully paid certificates:
Reserves to mature 4,573,514 4,277,348
Additional credits and accrued interest 64,114 42,311
Due to unlocated certificate holders 92 170
- --------------------------------------------------------------------------------------------------
Total certificate reserves 4,787,817 4,493,372
- --------------------------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities:
Due to AEFC (Note 7) 880 887
Due to AEFC for federal income taxes -- 3,908
Due to other affiliates (Note 7) 560 690
Deferred taxes, net (Note 8) -- 29,556
Payable for investment securities purchased 9,173 263,658
Equity index options and other liabilities (Note 9) 133,949 48,309
- --------------------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities 144,562 347,008
- --------------------------------------------------------------------------------------------------
Total liabilities 4,932,379 4,840,380
- --------------------------------------------------------------------------------------------------
Commitments (Note 4)
- --------------------------------------------------------------------------------------------------
Shareholder's Equity (Note 6)
Common stock, $10 par -- authorized and issued 150,000 shares 1,500 1,500
Additional paid-in capital 323,844 373,844
Retained earnings (accumulated deficits):
Appropriated for pre-declared additional credits and interest 184 811
Appropriated for additional interest on advance payments 15 15
Unappropriated (46,556) (100,142)
Accumulated other comprehensive income -- net of tax (Note 1) 44,226 83,361
- --------------------------------------------------------------------------------------------------
Total shareholder's equity 323,213 359,389
- --------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $5,255,592 $5,199,769
==================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Operations
Years ended December 31, (Thousands) 2003 2002 2001
Investment Income
Interest income from unaffiliated investments:
Available-for-Sale securities $204,932 $227,609 $214,534
Mortgage loans on real estate and other loans 27,093 27,719 25,133
Certificate loans 933 1,095 1,293
Dividends 5,074 9,949 19,986
Equity index options (Note 9) 29,538 (36,421) (39,510)
Interest rate swap agreements (Note 9) (5,301) (9,780) (17,616)
Other 1,969 980 525
- --------------------------------------------------------------------------------------------------------------------
Total investment income 264,238 221,151 204,345
- --------------------------------------------------------------------------------------------------------------------
Investment Expenses
AEFC and affiliated company fees (Note 7):
Distribution 29,731 29,762 30,924
Investment advisory and services 10,436 9,980 9,248
Transfer agent 3,378 3,203 3,161
Depository 349 321 285
Other 523 360 432
- --------------------------------------------------------------------------------------------------------------------
Total investment expenses 44,417 43,626 44,050
- --------------------------------------------------------------------------------------------------------------------
Net investment income before provision for certificate reserves
and income tax (expense) benefit $219,821 $177,525 $160,295
- --------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Operations (continued)
Years ended December 31, (Thousands) 2003 2002 2001
Provision for Certificate Reserves (Note 5)
According to the terms of the certificates:
Provision for certificate reserves $ 6,043 $ 7,888 $ 10,321
Interest on additional credits 425 543 597
Interest on advance payments 17 19 34
Additional credits/interest authorized by AECC:
On fully paid certificates 132,975 88,201 138,020
On installment certificates 3,379 4,757 7,559
- --------------------------------------------------------------------------------------------------------------------
Total provision for certificate reserves before reserve recoveries 142,839 101,408 156,531
Reserve recoveries from terminations prior to maturity (1,356) (1,156) (1,144)
- --------------------------------------------------------------------------------------------------------------------
Net provision for certificate reserves 141,483 100,252 155,387
- --------------------------------------------------------------------------------------------------------------------
Net investment income before income tax (expense) benefit 78,338 77,273 4,908
Income tax (expense) benefit (Note 8) (27,296) (24,866) 3,348
- --------------------------------------------------------------------------------------------------------------------
Net investment income 51,042 52,407 8,256
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
Securities of unaffiliated issuers before
income tax (expense) benefit 2,944 (9,899) (92,375)
Income tax (expense) benefit (Note 8) (1,031) 3,631 32,331
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,913 (6,268) (60,044)
- --------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change
(net of income tax benefit of $214) -- -- (397)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 52,955 $ 46,139 $(52,185)
====================================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Cash Flows
Years Ended December 31, (Thousands) 2003 2002 2001
Cash Flows from Operating Activities
Net income (loss) $ 52,955 $ 46,139 $ (52,185)
Adjustments to reconcile net income (loss) to net
cash (used in)provided by operating activities:
Cumulative effect of accounting change, net of tax (Note 1) -- -- 397
Interest income added to certificate loans (630) (738) (820)
Amortization of premiums/discounts -- net 14,907 (2,426) (1,483)
Provision for deferred federal income taxes (38,877) (3,288) (9,793)
Net deferred distribution fees (amortized) (479) 1,802 1,525
Net realized (gain) loss on equity index options (29,538) 36,421 39,510
Net realized (gain) loss on investments (2,944) 9,899 92,375
(Increase) decrease in dividends and interest receivable (1,893) 4,184 9,603
Other assets and liabilities, net (6,856) (6,004) (17,564)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (13,355) 85,989 61,565
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Available-for-Sale investments:
Sales 1,132,131 887,194 989,738
Maturities and redemptions 1,305,953 1,111,493 704,877
Purchases (2,626,239) (2,228,071) (2,435,973)
Other investments:
Sales 81,736 11,166 --
Maturities and redemptions 77,022 88,437 30,307
Purchases (182,293) (234,070) (54,927)
Certificate loans:
Payments 2,805 2,919 3,127
Fundings (1,553) (2,085) (2,830)
Changes in amounts due to and from brokers, net (238,262) 97,482 141,131
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (448,700) (265,535) (624,550)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Payments from certificate owners 2,571,209 2,031,414 1,919,769
Net provision for certificate reserves 141,483 100,252 155,387
Certificate maturities and cash surrenders (2,415,861) (1,788,995) (1,734,742)
Proceeds from repurchase agreements 337,600 -- 500
Payments under repurchase agreements (337,600) -- (500)
(Return of capital to) contribution from AEFC (50,000) (10,000) 240,000
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 246,831 332,671 580,414
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (215,224) 153,125 17,429
Cash and cash equivalents at beginning of year 240,323 87,198 69,769
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 25,099 $ 240,323 $ 87,198
=======================================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Comprehensive Income
Years Ended December 31, (Thousands) 2003 2002 2001
Net income (loss) $ 52,955 $ 46,139 $(52,185)
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income net of tax (Note 1)
Cumulative effect of accounting change (Note 1) -- -- (2,187)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized (losses) gains on Available-for-Sale securities:
Unrealized holding (losses) gains arising during period (52,669) 82,904 19,959
Income tax benefit (provision) 18,434 (29,016) (6,986)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized holding (losses) gains arising during the period (34,235) 53,888 12,973
- -----------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for (gains) losses
included in net income (loss) (8,260) 8,142 101,754
Income tax provision (benefit) 2,891 (2,850) (35,614)
- -----------------------------------------------------------------------------------------------------------------------
Net reclassification adjustment for (gains) losses
included in net income (loss) (5,369) 5,292 66,140
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized (losses) gains on Available-for-Sale securities (39,604) 59,180 79,113
- -----------------------------------------------------------------------------------------------------------------------
Unrealized losses on interest rate swaps:
Unrealized losses arising during the period (4,579) (8,141) (19,683)
Income tax benefit 1,603 2,849 6,889
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized holding losses arising during the period (2,976) (5,292) (12,794)
- -----------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for losses included in net income (loss) 5,300 9,780 17,616
Income tax benefit (1,855) (3,423) (6,166)
- -----------------------------------------------------------------------------------------------------------------------
Net reclassification adjustment for losses
included in net income (loss) 3,445 6,357 11,450
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on interest rate swaps 469 1,065 (1,344)
- -----------------------------------------------------------------------------------------------------------------------
Net other comprehensive (loss) income (39,135) 60,245 75,582
- -----------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 13,820 $106,384 $ 23,397
=======================================================================================================================
See Notes to Financial Statements
American Express Certificate Company
- --------------------------------------------------------------------------------
Statements of Shareholder's Equity
Years Ended December 31, (Thousands) 2003 2002 2001
Common Stock $ 1,500 $ 1,500 $ 1,500
- -----------------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital
Balance at beginning of year $ 373,844 $ 383,844 $ 143,844
(Return of capital to) contribution from Parent (50,000) (10,000) 240,000
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 323,844 $ 373,844 $ 383,844
=======================================================================================================================
Retained Earnings
Appropriated for pre-declared additional credits/interest (Note 5)
Balance at beginning of year $ 811 $ 1,123 $ 2,684
Transferred to unappropriated retained earnings (627) (312) (1,561)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 184 $ 811 $ 1,123
- -----------------------------------------------------------------------------------------------------------------------
Appropriated for additional interest on advance payments $ 15 $ 15 $ 15
- -----------------------------------------------------------------------------------------------------------------------
Unappropriated (Note 6)
Balance at beginning of year $(100,142) $(146,593) $ 70,937
Net income (loss) 52,955 46,139 (52,185)
Transferred from appropriated retained earnings 627 312 1,561
Other 4 -- --
Capital dividends declared -- -- (166,906)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (46,556) $(100,142) $(146,593)
=======================================================================================================================
Accumulated other comprehensive income -- net of tax (Note 1)
Balance at beginning of year $ 83,361 $ 23,116 $ (52,466)
Net other comprehensive (loss) income (39,135) 60,245 75,582
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 44,226 $ 83,361 $ 23,116
- -----------------------------------------------------------------------------------------------------------------------
Total shareholder's equity $ 323,213 $ 359,389 $ 263,005
=======================================================================================================================
See Notes to Financial Statements
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
American Express Certificate Company (AECC), is a wholly-owned subsidiary of
American Express Financial Corporation (AEFC), 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. Face-amount
certificates issued by AECC entitle the certificate owner to receive at maturity
a stated amount of money and interest or credits declared from time to time by
AECC, at its discretion. The certificates issued by AECC are not insured by any
government agency. AECC's certificates are sold primarily by American Express
Financial Advisors Inc. (AEFAI) and American Express Bank Ltd. (AEB), both
affiliates of AECC. AEFAI is registered as a broker dealer in all 50 states, the
District of Columbia and Puerto Rico. AEFC acts as investment advisor for AECC.
As of December 31, 2003, AECC offered nine different certificate products to the
public with specified maturities ranging from ten to twenty years. Within their
specified maturity, most certificates have interest rate terms of one to
thirty-six months. In addition, three types of certificates have interest tied,
in whole or in part, to 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, 401(k) plans and other qualified retirement
plans.
AECC's net investment income is derived primarily from interest and dividends
generated by its investments. AECC's net income is determined by deducting from
net investment income provision expenses for certificate reserves, and other
expenses, including taxes, fees paid to AEFC for investment advisory and other
services, distribution fees paid to AEFAI, and marketing fees paid to AEB, a
wholly-owned indirect subsidiary of American Express Company.
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,
Investors Syndicate Development Corporation, as prescribed by the Securities and
Exchange Commission (SEC) for non-investment company subsidiaries. Certain
reclassifications of prior period amounts have been made to conform to the
current presentation.
Accounting estimates are an integral part of the Financial Statements. In part,
they are based upon assumptions concerning future events. Among the more
significant is investment securities valuation as discussed in detail below.
These accounting estimates reflect the best judgment of management and actual
results could differ.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
Interest income
Interest income is accrued as earned using the effective interest method, which
makes an adjustment for security premiums and discounts, so that the related
security recognizes a constant rate of return on the outstanding balance
throughout its term.
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.
Cash and cash equivalents
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 original maturities of ninety days or less.
Available-for-Sale investments
Debt securities and marketable equity securities are classified as
Available-for-Sale and carried at fair value. Unrealized gains (losses) on
securities classified as Available-for-Sale are reflected, net of taxes, in
other comprehensive (loss) income as part of Shareholder's Equity.
The basis for determining cost in computing realized gains (losses) on
securities is specific identification. Gains (losses) are recognized in the
results of operations upon disposition of the securities. In addition, losses
are also recognized when management determines that a decline in value is
other-than-temporary, which requires judgment regarding the amount and timing of
recovery. Indicators of other-than-temporary impairment for debt securities
include issuer downgrade, default or bankruptcy. AECC also considers the extent
to which cost exceeds fair value, the duration of time of that decline and
management's judgment as to the issuer's current and prospective financial
condition. The charges are reflected in net realized gain (loss) on investments
in the statements of operations.
Fair value is generally based on quoted market prices. However, AECC's
investment portfolio also contains structured investments of various asset
quality, which are not readily marketable. As a result, the carrying values of
these structured investments are based on future cash flow projections that
require a significant degree of management judgment as to the amount and timing
of cash payments, defaults and recovery rates of the underlying investments and
as such, are subject to change.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
First mortgage loans on real estate and other loans
First mortgage loans on real estate reflect principal amounts outstanding less
reserves for losses, which is the basis for determining realized gains (losses).
Estimated fair values of mortgage loans on real estate are determined by a
discounted cash flow analysis using mortgage interest rates currently offered
for mortgages of similar maturities. Other loans reflect amortized cost less
reserve for losses. Fair values of other loans represent estimated fair values
when quoted prices are not available.
The reserve for loan losses 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. Additionally, the level of the reserve account is determined based
on several factors, including historical experience and current economic and
political conditions. Management regularly evaluates the adequacy of the reserve
for loan losses, and believes it is adequate to absorb estimated losses in the
portfolio.
AECC generally stops accruing interest on mortgage loans on real estate 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.
Certificate Reserves
Investment certificates may be purchased either with a lump-sum payment or by
installment payments. Certificate product 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
Distribution fees on sales of certain series of certificate products are
deferred and amortized over the estimated lives of the related certificates,
which is approximately one year and can be up to 10 years. Upon surrender prior
to maturity, unamortized deferred distribution fees are reflected in expenses
and any related surrender charges are reflected as a reduction to the provision
expense for certificate reserves. Products are designed to recover such costs
within the surrender charge period.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Federal income taxes
AECC's taxable income (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 AEFC 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 AEFC and its subsidiaries that
AEFC will reimburse its subsidiaries for any tax benefits recorded.
Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses
consolidation by business enterprises of variable interest entities (VIEs) and
was subsequently revised in December 2003. An entity is subject to consolidation
according to the provisions of FIN 46, if, by design, either (i) the total
equity investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated financial support from other parties,
or, (ii) as a group, the holders of the equity investment at risk lack: (a)
direct or indirect ability to make decisions about an entity's activities; (b)
the obligation to absorb the expected losses of the entity if they occur; or (c)
the right to receive the expected residual returns of the entity if they occur.
In general, FIN 46 requires a VIE to be consolidated when an enterprise has a
variable interest for which it is deemed to be the primary beneficiary which
means that it will absorb a majority of the VIE's expected losses or receive a
majority of the VIE's expected residual return.
FIN 46 did not impact the accounting for $27 million in a minority-owned secured
loan trust (SLT) or $6 million in a collateralized debt obligation traunche
(solely supported by a portfolio of high yield bonds), both of which are managed
by third parties, as AECC is not the primary beneficiary. AECC has a 33 percent
ownership interest in the SLT, which provides returns to investors primarily
based on the performance of an underlying portfolio of high yield loans. The
aggregate fair value of the loans related to AECC's pro rata share of this
structure approximates $92.5 million. AECC's maximum exposure to loss as a
result of its investment in this SLT is represented by the carrying value, which
is $27 million at December 31, 2003.
In April 2003, the FASB issued Statement of Financial Accounting Standards Board
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" (SFAS No. 149). SFAS No. 149 amends and clarifies accounting
for derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered
into or modified and hedging relationships designated after June 30, 2003, and
to certain preexisting contracts. SFAS No. 149 did not have a material impact on
AECC's financial statements.
In November 2003, the FASB ratified a consensus on the disclosure provisions of
Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments". The
disclosure provisions of this rule, which are addressed in Note 3, require
tabular presentation of certain information regarding investment securities with
gross unrealized losses.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
2. DEPOSIT OF ASSETS AND MAINTENANCE OF QUALIFIED ASSETS
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 $4.8 billion and $4.5 billion at December 31, 2003 and 2002,
respectively. AECC reported Qualified Assets of $5.1 billion and $4.8 billion at
December 31, 2003 and 2002, respectively, excluding net unrealized pretax
appreciation on Available-for-Sale securities of $74 million and $135 million at
December 31, 2003 and 2002, respectively, and unsettled investment purchases of
$9 million and $264 million at December 31, 2003 and 2002, respectively.
Qualified Assets are valued in accordance with such provisions of Minnesota
Statutes as are applicable to investments of life insurance companies. 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.
Pursuant to provisions of the certificates, the 1940 Act, the central depository
agreement and requirements of various states, qualified assets (accounted for on
a trade date basis) of AECC were deposited as follows:
December 31, 2003
-----------------------------------------
Required
(Thousands) Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate liability
requirements:
Pennsylvania (at market value) $ 162 $ 100 $ 62
Texas, Illinois, New Jersey (at par value) $ 215 $ 185 $ 30
Central Depository (at amortized cost) $5,004,553 $4,742,572 $261,981
- ---------------------------------------------------------------------------------------
December 31, 2002
-----------------------------------------
Required
(Thousands) Deposits Deposits Excess
- ---------------------------------------------------------------------------------------
Deposits to meet certificate liability
requirements:
Pennsylvania (at market value) $ 166 $ 100 $ 66
Texas, Illinois, New Jersey (at par value) $ 215 $ 185 $ 30
Central Depository (at amortized cost) $5,020,340 $4,472,886 $547,454
- ---------------------------------------------------------------------------------------
The assets on deposit with the central depository at December 31, 2003 and 2002
consisted of securities and other loans having a deposit value of $4.6 billion
at both balance sheet dates, mortgage loans on real estate of $331 million and
$339 million, respectively, and other investments of $74 million and $73
million, respectively. Additionally, these assets on deposit include unsettled
purchases of investments in the amount of $9 million and $264 million at
December 31, 2003 and 2002, respectively.
American Express Trust Company is the central depository for AECC. See Note 7.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS IN UNAFFILIATED ISSUERS
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, among other things, review
of market indexes, price levels of current offerings and comparable issues,
price estimates, estimated future cash flows, and market data from independent
brokers.
Investments classified as Available-for-Sale securities at December 31 are
distributed by type as presented below:
2003
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
Mortgage and asset-backed securities $2,605,686 $35,954 $(10,975) $2,630,665
Corporate debt securities 1,710,353 53,497 (7,762) 1,756,088
Stated maturity preferred stock 44,340 1,178 (34) 45,484
Structured Investments 32,592 1,788 -- 34,380
Perpetual preferred stock 17,782 270 -- 18,052
U.S. Government & agency obligations 15,355 350 -- 15,705
State and municipal obligations 9,539 6 (214) 9,331
Common Stock -- 21 -- 21
- -------------------------------------------------------------------------------------------------------
Total $4,435,647 $93,064 $(18,985) $4,509,726
- -------------------------------------------------------------------------------------------------------
2002
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
Mortgage and asset-backed securities $2,938,348 $ 94,528 $ (1,728) $3,031,148
Corporate debt securities 1,172,446 53,394 (15,540) 1,210,300
Stated maturity preferred stock 82,554 1,876 (383) 84,047
Structured Investments 33,470 2,175 -- 35,645
Perpetual preferred stock 17,782 266 -- 18,048
State and municipal obligations 9,424 385 -- 9,809
U.S. Government & agency obligations 362 37 -- 399
- -------------------------------------------------------------------------------------------------------
Total $4,254,386 $152,661 $(17,651) $4,389,396
- -------------------------------------------------------------------------------------------------------
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
The following table provides information about Available-for-Sale securities
with gross unrealized losses and the length of time that individual securities
have been in a continuous unrealized loss position as of December 31, 2003:
(Thousands) Less than 12 months 12 months or more Total
- ------------------------------------------------------------------------------------------------------------
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
- ------------------------------------------------------------------------------------------------------------
Corporate debt securities $ 444,318 $ (7,147) $15,789 $ (615) $ 460,107 $ (7,762)
Mortgage and other
asset-backed securities 1,006,572 (9,513) 13,742 (1,462) 1,020,314 (10,975)
State and municipal obligations 8,790 (214) -- -- 8,790 (214)
Other -- -- 454 (34) 454 (34)
- ------------------------------------------------------------------------------------------------------------
Total $1,459,680 $(16,874) $29,985 $(2,111) $1,489,665 $(18,985)
- ------------------------------------------------------------------------------------------------------------
Approximately 114 investment positions were in an unrealized loss position as of
December 31, 2003. The gross unrealized losses on these securities are
attributable to a number of factors including changes in interest rates and
credit spreads, and specific credit events associated with individual issuers.
As part of its ongoing monitoring process, management has concluded that none of
these securities are other-than-temporarily impaired at December 31, 2003. AECC
has the ability and intent to hold these securities for a time sufficient to
recover its amortized cost. See the Available-for-Sale Investments section of
Note 1 for information regarding AECC's policy for determining when an
investment's decline in value is other-than-temporary.
The amortized cost and fair value of Available-for-Sale securities, by
contractual maturity at December 31, 2003 are shown below. Cash flows may differ
from contractual maturities because issuers may call or prepay obligations.
Amortized Fair
(Thousands) Cost Value
- ---------------------------------------------------------------------------
Due within one year $ 136,654 $ 138,877
Due from one to five years 1,302,466 1,343,323
Due from five to ten years 370,043 374,833
Due in more than ten years 3,016 3,955
- ---------------------------------------------------------------------------
$1,812,179 $1,860,988
Mortgage and asset-backed securities 2,605,686 2,630,665
Perpetual preferred stock 17,782 18,052
Common Stock -- 21
- ---------------------------------------------------------------------------
Total $4,435,647 $4,509,726
- ---------------------------------------------------------------------------
Mortgage and other asset-backed securities primarily reflect GNMA, FNMA, and
FHLMC securities at December 31, 2003 and 2002.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Gross realized gains on sales of securities classified as Available-for-Sale,
using the specific identification method, were $47.1 million, $23.4 million and
$20.7 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Gross realized losses on sales were ($2.8 million), ($15.7
million) and ($83.9 million) for the same periods. AECC also recognized losses
of ($36 million), ($15.8 million) and ($27.9 million) in other-than-temporary
impairments on Available-for-Sale securities for the years ended December 31,
2003, 2002 and 2001, respectively.
AECC's net losses in 2001 were primarily composed of a ($36.9 million) loss to
recognize the impact of higher default assumptions used to determine impairment
on rated structured investments and a ($57.1 million) loss on high-yield
securities. The write-downs of these investments were associated with AECC's
decision to reduce the company's holdings of high-yield investments and
rebalance the fixed maturity investment portfolio towards higher quality, less
volatile holdings.
Investments in securities with fixed maturities comprised 90 percent and 85
percent of AECC's total investments at December 31, 2003 and 2002, respectively.
Securities are rated by Moody's and Standard & Poors (S&P), or by AEFC's
internal analysts, using criteria similar to Moody's and S&P, when a public
rating does not exist. Ratings are presented using S&P's convention and if the
two agency's ratings differ, the lower rating is used. A summary of investments
in securities with fixed maturities, at amortized cost, by rating of investment
is as follows:
Rating 2003 2002
- --------------------------------------------------------------------------------
AAA 60% 69%
AA 2 1
A 16 11
BBB 18 16
Below investment grade 4 3
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
Of the securities rated AAA, 94 percent at December 31, 2003 and 2002, are U.S.
Government Agency mortgage-backed securities that are rated by a public rating
agency. At December 31, 2003 and 2002, approximately 6 percent and 9 percent,
respectively, of securities with fixed maturities, other than U.S. Government
Agency mortgage-backed securities, are rated by AEFC's internal analysts.
At December 31, 2003 and 2002 no one issuer, other than U.S. Government Agency
mortgage-backed securities, is greater than 1 percent of AECC's total investment
in securities with fixed maturities.
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. AECC's board
of directors, using the aforementioned procedures and factors, determine fair
values of such restricted securities.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
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 AND OTHER LOANS
The carrying amounts and fair values of first mortgage loans on real estate and
other loans at December 31 are below
2003 2002
------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------
First mortgage loans on real estate $337,489 $355,442 $342,147 $366,198
Other loans 141,356 138,356 114,319 113,319
Reserve for losses (9,536) -- (4,223) --
- -----------------------------------------------------------------------------------------------------
Net first mortgage and other loans $469,309 $493,798 $452,243 $479,517
- -----------------------------------------------------------------------------------------------------
During the year ended December 31, 2003, AECC held investments in impaired
mortgage or other loans totaling $9.9 million. AECC recognized $0.4 million of
interest income related to such investments for the year ended December 31,
2003. AECC did not hold any investments in impaired mortgage loans or other
loans during 2002 and 2001.
The reserve for loss on mortgage loans and other loans increased to $9.5 million
on December 31, 2003, from $4.2 million at December 31, 2002 and $1.9 million at
December 31, 2001.
At December 31, 2003 and 2002, approximately 7 percent, 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 December 31, is as follows:
Region of the United States of America 2003 2002
- --------------------------------------------------------------------------------
South Atlantic 18% 18%
West North Central 15 15
East North Central 12 13
Mountain 10 13
West South Central 17 17
Pacific 16 12
New England 7 6
Middle Atlantic 5 6
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
Property Type 2003 2002
- --------------------------------------------------------------------------------
Office buildings 42% 41%
Retail/shopping centers 23 20
Apartments 10 14
Industrial buildings 14 15
Other 11 10
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 2003 and 2002, commitments for funding of first mortgage loans
on real estate, at market interest rates, aggregated $9.8 million and $13.4
million, 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 first mortgage loans on real estate is restricted to
80 percent or less of the market value of the real estate at the time of the
loan funding. Fair values for these commitments were not substantial at December
31, 2003 and 2002.
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 December 31 were as
follows:
2003
-----------------------------------------
Average Gross Average
Reserve Accumulation Additional
(Dollars in Thousands) Balance Rates Credit Rates
- -----------------------------------------------------------------------------------------
Installment certificates:
Reserves to mature:
With guaranteed rates $ 11,153 4.00% .50%
Without guaranteed rates (a) 134,899 -- .80%
Additional credits and accrued interest 3,514 3.22% --
Advance payments and accrued interest (b) 499 3.35% --
Other 32 -- .32%
Fully paid certificates:
Reserves to mature:
With guaranteed rates 90,149 3.21% .01%
Without guaranteed rates (a) and (c) 4,483,365 -- .53%
Additional credits and accrued interest 64,114 3.05% --
Due to unlocated certificate holders 92
- -----------------------------------------------------------------------------------------
Total $4,787,817
- -----------------------------------------------------------------------------------------
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
2002
-----------------------------------------
Average Gross Average
Reserve Accumulation Additional
(Dollars in Thousands) Balance Rates Credit Rates
- -----------------------------------------------------------------------------------------
Installment certificates:
Reserves to mature:
With guaranteed rates $ 12,663 3.50% .50%
Without guaranteed rates (a) 156,294 -- 1.04%
Additional credits and accrued interest 3,988 3.20% --
Advance payments and accrued interest (b) 564 3.30% --
Other 34 -- .18%
Fully paid certificates:
Reserves to mature:
With guaranteed rates 95,941 3.20% .01%
Without guaranteed rates (a) and (c) 4,181,407 -- .73%
Additional credits and accrued interest 42,311 3.08% --
Due to unlocated certificate holders 170 -- --
- -----------------------------------------------------------------------------------------
Total $4,493,372
- -----------------------------------------------------------------------------------------
(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) Certain series of installment certificates guarantee accrual of interest on
advance payments at an average of 3.26 percent. AECC's rate of accrual is
currently set at 4 percent, which is in effect through April 30, 2004.
(c) American Express Stock Market Certificate, American Express Market Strategy
Certificate and American Express Equity Indexed Savings Certificates 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 52 weeks and may continue for up to 20 successive terms. The
reserve balance on these certificates at December 31, 2003 and 2002 was
$1.3 million and $1 million, respectively.
Certificate maturities and surrenders through loan reductions during the years
ended December 31, 2003 and 2002 were $2.4 million and $3.1 million,
respectively.
On certain series of single payment certificates, additional interest is
pre-declared for periods greater than one year. The retained earnings
appropriated for the pre-declared additional interest at December 31, 2003 and
2002 was $184 thousand and $811 thousand, respectively, which reflects the
difference between certificate reserves on these series, calculated on a
statutory basis, and the reserves maintained per books.
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 discounted cash flow
analyses using interest rates currently offered for certificates with similar
remaining terms, less any applicable surrender charges.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
The carrying amounts and fair values of certificate reserves at December 31,
consisted of the following:
2003 2002
------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------
Reserves with terms of one year or less $4,322,321 $4,320,182 $4,007,664 $4,005,622
Other 465,496 471,427 485,708 497,689
- ----------------------------------------------------------------------------------------------------
Total certificate reserves $4,787,817 $4,791,609 $4,493,372 $4,503,311
Unapplied certificate transactions 3,499 3,499 801 801
Certificate loans and accrued interest (15,798) (15,798) (18,824) (18,824)
- ----------------------------------------------------------------------------------------------------
Total $4,775,518 $4,779,310 $4,475,349 $4,485,288
- ----------------------------------------------------------------------------------------------------
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 one percent on such series of certificates have
been authorized by AECC. This restriction has been removed for 2003 and 2004 by
AECC's declaration of additional credits in excess of this requirement.
7. RELATED PARTY TRANSACTIONS
Investment advisory, joint facilities, technology support, and treasury services
The investment advisory and services agreement with AEFC provides for a
graduated scale of fees equal on an annual basis to 0.750 percent on the first
$250 million of total book
value of assets of AECC, 0.650 percent on the next $250 million, 0.550 percent
on the next $250 million, 0.500 percent on the next $250 million and 0.107
percent on the amount in excess of $1 billion. The fee is payable monthly in an
amount equal to one-twelfth of each of the percentages set forth above. Excluded
from assets for purposes of this computation are first mortgage and other loans,
real estate and any other asset on which AECC pays an outside advisory or
service fee. The fee paid to AEFC for managing and servicing bank loans is 0.35
percent.
Distribution services
Fees payable to AEFAI on sales of AECC's certificates are based upon terms of
agreements giving AEFAI 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 AEFAI may be
lowered. There were no changes to the distribution fees for the promotion of the
American Express Flexible Savings Certificate, which occurred March 26, 2003 to
May 13, 2003.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
The aggregate fees payable under the agreements is $25 per $1,000 face amount of
installment certificates sold on or after April 30, 1997. The aggregate fees
payable for the first year is $2.50 and the remaining $22.50 aggregate fees is
payable over nine subsequent years.
Fees on the American Express Investors Certificate are paid at an annualized
rate of 1 percent of the reserves maintained for the certificates. Fees are paid
at the end of each term on certificates with a one-, two- or three-month term.
Fees are paid each quarter from date of issuance on certificates with a six,
twelve, twenty-four or thirty-six month term.
Fees on the American Express Preferred Investors Certificate are paid at a rate
of 0.165 percent of the initial payment on issue date of the certificate and
0.165 percent of the certificate's reserve at the beginning of the second and
subsequent quarters from issue date.
Effective April 26, 2000, fees on the American Express Flexible Savings
Certificate are paid at a rate of 0.08 percent of the purchase price at the time
of issuance and 0.08 percent 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 percent of the purchase price at time of issuance and 0.20 percent
of the reserves maintained for these certificates at the beginning of the second
and subsequent quarters from issue date.
Effective April 25, 2001 fees on the American Express Cash Reserve Certificate
are paid at a rate of 0.0625 percent of the purchase price at the time of
issuance and 0.0625 percent 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 24, 2001, fees on the American
Express Cash Reserve Certificate are paid at a rate of 0.20 percent of the
purchase price at the time of issuance and 0.20 percent of the reserves
maintained for these certificates at the beginning of the second and subsequent
quarters from issue date.
Effective April 28, 1999, fees on the American Express Stock Market, sold
through AEFAI, and American Express Market Strategy Certificates are paid at a
rate of 0.90 percent. For certificates sold from April 30, 1997 to April 27,
1999, fees were paid at the rate of 0.70 percent. 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 percent. For certificates sold from April 28, 1999 to April 25,
2000, fees were paid at the rate of 1.00 percent. For certificates sold from
April 30, 1997 to April 27, 1999, fees were paid at a rate of 1.25 percent. 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 Certificates are paid at a
rate of 1.00 percent of the initial investment on the first day of each
certificate's term and 1.00 percent of the certificate's reserve at the
beginning of each subsequent term.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Depository fees
The basis for computing fees paid or payable to American Express Trust Company
for depository services is as follows:
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
Maintenance charge for assets held 50 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.
Distribution fees
The basis for computing fees paid or payable to American Express Bank Ltd. (an
affiliate) for the distribution of the American Express Special Deposits on an
annualized basis is 1.25 percent of the reserves maintained for the certificates
on an amount from $100,000 to $249,999, 0.80 percent on an amount from $250,000
to $499,999, 0.65 percent on an amount from $500,000 to $999,999 and 0.50
percent on an amount $1,000,000 or more. Fees are paid at the end of each term
on certificates with a one-, two- or three-month term. Fees are paid at the end
of each quarter from date of issuance on certificates with six, twelve,
twenty-four, or thirty-six month terms.
Transfer agent fees
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 January 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 January 1, 1998, AEFC
provided this service to AECC under the investment advisory and services
agreement.
Dividends
In 2001, AECC effectively paid a $167 million dividend to AEFC by transferring
at book value certain CDOs. In part, the dividend was paid to allow AEFC to
transfer the CDOs and related accrued interest into a securitization trust.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES
Income tax (expense) benefit as shown in the Statements of Operations for the
three years ended December 31 consists of:
(Thousands) 2003 2002 2001
- ----------------------------------------------------------------------------------------------------
Federal:
Current $(44,777) $(24,367) $26,007
Deferred 17,804 3,288 9,792
- ----------------------------------------------------------------------------------------------------
(26,973) (21,079) 35,799
State (1,354) (156) (120)
- ----------------------------------------------------------------------------------------------------
Total income tax (expense) benefit $(28,327) $(21,235) $35,679
- ----------------------------------------------------------------------------------------------------
Income tax (expense) benefit differs from that computed by using the federal
statutory rate of 35%. The principal causes of the difference in each year are
shown below:
(Thousands) 2003 2002 2001
- ----------------------------------------------------------------------------------------------------
Federal tax (expense) benefit at federal statutory rate $(28,449) $(23,581) $30,752
Dividend exclusion 998 2,462 4,971
Other, net 478 40 76
- ----------------------------------------------------------------------------------------------------
Federal tax (expense) benefit $(26,973) $(21,079) $35,799
- ----------------------------------------------------------------------------------------------------
Deferred income taxes result from the net tax effects of temporary 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
December 31, were:
(Thousands) 2003 2002
- --------------------------------------------------------------------------------
Deferred tax assets
Certificate reserves $18,454 $ 1,793
Investments 34,425 14,649
Purchased/written call options -- 689
Other, net 140 245
- --------------------------------------------------------------------------------
Total deferred tax assets $53,019 $ 17,376
- --------------------------------------------------------------------------------
Deferred tax liabilities
Investment unrealized gains, net $23,814 $ 44,720
Deferred distribution fees 2,259 2,091
Purchased/written call options 17,501 --
Other, net 124 121
- --------------------------------------------------------------------------------
Total deferred tax liabilities 43,698 46,932
- --------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 9,321 $(29,556)
- --------------------------------------------------------------------------------
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.
Net income taxes paid during the years ended December 31, 2003 and 2002 were
$71.6 million and $22.2 million, respectively.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
9. DERIVATIVE FINANCIAL INSTRUMENTS
AECC maintains an overall risk management strategy that incorporates the use of
derivative instruments to minimize significant unplanned fluctuations in
earnings that are caused by interest rate and equity market volatility. AECC
enters into interest rate swaps to manage interest rate sensitivity and enters
into options and futures contracts to mitigate the negative effect on earnings
that would result from an increase in the equity markets.
AECC is exposed to risk associated with fluctuating interest payments on certain
certificate products tied to the London Interbank Offering Rate (LIBOR) as the
certificate products reset at shorter intervals than the average maturity of the
investment portfolio. AECC's goal is to manage interest rate sensitivity by
modifying the length of the interest crediting rate reset interval on
certificate products so that movements in interest rates do not adversely affect
the interest credited to such certificate products. As a result of interest rate
fluctuations, the amount of interest paid on hedged liabilities will positively
or negatively impact reported earnings. Income or loss on the derivative
instruments that are linked to the hedged liabilities will generally offset the
effect of this impact. AECC views this strategy as a prudent management of
interest rate sensitivity, such that earnings are not exposed to undue risk
presented by changes in interest rates.
AECC uses interest rate swap contracts to hedge the risk of interest rate
fluctuations on a portion of the certificate products. Interest rate swaps
generally involve the exchange of fixed and variable rate interest rate payments
between two parties, based on a common notional principal amount and maturity
date. AECC is required to pay counterparties to the contracts a stream of fixed
interest payments, and in turn, receives a stream of LIBOR-based variable
interest payments.
The interest rate swaps qualify for and are designated as cash flow hedges. The
effective portions of changes in the fair value of the derivatives are recorded
in other comprehensive income. Amounts are reclassified from other comprehensive
income to investment income as interest is credited to certificate reserves. The
fair value of the interest rate swaps are included in accounts payable and
accrued liabilities on the balance sheet.
For the years ended December 31, 2003 and 2002, AECC recognized no losses on the
derivatives as a result of ineffectiveness. AECC reclassified into earnings
pretax losses of ($5.3 million) and ($9.8 million) during 2003 and 2002,
respectively. An estimated ($6 million) of the unrealized losses accumulated in
other comprehensive income related to derivatives designated as cash flow hedges
will be reclassified into earnings by December 31, 2004. This effect will occur
at the same time as AECC realizes the benefits of lower market rates of interest
on its certificates. The longest period of time over which AECC is hedging
exposure to the variability in future cash flows is 14 months.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
Effective January 1, 2001, AECC adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended (SFAS No. 133), which establishes the accounting and
reporting standards for derivative instruments and hedging activities. The
adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative after-tax
reduction of $0.4 million and $2.2 million to net income and other comprehensive
income, respectively.
AECC offers American Express Stock Market Certificates ("SMC") that offer a
return based upon the relative change in a major stock market index between the
beginning and end of the SMC's term. The SMC product contains an embedded
derivative, essentially the equity based return of the certificate that must be
separated from the host contract and accounted for as a derivative instrument
per SFAS No. 133. As a result of fluctuations in equity markets, and the
corresponding changes in value of the embedded derivative, the amount of
expenses incurred by AECC related to SMC will positively or negatively impact
reported earnings. As a means of hedging its obligations under the provisions
for these certificates, AECC purchases and writes call options on the major
market index. AECC views this strategy as a prudent management of equity market
sensitivity, such that earnings are not exposed to undue risk presented by
changes in equity market levels.
On the same series of certificates, AECC also purchases futures on the major
market index to economically hedge its obligations. The futures are
marked-to-market daily and exchange traded, exposing AECC to no counterparty
risk.
The options and futures contracts do not receive special hedge accounting under
SFAS No. 133. As such, any changes in the fair value of the contracts are taken
through earnings. The fair values of the purchased and written call options are
included in other qualified assets and accounts payable and accrued liabilities,
respectively, on the balance sheet. The fair value of the embedded derivatives
is reflected in certificate reserves. Gains (losses) on options and futures are
reflected in investment income on the statements of operations. Changes in fair
values of embedded derivative instruments are reflected in provision expense for
certificate product reserves.
By using derivative instruments, AECC is exposed to credit and market risk.
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.
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
manages the market risk associated with interest rate contracts by establishing
and monitoring limits as to the types and degree of risk that may be undertaken.
AECC primarily uses derivatives to manage risk and, therefore, cash flow and
income effects of such derivatives generally offset effects of the underlying
certificate product reserves.
American Express Certificate Company -- Notes to Financial Statements
- --------------------------------------------------------------------------------
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 AEFC and other affiliates,
Payable for investment securities purchased and Other accounts payable and
accrued expenses approximate the carrying amounts disclosed in the Balance
Sheets.
A summary of fair values of financial instruments as of December 31, is as
follows:
2003 2002
-----------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Value Value Value Value
- -----------------------------------------------------------------------------------------------------------
Financial assets:
Assets for which carrying values
approximate fair values $ 101,105 $ 101,105 $ 298,870 $ 298,870
Investment securities (Note 3) $4,509,726 $4,509,726 $4,389,396 $4,389,396
First mortgage loans on real estate and
Other loans (Note 4) $ 469,309 $ 493,798 $ 452,243 $ 479,517
Derivative financial instruments (Note 9) $ 153,162 $ 153,162 $ 34,403 $ 34,403
Financial liabilities:
Liabilities for which carrying values
approximate fair values $ 24,444 $ 24,444 $ 315,961 $ 315,961
Net certificate reserves (Note 5) $4,775,518 $4,779,310 $4,475,349 $4,485,288
Derivative financial instruments (Note 9) $ 116,680 $ 116,680 $ 29,579 $ 29,579
- -----------------------------------------------------------------------------------------------------------
Quick telephone reference*
Selling Agent: American Express Bank International
Region offices 101 East 52nd Street (212) 415-9500
4th Floor
New York, NY 10022
1221 Brickell Avenue (305) 350-7750
8th Floor
Miami, FL 33131
* You may experience delays when call volumes are high.
- --------------------------------------------------------------------------------
(logo)
AMERICAN
EXPRESS
(R)
- --------------------------------------------------------------------------------
American Express
Certificate Company
70100 AXP Financial Center
Minneapolis, MN 55474
(800) 862-7919
(612) 671-3131
Distributed by
American Express
Financial Advisors Inc.
Investment Company Act File #811-00002
S-6038 L (4/04)
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
2001 American Express Special Deposits 11,585,244.00
2002 American Express Special Deposits 9,792,888.00
2003 American Express Special Deposits 13,341,309.00
(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 $549,636.58 in 2001, $446,326.20 in 2002 and $263,897.87 in
2003.
(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 American Express Financial Corporation dated March 6,
2002, filed electronically as Exhibit 10(a) to Post-Effective
Amendment No. 51 to Registration Statement No. 2-55252, 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 10(q)(2) to Post-Effective Amendment No. 31 to
Registration Statement No. 2-95577, 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 March 3, 2004, filed
electronically as Exhibit 24(a) to Post-Effective Amendment
No. 31 to Registration Statement No. 2-95577 is incorporated
herein by reference.
(b) Directors' Power of Attorney dated March 3, 2004, filed
electronically as Exhibit 24(b) to Post-Effective Amendment
No. 31 to Registration Statement No. 2-95577 is incorporated
herein by reference.
25. through 27. -- None.
(b) The financial statement schedules for American Express Certificate
Company, filed electronically as Exhibit 16(b) in Post-Effective
Amendment No. 31 to Registration Statement No. 2-95577 for American
Express Flexible Savings Certificate, 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, and American
Express Bank International, as selling agent will assume any
actionable civil liability which may arise under the Federal
Securities Act of 1933, the Federal Securities Exchange Act of
1934 or the Federal Investment Company Act of 1940, in
addition to any such liability arising at law or in equity,
out of any untrue statement of a material fact made by their
respective agents in the due course of their business in
selling or offering for sale, or soliciting applications for,
securities issued by the Company or any omission on the part
of their respective agents to state a material fact necessary
in order to make the statements so made, in the light of the
circumstances in which they were made, not misleading (no such
untrue statements or omissions, however, being
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 27, 2004.
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
27, 2004.
Signature Capacity
/s/ Paula R. Meyer President and Director
- ---------------------- (Principal Executive Officer)
Paula R. Meyer
/s/ Brian J. McGrane Vice President and Chief Financial Officer
- ---------------------- (Principal Financial Officer)
Brian J. McGrane
/s/ Jeryl A. Millner Vice President and Controller
- ---------------------- (Principal Accounting Officer)
Jeryl A. Millner
/s/ Rodney P. Burwell** Director
- -----------------------
Rodney P. Burwell
/s/ Director
- ----------------------
Jean B. Keffeler
/s/ Thomas R. McBurney** Director
- ------------------------
Thomas R. McBurney
/s/ Kent M. Bergene** Director
- ---------------------
Kent M. Bergene
/s/ Karen M. Bohn** Director
- -------------------
Karen M. Bohn
/s/ Walter S. Berman* ** Director and Treasurer
- ----------------------
Walter S. Berman
* Signed pursuant to Officers' Power of Attorney dated March 3, 2004, filed
electronically as Exhibit 24(a) to Post-Effective Amendment No. 31 to
Registration Statement No. 2-95577, by:
/s/ Paula R. Meyer
- ----------------------
Paula R. Meyer
** Signed pursuant to Directors' Power of Attorney dated March 3, 2004, filed
electronically as Exhibit 24(b) to Post-Effective Amendment No. 31 to
Registration Statement No. 2-95577, by:
/s/ Paula R. Meyer
- ----------------------
Paula R. Meyer