SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
POST-EFFECTIVE AMENDMENT NUMBER 20 TO
REGISTRATION STATEMENT NUMBER 33-26844
AMERICAN EXPRESS INVESTORS 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.)
IDS Tower 10, Minneapolis, MN 55440, (612) 671-3131
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Bruce A. Kohn - IDS Tower 10, Minneapolis, MN 55440-0010, (612) 671-2221
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
<PAGE>
Explanatory Note
The prospectuses contained in Part I of the Registration Statement are
substantially similar and are for the same product. The prospectus indicated
"for selected investors" on the front cover contains the following differences
from the other Investors Certificate prospectus: The prospectus for selected
investors is designed for those selected persons who plan to invest at least $50
million in certain combinations of these certificates. This is indicated on the
front cover and again under "Investment amount and terms." There is also a
provision stating that if the certificate owner requests a withdrawal exceeding
$50 million that the issuer may defer payment for up to 30 days. This provision
is found under "Full and partial withdrawals."
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CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 20 TO
REGISTRATION STATEMENT NO. 33-26844
Cover Page
Prospectus
Part II Information
Signatures
Exhibits
<PAGE>
American Express Investors Certificate
Prospectus April 26, 2000
Provides high fixed rates with capital preservation.
American Express Certificate Company (the Issuer, AECC or AXP Certificate
Company), formerly IDS Certificate Company, issues American Express Investors
Certificates. You may:
o Purchase this certificate in any amount from $100,000 through $5 million.
o Select a term of one, two, three, six, 12, 24 or 36 months.
o Invest in successive terms up to a total of 20 years from the issue date of
the certificate.
This certificate is available in New York and Florida to persons who are neither
citizens nor residents of the United States and to certain U.S. trusts.
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. See "Risk
Factors" on page 2p.
American Express Certificate Company 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
Unit 557
200 AXP Financial Center
Minneapolis, MN 55474
800-862-7919
612-671-3131
Distributor:
American Express Financial Advisors Inc.
Selling Agent:
American Express Bank International
<PAGE>
Initial Interest Rates
The Issuer guarantees a fixed rate of interest for each term. For the initial
term, the rate will be within a specified range of certain average interest
rates generally referred to as the London Interbank Offered Rates (LIBOR). See
"About the Certificate" for more explanation.
Here are the interest rates in effect April 26, 2000*:
Actual
Simple compound Effective
interest yield for annualized
Term rate* the term** yield***
1 month 4.630% 4.630% 4.730%
2 month 4.621% 4.630% 4.720%
3 month 4.761% 4.780% 4.866%
6 month 4.949% 5.000% 5.063%
12 month 5.210% 5.336% 5.336%
24 month 5.418% 5.555% 5.555%
36 month 5.418% 5.555% 5.555%
* These are the rates for investments of $100,000. Rates may depend on
factors described in "Rates for New Purchases" under "About the Certificate."
**Assuming monthly compounding for the number of months in the term and a
$100,000 purchase.
***Assuming monthly compounding for 12 months and a $100,000 purchase.
These rates may or may not have changed when you apply to purchase your
certificate. Rates for future terms are set at the discretion of the Issuer and
may also differ from the rates shown here.
RISK FACTORS
You should consider the following when investing in this 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."
<PAGE>
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."
<PAGE>
Table of Contents
Initial Interest Rates 2p
Risk Factors 2p
About the Certificate 6p
Read and Keep This Prospectus 6p
Investment Amounts and Terms 6p
Face Amount and Principal 7p
Value at Maturity 7p
Receiving Cash During the Term 8p
Interest 8p
Promotions and Pricing Flexibility 9p
Rates for New Purchases 9p
Rates for Future Terms 13p
Additional Investments 13p
Earning Interest 14p
How to Invest and Withdraw Funds 15p
Buying Your Certificate 15p
How to Make Investments at Term End 16p
Full and Partial Withdrawals 17p
When Your Certificate Term Ends 19p
Transfers to Other Accounts 20p
Transfer of Ownership 20p
For More Information 20p
Giving Instructions and Written Notification 20p
Purchases by Bank Wire 22p
Tax Treatment of Your Investment 23p
Withholding Taxes 24p
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How Your Money Is Used and Protected 25p
Invested and Guaranteed by the Issuer 25p
Regulated by Government 26p
Backed by Our Investments 27p
Investment Policies 27p
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 Agreements with American Express
Bank International 35p
About 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 40p
Appendix 41p
Annual Financial Information 42p
Summary of Selected Financial Information 42p
Management's Discussion and Analysis of Financial
Condition and Results of Operations 43p
IDS Certificate Company 50p
Report of Independent Auditors 51p
Financial Statements 52p
Notes to Financial Statements 60p
<PAGE>
About the Certificate
READ AND KEEP THIS PROSPECTUS
This prospectus describes terms and conditions of your American Express
Investors Certificate. It contains facts that can help you decide if the
certificate is the right investment for you. Read the prospectus before you
invest and keep it for future reference. No one has the authority to change the
terms and conditions of the American Express Investors Certificate as described
in the prospectus, or to bind the Issuer by any statement not in it.
This prospectus describes American Express Investors Certificate distributed by
American Express Financial Advisors Inc. American Express Bank International
(AEBI) has an arrangement with American Express Financial Advisors Inc. under
which the certificate is offered to AEBI's clients who are neither citizens nor
residents of the United States and to certain U.S. trusts. The certificate is
currently available through AEBI offices located in Florida and New York. This
certificate also may be available through other selling agents.
INVESTMENT AMOUNTS AND TERMS
You may purchase the American Express Investors Certificate in any amount from
$100,000 payable in U.S. currency. Unless you receive prior approval, your total
amount paid in any one or more certificates, in the aggregate over the life of
the certificates, less withdrawals, cannot exceed $5 million.
After determining the amount you wish to invest, you select a term of one, two,
three, six, 12, 24 or 36 months for which the Issuer will guarantee a specific
interest rate. The Issuer guarantees the principal of and interest on your
certificate. At the end of the term, you may have interest earned on the
certificate during its term credited to your certificate or paid to you.
Investments in the certificate may continue for successive terms up to a total
of 20 years from the issue date of the certificate. Generally, you will be able
to select any of the terms offered. But if your certificate is nearing its
20-year maturity, you will not be allowed to select a term that would carry the
certificate past its 20-year maturity date.
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FACE AMOUNT AND PRINCIPAL
The face amount of the certificate is the amount of your initial investment, and
will remain the same over the life of the certificate. Any investment or
withdrawal within 15 days of the end of a term will be added on or deducted to
determine principal for the new term. A withdrawal at any other time is taken
first from interest credited to your investment during that term. The principal
is the amount that is reinvested at the beginning of each subsequent term, and
is calculated as follows:
Principal equals Face amount (initial investment)
plus At the end of a term, interest credited to your account
during the term
minus Any interest paid to you in cash
plus Any additional investments to your certificate
minus Any withdrawals, fees and applicable penalties
Principal may change during a term as described in "Full and Partial
Withdrawals."
For example: Assume your initial investment (face amount) of $500,000 earned
$7,500 of interest during the term. You have not taken any interest as cash or
made any withdrawals. You have invested an additional $250,000 prior to the
beginning of the next term. Your principal for the next term will equal:
$500,000 Face amount (initial investment)
plus $7,500 Interest credited to your account
minus $(0) Interest paid to you in cash
plus $250,000 Additional investment to your certificate
minus $(0) Withdrawals and applicable penalties or fees
$757,500 Principal at the beginning of the next term
VALUE AT MATURITY
You may continue to invest for successive terms for up to a total of 20 years.
Your certificate matures at 20 years from its issue date. At maturity, you will
receive a distribution for the value of your certificate, which will be the
total of your purchase price, plus additional investments and any credited
interest not paid to you in cash, less any withdrawals and penalties. Some fees
may apply as described in "How to Invest and Withdraw Funds."
<PAGE>
RECEIVING CASH DURING THE TERM
If you need your money before your certificate term ends, you may withdraw part
or all of its value at any time, less any penalties that apply.
Procedures for withdrawing money, as well as conditions under which penalties
apply, are described in "How to Invest and Withdraw Funds."
INTEREST
Your investments earn interest from the date they are credited to your account.
Interest is compounded and credited at the end of each certificate month (on the
monthly anniversary of the issue date). Interest may be paid to you monthly in
cash if you maintain a principal balance of at least $500,000.
The Issuer declares and guarantees a fixed rate of interest for each term during
the life of your certificate. We calculate the amount of interest you earn each
certificate month by:
o applying the interest rate then in effect to your balance each day;
o adding these daily amounts to get a monthly total; and
o subtracting interest accrued on any amount you withdraw during the
certificate month.
Interest is calculated on a 30-day month and 360-day year basis.
This certificate may be available through other distributors or selling agents
with different interest rates or related features and consequently with
different returns. You may obtain information about other such distributors or
selling agents by calling the Client Service Organization in Minneapolis at the
telephone numbers listed on the back cover.
<PAGE>
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.
RATES FOR NEW PURCHASES
The Issuer has complete discretion to determine whether to accept an application
and sell a certificate. When your application is accepted and we have received
your initial investment, we will send you a confirmation of your purchase
showing the rate that your investment will earn. The Issuer guarantees that the
rate in effect for your initial term will be within a 100 basis point (1%) range
tied to certain average interest rates for comparable length dollar deposits
available on an interbank basis in the London market, and generally referred to
as the London Interbank Offered Rates (LIBOR). For investments of $1 million or
more, initial rates for specific terms are determined as follows:
1 month Within a range of 70 basis points below to 30 basis points above the
one-month LIBOR rate.
2 months Within a range of 70 basis points below to 30 basis points above the
two-month LIBOR rate.
3 months Within a range of 70 basis points below to 30 basis points above the
three-month LIBOR rate.
6 months Within a range of 70 basis points below to 30 basis points above the
six-month LIBOR rate.
12 months Within a range of 70 basis points below to 30 basis points above the
12-month LIBOR rate.
24 months Within a range of 50 basis points below to 50 basis points above the
12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
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36 months Within a range of 50 basis points below to 50 basis points above the
12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
For investments from $500,000 to $999,999 initial rates for specific terms are
determined as follows:
1 month Within a range of 90 basis points below to 10 basis points above the
one-month LIBOR rate
2 months Within a range of 90 basis points below to 10 basis points above the
two-month LIBOR rate.
3 months Within a range of 90 basis points below to 10 basis points above the
three-month LIBOR rate.
6 months Within a range of 90 basis points below to 10 basis points above the
six-month LIBOR rate.
12 months Within a range of 90 basis points below to 10 basis points above the
12-month LIBOR rate.
24 months Within a range of 70 basis points below to 30 basis points above the
12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
36 months Within a range of 70 basis points below to 30 basis points above the
12-month LIBOR rate. (A 36-month LIBOR rate is not published)
For investments from $250,000 to $499,999 initial rates for specific terms are
determined as follows:
1 month Within a range of 130 basis points below to 30 basis points below
the one-month LIBOR rate.
2 months Within a range of 130 basis points below to 30 basis points below
the two-month LIBOR rate.
3 months Within a range of 130 basis points below to 30 basis points below
the three-month LIBOR rate.
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6 months Within a range of 130 basis points below to 30 basis points below
the six-month LIBOR rate.
12 months Within a range of 130 basis points below to 30 basis points below
the 12-month LIBOR rate.
24 months Within a range of 110 basis points below to 10 basis points below
the 12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
36 months Within a range of 110 basis points below to 10 basis points below
the 12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
For investments of $100,000 to $249,999, initial rates for specific terms are
determined as follows:
1 month Within a range of 210 basis points below to 110 basis points below
the one-month LIBOR rate.
2 months Within a range of 210 basis points below to 110 basis points below
the two-month LIBOR rate.
3 months Within a range of 210 basis points below to 110 basis points below
the three-month LIBOR rate.
6 months Within a range of 210 basis points below to 110 basis points below
the six-month LIBOR rate.
12 months Within a range of 210 basis points below to 110 basis points below
the 12-month LIBOR rate.
24 months Within a range of 190 basis points below to 90 basis points below
the 12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
36 months Within a range of 190 basis points below to 90 basis points below the
12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
<PAGE>
For example, if the LIBOR rate published on the date rates are determined with
respect to a six-month deposit is 6.50%, the rate declared on a six-month
American Express Investors Certificate greater than $500,000 but less than $1
million would be between 5.60% and 6.60%. If the LIBOR rate published for a
given week with respect to 12-month certificates is 7.00%, the Issuer's rates in
effect that week for the 24- and 36-month American Express Investors
Certificates greater than $500,000 but less than $1 million would be between
6.15% and 7.15%. When your application is accepted, you will be sent a
confirmation showing the rate that your investment will earn for the first term.
LIBOR is the interbank-offered rates for dollar deposits at which major
commercial banks will lend for specific terms in the London market. Generally,
LIBOR rates quoted by major London banks will be the same. However, market
conditions, including movements in the U.S. prime rate and the internal funding
position of each bank, may result in minor differences in the rates offered by
different banks. LIBOR is a generally accepted and widely quoted interest-rate
benchmark. The average LIBOR rate used by the Issuer is published on the Chicago
Mercantile Exchange website at www.cme.com.
Rates for new purchases are reviewed and may change daily. The guaranteed rate
that is in effect for your chosen term on the day your application is accepted
at the Issuer's corporate office in Minneapolis, Minnesota, U.S.A. will apply to
your certificate. The interest rates printed in the front of this prospectus may
or may not have changed on the date your application to invest is accepted.
Rates for new purchases may vary depending on the amount you invest, but will
always be within the 100 basis point range described above. You may obtain the
current interest rates by calling your AEBI or other selling agent
representative.
<PAGE>
In determining rates based on the amount of your investment, the Issuer may
offer a rate based on your aggregate investment determined by totaling only the
amounts invested in each certificate that has a current balance exceeding a
specified level. The current balance considered in this calculation may be
exclusive of interest. Part of the balance may be required to be invested in
terms of a specified minimum length. The aggregate investment may be required to
be for terms that average at least a specified minimum length. The certificates
whose balances are aggregated must have identical ownership. The rate may be
available only for a certificate whose current balance exceeds a specified level
or that is offered through a specified distributor or selling agent.
Interest rates for the term you have selected will not change once the term has
begun, unless a withdrawal reduces your account value to a point where we pay a
lower interest rate, as described in "Full and Partial Withdrawals" under "How
to Invest and Withdraw Funds."
RATES FOR FUTURE TERMS
Interest on your certificate for future terms may be greater or less than the
rates you receive during your first term. In setting future interest rates for
subsequent terms, a primary consideration will be the prevailing investment
climate, including the LIBOR rates. Nevertheless, the Issuer has complete
discretion as to what interest rates it will declare beyond the initial term.
The Issuer will send you notice at the end of each term of the rate your
certificate will earn for the new term. You have a 15-day grace period to
withdraw your certificate without a withdrawal charge. If LIBOR is no longer
publicly available or feasible to use, the Issuer may use another, similar index
as a guide for setting rates.
ADDITIONAL INVESTMENTS
You may add to your investment when your term ends. If your new term is a
one-month term, you may add to your investment on the first day of your new term
(the renewal date) or the following business day if the renewal date is a
non-business day. If your new term is greater than one month, you may add to
your investment within the 15 days following the end of your term. A $25,000
<PAGE>
minimum additional investment is required, payable in U.S. currency. Your
confirmation will show the applicable rate. However, unless you receive prior
approval from the Issuer, your investment may not bring the aggregate net
investment of any one or more certificates held by you (excluding any interest
added during the life of the certificate and less withdrawals) over $5 million.
Additional investments of at least $25,000 may be made by bank wire.
The Issuer must receive your additional investment within the 15 days following
the end of a certificate's current term (unless your new investment is a
one-month term), if you wish to increase your principal investment as of the
first day of the new term. Interest accrues from the first day of the new term
or the day your additional investment is accepted by the Issuer, whichever is
later, at the rate then in effect for your account. If your new term is a
one-month term, your additional investment must be received by the end of the
certificate's current term.
The interest rate for these additional investments is the rate then in effect
for your account. If your additional investment increases the principal of your
certificate so that your certificate's principal has exceeded a break point for
a higher interest rate, the certificate will earn this higher interest rate for
the remainder of the term, from the date the Issuer accepts the additional
investment.
EARNING INTEREST
At the end of each certificate month, interest is compounded and credited to
your account. A certificate month is the monthly anniversary of the issue date.
Interest may be paid to you monthly in cash if you maintain a principal balance
of at least $500,000.
The amount of interest you earn each certificate month is determined by applying
the interest rate then in effect to the daily balance of your certificate, and
subtracting from that total the interest accrued on any amount withdrawn during
the month. Interest is calculated on a 360-day year basis. This means interest
is calculated on the basis of a 30-day month even though terms are determined on
a calendar month.
<PAGE>
How to Invest and Withdraw Funds
BUYING YOUR CERTIFICATE
This certificate is available only to AEBI clients who are neither citizens nor
residents of the United States (or which are foreign corporations, partnerships,
estates or trusts) and to U.S. trusts organized under the laws of any state in
the United States, so long as the following are true in the case of such a U.S.
trust:
o the trust is unconditionally revocable by the grantor or grantors (the person
or persons who put the money into the trust);
o there are no more than 10 grantors of the trust;
o all the grantors are neither citizens nor residents of the United States;
o each grantor provides an appropriately certified Form W-8 (or approved
substitute), as described under "Tax Treatment of Your Investment;"
o the trustee of the trust is a bank organized under the laws of the United
States or any state in the United States; and
o the trustee supplies AECC with appropriate tax documentation.
The certificate is available through AEBI offices located in Florida and New
York. An AEBI or other selling agent representative will help you prepare your
purchase application. The Issuer will process the application at our corporate
offices in Minneapolis, MN, U.S.A. When your application is accepted and we have
received your initial investment, we will send you a confirmation of your
purchase, indicating your account number and applicable rate of interest for
your first term, as described under "Rates for New Purchases." See "Purchase
policies" below.
Important: When you open an account, you must provide a Form W-8 or approved
substitute. See "Tax Treatment of Your Investment."
<PAGE>
Purchase policies:
o You have 15 days from the date of purchase to cancel your investment
without penalty by notifying your AEBI or other selling agent
representative, or by writing or calling the Client Service Organization at
the address or phone number on the cover of this prospectus. If you decide
to cancel your certificate within this 15-day period, you will not earn any
interest.
o The Issuer has complete discretion to determine whether to accept an
application and sell a certificate.
HOW TO MAKE INVESTMENTS AT TERM END
By wire
If you have an established account, you may wire money to:
Norwest Bank Minnesota through July 2000
Wells Fargo Bank Minnesota N.A. after July 2000
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).
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: $25,000.
o Wire orders can be accepted only on days when your bank, AEFC, AECC and
Norwest Bank Minnesota (to be renamed Wells Fargo Bank Minnesota N.A. in
July 2000) 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.
<PAGE>
The Issuer, AEFC, its subsidiaries, AEBI, and other 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 receive all or part of your money at any time. However:
o If your withdrawal request is received in the Minneapolis headquarters on a
business day before 3 p.m. Central time, it will be processed that day and
payment will be sent the next business day. Otherwise, your request will be
processed one business day later.
o Full and partial withdrawals of principal are subject to penalties,
described below.
o Partial withdrawals during a term must be at least $10,000. You may not
make a partial withdrawal if it would reduce your certificate balance to
less than $100,000. If you request such a withdrawal, we will contact you
for revised instructions.
o If a withdrawal reduces your account value to a point where we pay a lower
interest rate, you will earn the lower rate from the date of the
withdrawal.
o Because we credit interest on your certificate's monthly anniversary,
withdrawals before the end of the certificate month will result in loss of
interest on the amount withdrawn. You'll get the best result by timing a
withdrawal at the end of the certificate month -- that is, on an interest
crediting date.
o If your certificate is pledged as collateral, any withdrawal will be
delayed until we get approval from the secured party.
Penalties for early withdrawal during a term:
When you request a full or partial withdrawal, we pay the amount you request:
o first from interest credited during the current term,
o then from the principal of your certificate.
Any withdrawals during a term exceeding the interest credited are deducted from
the principal and are used in determining any withdrawal charges. However, the
2% penalty is waived upon the 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.
<PAGE>
Withdrawal penalties: When a penalty applies, a 2% withdrawal penalty will be
deducted from the account's remaining balance.
For example, assume you invest $1 million in a certificate and select a
six-month term. Four months later assume you have earned $20,000 in interest.
The following demonstrates how the withdrawal charge is deducted:
When you withdraw a specific amount of money in excess of the interest credited,
the Issuer has to withdraw somewhat more from your account to cover the
withdrawal charge. For instance, suppose you request a $100,000 check on a $1
million investment. The first $20,000 paid to you is interest earned that term,
and the remaining $80,000 paid to you is principal. The Issuer would send you a
check for $100,000 and deduct a withdrawal charge of $1,600 (2% of $80,000) from
the remaining balance of your certificate. Your new balance would be $918,400.
Total investments $1,000,000
Interest credited $20,000
Total balance $1,020,000
Requested check $100,000
Credited interest withdrawn $(20,000)
Withdrawal charge percent 2%
Actual withdrawal charge $1,600
Balance prior to withdrawal $1,020,000
Requested withdrawal check $(100,000)
Withdrawal charge $(1,600)
Total balance after withdrawal $918,400
Additionally, if you make a withdrawal during a certificate month, you will not
earn interest for the month on the amount withdrawn.
Penalty exceptions: The 2% penalty is waived upon death of the certificate
owner.
For more information on withdrawal charges, talk with your AEBI or other selling
agent representative.
<PAGE>
WHEN YOUR CERTIFICATE TERM ENDS
On or shortly after the end of the term you have selected for your certificate,
the Issuer will send you a notice indicating the interest rate that will apply
to the certificate for the new term. When your certificate term ends, the Issuer
will automatically renew your certificate for the same term unless you notify
your AEBI or other selling agent representative otherwise. If you wish to select
a different term, you must notify your representative in writing before the end
of the grace period. You will not be allowed to select a term that would carry
the certificate past its maturity date.
The interest rates that will apply to your new term will be those in effect on
the day the new term begins. We will send you a confirmation showing the rate of
interest that will apply to the new term you have selected. This rate of
interest will not be changed during that term.
If you want to withdraw your certificate without a withdrawal charge, you must
notify us within 15 calendar days following the end of a term.
For most terms, you may also add to your investment within the 15 calendar days
following the end of your term. See "Additional Investments" under "About the
Certificate."
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate recently
purchased or added to by a check or money order that is not guaranteed, we
will wait for your check to clear. Please expect a minimum of 10 days from
the date of your payment before 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).
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TRANSFERS TO OTHER ACCOUNTS
You may transfer part or all of your certificate to other American Express
Certificates available through AEBI.
TRANSFER OF OWNERSHIP
While this certificate is not a negotiable instrument, it may be transferred or
assigned on the Issuer's records if proper written notice is received by the
Issuer. Ownership may be assigned or transferred to individuals or an entity
who, for U.S. tax purposes, is considered to be neither a citizen nor resident
of the United States. You may also pledge the certificate to AEBI or another
American Express Company affiliate or to another selling agent as collateral
security. Your AEBI 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 AEBI relationship manager or other selling agent
representative, or call the Issuer's client service number in Minneapolis listed
on the back cover.
GIVING INSTRUCTIONS AND WRITTEN NOTIFICATION
Your AEBI or other selling agent representative will handle instructions
concerning your account. Written instructions may be provided to either your
representative's office or directly to the Issuer.
Proper written notice to your AEBI or other selling agent representative or the
Issuer must:
o be addressed to your AEBI or other selling agent office or the Issuer's
corporate office, in which case it must identify your AEBI or other selling
agent office,
o include your account number and sufficient information for the Issuer to
carry out your request, and
o be signed and dated by all registered owners.
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The Issuer will acknowledge your written instructions. If your instructions are
incomplete or unclear, you will be contacted for revised instructions.
In the absence of any other written mandate or instructions you have provided to
AEBI or your other selling agent, you may elect in writing, on your initial or
any subsequent purchase application, to authorize AEBI or your other selling
agent to act upon the sole verbal instructions of any one of the named owners,
and in turn to instruct the Issuer with regard to any and all actions in
connection with the certificate referenced in the application as it may be
modified from time to time by term changes, renewals, additions or withdrawals.
The individual providing verbal instructions must be a named owner of the
certificate involved. In providing such authorization you agree that the Issuer,
its transfer agent, AEBI and other selling agents will not be liable for any
loss, liability, cost or expense arising in connection with implementing such
instructions, reasonably believed by the Issuer, AEBI or your other selling
agent, or their representatives, to be genuine. You may revoke such authority at
any time by providing proper written notice to your AEBI or other selling agent
office.
All amounts payable to or by the Issuer in connection with this certificate are
payable at the Issuer's corporate office unless you are advised otherwise.
<PAGE>
PURCHASES BY BANK WIRE
You may wish to lock in a specific interest rate by using a bank wire to
purchase a certificate. Your representative can instruct you about how to use
this procedure. Using this procedure will allow you to start earning interest at
the earliest possible time. The minimum that may be wired to purchase a new
certificate is $100,000.
Wire orders will be accepted only in U.S. currency and only on days your bank,
the Issuer and Norwest Bank Minnesota (to be renamed Wells Fargo Bank Minnesota
N.A. in July 2000) are open for business. The payment must be received by the
Issuer before 3 p.m. Central U.S.A. time to be credited that day. Otherwise, it
will be processed the next business day. The wire purchase will not be made
until the wired amount is received and the purchase is accepted by the Issuer.
Wire transfers not originating from AEBI or another selling agent are accepted
by AECC's corporate office only when originating from banks located in the
United States of America. Any delays that may occur in wiring the funds,
including delays in processing by the banks, are not the responsibility of the
Issuer. Wire orders may be rejected if they do not contain complete information.
While the Issuer does not charge a service fee for incoming wires, you must pay
any charge assessed by your bank for the wire service. If a wire order is
rejected, all money received will be returned promptly less any costs incurred
in rejecting it.
<PAGE>
Tax Treatment of Your Investment
Interest paid on your certificate is "portfolio interest" as defined in U.S.
Internal Revenue Code Section 871(h) if earned by a nonresident alien who has
supplied the Issuer with Form W-8, Certificate of Foreign Status. Form W-8 must
be supplied with both a current mailing address and an address of foreign
residency, if different. The Issuer will not accept purchases of certificates by
nonresident aliens without an appropriately certified Form W-8 (or approved
substitute). The Form W-8, in effect before January 1, 2001, must be resupplied
every three calendar years. If you have supplied a Form W-8 that certifies that
you are a nonresident alien, the interest income will be reported at year end to
you and to the U.S. government on a Form 1042-S, Foreign Person's U.S. Source
Income Subject to Withholding. Your interest income will be reported to the IRS
(Internal Revenue Service) even though it is not taxed by the U.S. government.
The United States participates in various tax treaties with foreign countries.
Those treaties provide that tax information may be shared upon request between
the United States and such foreign governments.
Changes in Tax Regulation
The U.S. Internal Revenue Service has issued new regulations changing the
certification requirements for nonresident aliens. As a result of the changes,
new Forms W-8 have been designed and are available for use. AECC will need the
new forms on file for all clients by January 1, 2001. Depending on your status,
you may provide us with any one of four new Forms W-8. Most clients will use
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States
Tax Withholding, but consult your tax advisor to ensure that you are using the
correct form. The new Forms W-8 must be resupplied every four calendar years, up
from three years with the current form.
A few other changes may affect you. Foreign trusts must apply for a permanent
U.S. individual tax identification number (ITIN). Individuals applying for
benefits under a tax treaty will have additional requirements.
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WITHHOLDING TAXES
If you fail to provide a Form W-8 as required above, you will be subject to 31%
backup withholding on interest payments and withdrawals from certificates.
Estate tax: If you are a nonresident alien and you die while owning a
certificate, then, depending on the circumstances, 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 U.S. estate
taxes.
Trusts: If the investor is a trust described in "Buying Your Certificate" under
"How to Invest and Withdraw Funds," the policies and procedures described above
will apply with regard to each grantor.
Important: The information in this prospectus is a brief and selective summary
of certain federal tax rules that apply to this certificate and is based on
current law and practice. Tax matters are highly individual and complex.
Investors should consult a qualified tax advisor about their own position.
How Your Money Is Used and Protected
INVESTED AND GUARANTEED BY THE ISSUER
The Issuer, a wholly owned subsidiary of AEFC, issues and guarantees the
American Express Investors Certificate. We are by far the largest issuer of face
amount certificates in the United States, with total assets of more than $3.7
billion and a net worth in excess of $141 million on Dec. 31, 1999.
We back our certificates by investing the money received and keeping the
invested assets on deposit. Our investments generate interest and dividends, out
of which we pay:
o interest to certificate owners,
o and various expenses, including taxes, fees to AEFC for advisory and other
services, distribution fees to American Express Financial Advisors Inc.,
selling agent fees to selling agents, and transfer agent fees to American
Express Client Service Corporation (AECSC).
For a review of significant events relating to our business, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations." No
national rating agency rates our certificates.
Most banks and thrifts offer investments known as certificates of deposit (CDs)
that are similar to our certificates in many ways. Early withdrawals of bank CDs
often result in penalties. Banks and thrifts generally have federal deposit
insurance for their deposits and lend much of the money deposited to
individuals, businesses and other enterprises. Other financial institutions and
some insurance companies may offer investments with comparable combinations of
safety and return on investment.
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REGULATED BY GOVERNMENT
Because the American Express Investors Certificate is a security, its offer and
sale are subject to regulation under federal and state securities laws. (The
American Express Investors 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, 1999, the
amortized cost of these investments exceeded the required carrying value of our
outstanding certificates by more than $238 million. The law requires us to use
amortized cost for these regulatory purposes. Among other things, the law
permits Minnesota statutes to govern qualified assets of AECC as described in
Note 2 to the financial statements. In general, amortized cost is determined by
systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
As a condition to regulatory relief from the SEC, AECC has agreed to maintain
capital and surplus equal to 5% of outstanding liabilities on certificates (not
including loans made on certificates in accordance with terms of some
certificates that no longer are offered by AECC). AECC is not obligated to
continue to rely on the relief and continue to comply with the conditions of the
relief. Similarly, AECC has entered into a written, informal understanding with
the Minnesota Commerce Department that AECC will maintain capital equal to 5% of
the assets of AECC (less any loans on outstanding certificates). When computing
its capital for these purposes, AECC values its assets on the basis of statutory
accounting for insurance companies rather than generally accepted accounting
principles.
<PAGE>
BACKED BY OUR INVESTMENTS
The Issuer's investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1999:
Type of investment Net amount invested
Corporate and other bonds 49%
Government agency bonds 22
Preferred stocks 16
Mortgages 11
Municipal bonds 1
Cash and cash equivalents 1
As of Dec. 31, 1999 about 89% of our securities portfolio (including bonds and
preferred stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3B to the financial
statements.
Most of our investments are on deposit with American Express Trust Company,
Minneapolis, although we also maintain separate deposits as required by certain
states. American Express Trust Company is a wholly owned subsidiary of AEFC.
Copies of our Dec. 31, 1999, schedule of Investments in Securities of
Unaffiliated Issuers are available upon request. For comments regarding the
valuation, carrying values and unrealized appreciation (depreciation) of
investment securities, see Notes 1, 2 and 3 to the financial statements.
INVESTMENT POLICIES
In deciding how to diversify the portfolio -- among what types of investments in
what amounts -- the officers and directors of the Issuer use their best
judgment, subject to applicable law. The following policies currently govern our
investment decisions:
Debt securities --
Most of our investments are in debt securities as referenced in the table in
"Backed by Our Investments" under "How Your Money Is Used and Protected."
<PAGE>
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
Corporation. 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, 1999, AECC held about 11% 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.
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Borrowing money --
From time to time we have established a line of credit with banks if management
believed borrowing was necessary or desirable. We may pledge some of our assets
as security. We may occasionally use repurchase agreements as a way to borrow
money. Under these agreements, we sell debt securities to our lender, and
repurchase them at the sales price plus an agreed-upon interest rate within a
specified period of time. There is no limit on the extent to which we may borrow
money, except that borrowing must be through the sale of certificates, or must
be short-term and privately arranged and not intended to be publicly offered.
Real estate --
We may invest in limited partnership interests in limited partnerships that
either directly, or indirectly through other limited partnerships, invest in
real estate. We may invest directly in real estate. We also invest in mortgage
loans secured by real estate. We expect that equity investments in real estate,
either directly or through a subsidiary of AECC, will be less than 5% of AECC's
assets.
Lending securities --
We may lend some of our securities to broker-dealers and receive cash equal to
the market value of the securities as collateral. We invest this cash in
short-term securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan, the borrower
makes cash payments to us equal to all interest, dividends and other
distributions paid on the loaned securities. We will try to vote these
securities if a major event affecting our investment is under consideration. We
expect that outstanding securities loans will not exceed 10% of AECC's assets.
<PAGE>
When-issued securities --
Some of our investments in debt securities are purchased on a when-issued or
similar basis. It may take as long as 45 days or more before these securities
are available for sale, issued and delivered to us. We generally do not pay for
these securities or start earning on them until delivery. We have established
procedures to ensure that sufficient cash is available to meet when-issued
commitments. AECC's ability to invest in when-issued securities is not limited
except by its ability to set aside cash or high quality investments to meet
when-issued commitments. When-issued securities are subject to market
fluctuations and they may affect AECC's investment portfolio the same as owned
securities.
Financial transactions including hedges --
We buy or sell various types of options contracts for hedging purposes or as a
trading technique to facilitate securities purchases or sales. We may buy
interest rate caps for hedging purposes. These pay us a return if interest rates
rise above a specified level. If interest rates do not rise above a specified
level, the interest rate caps do not pay us a return. The Issuer may enter into
other financial transactions, including futures and other derivatives, for the
purpose of managing the interest rate exposures associated with the Issuer's
assets or liabilities. Derivatives are financial instruments whose performance
is derived, at least in part, from the performance of an underlying asset,
security or index. A small change in the value of the underlying asset, security
or index may cause a sizable gain or loss in the fair value of the derivative.
There is no limit on the Issuer's ability to enter into financial transactions
to manage the interest rate risk associated with the Issuer's assets and
liabilities, but the Issuer 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.
<PAGE>
Illiquid securities --
A security is illiquid if it cannot be sold in the normal course of business
within seven days at approximately its current market value. Some investments
cannot be resold to the U.S. public because of their terms or government
regulations. All securities, however can be sold in private sales, and many may
be sold to other institutions and qualified buyers or on foreign markets. AECC's
investment advisor will follow guidelines established by the board and consider
relevant factors such as the nature of the security and the number of likely
buyers when determining whether a security is illiquid. No more than 15% of
AECC's investment portfolio will be held in securities that are illiquid. In
valuing its investment portfolio to determine this 15% limit, AECC will use
statutory accounting under an SEC order. This means that, for this purpose, the
portfolio will be valued in accordance with applicable Minnesota law governing
investments of life insurance companies, rather than generally accepted
accounting principles.
Restrictions --
There are no restrictions on concentration of investments in any particular
industry or group of industries or on rates of portfolio turnover.
<PAGE>
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. As of Dec. 31, 1999, AEFC managed or
administered investments, including its own, of more than $262 billion. American
Express Financial Advisors Inc., a wholly owned subsidiary of AEFC, provides a
broad range of financial planning services for individuals and businesses
through its nationwide network of more than 600 supervisory offices, more than
3,800 branch offices and 9,480 financial advisors. American Express Financial
Advisors' financial planning services are comprehensive, beginning with a
detailed written analysis that's tailored to your needs. Your analysis may
address one or all of these six essential areas: financial position, protection
planning, investment planning, income tax planning, retirement planning and
estate planning.
<PAGE>
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 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, 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, 1999, the Issuer had issued (in face
amount) $90,939,275 of installment certificates and $1,508,505,715 of single
payment certificates. As of Dec. 31, 1999, the Issuer had issued (in face
amount) $13,684,206,836 of installment certificates and $19,860,383,374 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.
<PAGE>
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 the Issuer except mortgage loans, real estate,
and any other asset on which we pay an outside advisory or service fee.
Advisory and services fee for the past three years
Percentage of
Year Total fees Included assets
1999 $8,691,974 0.26%
1998 9,084,332 0.24%
1997 17,232,602 0.50%
Estimated advisory and services fees for 2000 are $8,604,000.
Other expenses payable by the Issuer: The Investment Advisory and Services
Agreement provides that we will pay:
o costs incurred by us in connection with real estate and mortgages;
o taxes;
o depository and custodian fees;
o brokerage commissions;
o fees and expenses for services not covered by other agreements and provided
to us at our request, or by requirement, by attorneys, auditors, examiners
and professional consultants who are not officers or employees of AEFC;
o fees and expenses of our directors who are not officers or employees of
AEFC;
o provision for certificate reserves (interest accrued on certificate owner
accounts); and
o expenses of customer settlements not attributable to sales function.
<PAGE>
DISTRIBUTION
Under a Distribution Agreement with American Express Financial Advisors Inc.,
the Issuer pays an annualized fee equal to 1% of the amount outstanding for the
distribution of this certificate. Payments are made at the end of each term on
certificates with a one-, two- or three-month term. Payments are made each
quarter from issuance date on certificates with a six-, 12-, 24- or 36-month
term.
Total distribution fees paid to American Express Financial Advisors Inc. for all
series of certificates amounted to $27,950,987 during the year ended Dec. 31,
1999. The Issuer expects to pay American Express Financial Advisors Inc.
distribution fees amounting to $29,408,000 during 2000.
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 the Issuer. The Issuer's board of directors, including a
majority of directors who are not interested persons of AEFC or AECC, approved
this distribution agreement.
SELLING AGENT AGREEMENTS WITH AMERICAN EXPRESS BANK INTERNATIONAL
In turn, under a Selling Agent Agreement with AEBI, American Express Financial
Advisors compensates AEBI for its services as selling agent of this certificate
as follows:
AEBI is paid an annualized fee ranging from 0.50% to 1.25% of the reserve
balance of each certificate, depending on the amount outstanding for each such
certificate, with this exception: the fee will be 0.30% of the reserve balance
of each certificate with an amount outstanding of $1 million or more when:
o the aggregate reserve balance for that certificate, and any other
certificate with identical ownership and an amount outstanding of $1
million or more, is at least $20 million;
o the aggregate reserve balance is invested for terms that average at least
six months; and
o at least $5 million of this aggregate reserve balance is invested for a
term of 12 months or longer.
<PAGE>
American Express Financial Advisors has entered into a consulting agreement with
AEBI under which AEBI provides consulting services related to any selling agent
agreements between American Express Financial Advisors and other Edge Act
corporations. For these services, American Express Financial Advisors pays AEBI
a fee for this certificate ranging from 0.075% to 0.12% of the reserve balance
of each certificate, depending on the amount outstanding for each certificate
for which another Edge Act corporation is the selling agent.
Such payments will be made periodically in arrears.
These fees are not assessed to your certificate account.
ABOUT AEBI
AEBI is an Edge Act corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act. It is a wholly owned subsidiary of American Express
Bank Ltd. (AEBL). As an Edge Act corporation, AEBI is subject to the provisions
of Section 25(a) of the Federal Reserve Act and Regulation K of the Board of
Governors of the Federal Reserve System (the Federal Reserve). It is supervised
and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that is serviced
by a marketing staff in New York and Florida. The banking and financial products
offered by AEBI include checking, money market and time deposits, credit
services, check collection services, foreign exchange, funds transfer,
investment advisory services and securities brokerage services. As of Dec. 31,
1999, AEBI had total assets of $491 million and total equity of $174 million.
Although AEBI is a banking entity, the American Express Investors 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 other selling agents, under arrangements
with American Express Financial Advisors 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.
TRANSFER AGENT
Under a Transfer Agency Agreement, American Express Client Service Corporation
(AECSC), a wholly owned subsidiary of AEFC, maintains certificate owner accounts
and records. AECC pays AECSC a monthly fee of one-twelfth of $10.353 per
certificate owner account for this service.
EMPLOYMENT OF OTHER AMERICAN EXPRESS AFFILIATES
AEFC may employ an affiliate of American Express Company as executing broker for
our portfolio transactions only if:
o we receive prices and executions at least as favorable as those offered by
qualified independent brokers performing similar services;
o the affiliate charges us commissions consistent with those charged to
comparable unaffiliated customers for similar transactions; and
o the affiliate's employment is consistent with the terms of the current
Investment Advisory and Services Agreement and federal securities laws.
<PAGE>
DIRECTORS AND OFFICERS
The Issuer'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 $32,000 during 1999 to directors not employed by AEFC.
Board of directors
Rodney P. Burwell
Born in 1939. Director beginning in 1999. Chairman, Xerxes Corporation
(fiberglass storage tanks). Director, Fairview Corporation.
Charles W. Johnson
Born in 1929. Director since 1989. Director, Communications Holdings, Inc.
Acting president of Fisk University from 1998 to 1999. Former vice president and
group executive, Industrial Systems, with Honeywell, Inc. Retired 1989.
Jean B. Keffeler
Born in 1945. Director beginning in 1999. Independent management consultant.
Richard W. Kling*
Born in 1940. Director since 1996. Chairman of the board of directors from 1996
to 2000. Director of IDS Life Insurance Company since 1984; president since
1994. Executive vice president of Marketing and Products of AEFC from 1988 to
1994. Senior vice president of AEFC since 1994. Director of IDS Life Series
Fund, Inc. and member of the board of managers of IDS Life Variable Annuity
Funds A and B.
Thomas R. McBurney
Born in 1938. Director beginning in 1999. President, McBurney Management
Advisors. Director, The Valspar Corporation (paints), Wenger Corporation,
Allina, Space Center Enterprises and Greenspring Corporation.
<PAGE>
Paula R. Meyer*
Born in 1954. President since 1998. Piper Capital Management (PCM) President
from 1997 to 1998. PCM Director of Marketing from 1995 to 1997. PCM Director of
Retail Marketing from 1993 to 1995.
Pamela J. Moret*
Born in 1956. Director since December 1999. Chair of the board of directors
since January 2000. Senior vice president Investment Products since November
1999. Vice president - Variable Assets & Services from 1997 to 1999. Vice
president Retail Services Group from 1996 to 1997. Vice president -
Communications from 1992 to 1996. Various attorney positions in General
Counsel's Office from 1982 to 1992.
*"Interested Person" of AECC as that term is defined in Investment Company Act
of 1940.
Executive officers
Paula R. Meyer
Born in 1954. President since 1998.
Jeffrey S. Horton
Born in 1961. Vice president and treasurer since 1997. Vice president and
corporate treasurer of AEFC since 1997. Controller, American Express
Technologies - Financial Services of AEFC from July 1997 to December 1997.
Controller, Risk Management Products of AEFC from 1994 to 1997. Director of
finance and analysis, Corporate Treasury of AEFC from 1990 to 1994.
Timothy S. Meehan
Born in 1957. Secretary since 1995. Secretary of AEFC and American Express
Financial Advisors Inc. since 1995. Senior counsel to AEFC since 1995. Counsel
from 1990 to 1995.
Lorraine R. Hart
Born in 1951. Vice president - Investments since 1994. Vice president -
Insurance Investments of AEFC since 1989. Vice president - Investments of IDS
Life Insurance Company since 1992.
<PAGE>
Bruce A. Kohn
Born in 1951. Vice president and general counsel since 1993. Senior counsel to
AEFC since 1996. Counsel to AEFC from 1992 to 1996. Associate counsel from 1987
to 1992.
F. Dale Simmons
Born in 1937. Vice president - Real Estate Loan Management since 1993. Vice
president of AEFC since 1992. Senior portfolio manager of AEFC since 1989.
Assistant vice president from 1987 to 1992.
Philip C. Wentzel
Born in 1961. Vice president and controller of AECC since January 2000. Vice
president - Finance, Insurance Products of AEFC since 1997. Vice president and
controller of IDS Life since 1998. Director, Financial Reporting and Analysis -
IDS Life from 1992 to 1997.
The officers and directors as a group beneficially own less than 1% of the
common stock of American Express Company.
AECC has provisions in its bylaws relating to the indemnification of its
officers and directors against liability, as permitted by law. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
1933 Act) may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
INDEPENDENT AUDITORS
A firm of independent auditors audits our financial statements at the close of
each fiscal year (Dec. 31). Copies of our annual financial statements (audited)
and semiannual financial statements (unaudited) are available to any certificate
owner upon request.
Ernst & Young LLP, Minneapolis, has audited our financial statements at Dec. 31,
1999 and 1998 and for each of the years in the three-year period ended Dec. 31,
1999. These statements are included in this prospectus. Ernst & Young LLP is
also the auditor for American Express Company, the parent company of AEFC and
AECC.
<PAGE>
Appendix
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change which could affect its price. Ratings by Moody's Investors Service,
Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA -- Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA -- Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A -- Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB -- Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Ba/BB -- Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.
B -- Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.
Caa/CCC -- Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.
Ca/CC -- Represent obligations that are highly speculative. Such issues are
often in default or have other marked shortcomings.
C -- Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.
D -- Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
Non-rated securities will be considered for investment. When assessing each
non-rated security, AECC will consider the financial condition of the issuer or
the protection afforded by the terms of the security.
<PAGE>
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.
American Express
Investors Certificate
200 AXP Financial Center
Minneapolis, MN 55474
800-862-7919
612-671-3131
Distributed by
American Express
Financial Advisors Inc.
S-6037 P (4/00)
<PAGE>
Annual Financial Information
Summary of selected financial information
- --------------------------------------------------------------------------------
The following selected financial information has been derived from the audited
financial statements and should be read in conjunction with those statements and
the related notes to financial statements. Also see "Management's discussion and
analysis of financial condition and results of operations" for additional
comments.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
($ thousands)
Statement of Operations Data:
Investment income $254,344 $273,135 $258,232 $251,481 $256,913
Investment expenses 77,235 76,811 70,137 62,851 62,817
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income before provision for
certificate reserves and income tax (expense) benefit 177,109 196,324 188,095 188,630 194,096
Net provision for certificate reserves 138,555 167,108 165,136 171,968 176,407
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income before income
tax (expense) benefit 38,554 29,216 22,959 16,662 17,689
Income tax (expense) benefit (4,615) 265 3,682 6,537 9,097
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 33,939 29,481 26,641 23,199 26,786
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments:
Securities of unaffiliated issuers 1,250 5,143 980 (444) 452
Other - unaffiliated - - - 101 (120)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
before income taxes 1,250 5,143 980 (343) 332
Income tax (expense) benefit (437) (1,800) (343) 120 (117)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 813 3,343 637 (223) 215
Net income - wholly owned subsidiary 4 1,646 328 1,251 373
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $34,756 $34,470 $27,606 $24,227 $27,374
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared $40,000 $29,500 $- $65,000 $-
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Total assets $3,761,068 $3,834,244 $4,053,648 $3,563,234 $3,912,131
Certificate loans 28,895 32,343 37,098 43,509 51,147
Certificate reserves 3,536,659 3,404,883 3,724,978 3,283,191 3,628,574
Stockholder's equity 141,702 222,033 239,510 194,550 250,307
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IDS Certificate Company (IDSC) is 100% owned by American Express Financial
Corporation (Parent).
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of operations:
IDS Certificate Company's (IDSC) earnings are derived primarily from the
after-tax yield on invested assets less investment expenses and interest
credited on certificate reserve liabilities. Changes in earnings' trends occur
largely due to changes in the rates of return on investments and the rates of
interest credited to certificate owner accounts, and also due to changes in the
mix of fully taxable and tax-advantaged investments in the IDSC portfolio.
During 1999, total assets decreased $73 million whereas certificate reserves
increased $132 million. The decreases in total assets and accounts payable and
accrued liabilities resulted primarily from net repayments under reverse
repurchase agreements of $116 million. The decrease in total assets reflects
also, a decrease in net unrealized appreciation on investment securities
classified as available for sale of $115 million. The increase in certificate
reserves resulted primarily from interest accruals of $203 million offset by
certificate maturities and surrenders exceeding certificate sales by $71
million.
During 1998, total assets and certificate reserves decreased $219 million and
$320 million, respectively. The decreases in total assets and certificate
reserves resulted primarily from certificate maturities and surrenders exceeding
certificate sales. The excess of certificate maturities and surrenders over
certificate sales resulted primarily from lower accrual rates declared by IDSC
during 1998. The decrease in total assets in 1998 reflects also, a decrease in
net unrealized appreciation on investment securities classified as available for
sale of $35 million.
1999 Compared to 1998:
Gross investment income decreased 6.9% due primarily to a lower average balance
of invested assets.
Investment expenses increased slightly in 1999. The slight increase resulted
primarily from the net of higher amortization of premiums paid for index options
of $10.1 million and lower interest expense on reverse repurchase and interest
rate swap agreements of $6.5 million, lower distribution fees of $2.3 million
and lower investment advisory and services and transfer agent fees of $.8
million.
Net provision for certificate reserves decreased 17.1% due primarily to lower
accrual rates during 1999.
The decrease in income tax benefit resulted primarily from less tax-advantaged
investment income.
1998 Compared to 1997:
Gross investment income increased 5.8% due primarily to a higher average balance
of invested assets, partially offset by slightly lower yields.
<PAGE>
Investment expenses increased 9.5% in 1998. The increase resulted primarily from
higher amortization of premiums paid for index options of $6.4 million, higher
interest expense on reverse repurchase and interest rate swap agreements of $5.2
million, and $3.9 million of fees paid under a transfer agent agreement with
American Express Client Service Corporation effective Jan. 1, 1998. Prior to
Jan. 1, 1998, transfer agent services were provided by AEFC under the investment
advisory and services fee agreement. These higher expenses were partially offset
by lower investment advisory and services fees of $8.1 million and lower
distribution fees of $.7 million.
Net provision for certificate reserves increased 1.2% due primarily to the net
of a higher average balance of certificate reserves and lower accrual rates
during 1998.
The decrease in income tax benefit resulted primarily from less tax-advantaged
investment income.
Liquidity and cash flow:
IDSC's principal sources of cash are payments from sales of face-amount
certificates and cash flows from investments. In turn, IDSC's principal uses of
cash are payments to certificate owners for matured and surrendered
certificates, purchase of investments and payments of dividends to its Parent.
Certificate sales remained strong in 1999 reflecting clients' ongoing desire for
safety of principal. Sales of certificates totaled $1.5 billion in 1999 compared
to $1.1 billion in 1998 and $1.5 billion in 1997. The higher certificate sales
in 1999 over 1998 resulted primarily from special promotions of the seven- and
13-month term IDS Flexible Savings Certificate which produced sales of $295
million. Certificate sales in 1999 benefited also, from higher sales of the IDS
Market Strategy Certificate and American Express Investors Certificate of $95
million and $118 million, respectively.
A special promotion of the seven-month term IDS Flexible Savings Certificate was
offered from March 10, 1999 to June 8, 1999, and applied only to sales of new
certificate accounts during the promotion period. Certificates sold during the
promotion period received a special interest rate, determined on a weekly basis,
of 100 basis points (1.00%) above the Bank Rate Monitor Top 25 Market AverageTM
of comparable length certificates of deposit. Certificate sales during the
promotion period totaled $168 million.
In August of 1999, IDSC introduced special seven- and 13-month term IDS Flexible
Savings Certificates that offer interest rates competitive with those of
certificates of deposit offered online by an affiliated company of IDSC. This
special offer applies to both new and existing certificate accounts and will end
April 26, 2000. Sales of the seven- and 13-month term IDS Flexible Savings
Certificate receive a special interest rate of 70 basis points (.70%) and 80
basis points (.80%), respectively, over the rate in effect at the time of sale
for the six- and 12-month term IDS Flexible Savings Certificate, respectively.
Certificate sales since introduction in August of 1999 totaled $127 million.
Certificate maturities and surrenders totaled $1.7 billion during both 1999 and
1998 compared to $1.3 billion in 1997. The higher certificate maturities and
surrenders in 1998 compared to 1997, resulted primarily from $242 million of
surrenders of the seven- and 13-month term IDS Flexible Savings Certificate
which were sold from Sept. 10, 1997 to Nov. 25, 1997. These surrenders resulted
primarily from lower accrual rates declared by IDSC at term renewal, reflecting
interest rates available in the marketplace.
IDSC, as an issuer of face-amount certificates, is affected whenever there is a
significant change in interest rates. In view of the uncertainty in the
investment markets and due to the short-term repricing nature of certificate
reserve liabilities, IDSC continues to invest in securities that provide for
<PAGE>
more immediate, periodic interest/principal payments, resulting in improved
liquidity. To accomplish this, IDSC continues to invest much of its cash flow in
intermediate-term bonds and mortgage-backed securities.
IDSC's investment program is designed to maintain an investment portfolio that
will produce the highest possible after-tax yield within acceptable risk
standards with additional emphasis on liquidity. The program considers
investment securities as investments acquired to meet anticipated certificate
owner obligations.
Under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", debt securities that
IDSC has both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities IDSC does not have the positive intent to hold
to maturity, as well as all marketable equity securities, are classified as
available for sale and carried at fair value. The available-for-sale
classification does not mean that IDSC expects to sell these securities, but
that under SFAS No. 115 positive intent criteria, these securities are available
to meet possible liquidity needs should there be significant changes in market
interest rates or certificate owner demand. See notes 1 and 3 to the financial
statements for additional information relating to SFAS No. 115.
At Dec. 31, 1999, securities classified as held to maturity and carried at
amortized cost were $.5 billion. Securities classified as available for sale and
carried at fair value were $2.6 billion. These securities, which comprise 84% of
IDSC's total invested assets, are well diversified. Of these securities,
approximately 97% have fixed maturities of which 89% are of investment grade.
Other than U.S. Government Agency mortgage-backed securities, no one issuer
represents more than 1% of total securities. See note 3 to financial statements
for additional information on ratings and diversification.
During the year ended Dec. 31, 1999, securities classified as available for sale
were sold with an amortized cost and fair value of $102 million and $105
million, respectively. The securities were sold in general management of the
investment portfolio. There were no sales of held-to-maturity securities during
the year ended Dec. 31, 1999.
There were no transfers of available-for-sale or held-to-maturity securities
during the years ended Dec. 31, 1999 and 1998.
Market risk and derivative financial instruments:
The sensitivity analysis of two different tests of market risk discussed below
estimate the effects of hypothetical sudden and sustained changes in the
applicable market conditions on the ensuing year's earnings based on year-end
positions. The market changes, assumed to occur as of year-end, are a 100 basis
point increase in market interest rates and a 10% decline in a major stock
market index. Computation of the prospective effects of hypothetical interest
rate and major stock market index changes are based on numerous assumptions,
including relative levels of market interest rates and the major stock market
index level, as well as the levels of assets and liabilities. The hypothetical
changes and assumptions will be different than what actually occurs in the
future. Furthermore, the computations do not anticipate actions that may be
taken by management if the hypothetical market changes actually occurred over
time. As a result, actual earnings effects in the future will differ from those
quantified below.
IDSC primarily invests in intermediate-term and long-term fixed income
securities to provide its certificate owners with a competitive rate of return
on their certificates while managing risk. These investment securities provide
IDSC with a historically dependable and targeted margin between the interest
rate earned on investments and the interest rate credited to certificate owners'
accounts. IDSC does not invest in securities to generate trading profits for its
own account.
<PAGE>
IDSC's Investment Committee, which comprises senior business managers, meets
regularly to review models projecting different interest rate scenarios and
their impact on IDSC's profitability. The committee's objective is to structure
IDSC's portfolio of investment securities based upon the type and behavior of
the certificates in the certificate reserve liabilities, to achieve targeted
levels of profitability and meet certificate contractual obligations.
Rates credited to certificate owners' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, IDSC's margins
may be negatively impacted by increases in the general level of interest rates.
Part of the committee's strategies include the purchase of derivatives, such as
interest rate caps, corridors, floors and swaps, for hedging purposes. On two
series of certificates, interest is credited to the certificate owners' accounts
based upon the relative change in a major stock market index between the
beginning and end of the certificates' terms. As a means of hedging its
obligations under the provisions of these certificates, the committee purchases
and writes call options on the major stock market index. See note 9 to the
financial statements for additional information regarding derivative financial
instruments.
The negative impact on IDSC's pretax earnings of the 100 basis point increase in
interest rates, which assumes repricings and customer behavior based on the
application of proprietary models to the book of business at Dec. 31, 1999 and
1998, would be approximately $8.2 million and $7.5 million for 1999 and 1998,
respectively. The 10% decrease in a major stock market index level would have a
minimal impact on IDSC's pretax earnings as of Dec. 31, 1999 and 1998, because
the income effect is a decrease in option income and a corresponding decrease in
interest credited to the IDS and American Express Stock Market Certificate
owners' accounts.
Year 2000:
IDSC is a wholly owned subsidiary of American Express Financial Corporation
(AEFC), which is a wholly owned subsidiary of American Express Company (American
Express). All of the major systems used by IDSC are maintained by AEFC and are
utilized by multiple subsidiaries and affiliates of AEFC. American Express
coordinated the Year 2000 (Y2K) efforts on behalf of all of its businesses and
subsidiaries. Representatives of AEFC participated in these efforts.
IDSC, to date, has not experienced any material systems failures related to the
Y2K rollover. American Express' and AEFC's remediation plan for the Y2K issue is
discussed in detail in IDSC's 1998 10-K report and 1999 10-Q reports. American
Express and AEFC will continue their Y2K monitoring and address any issues that
may arise from internal systems or those of third parties. American Express' and
AEFC's cumulative costs since inception of the Y2K initiative were $505 million
and $68 million, respectively, through Dec. 31, 1999, and are expected to be
approximately $10 million and $0.8 million, respectively, in 2000. The majority
of these costs are managed by and included in American Express' Corporate and
Other segment, as most remediation efforts are related to systems that are
maintained by the American Express Technologies organization. Costs related to
Y2K have not had a material adverse effect on IDSC's results of operations or
financial condition.
Ratios:
The ratio of stockholder's equity, excluding accumulated other comprehensive
(loss) income net of tax, to total assets less certificate loans and net
unrealized holding gains/losses on investment securities (capital to asset
ratio) at Dec. 31, 1999 and 1998 was 5.5% and 5.6%, respectively. Under an
informal agreement established with the Commissioner of Commerce for the State
of Minnesota, IDSC has agreed to maintain at all times a minimum capital to
asset ratio of 5.0%.
<PAGE>
IDS Certificate Company
Responsibility for Preparation of Financial Statements
The management of IDS Certificate Company (IDSC) is responsible for the
preparation and fair presentation of its financial statements. The financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States which are appropriate in the circumstances, and
include amounts based on the best judgment of management. IDSC's management is
also responsible for the accuracy and consistency of other financial information
included in the prospectus.
In recognition of its responsibility for the integrity and objectivity of data
in the financial statements, IDSC maintains a system of internal control over
financial reporting. The system is designed to provide reasonable, but not
absolute, assurance with respect to the reliability of IDSC's financial
statements. The concept of reasonable assurance is based on the notion that the
cost of the internal control system should not exceed the benefits derived.
The internal control system is founded on an ethical climate and includes an
organizational structure with clearly defined lines of responsibility, policies
and procedures, a Code of Conduct, and the careful selection and training of
employees. Internal auditors monitor and assess the effectiveness of the
internal control system and report their findings to management throughout the
year. IDSC's independent auditors are engaged to express an opinion on the
year-end financial statements and, with the coordinated support of the internal
auditors, review the financial records and related data and test the internal
control system over financial reporting.
<PAGE>
Report of Independent Auditors
The Board of Directors and Security Holders
IDS Certificate Company:
We have audited the accompanying balance sheets of IDS Certificate Company, a
wholly owned subsidiary of American Express Financial Corporation, as of
December 31, 1999 and 1998, and the related statements of operations,
comprehensive income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the management of IDS Certificate Company. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, 1999
and 1998 by correspondence with custodians and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Certificate Company at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 3, 2000
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets, Dec. 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Qualified Assets (note 2) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
($ thousands)
Investments in unaffiliated issuers (notes 3, 4 and 10):
Cash and cash equivalents $47,086 $-
Held-to-maturity securities 464,648 592,815
Available-for-sale securities 2,620,747 2,710,545
First mortgage loans on real estate 378,047 334,280
Certificate loans - secured by certificate reserves 28,895 32,343
Investments in and advances to affiliates 422 418
- ----------------------------------------------------------------------------------------------------------------------------------
Total investments 3,539,845 3,670,401
- ----------------------------------------------------------------------------------------------------------------------------------
Receivables:
Dividends and interest 41,584 46,579
Investment securities sold 953 3,085
- ----------------------------------------------------------------------------------------------------------------------------------
Total receivables 42,537 49,664
- ----------------------------------------------------------------------------------------------------------------------------------
Other (note 9) 123,845 96,213
- ----------------------------------------------------------------------------------------------------------------------------------
Total qualified assets 3,706,227 3,816,278
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred federal income taxes (note 8) 42,590 1,095
Due from affiliate - 1,082
Deferred distribution fees and other 12,251 15,789
- ----------------------------------------------------------------------------------------------------------------------------------
Total other assets 54,841 17,966
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $3,761,068 $3,834,244
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets, Dec. 31, (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholder's Equity
Liabilities 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
($ thousands)
Certificate Reserves (note 5):
Installment certificates:
Reserves to mature $263,204 $309,110
Additional credits and accrued interest 10,932 15,062
Advance payments and accrued interest 838 894
Other 56 55
Fully paid certificates:
Reserves to mature 3,120,351 2,909,891
Additional credits and accrued interest 140,988 169,514
Due to unlocated certificate holders 290 357
- ----------------------------------------------------------------------------------------------------------------------------------
Total certificate reserves 3,536,659 3,404,883
- ----------------------------------------------------------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities:
Due to Parent (note 7A) 733 771
Due to Parent for federal income taxes 4,126 7,381
Due to other affiliates (notes 7B through 7E) 515 426
Reverse repurchase agreements 25,000 141,000
Payable for investment securities purchased 1,734 2,211
Other (notes 9 and 10) 50,599 55,539
- ----------------------------------------------------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities 82,707 207,328
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,619,366 3,612,211
- ----------------------------------------------------------------------------------------------------------------------------------
Commitments (note 4)
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholder's Equity (notes 5B, 5C, and 6)
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock, $10 par - authorized and issued 150,000 shares 1,500 1,500
Additional paid-in capital 143,844 143,844
Retained earnings:
Appropriated for predeclared additional credits/interest 2,879 3,710
Appropriated for additional interest on advance payments 10 10
Unappropriated 59,210 63,623
Accumulated other comprehensive (loss) income - net of tax (note 1) (65,741) 9,346
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 141,702 222,033
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $3,761,068 $3,834,244
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended Dec. 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Investment Income
Interest income from unaffiliated investments:
Bonds and notes $188,062 $209,408 $191,190
Mortgage loans on real estate 27,294 18,173 18,053
Certificate loans 1,662 1,896 2,200
Dividends 35,228 40,856 44,543
Other 2,098 2,802 2,246
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment income 254,344 273,135 258,232
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Expenses
Parent and affiliated company fees (note 7):
Distribution 31,484 33,783 34,507
Investment advisory and services 8,692 9,084 17,233
Transfer agent 3,572 3,932 -
Depository 238 250 238
Options (note 9) 31,095 21,012 14,597
Interest rate caps, corridors and floors (note 9) - - 35
Reverse repurchase agreements 677 3,689 1,217
Interest rate swap agreements (note 9) 1,146 4,676 1,956
Other 331 385 354
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment expenses 77,235 76,811 70,137
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income before provision for certificate
reserves and income tax (expense) benefit $177,109 $196,324 $188,095
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Dec. 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
($ thousands)
Provision for Certificate Reserves (notes 5 and 9)
According to the terms of the certificates:
Provision for certificate reserves $11,493 $9,623 $9,796
Interest on additional credits 874 1,032 1,244
Interest on advance payments 33 44 50
Additional credits/interest authorized by IDSC:
On fully paid certificates 118,371 146,434 141,515
On installment certificates 8,676 11,001 13,560
- ----------------------------------------------------------------------------------------------------------------------------------
Total provision for certificate reserves before reserve recoveries 139,447 168,134 166,165
Reserve recoveries from terminations prior to maturity (892) (1,026) (1,029)
- ----------------------------------------------------------------------------------------------------------------------------------
Net provision for certificate reserves 138,555 167,108 165,136
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income before income tax (expense) benefit 38,554 29,216 22,959
Income tax (expense) benefit (note 8) (4,615) 265 3,682
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 33,939 29,481 26,641
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments
Securities of unaffiliated issuers before income tax expense 1,250 5,143 980
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax (expense) benefit (note 8):
Current (1,151) (1,800) (304)
Deferred 714 - (39)
- ----------------------------------------------------------------------------------------------------------------------------------
Total income tax expense (437) (1,800) (343)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 813 3,343 637
- ----------------------------------------------------------------------------------------------------------------------------------
Net income - wholly owned subsidiary 4 1,646 328
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $34,756 $34,470 $27,606
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Comprehensive Income
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended Dec. 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
($ thousands)
Net income $34,756 $34,470 $27,606
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (note 1)
Unrealized (losses) gains on available-for-sale
securities:
Unrealized holding (losses) gains arising during year (112,460) (32,020) 26,639
Income tax benefit (expense) 39,361 11,207 (9,324)
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized holding (losses) gains arising during period (73,099) (20,813) 17,315
- ----------------------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for (gains) losses included in net income (3,058) (2,514) 59
Income tax expense (benefit) 1,070 880 (20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net reclassification adjustment for (gains) losses included in net income (1,988) (1,634) 39
- ----------------------------------------------------------------------------------------------------------------------------------
Net other comprehensive (loss) income (75,087) (22,447) 17,354
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive (loss) income ($40,331) $12,023 $44,960
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Stockholder's Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Dec. 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
($ thousands)
Common Stock
Balance at beginning and end of year $1,500 $1,500 $1,500
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital
Balance at beginning and end of year $143,844 $143,844 $143,844
- ----------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Appropriated for predeclared additional credits/interest (note 5B)
Balance at beginning of year $3,710 $6,375 $11,989
Transferred to unappropriated retained earnings (831) (2,665) (5,614)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $2,879 $3,710 $6,375
- ----------------------------------------------------------------------------------------------------------------------------------
Appropriated for additional interest on advance payments (note 5C)
Balance at beginning of year $10 $50 $50
Transferred to unappropriated retained earnings - (40) -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $10 $10 $50
- ----------------------------------------------------------------------------------------------------------------------------------
Unappropriated (note 6)
Balance at beginning of year $63,623 $55,948 $22,728
Net income 34,756 34,470 27,606
Transferred from appropriated retained earnings 831 2,705 5,614
Cash dividends declared (40,000) (29,500) -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $59,210 $63,623 $55,948
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive (loss) income -
net of tax (note 1)
Balance at beginning of year $9,346 $31,793 $14,439
Net other comprehensive (loss) income (75,087) (22,447) 17,354
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year ($65,741) $9,346 $31,793
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $141,702 $222,033 $239,510
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended Dec. 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
($ thousands)
Cash Flows from Operating Activities
Net income $34,756 $34,470 $27,606
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of wholly owned subsidiary (4) (1,646) (328)
Net provision for certificate reserves 138,555 167,108 165,136
Interest income added to certificate loans (1,037) (1,180) (1,414)
Amortization of premiums/discounts-net 29,030 22,620 15,484
Provision for deferred federal income taxes (1,063) (3,088) (2,266)
Net realized gain on investments before income taxes (1,250) (5,143) (980)
Decrease (increase) in dividends and interest receivable 4,995 2,238 (4,804)
Decrease in deferred distribution fees 3,533 5,310 4,434
Decrease (increase) in other assets 1,082 (1,082) -
(Decrease) increase in other liabilities (18,390) 16,814 443
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 190,207 236,421 203,311
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Maturity and redemption of investments:
Held-to-maturity securities 134,907 161,649 76,678
Available-for-sale securities 426,257 468,218 408,019
Other investments 73,387 76,894 79,929
Sale of investments:
Held-to-maturity securities - 6,245 33,910
Available-for-sale securities 107,244 344,901 160,207
Certificate loan payments 4,162 4,006 4,814
Purchase of investments:
Held-to-maturity securities (6,785) (1,034) (4,565)
Available-for-sale securities (554,270) (663,347) (1,283,620)
Other investments (102,183) (189,905) (62,831)
Certificate loan fundings (3,680) (3,703) (5,021)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities $79,039 $203,924 ($592,480)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Dec. 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
($ thousands)
<S> <C> <C> <C>
Cash Flows from Financing Activities
Payments from certificate owners $1,596,079 $1,192,026 $1,580,013
Proceeds from reverse repurchase agreements 123,500 919,500 433,000
Dividend from wholly owned subsidiary - 8,000 -
Certificate maturities and cash surrenders (1,662,239) (1,729,871) (1,324,175)
Payments under reverse repurchase agreements (239,500) (800,500) (411,000)
Dividends paid (40,000) (29,500) -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (222,160) (440,345) 277,838
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 47,086 - (111,331)
Cash and cash equivalents beginning of year - - 111,331
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year $47,086 $- $-
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures Including Non-cash Transactions:
Cash paid (received) for income taxes $9,233 ($1,217) $104
Certificate maturities and surrenders through
loan reductions 4,003 5,632 8,032
See notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
1. Nature of business and summary of significant accounting policies
Nature of business
IDS Certificate Company (IDSC) is a wholly owned subsidiary of American Express
Financial Corporation (Parent), which is a wholly owned subsidiary of American
Express Company. IDSC is registered as an investment company under the
Investment Company Act of 1940 ("the 1940 Act") and is in the business of
issuing face-amount investment certificates. The certificates issued by IDSC are
not insured by any government agency. IDSC's certificates are sold primarily by
American Express Financial Advisors Inc.'s (an affiliate) field force operating
in 50 states, the District of Columbia and Puerto Rico. IDSC's Parent acts as
investment advisor for IDSC.
On Jan. 28, 2000 the IDSC Board of Directors approved the name change of IDS
Certificate Company to American Express Certificate Company to become effective
April 26, 2000.
IDSC currently offers nine types of certificates with specified maturities
ranging from 10 to 20 years. Within their specified maturity, most certificates
have interest rate terms of one- to 36-months. In addition, two types of
certificates have interest tied, in whole or in part, to any upward movement in
a broad-based stock market index. Except for two types of certificates, all of
the certificates are available as qualified investments for Individual
Retirement Accounts or 401(k) plans and other qualified retirement plans.
IDSC's gross income is derived primarily from interest and dividends generated
by its investments. IDSC's net income is determined by deducting from such gross
income its provision for certificate reserves, and other expenses, including
taxes, the fee paid to Parent for investment advisory and other services, and
the distribution fees paid to American Express Financial Advisors, Inc.
Described below are certain accounting policies that are important to an
understanding of the accompanying financial statements.
Basis of financial statement presentation
The accompanying financial statements are presented in accordance with
accounting principles generally accepted in the United States. IDSC uses the
equity method of accounting for its wholly owned unconsolidated subsidiary,
which is the method prescribed by the Securities and Exchange Commission (SEC)
for non-investment company subsidiaries of issuers of face-amount certificates.
Certain amounts from prior years have been reclassified to conform to the
current year presentation.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
income and expenses during the year then ended. Actual results could differ from
those estimates.
Fair values of financial instruments
The fair values of financial instruments disclosed in the notes to financial
statements are estimates based upon current market conditions and perceived
risks, and require varying degrees of management judgment.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
Preferred stock dividend income
IDSC recognizes dividend income from cumulative redeemable preferred stocks with
fixed maturity amounts on an accrual basis similar to that used for recognizing
interest income on debt securities. Dividend income from perpetual preferred
stock is recognized on an ex-dividend basis.
Investment securities
Cash equivalents are carried at amortized cost, which approximates fair value.
IDSC has defined cash and cash equivalents as cash in banks and highly liquid
investments with a maturity of three months or less at acquisition and are not
interest rate sensitive.
Debt securities that IDSC has both the positive intent and ability to hold to
maturity are carried at amortized cost. Debt securities IDSC does not have the
positive intent to hold to maturity, as well as all marketable equity
securities, are classified as available for sale and carried at fair value.
Unrealized holding gains and losses on securities classified as available for
sale are carried, net of deferred income taxes, as accumulated other
comprehensive income (loss) in stockholder's equity.
The basis for determining cost in computing realized gains and losses on
securities is specific identification. When there is a decline in value that is
other than temporary, the securities are carried at estimated realizable value
with the amount of adjustment included in income.
First mortgage loans on real estate
Mortgage loans are carried at amortized cost, less reserves for losses, which is
the basis for determining any realized gains or losses. The estimated fair value
of the mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar maturities.
Impairment is measured as the excess of the loan's recorded investment over its
present value of expected principal and interest payments discounted at the
loan's effective interest rate, or the fair value of collateral. The amount of
the impairment is recorded in a reserve for mortgage loan losses.
The reserve for mortgage loan losses is maintained at a level that management
believes is adequate to absorb estimated losses in the portfolio. The level of
the reserve account is determined based on several factors, including historical
experience, expected future principal and interest payments, estimated
collateral values, and current and anticipated economic and political
conditions. Management regularly evaluates the adequacy of the reserve for
mortgage loan losses.
IDSC generally stops accruing interest on mortgage loans for which interest
payments are delinquent more than three months. Based on management's 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.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
Certificates
Investment certificates may be purchased either with a lump-sum payment or by
installment payments. Certificate owners are entitled to receive at maturity a
definite sum of money. Payments from certificate owners are credited to
investment certificate reserves. Investment certificate reserves accumulate at
specified percentage rates as declared by IDSC. Reserves also are maintained for
advance payments made by certificate owners, accrued interest thereon, and for
additional credits in excess of minimum guaranteed rates and accrued interest
thereon. On certificates allowing for the deduction of a surrender charge, the
cash surrender values may be less than accumulated investment certificate
reserves prior to maturity dates. Cash surrender values on certificates allowing
for no surrender charge are equal to certificate reserves. The payment
distribution, reserve accumulation rates, cash surrender values, reserve values
and other matters are governed by the 1940 Act.
Deferred distribution fee expense
On certain series of certificates, distribution fees are deferred and amortized
over the estimated lives of the related certificates, which is approximately 10
years. Upon surrender prior to maturity, unamortized deferred distribution fees
are recognized in expense and any related surrender charges are recognized as a
reduction in provision for certificate reserves.
Federal income taxes
IDSC's taxable income or loss is included in the consolidated federal income tax
return of American Express Company. IDSC provides for income taxes on a separate
return basis, except that, under an agreement between Parent and American
Express Company, tax benefits are recognized for losses to the extent they can
be used in the consolidated return. It is the policy of Parent and it
subsidiaries that Parent will reimburse a subsidiary for any tax benefits
recorded.
Accounting developments
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This SOP, which was effective Jan. 1,
1999, requires the capitalization of certain costs incurred to develop or obtain
software for internal use. Software utilized by IDSC is owned by Parent and is
capitalized on Parent's financial statements. As a result, the new rule did not
have a material impact on IDSC's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective Jan. 1, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for 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. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. The ultimate financial impact of adoption of the new
rule will depend on the derivatives in place at adoption and cannot be estimated
at this time.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- -------------------------------------------------------------------------------
2. Deposit of assets and maintenance of qualified assets
A) Under the provisions of its certificates and the 1940 Act, IDSC was required
to have qualified assets (as that term is defined in Section 28(b) of the 1940
Act) in the amount of $3,476,365 and $3,353,920 at Dec. 31, 1999 and 1998,
respectively. IDSC had qualified assets of $3,805,634 at Dec. 31, 1999 and
$3,799,689 at Dec. 31, 1998, excluding net unrealized depreciation on available-
for-sale securities of $101,141 at Dec. 31, 1999 and unrealized appreciation of
$14,378 at Dec. 31, 1998 and payable for securities purchased of $1,734 and
$2,211 at Dec. 31, 1999 and 1998, respectively.
Qualified assets are valued in accordance with such provisions of Minnesota
Statutes as are applicable to investments of life insurance companies. Qualified
assets for which no provision for valuation is made in such statutes are valued
in accordance with rules, regulations or orders prescribed by the SEC. These
values are the same as financial statement carrying values, except for debt
securities classified as available for sale and all marketable equity
securities, which are carried at fair value in the financial statements but are
valued at amortized cost for qualified asset and deposit maintenance purposes.
B) Pursuant to provisions of the certificates, the 1940 Act, the central
depository agreement and to requirements of various states, qualified assets of
IDSC were deposited as follows:
<TABLE>
<CAPTION>
Dec. 31, 1999
- -----------------------------------------------------------------------------------------------------
Required
Deposits deposits Excess
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits to meet certificate
liability requirements:
States $364 $325 $39
Central Depository 3,682,847 3,444,056 238,791
- -----------------------------------------------------------------------------------------------------
Total $3,683,211 $3,444,381 $238,830
- -----------------------------------------------------------------------------------------------------
Dec. 31, 1998
- -----------------------------------------------------------------------------------------------------
Required
Deposits deposits Excess
- -----------------------------------------------------------------------------------------------------
Deposits to meet certificate
liability requirements:
States $364 $327 $37
Central Depository 3,543,964 3,317,295 226,669
- -----------------------------------------------------------------------------------------------------
Total $3,544,328 $3,317,622 $226,706
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
The assets on deposit at Dec. 31, 1999 and 1998 consisted of securities having a
deposit value of $3,217,101 and $3,153,038, respectively; mortgage loans of
$378,047 and $334,280, respectively; and other assets of $88,063 and $57,010,
respectively.
American Express Trust Company is the central depository for IDSC. See note 7C.
3. Investments in securities
A) Fair values of investments in securities represent market prices or estimated
fair values when quoted prices are not available. Estimated fair values are
determined by using established procedures, involving review of market indexes,
price levels of current offerings and comparable issues, price estimates and
market data from independent brokers and financial files. The procedures are
reviewed annually. IDSC's vice president, investments, reports to the board of
directors on an annual basis regarding such pricing sources and procedures to
provide assurance that fair value is being achieved.
The following is a summary of securities held to maturity and securities
available for sale at Dec. 31, 1999 and 1998:
<TABLE>
<CAPTION>
Dec. 31, 1999
--------------------------------------------------------------
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and
agencies obligations $364 $365 $1 $-
Mortgage-backed securities 16,662 16,596 178 244
Corporate debt securities 78,267 78,970 1,402 699
Stated maturity preferred stock 369,355 375,052 6,398 701
- --------------------------------------------------------------------------------------------------------------------
Total $464,648 $470,983 $7,979 $1,644
- --------------------------------------------------------------------------------------------------------------------
Available for sale:
Mortgage-backed securities $773,120 $763,195 $2,339 $12,264
State and municipal obligations 33,430 33,615 265 80
Corporate debt securities 1,743,621 1,653,271 1,944 92,294
Stated maturity preferred stock 62,708 62,370 292 630
Perpetual preferred stock 109,009 108,296 574 1,287
- --------------------------------------------------------------------------------------------------------------------
Total $2,721,888 $2,620,747 $5,414 $106,555
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dec. 31, 1998
--------------------------------------------------------------
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and
agencies obligations $363 $373 $10 $-
Mortgage-backed securities 22,366 22,986 620 -
Corporate debt securities 168,191 172,941 4,750 -
Stated maturity preferred stock 401,895 428,689 26,802 8
- --------------------------------------------------------------------------------------------------------------------
Total $592,815 $624,989 $32,182 $8
- --------------------------------------------------------------------------------------------------------------------
Available for sale:
Mortgage-backed securities $831,677 $846,864 $15,787 $600
State and municipal obligations 32,075 33,437 1,362 -
Corporate debt securities 1,674,932 1,667,264 29,197 36,865
Stated maturity preferred stock 63,257 65,822 2,637 72
Perpetual preferred stock 94,226 97,158 2,947 15
- --------------------------------------------------------------------------------------------------------------------
Total $2,696,167 $2,710,545 $51,930 $37,552
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of securities held to maturity and available
for sale, by contractual maturity, at Dec. 31, 1999, are shown below. Cash flows
will differ from contractual maturities because issuers may have the right to
call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair
cost value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Held to maturity:
Due within 1 year $99,538 $100,436
Due after 1 year through 5 years 170,978 173,460
Due after 5 years through 10 years 177,470 180,491
- --------------------------------------------------------------------------------------------------------------------
447,986 454,387
Mortgage-backed securities 16,662 16,596
- --------------------------------------------------------------------------------------------------------------------
Total $464,648 $470,983
- --------------------------------------------------------------------------------------------------------------------
Available for sale:
Due within 1 year $194,126 $193,874
Due after 1 year through 5 years 865,161 843,409
Due after 5 years through 10 years 424,966 389,598
Due after 10 years 355,506 322,375
- --------------------------------------------------------------------------------------------------------------------
1,839,759 1,749,256
Mortgage-backed securities 773,120 763,195
Perpetual preferred stock 109,009 108,296
- --------------------------------------------------------------------------------------------------------------------
Total $2,721,888 $2,620,747
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
During the years ended Dec. 31, 1999 and 1998, there were no securities
classified as trading securities.
The proceeds from sales of available-for-sale securities and the gross realized
gains and gross realized losses on those sales during the years ended Dec. 31,
1999, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds $105,112 $346,353 $161,188
Gross realized gains 3,270 4,487 1,292
Gross realized losses 195 1,461 1,637
- --------------------------------------------------------------------------------------------------------------------
There were no sales of held-to-maturity securities during the year ended Dec.
31, 1999. Sales of held-to- maturity securities resulting from acceptance of a
tender offer during the year ended Dec. 31, 1998 and significant credit
deterioration during the year ended Dec. 31, 1997, were as follows:
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Amortized cost $- $6,182 $32,969
Gross realized gains - 63 1,621
Gross realized losses - - 680
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
During the years ended Dec. 31, 1999 and 1998, no securities were reclassified
from held to maturity to available for sale.
B) Investments in securities with fixed maturities comprised 84% and 85% of
IDSC's total invested assets at Dec. 31, 1999 and 1998, respectively. Securities
are rated by Moody's and Standard & Poors (S&P), or by Parent's internal
analysts, using criteria similar to Moody's and S&P, when a public rating does
not exist. A summary of investments in securities with fixed maturities by
rating of investment is as follows:
<TABLE>
<CAPTION>
Rating 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Aaa/AAA 36% 37%
Aa/AA 2 1
Aa/A 2 1
A/A 15 13
A/BBB 3 5
Baa/BBB 31 33
Below investment grade 11 10
- -----------------------------------------------------------------------------------------------------
100% 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Of the securities rated Aaa/AAA, 72% and 84% at Dec. 31, 1999 and 1998,
respectively, are U.S. Government Agency mortgage-backed securities that are not
rated by a public rating
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
agency. Approximately 13% and 11% at Dec. 31, 1999 and 1998, respectively, of
securities with fixed maturities, other than U.S. Government Agency
mortgage-backed securities, are rated by Parent's internal analysts. At Dec. 31,
1999 and 1998 no one issuer, other than U.S. Government Agency mortgage-backed
securities, is greater than 1% of IDSC's total investment in securities with
fixed maturities.
C) IDSC reserves freedom of action with respect to its acquisition of restricted
securities that offer advantageous and desirable investment opportunities. In a
private negotiation, IDSC may purchase for its portfolio all or part of an issue
of restricted securities. Since IDSC would intend to purchase such securities
for investment and not for distribution, it would not be "acting as a
distributor" if such securities are resold by IDSC at a later date.
The fair values of restricted securities are determined by the board of
directors using the procedures and factors described in note 3A.
In the event IDSC were to be deemed to be a distributor of the restricted
securities, it is possible that IDSC would be required to bear the costs of
registering those securities under the Securities Act of 1933, although in most
cases such costs would be incurred by the issuer of the restricted securities.
4. Investments in first mortgage loans on real estate
At Dec. 31, 1999 and 1998, IDSC's recorded investment in impaired mortgage loans
was $233 and $296, respectively, and the reserve for loss on those amounts was
$161 and $261, respectively. During 1999, 1998 and 1997, the average recorded
investment in impaired mortgage loans was $267, $331 and $743, respectively.
IDSC recognized $25, $31 and $37 of interest income related to impaired mortgage
loans for the years ended Dec. 31, 1999, 1998 and 1997, respectively.
During the year ended Dec. 31, 1999, the reserve for loss on mortgage loans
decreased $100 from $611 at Dec. 31, 1998, to $511 at Dec. 31, 1999. During the
years ended Dec. 31, 1998 and 1997, there were no changes in the reserve for
loss on mortgage loans of $611.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
At Dec. 31, 1999 and 1998, approximately 10% and 9%, respectively, of IDSC's
invested assets were first mortgage loans on real estate. A summary of first
mortgage loans by region and type of real estate is as follows:
Region 1999 1998
- ----------------------------------------------------------------------
South Atlantic 20% 18%
West North Central 19 21
East North Central 16 17
Mountain 16 14
West South Central 12 12
Pacific 7 7
New England 5 6
Middle Atlantic 5 5
- ----------------------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------------------
Property Type 1999 1998
- ----------------------------------------------------------------------
Office buildings 29% 25%
Retail/shopping centers 26 28
Apartments 17 19
Industrial buildings 15 12
Other 13 16
- ----------------------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------------------
The carrying amounts and fair values of first mortgage loans on real estate are
as follows at Dec.31. The fair values are estimated using discounted cash flow
analysis, using market interest rates currently being offered for loans with
similar maturities.
<TABLE>
<CAPTION>
Dec. 31, 1999 Dec. 31, 1998
--------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage loans on real estate $378,558 $359,018 $334,891 $343,406
Reserve for losses (511) - (611) -
- --------------------------------------------------------------------------------------------------------------------
Net first mortgage loans on
real estate $378,047 $359,018 $334,280 $343,406
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
At Dec. 31, 1999 and 1998, commitments for fundings of first mortgage loans, at
market interest rates, aggregated $800 and $60,828, respectively. IDSC employs
policies and procedures to ensure the creditworthiness of the borrowers and that
funds will be available on the funding date. IDSC's loan fundings are restricted
to 80% or less of the market value of the real estate at the time of the loan
funding. Management believes there is no fair value for these commitments.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- -------------------------------------------------------------------------------
5. Certificate reserves
Reserves maintained on outstanding certificates have been computed in accordance
with the provisions of the certificates and Section 28 of the 1940 Act. The
average rates of accumulation on certificate reserves at Dec. 31, 1999 and 1998
were:
<TABLE>
<CAPTION>
1999
--------------------------------------------
Average Average
gross additional
Reserve accumulation credit
balance rate rate
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Installment certificates
Reserves to mature:
With guaranteed rates $18,817 3.50% .50%
Without guaranteed rates (A) 244,387 - 3.14
Additional credits and accrued interest 10,932 3.16 -
Advance payments and accrued interest (C) 838 3.20 1.30
Other 56 - -
Fully paid certificates
Reserves to mature:
With guaranteed rates 129,019 3.20 .95
Without guaranteed rates (A) and (D) 2,991,332 - 4.13
Additional credits and accrued interest 140,988 3.15 -
Due to unlocated certificate holders 290 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,536,659
- --------------------------------------------------------------------------------------------------------------------
1998
-----------------------------------------------
Average Average
gross additional
Reserve accumulation credit
balance rate rate
- --------------------------------------------------------------------------------------------------------------------
Installment certificates
Reserves to mature:
With guaranteed rates $21,018 3.50% .50%
Without guaranteed rates (A) 288,092 - 2.92
Additional credits and accrued interest 15,061 3.16 -
Advance payments and accrued interest (C) 894 3.18 .82
Other 55 - -
Fully paid certificates
Reserves to mature:
With guaranteed rates 146,437 3.20 1.47
Without guaranteed rates (A) and (D) 2,763,454 - 4.29
Additional credits and accrued interest 169,515 3.18 -
Due to unlocated certificate holders 357 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,404,883
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- -------------------------------------------------------------------------------
A) There is no minimum rate of accrual on these reserves. Interest is declared
periodically, quarterly or annually, in accordance with the terms of the
separate series of certificates.
B) On certain series of single payment certificates, additional interest is
predeclared for periods greater than one year. At Dec. 31, 1999, $2,879 of
retained earnings had been appropriated for the predeclared additional interest,
which represents the difference between certificate reserves on these series,
calculated on a statutory basis, and the reserves maintained per books.
C) Certain series of installment certificates guarantee accrual of interest on
advance payments at an average of 3.20%. IDSC has increased the rate of accrual
to 4.50% through April 30, 2001. An appropriation of retained earnings amounting
to $10 has been made, which represents the estimated additional accrual that
will result from the increase granted by IDSC.
D) IDS Stock Market Certificate, American Express Stock Market Certificate and
IDS Market Strategy Certificate enable the certificate owner to participate in
any relative rise in a major stock market index without risking loss of
principal. Generally the certificates have a term of 12 months and may continue
for up to 20 successive terms. The reserve balance on these certificates at Dec.
31, 1999 and 1998 was $886,240 and $622,409, respectively.
E) Fair values of certificate reserves with interest rate terms of one year or
less approximated the carrying values less any applicable surrender charges.
Fair values for other certificate reserves are determined by a discounted cash
flow analysis using interest rates currently offered for certificates with
similar remaining terms, less any applicable surrender charges.
The carrying amounts and fair values of certificate reserves consisted of the
following at Dec. 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserves with terms of one year or less $3,246,098 $3,244,495 $3,070,001 $3,068,463
Other 290,561 294,899 334,882 350,509
- ----------------------------------------------------------------------------------------------------------------------------------
Total certificate reserves 3,536,659 3,539,394 3,404,883 3,418,972
Unapplied certificate transactions 756 756 853 853
Certificate loans and accrued interest (29,219) (29,219) (32,703) (32,703)
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,508,196 $3,510,931 $3,373,033 $3,387,122
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. Dividend restriction
Certain series of installment certificates outstanding provide that cash
dividends may be paid by IDSC only in calendar years for which additional
credits of at least one-half of 1% on such series of certificates have been
authorized by IDSC. This restriction has been removed for 2000 and 2001 by
IDSC's declaration of additional credits in excess of this requirement.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- -------------------------------------------------------------------------------
7. Fees paid to Parent and affiliated companies ($ not in thousands)
A) The basis of computing fees paid or payable to Parent for investment
advisory, joint facilities, technology support and treasury services is:
The investment advisory and services agreement with Parent provides for a
graduated scale of fees equal on an annual basis to 0.750% on the first $250
million of total book value of assets of IDSC, 0.650% on the next $250 million,
0.550% on the next $250 million, 0.500% on the next $250 million and 0.107% on
the amount in excess of $1 billion. Effective Jan. 1, 1998, the fee on the
amount in excess of $1 billion was changed from 0.450% to 0.107%. The fee is
payable monthly in an amount equal to one-twelfth of each of the percentages set
forth above. Excluded from assets for purposes of this computation are first
mortgage loans, real estate and any other asset on which IDSC pays an outside
service fee.
B) The basis of computing fees paid or payable to American Express Financial
Advisors Inc. (an affiliate) for distribution services is:
Fees payable to American Express Financial Advisors Inc. on sales of IDSC's
certificates are based upon terms of agreements giving American Express
Financial Advisors Inc. the exclusive right to distribute the certificates
covered under the agreements. The agreements provide for payment of fees over a
period of time.
From time to time, IDSC 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 American
Express Financial Advisors Inc. may be lowered. For the promotions of the seven-
and 13-month term IDS Flexible Savings Certificate which occurred Sept. 10, 1997
to Nov. 25, 1997, the seven-month term IDS Flexible Savings Certificate which
occurred March 10, 1999 to June 8, 1999, and the on-going promotion of the
seven- and 13-month term IDS Flexible Savings Certificate which commenced August
4, 1999, the distribution fee was lowered to 0.067%.
The aggregate fees payable under the agreements per $1,000 face amount of
installment certificates and a summary of the periods over which the fees are
payable are:
<TABLE>
<CAPTION>
Number of
certificate
years over
Aggregate fees payable which
------------------------------------------- subsequent
First Subsequent years' fees
Total year years are payable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On sales effective April 30, 1997 $25.00 $ 2.50 $22.50 9
On sales prior to April 30, 1997(a) 30.00 6.00 24.00 4
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At the end of the sixth through the 10th year, an additional fee of 0.5% is
payable on the daily average balance of the certificate reserve maintained
during the sixth through the 10th year, respectively.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
Effective April 30, 1997, fees on the IDS Cash Reserve and IDS Flexible Savings
Certificates are paid at a rate of 0.20% of the purchase price at the time of
issuance and 0.20% of the reserves maintained for these certificates at the
beginning of the second and subsequent quarters from issue date For certificates
sold prior to April 30, 1997, fees were paid at a rate of 0.25% of the purchase
price at the time of issuance and 0.25% of the reserves maintained for these
certificates at the beginning of the second and subsequent quarters from issue
date.
Fees on the IDS Future Value Certificate were paid at the rate of 5% of the
purchase price at time of issuance. Effective May 1, 1997, the IDS Future Value
Certificate is no longer being offered for sale.
Fees on the American Express Investors Certificate are paid at an annualized
rate of 1% of the reserves maintained for the certificates. Fees are paid at the
end of each term on certificates with a one-, two- or three-month term. Fees are
paid each quarter from date of issuance on certificates with a six-,12-, 24- or
36-month term.
Effective Jan. 1, 1997, fees on the IDS Preferred Investors Certificate are paid
at the rate of 0.165% of the initial payment on issue date of the certificate
and 0.165% of the certificate's reserve at the beginning of the second and
subsequent quarters from issue date. For certificates sold prior to Jan 1, 1997,
fees were paid at an annualized rate of 0.66% of the reserves maintained for the
certificates. Fees were paid at the end of each term on certificates with a
one-, two- or three-month term and each quarter from date of issuance on
certificates with a six-, 12-, 24- or 36-month term.
Effective April 28, 1999, fees on the IDS Stock Market and IDS Market Strategy
Certificates are paid at a rate of 0.90% and fees on the American Express Stock
Market Certificates are paid at a rate of 1.00%. For certificates sold from
April 30, 1997 to April 27, 1999, fees were paid at the rate of 0.70%. For
certificates sold prior to April 30, 1997, fees were paid at a rate of 1.25%.
Fees are paid on the purchase price on the first day of the certificate's term
and on the reserves maintained for these certificates at the beginning of each
subsequent term.
C) The basis of computing depository fees paid or payable to American Express
Trust Company (an affiliate) is:
- --------------------------------------------------------------------------------
Maintenance charge per account 5 cents per $1,000 of assets on deposit
Transaction charge $20 per transaction
Security loan activity:
Depositary Trust Company
receive/deliver $20 per transaction
Physical receive/deliver $25 per transaction
Exchange collateral $15 per transaction
- --------------------------------------------------------------------------------
A transaction consists of the receipt or withdrawal of securities and commercial
paper and/or a change in the security position. The charges are payable
quarterly except for maintenance, which is an annual fee.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
D) The basis for computing fees paid or payable to American Express Bank Ltd.
(an affiliate) for the distribution of the American Express Special Deposits
Certificate on an annualized basis is:
1.25% of the reserves maintained for the certificates on an amount from $100,000
to $249,999, 0.80% on an amount from $250,000 to $499,999, 0.65% on an amount
from $500,000 to $999,999 and 0.50% on an amount $1,000,000 or more. Fees are
paid at the end of each term on certificates with a one-, two- or three-month
term. Fees are paid at the end of each quarter from date of issuance on
certificates with a six-, 12-, 24- or 36-month term.
E) The basis of computing transfer agent fees paid or payable to American
Express Client Service Corporation (AECSC) (an affiliate) is:
Under a Transfer Agency Agreement effective Jan. 1, 1998, AECSC maintains
certificate owner accounts and records. IDSC pays AECSC a monthly fee of
one-twelfth of $10.353 per certificate owner account for this service. Prior to
Jan. 1, 1998, AEFC provided this service to IDSC under the investment advisory
and services agreement.
8. Income taxes
Income tax (expense) benefit as shown in the statement of operations for the
three years ended Dec. 31, consists of:
1999 1998 1997
- ----------------------------------------------------------------------------
Federal
Current ($5,978) ($5,668) $1,138
Deferred 1,063 4,183 2,266
- ----------------------------------------------------------------------------
(4,915) (1,485) 3,404
State (137) (50) (65)
- ----------------------------------------------------------------------------
Total income tax (expense) benefit ($5,052) ($1,535) $3,339
- ----------------------------------------------------------------------------
Income tax (expense) benefit differs from that computed by using the U.S.
Statutory rate of 35%. The principal causes of the difference in each year are
shown below:
1999 1998 1997
- ------------------------------------------------------------------------------
Federal tax expense at U.S. statutory rate ($13,932) ($12,026) ($8,378)
Tax-exempt interest 264 394 724
Dividend exclusion 8,730 10,121 11,044
Other, net 23 26 14
- ------------------------------------------------------------------------------
Federal tax (expense) benefit ($4,915) ($1,485) $3,404
- ------------------------------------------------------------------------------
Deferred income taxes result from the net tax effects of temporary differences.
Temporary differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
purposes in future years. Principal components of IDSC's deferred tax assets and
liabilities as of Dec. 31, are as follows.
Deferred tax assets 1999 1998
- -------------------------------------------------------------------------
Certificate reserves $21,741 $19,423
Investment reserves 1,005 502
Investment unrealized losses 35,399 -
Other, net 19 18
- -------------------------------------------------------------------------
Total deferred tax assets $58,164 $19,943
- -------------------------------------------------------------------------
Deferred tax liabilities 1999 1998
- -------------------------------------------------------------------------
Deferred distribution fees $4,286 $5,523
Investment unrealized gains - 5,032
Purchased/written call options 10,494 7,417
Dividends receivable 490 553
Investments 261 280
Return of capital dividends 43 43
- -------------------------------------------------------------------------
Total deferred tax liabilities 15,574 18,848
- -------------------------------------------------------------------------
Net deferred tax assets $42,590 $1,095
- -------------------------------------------------------------------------
IDSC is required to establish a valuation allowance for any portion of the
deferred tax assets that management believes will not be realized. In the
opinion of management, it is more likely than not that IDSC will realize the
benefit of the deferred tax assets and, therefore, no such valuation allowance
has been established.
9. Derivative financial instruments
IDSC enters into transactions involving derivative financial instruments as an
end user (nontrading). IDSC uses these instruments to manage its exposure to
interest rate risk and equity price risk, including hedging specific
transactions. IDSC manages risks associated with these instruments as described
below.
Market risk is the possibility that the value of the derivative financial
instrument will change due to fluctuations in a factor from which the instrument
derives its value, primarily an interest rate or a major market index. IDSC is
not impacted by market risk related to derivatives held because derivatives are
largely used to manage risk and, therefore, the cash flows and income effects of
the derivatives are inverse to the effects of the underlying hedged
transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. IDSC monitors credit risk related to derivative financial
instruments through established approval procedures, including setting
concentration limits by counterparty, reviewing credit ratings and requiring
collateral where appropriate. At Dec. 31, 1999, IDSC's counterparties to the
purchased call options are five major broker/dealers that are rated AA by
nationally recognized rating agencies.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts do not represent market or credit risk
and are not recorded on the balance sheet.
Credit risk related to derivative financial instruments is measured by the
replacement cost of those contracts at the balance sheet date. The replacement
cost represents the fair value of the instrument, and is determined by market
values, dealer quotes or pricing models.
IDSC's holdings of derivative financial instruments were as follows at Dec. 31,
1999 and 1998.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
Notional Total
or contract Carrying Fair credit
amount value value risk
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Purchased call options $532 $123,845 $112,176 $112,176
- --------------------------------------------------------------------------------------------------------------------
Liabilities
Written call options $532 $47,911 $65,625 $-
- --------------------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------
Notional Total
or contract Carrying Fair credit
amount value value risk
- --------------------------------------------------------------------------------------------------------------------
Assets
Interest rate floors $500,000 $37 $348 $348
Purchased call options 448 96,176 92,357 92,357
- --------------------------------------------------------------------------------------------------------------------
Total $500,448 $96,213 $92,705 $92,705
- --------------------------------------------------------------------------------------------------------------------
Liabilities
Interest rate swaps $500,000 $- $1,488 $-
Written call options 448 38,071 54,181 -
- --------------------------------------------------------------------------------------------------------------------
Total $500,448 $38,071 $55,669 $-
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The purchased and written call options held at
Dec. 31, 1999, expire throughout 2000.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
Interest rate caps, corridors, floors and swaps, and options may be used to
manage IDSC's exposure to changing interest rates. These instruments are used
primarily to protect the margin between the interest earned on investments and
the interest rate credited to related investment certificate owners.
The interest rate floors were reset monthly and IDSC earned interest on the
notional amount to the extent the U.S. Treasury securities at "constant
maturity" for a period of one year was below the reference rates specified in
the floor agreements. These reference rates ranged from 4.6% to 4.7% during the
period they were held. The cost of interest rate floors is amortized over the
terms of the agreements on a straight line basis and is included in other
qualified assets. The amortization, net of any interest earned, is included in
investment expenses or other investment income, as appropriate.
The interest rate caps and corridors were reset quarterly and IDSC earned
interest on the notional amount to the extent the London Interbank Offering Rate
exceeded the reference rates specified in the cap and corridor agreements. These
reference rates ranged from 4% to 9% during the period they were held. The cost
of interest rate caps and corridors is amortized over the terms of the
agreements on a straight line basis and is included in other qualified assets.
The amortization, net of any interest earned, is included in investment expenses
or other investment income, as appropriate.
The interest rate swaps were reset monthly. IDSC paid a fixed rate on the
notional amount ranging from 5.46% to 5.66% and received a floating rate on the
notional amount tied to the U.S. Treasury securities at "constant maturity" for
a period of one year. There is no cost carried on the balance sheet. Interest
earned and interest expensed under the agreements is shown net in investment
expenses or other investment income, as appropriate.
IDSC offers a series of certificates which pays interest based upon the relative
change in a major stock market index between the beginning and end of the
certificates' term. The certificate owners have the option of participating in
the full amount of increase in the index during the term (subject to a specified
maximum) or a lesser percentage of the increase plus a guaranteed minimum rate
of interest. As a means of hedging its obligations under the provisions of these
certificates, IDSC purchases and writes call options on the major market index.
The options are cash settlement options, that is, there is no underlying
security to deliver at the time the contract is closed out.
Each purchased (written) call option contract confers upon the holder the right
(obligation) to receive (pay) an amount equal to one hundred dollars times the
difference between the level of the major stock market index on the date the
call option is exercised and the strike price of the option.
The option contracts are less than one year in term. The premiums paid or
received on these index options are reported in other qualified assets or other
liabilities, as appropriate, and are amortized into investment expense over the
life of the option. The intrinsic value of these index options is also reported
in other qualified assets or other liabilities, as appropriate. Changes in the
intrinsic value of these options are recognized currently in provision for
certificate reserves.
<PAGE>
Notes to Financial Statements ($ in thousands unless indicated otherwise)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Following is a summary of open option contracts at Dec. 31, 1999 and 1998.
1999
--------------------------------------------------
<S> <C> <C> <C>
Contract Average Index at
amount strike price Dec. 31,1999
- --------------------------------------------------------------------------------------------------------
Purchased call options $532 1,326 1,469
Written call options 532 1,453 1,469
- --------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------
Contract Average Index at
amount strike price Dec. 31,1998
- --------------------------------------------------------------------------------------------------------
Purchased call options $448 1,088 1,229
Written call options 448 1,206 1,229
- --------------------------------------------------------------------------------------------------------
</TABLE>
10. Fair values of financial instruments
IDSC discloses fair value information for most on- and off-balance sheet
financial instruments for which it is practicable to estimate that value. The
fair value of the financial instruments presented may not be indicative of their
future fair values. The estimated fair value of certain financial instruments
such as cash and cash equivalents, receivables for dividends and interest,
investment securities sold and other trade receivables, accounts payable due to
Parent and affiliates, payable for investment securities purchased and other
accounts payable and accrued expenses are approximated to be the carrying
amounts disclosed in the balance sheets. Non-financial instruments, such as
deferred distribution fees, are excluded from required disclosure. IDSC's
off-balance sheet intangible assets, such as IDSC's name and future earnings of
the core business are also excluded. IDSC's management believes the value of
these excluded assets is significant. The fair value of IDSC, therefore, cannot
be estimated by aggregating the amounts presented.
A summary of fair values of financial instruments as of Dec. 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------
Carrying Fair Carrying Fair
value value value value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Assets for which carrying values
approximate fair values $89,206 $89,206 $50,288 $50,288
Investment securities (note 3) 3,085,395 3,091,730 3,303,360 3,335,534
First mortgage loans on real estate (note 4) 378,047 359,018 334,280 343,406
Derivative financial instruments (note 9) 123,845 112,176 96,213 92,705
Financial liabilities
Liabilities for which carrying values
approximate fair values 33,944 33,944 154,964 154,964
Certificate reserves (note 5) 3,508,196 3,510,931 3,373,033 3,387,122
Derivative financial instruments (note 9) 47,911 65,625 38,071 55,669
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
American Express Investors Certificate
(for selected investors)
Prospectus April 26, 2000
Provides high fixed rates with capital preservation.
American Express Certificate Company (the Issuer, AECC or AXP Certificate
Company), formerly IDS Certificate Company, issues American Express Investors
Certificates. You may:
o Purchase this certificate in any amount from $100,000 through $5 million
unless you receive prior authorization from the Issuer to invest more.
o Select a term of one, two, three, six, 12, 24 or 36 months.
o Invest in successive terms up to a total of 20 years from the issue date of
the certificate.
This prospectus is designed for selected persons who plan to invest at least
$50 million in combinations of these certificates with authorization from the
Issuer. Unless you plan to invest at least $50 million, you should discuss with
your relationship manager whether this is the right prospectus for you.
This certificate is available in New York and Florida to persons who are neither
citizens nor residents of the United States and to certain U.S. trusts.
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. See "Risk
Factors" on page 2p.
American Express Certificate Company 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
Unit 557
200 AXP Financial Center
Minneapolis, MN 55474
800-862-7919
612-671-3131
Distributor:
American Express Financial Advisors Inc.
Selling Agent: American Express Bank Internationl
<PAGE>
Initial Interest Rates
The Issuer guarantees a fixed rate of interest for each term. For the initial
term, the rate will be within a specified range of certain average interest
rates generally referred to as the London Interbank Offered Rates (LIBOR). See
"About the Certificate" for more explanation.
Here are the interest rates in effect April 26, 2000*:
Actual
Simple compound Effective
interest yield for annualized
Term rate* the term** yield***
1 month 4.630% 4.630% 4.730%
2 month 4.621% 4.630% 4.720%
3 month 4.761% 4.780% 4.866%
6 month 4.949% 5.000% 5.063%
12 month 5.210% 5.336% 5.336%
24 month 5.418% 5.555% 5.555%
36 month 5.418% 5.555% 5.555%
* These are the rates for investments of $100,000. Rates may depend on
factors described in "Rates for new purchases" under "About the
Certificate."
** Assuming monthly compounding for the number of months in the term and a
$100,000 purchase.
*** Assuming monthly compounding for 12 months and a $100,000 purchase.
These rates may or may not have changed when you apply to purchase your
certificate. Rates for future terms are set at the discretion of the Issuer and
may also differ from the rates shown here.
RISK FACTORS
You should consider the following when investing in this 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."
<PAGE>
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."
<PAGE>
Table of Contents
Initial Interest Rates 2p
Risk Factors 2p
About the Certificate 6p
Read and Keep This Prospectus 6p
Investment Amounts and Terms 6p
Face Amount and Principal 7p
Value at Maturity 8p
Receiving Cash During the Term 8p
Interest 8p
Promotions and Pricing Flexibility 9p
Rates for New Purchases 9p
Rates for Future Terms 13p
Additional Investments 13p
Earning Interest 14p
How to Invest and Withdraw Funds 15p
Buying Your Certificate 15p
How to Make Investments at Term End 16p
Full and Partial Withdrawals 17p
When Your Certificate Term Ends 19p
Transfers to Other Accounts 20p
Transfer of Ownership 20p
For More Information 20p
Giving Instructions and Written Notification 21p
Purchases by Bank Wire 22p
Tax Treatment of Your Investment 23p
Withholding Taxes 24p
<PAGE>
How Your Money Is Used and Protected 25p
Invested and Guaranteed by the Issuer 25p
Regulated by Government 26p
Backed by Our Investments 27p
Investment Policies 28p
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 Agreements with American Express
Bank International 35p
About 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 40p
Appendix 41p
Annual Financial Information 42p
Summary of Selected Financial Information 42p
Management's Discussion and Analysis of Financial
Condition and Results of Operations 43p
IDS Certificate Company 50p
Report of Independent Auditors 51p
Financial Statements 52p
Notes to Financial Statements 60p
<PAGE>
About the Certificate
READ AND KEEP THIS PROSPECTUS
This prospectus describes terms and conditions of your American Express
Investors Certificate. It contains facts that can help you decide if the
certificate is the right investment for you. Read the prospectus before you
invest and keep it for future reference. No one has the authority to change the
terms and conditions of the American Express Investors Certificate as described
in the prospectus, or to bind the Issuer by any statement not in it.
This prospectus describes American Express Investors Certificate distributed by
American Express Financial Advisors Inc. American Express Bank International
(AEBI) has an arrangement with American Express Financial Advisors Inc. under
which the certificate is offered to AEBI's clients who are neither citizens nor
residents of the United States and to certain U.S. trusts. The certificate is
currently available through AEBI offices located in Florida and New York. This
certificate also may be available through other selling agents.
INVESTMENT AMOUNTS AND TERMS
You may purchase the American Express Investors Certificate in any amount from
$100,000 payable in U.S. currency. Unless you receive prior approval, your total
amount paid in any one or more certificates, in the aggregate over the life of
the certificates, less withdrawals, cannot exceed $5 million. Unless you plan to
invest at least $50 million in total, with at least $5 million (exclusive of
interest) for a term of 12 months or longer, you should discuss with your
relationship manager whether this is the right prospectus for you.
After determining the amount you wish to invest, you select a term of one, two,
three, six, 12, 24 or 36 months for which the Issuer will guarantee a specific
interest rate. The Issuer guarantees the principal of and interest on your
certificate. At the end of the term, you may have interest earned on the
certificate during its term credited to your certificate or paid to you.
Investments in the certificate may continue for successive terms up to a total
of 20 years from the issue date of the certificate. Generally, you will be able
to select any of the terms offered. But if your certificate is nearing its
20-year maturity, you will not be allowed to select a term that would carry the
certificate past its 20-year maturity date.
<PAGE>
FACE AMOUNT AND PRINCIPAL
The face amount of the certificate is the amount of your initial investment, and
will remain the same over the life of the certificate. Any investment or
withdrawal within 15 days of the end of a term will be added on or deducted to
determine principal for the new term. A withdrawal at any other time is taken
first from interest credited to your investment during that term. The principal
is the amount that is reinvested at the beginning of each subsequent term, and
is calculated as follows:
Principal
equals Face amount (initial investment)
plus At the end of a term, interest credited to your account
during the term
minus Any interest paid to you in cash
plus Any additional investments to your certificate
minus Any withdrawals, fees and applicable penalties
Principal may change during a term as described in "Full and Partial
Withdrawals."
For example: Assume your initial investment (face amount) of $500,000 earned
$7,500 of interest during the term. You have not taken any interest as cash or
made any withdrawals. You have invested an additional $250,000 prior to the
beginning of the next term. Your principal for the next term will equal:
$500,000 Face amount (initial investment)
plus $7,500 Interest credited to your account
minus $(0) Interest paid to you in cash
plus $250,000 Additional investment to your certificate
minus $(0) Withdrawals and applicable penalties or fees
$757,500 Principal at the beginning of the next term
<PAGE>
VALUE AT MATURITY
You may continue to invest for successive terms for up to a total of 20 years.
Your certificate matures at 20 years from its issue date. At maturity, you will
receive a distribution for the value of your certificate, which will be the
total of your purchase price, plus additional investments and any credited
interest not paid to you in cash, less any withdrawals and penalties. Some fees
may apply as described in "How to Invest and Withdraw Funds."
RECEIVING CASH DURING THE TERM
If you need your money before your certificate term ends, you may withdraw part
or all of its value at any time, less any penalties that apply.
Procedures for withdrawing money, as well as conditions under which penalties
apply, are described in "How to Invest and Withdraw Funds."
INTEREST
Your investments earn interest from the date they are credited to your account.
Interest is compounded and credited at the end of each certificate month (on the
monthly anniversary of the issue date). Interest may be paid to you monthly in
cash if you maintain a principal balance of at least $500,000.
The Issuer declares and guarantees a fixed rate of interest for each term during
the life of your certificate. We calculate the amount of interest you earn each
certificate month by:
o applying the interest rate then in effect to your balance each day;
o adding these daily amounts to get a monthly total; and
o subtracting interest accrued on any amount you withdraw during the
certificate month.
Interest is calculated on a 30-day month and 360-day year basis.
This certificate may be available through other distributors or selling agents
with different interest rates or related features and consequently with
different returns. You may obtain information about other such distributors or
selling agents by calling the Client Service Organization in Minneapolis at the
telephone numbers listed on the back cover.
<PAGE>
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.
RATES FOR NEW PURCHASES
The Issuer has complete discretion to determine whether to accept an application
and sell a certificate. When your application is accepted and we have received
your initial investment, we will send you a confirmation of your purchase
showing the rate that your investment will earn. The Issuer guarantees that the
rate in effect for your initial term will be within a 100 basis point (1%) range
tied to certain average interest rates for comparable length dollar deposits
available on an interbank basis in the London market, and generally referred to
as the London Interbank Offered Rates (LIBOR). For investments of $1 million or
more, initial rates for specific terms are determined as follows:
1 month Within a range of 70 basis points below to 30 basis points above the
one-month LIBOR rate.
2 months Within a range of 70 basis points below to 30 basis points above
the two-month LIBOR rate.
3 months Within a range of 70 basis points below to 30 basis points above the
three-month LIBOR rate.
6 months Within a range of 70 basis points below to 30 basis points above the
six-month LIBOR rate.
12 months Within a range of 70 basis points below to 30 basis points above the
12-month LIBOR rate.
24 months Within a range of 50 basis points below to 50 basis points above
the 12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
36 months Within a range of 50 basis points below to 50 basis points above the
12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
<PAGE>
For investments from $500,000 to $999,999 initial rates for specific terms are
determined as follows:
1 month Within a range of 90 basis points below to 10 basis points above the
one-month LIBOR rate.
2 months Within a range of 90 basis points below to 10 basis points above
the two-month LIBOR rate.
3 months Within a range of 90 basis points below to 10 basis points above the
three-month LIBOR rate.
6 months Within a range of 90 basis points below to 10 basis points above the
six-month LIBOR rate.
12 months Within a range of 90 basis points below to 10 basis points above the
12-month LIBOR rate.
24 months Within a range of 70 basis points below to 30 basis points above the
12-month LIBOR rate. (A 24 month LIBOR rate is not published.)
36 months Within a range of 70 basis points below to 30 basis points above the
12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
For investments from $250,000 to $499,999 initial rates for specific terms are
determined as follows:
1 month Within a range of 130 basis points below to 30 basis points below
the one-month LIBOR rate.
2 months Within a range of 130 basis points below to 30 basis points below
the two-month LIBOR rate.
3 months Within a range of 130 basis points below to 30 basis points below
the three-month LIBOR rate.
6 months Within a range of 130 basis points below to 30 basis points below
the six-month LIBOR rate.
12 months Within a range of 130 basis points below to 30 basis points below
the 12-month LIBOR rate.
24 months Within a range of 110 basis points below to 10 basis points below
the 12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
<PAGE>
36 months Within a range of 110 basis points below to 10 basis points below
the 12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
For investments of $100,000 to $249,999, initial rates for specific terms are
determined as follows:
1 month Within a range of 210 basis points below to 110 basis points below
the one-month LIBOR rate.
2 months Within a range of 210 basis points below to 110 basis points below
the two-month LIBOR rate.
3 months Within a range of 210 basis points below to 110 basis points below
the three-month LIBOR rate.
6 months Within a range of 210 basis points below to 110 basis points below
the six-month LIBOR rate.
12 months Within a range of 210 basis points below to 110 basis points below
the 12-month LIBOR rate.
24 months Within a range of 190 basis points below to 90 basis points below
the 12-month LIBOR rate. (A 24-month LIBOR rate is not published.)
36 months Within a range of 190 basis points below to 90 basis points below
the 12-month LIBOR rate. (A 36-month LIBOR rate is not published.)
For example, if the LIBOR rate published on the date rates are determined with
respect to a six-month deposit is 6.50%, the rate declared on a six-month
American Express Investors Certificate greater than $500,000 but less than $1
million would be between 5.60% and 6.60%. If the LIBOR rate published for a
given week with respect to 12-month certificates is 7.00%, the Issuer's rates in
effect that week for the 24- and 36-month American Express Investors
Certificates greater than $500,000 but less than $1 million would be between
6.15% and 7.15%. When your application is accepted, you will be sent a
confirmation showing the rate that your investment will earn for the first term.
LIBOR is the interbank-offered rates for dollar deposits at which major
commercial banks will lend for specific terms in the London
<PAGE>
market. Generally, LIBOR rates quoted by major London banks will be the same.
However, market conditions, including movements in the U.S. prime rate and the
internal funding position of each bank, may result in minor differences in the
rates offered by different banks. LIBOR is a generally accepted and widely
quoted interest-rate benchmark. The average LIBOR rate used by the Issuer is
published on the Chicago Mercantile Exchange website at www.cme.com.
Rates for new purchases are reviewed and may change daily. The guaranteed rate
that is in effect for your chosen term on the day your application is accepted
at the Issuer's corporate office in Minneapolis, Minnesota, U.S.A. will apply to
your certificate. The interest rates printed in the front of this prospectus may
or may not have changed on the date your application to invest is accepted.
Rates for new purchases may vary depending on the amount you invest, but will
always be within the 100 basis point range described above. You may obtain the
current interest rates by calling your AEBI or other selling agent
representative.
In determining rates based on the amount of your investment, the Issuer may
offer a rate based on your aggregate investment determined by totaling only the
amounts invested in each certificate that has a current balance exceeding a
specified level. The current balance considered in this calculation may be
exclusive of interest. Part of the balance may be required to be invested in
terms of a specified minimum length. The aggregate investment may be required to
be for terms that average at least a specified minimum length. The certificates
whose balances are aggregated must have identical ownership. The rate may be
available only for a certificate whose current balance exceeds a specified level
or that is offered through a specified distributor or selling agent.
Interest rates for the term you have selected will not change once the term has
begun, unless a withdrawal reduces your account value to a point where we pay a
lower interest rate, as described in "Full and Partial Withdrawals" under "How
to Invest and Withdraw Funds."
<PAGE>
RATES FOR FUTURE TERMS
Interest on your certificate for future terms may be greater or less than the
rates you receive during your first term. In setting future interest rates for
subsequent terms, a primary consideration will be the prevailing investment
climate, including the LIBOR rates. Nevertheless, the Issuer has complete
discretion as to what interest rates it will declare beyond the initial term.
The Issuer will send you notice at the end of each term of the rate your
certificate will earn for the new term. You have a 15-day grace period to
withdraw your certificate without a withdrawal charge. If LIBOR is no longer
publicly available or feasible to use, the Issuer may use another, similar index
as a guide for setting rates.
ADDITIONAL INVESTMENTS
You may add to your investment when your term ends. If your new term is a
one-month term, you may add to your investment on the first day of your new term
(the renewal date) or the following business day if the renewal date is a
non-business day. If your new term is greater than one month, you may add to
your investment within the 15 days following the end of your term. A $25,000
minimum additional investment is required, payable in U.S. currency. Your
confirmation will show the applicable rate. However, unless you receive prior
approval from the Issuer, your investment may not bring the aggregate net
investment of any one or more certificates held by you (excluding any interest
added during the life of the certificate and less withdrawals) over $5 million.
Additional investments of at least $25,000 may be made by bank wire.
The Issuer must receive your additional investment within the 15 days following
the end of a certificate's current term (unless your new investment is a
one-month term), if you wish to increase your principal investment as of the
first day of the new term. Interest accrues from the first day of the new term
or the day your additional investment is accepted by the Issuer, whichever is
later, at the rate then in effect for your account. If your new term is a
one-month term, your additional investment must be received by the end of the
certificate's current term.
<PAGE>
The interest rate for these additional investments is the rate then in effect
for your account. If your additional investment increases the principal of your
certificate so that your certificate's principal has exceeded a break point for
a higher interest rate, the certificate will earn this higher interest rate for
the remainder of the term, from the date the Issuer accepts the additional
investment.
EARNING INTEREST
At the end of each certificate month, interest is compounded and credited to
your account. A certificate month is the monthly anniversary of the issue date.
Interest may be paid to you monthly in cash if you maintain a principal balance
of at least $500,000.
The amount of interest you earn each certificate month is determined by applying
the interest rate then in effect to the daily balance of your certificate, and
subtracting from that total the interest accrued on any amount withdrawn during
the month. Interest is calculated on a 360-day year basis. This means interest
is calculated on the basis of a 30-day month even though terms are determined on
a calendar month.
<PAGE>
How to Invest and Withdraw Funds
BUYING YOUR CERTIFICATE
This certificate is available only to AEBI clients who are neither citizens nor
residents of the United States (or which are foreign corporations, partnerships,
estates or trusts) and to U.S. trusts organized under the laws of any state in
the United States, so long as the following are true in the case of such a U.S.
trust:
o the trust is unconditionally revocable by the grantor or grantors (the
person or persons who put the money into the trust);
o there are no more than 10 grantors of the trust;
o all the grantors are neither citizens nor residents of the United States;
o each grantor provides an appropriately certified Form W-8 (or approved
substitute), as described under "Tax Treatment of Your Investment;"
o the trustee of the trust is a bank organized under the laws of the United
States or any state in the United States; and
o the trustee supplies AECC with appropriate tax documentation.
The certificate is available through AEBI offices located in Florida and New
York. An AEBI or other selling agent representative will help you prepare your
purchase application. The Issuer will process the application at our corporate
offices in Minneapolis, MN, U.S.A. When your application is accepted and we have
received your initial investment, we will send you a confirmation of your
purchase, indicating your account number and applicable rate of interest for
your first term, as described under "Rates for New Purchases." See "Purchase
policies" below.
Important: When you open an account, you must provide a Form W-8 or approved
substitute. See "Tax Treatment of Your Investment."
<PAGE>
Purchase policies:
o You have 15 days from the date of purchase to cancel your investment
without penalty by notifying your AEBI or other selling agent
representative, or by writing or calling the Client Service Organization at
the address or phone number on the cover of this prospectus. If you decide
to cancel your certificate within this 15-day period, you will not earn any
interest.
o The Issuer has complete discretion to determine whether to accept an
application and sell a certificate.
HOW TO MAKE INVESTMENTS AT TERM END
By wire
If you have an established account, you may wire money to:
Norwest Bank Minnesota through July 2000
Wells Fargo Bank Minnesota N.A after July 2000
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).
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: $25,000.
o Wire orders can be accepted only on days when your bank, AEFC, AECC and
Norwest Bank Minnesota (to be renamed Wells Fargo Bank Minnesota N.A. in
July 2000) 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.
<PAGE>
o The Issuer, AEFC, its subsidiaries, AEBI, and other 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 receive all or part of your money at any time. However:
o If your withdrawal request is received in the Minneapolis headquarters on a
business day before 3 p.m. Central time, it will be processed that day and
payment will be sent the next business day. Otherwise, your request will be
processed one business day later.
o Full and partial withdrawals of principal are subject to penalties,
described below.
o If you request a withdrawal or a series of withdrawals exceeding
$50,000,000 in any 30-day period, the Issuer at its option may, prior to
the maturity of any of these certificates, defer any payment or payments to
the certificate owner for a period of not more than 30 days. If the Issuer
exercises this option, interest will accrue on any such payment or
payments, for the period of deferment, at a rate at least equal to that
applicable to the last term of the certificate.
o Partial withdrawals during a term must be at least $10,000. You may not
make a partial withdrawal if it would reduce your certificate balance to
less than $100,000. If you request such a withdrawal, we will contact you
for revised instructions.
o If a withdrawal reduces your account value to a point where we pay a lower
interest rate, you will earn the lower rate from the date of the
withdrawal.
<PAGE>
o Because we credit interest on your certificate's monthly anniversary,
withdrawals before the end of the certificate month will result in loss of
interest on the amount withdrawn. You'll get the best result by timing a
withdrawal at the end of the certificate month -- that is, on an interest
crediting date.
o If your certificate is pledged as collateral, any withdrawal will be
delayed until we get approval from the secured party.
Penalties for early withdrawal during a term:
When you request a full or partial withdrawal, we pay the amount you request:
o first from interest credited during the current term,
o then from the principal of your certificate.
Any withdrawals during a term exceeding the interest credited are deducted from
the principal and are used in determining any withdrawal charges. However, the
2% penalty is waived upon the 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.
Withdrawal penalties: When a penalty applies, a 2% withdrawal penalty will be
deducted from the account's remaining balance.
For example, assume you invest $1 million in a certificate and select a
six-month term. Four months later assume you have earned $20,000 in interest.
The following demonstrates how the withdrawal charge is deducted:
When you withdraw a specific amount of money in excess of the interest credited,
the Issuer has to withdraw somewhat more from your account to cover the
withdrawal charge. For instance, suppose you request a $100,000 check on a $1
million investment. The first $20,000 paid to you is interest earned that term,
and the remaining $80,000 paid to you is principal. The Issuer would send you a
check for $100,000 and deduct a withdrawal charge of $1,600 (2% of $80,000) from
the remaining balance of your certificate. Your new balance would be $918,400.
<PAGE>
Total investments $1,000,000
Interest credited $20,000
Total balance $1,020,000
Requested check $100,000
Credited interest withdrawn $ (20,000)
Withdrawal charge percent 2%
Actual withdrawal charge $1,600
Balance prior to withdrawal $1,020,000
Requested withdrawal check $(100,000)
Withdrawal charge $(1,600)
Total balance after withdrawal $918,400
Additionally, if you make a withdrawal during a certificate month, you will not
earn interest for the month on the amount withdrawn.
Penalty exceptions: The 2% penalty is waived upon death of the certificate
owner.
For more information on withdrawal charges, talk with your AEBI or other selling
agent representative.
WHEN YOUR CERTIFICATE TERM ENDS
On or shortly after the end of the term you have selected for your certificate,
the Issuer will send you a notice indicating the interest rate that will apply
to the certificate for the new term. When your certificate term ends, the Issuer
will automatically renew your certificate for the same term unless you notify
your AEBI or other selling agent representative otherwise. If you wish to select
a different term, you must notify your representative in writing before the end
of the grace period. You will not be allowed to select a term that would carry
the certificate past its maturity date.
The interest rates that will apply to your new term will be those in effect on
the day the new term begins. We will send you a confirmation showing the rate of
interest that will apply to the new term you have selected. This rate of
interest will not be changed during that term.
If you want to withdraw your certificate without a withdrawal charge, you must
notify us within 15 calendar days following the end of a term.
<PAGE>
For most terms, you may also add to your investment within the 15 calendar days
following the end of your term. See "Additional Investments" under "About the
Certificate."
Other full and partial withdrawal policies:
o If you request a partial or full withdrawal of a certificate recently
purchased or added to by a check or money order that is not guaranteed, we
will wait for your check to clear. Please expect a minimum of 10 days from
the date of your payment before 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 AEBI.
TRANSFER OF OWNERSHIP
While this certificate is not a negotiable instrument, it may be transferred or
assigned on the Issuer's records if proper written notice is received by the
Issuer. Ownership may be assigned or transferred to individuals or an entity
who, for U.S. tax purposes, is considered to be neither a citizen nor resident
of the United States. You may also pledge the certificate to AEBI or another
American Express Company affiliate or to another selling agent as collateral
security. Your AEBI 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 AEBI relationship manager or other selling agent
representative, or call the Issuer's client service number in Minneapolis listed
on the back cover.
<PAGE>
GIVING INSTRUCTIONS AND WRITTEN NOTIFICATION
Your AEBI or other selling agent representative will handle instructions
concerning your account. Written instructions may be provided to either your
representative's office or directly to the Issuer.
Proper written notice to your AEBI or other selling agent representative or the
Issuer must:
o be addressed to your AEBI or other selling agent office or the Issuer's
corporate office, in which case it must identify your AEBI or other selling
agent office,
o include your account number and sufficient information for the Issuer to
carry out your request, and
o be signed and dated by all registered owners.
The Issuer will acknowledge your written instructions. If your instructions are
incomplete or unclear, you will be contacted for revised instructions.
In the absence of any other written mandate or instructions you have provided to
AEBI or your other selling agent, you may elect in writing, on your initial or
any subsequent purchase application, to authorize AEBI or your other selling
agent to act upon the sole verbal instructions of any one of the named owners,
and in turn to instruct the Issuer with regard to any and all actions in
connection with the certificate referenced in the application as it may be
modified from time to time by term changes, renewals, additions or withdrawals.
The individual providing verbal instructions must be a named owner of the
certificate involved. In providing such authorization you agree that the Issuer,
its transfer agent, AEBI and other selling agents will not be liable for any
loss, liability, cost or expense arising in connection with implementing such
instructions, reasonably believed by the Issuer, AEBI or your other selling
agent, or their representatives, to be genuine. You may revoke such authority at
any time by providing proper written notice to your AEBI or other selling agent
office.
<PAGE>
All amounts payable to or by the Issuer in connection with this certificate are
payable at the Issuer's corporate office unless you are advised otherwise.
PURCHASES BY BANK WIRE
You may wish to lock in a specific interest rate by using a bank wire to
purchase a certificate. Your representative can instruct you about how to use
this procedure. Using this procedure will allow you to start earning interest at
the earliest possible time. The minimum that may be wired to purchase a new
certificate is $100,000.
Wire orders will be accepted only in U.S. currency and only on days your bank,
the Issuer and Norwest Bank Minnesota (to be renamed Wells Fargo Bank Minnesota
N.A. in July 2000) are open for business. The payment must be received by the
Issuer before 3 p.m. Central U.S.A. time to be credited that day. Otherwise, it
will be processed the next business day. The wire purchase will not be made
until the wired amount is received and the purchase is accepted by the Issuer.
Wire transfers not originating from AEBI or another selling agent are accepted
by AECC's corporate office only when originating from banks located in the
United States of America. Any delays that may occur in wiring the funds,
including delays in processing by the banks, are not the responsibility of the
Issuer. Wire orders may be rejected if they do not contain complete information.
While the Issuer does not charge a service fee for incoming wires, you must pay
any charge assessed by your bank for the wire service. If a wire order is
rejected, all money received will be returned promptly less any costs incurred
in rejecting it.
<PAGE>
Tax Treatment of Your Investment
Interest paid on your certificate is "portfolio interest" as defined in U.S.
Internal Revenue Code Section 871(h) if earned by a nonresident alien who has
supplied the Issuer with Form W-8, Certificate of Foreign Status. Form W-8 must
be supplied with both a current mailing address and an address of foreign
residency, if different. The Issuer will not accept purchases of certificates by
nonresident aliens without an appropriately certified Form W-8 (or approved
substitute). The Form W-8, in effect before January 1, 2001, must be resupplied
every three calendar years. If you have supplied a Form W-8 that certifies that
you are a nonresident alien, the interest income will be reported at year end to
you and to the U.S. government on a Form 1042-S, Foreign Person's U.S. Source
Income Subject to Withholding. Your interest income will be reported to the IRS
(Internal Revenue Service) even though it is not taxed by the U.S. government.
The United States participates in various tax treaties with foreign countries.
Those treaties provide that tax information may be shared upon request between
the United States and such foreign governments.
Changes in Tax Regulation
The U.S. Internal Revenue Service has issued new regulations changing the
certification requirements for nonresident aliens. As a result of the changes,
new Forms W-8 have been designed and are available for use. AECC will need the
new forms on file for all clients by January 1, 2001.
Depending on your status, you may provide us with any one of four new Forms W-8.
Most clients will use Form W-8BEN, Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding, but consult your tax advisor to ensure
that you are using the correct form. The new Forms W-8 must be resupplied every
four calendar years, up from three years with the current form.
A few other changes may affect you. Foreign trusts must apply for a permanent
U.S. individual tax identification number (ITIN). Individuals applying for
benefits under a tax treaty will have additional requirements.
<PAGE>
WITHHOLDING TAXES
If you fail to provide a Form W-8 as required above, you will be subject to 31%
backup withholding on interest payments and withdrawals from certificates.
Estate tax: If you are a nonresident alien and you die while owning a
certificate, then, depending on the circumstances, 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 U.S. estate
taxes.
Trusts: If the investor is a trust described in "Buying Your Certificate" under
"How to Invest and Withdraw Funds," the policies and procedures described above
will apply with regard to each grantor.
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.
<PAGE>
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 Investors Certificate. We are by far the largest issuer of face
amount certificates in the United States, with total assets of more than $3.7
billion and a net worth in excess of $141 million on Dec. 31, 1999.
We back our certificates by investing the money received and keeping the
invested assets on deposit. Our investments generate interest and dividends, out
of which we pay:
o interest to certificate owners,
o and various expenses, including taxes, fees to AEFC for advisory and other
services, distribution fees to American Express Financial Advisors Inc.,
selling agent fees to selling agents, and transfer agent fees to American
Express Client Service Corporation (AECSC).
For a review of significant events relating to our business, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations." No
national rating agency rates our certificates.
Most banks and thrifts offer investments known as certificates of deposit (CDs)
that are similar to our certificates in many ways. Early withdrawals of bank CDs
often result in penalties. Banks and thrifts generally have federal deposit
insurance for their deposits and lend much of the money deposited to
individuals, businesses and other enterprises. Other financial institutions and
some insurance companies may offer investments with comparable combinations of
safety and return on investment.
<PAGE>
REGULATED BY GOVERNMENT
Because the American Express Investors Certificate is a security, its offer and
sale are subject to regulation under federal and state securities laws. (The
American Express Investors 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, 1999, the
amortized cost of these investments exceeded the required carrying value of our
outstanding certificates by more than $238 million. The law requires us to use
amortized cost for these regulatory purposes. Among other things, the law
permits Minnesota statutes to govern qualified assets of AECC as described in
Note 2 to the financial statements. In general, amortized cost is determined by
systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
As a condition to regulatory relief from the SEC, AECC has agreed to maintain
capital and surplus equal to 5% of outstanding liabilities on certificates (not
including loans made on certificates in accordance with terms of some
certificates that no longer are offered by AECC). AECC is not obligated to
continue to rely on the relief and continue to comply with the conditions of the
relief. Similarly, AECC has entered into a written, informal understanding with
the Minnesota Commerce Department that AECC will maintain capital equal to 5% of
the assets of AECC (less any loans on outstanding certificates). When computing
its capital for these purposes, AECC values its assets on the basis of statutory
accounting for insurance companies rather than generally accepted accounting
principles.
<PAGE>
BACKED BY OUR INVESTMENTS
The Issuer's investments are varied and of high quality. This was the
composition of our portfolio as of Dec. 31, 1999:
Type of investment Net amount invested
Corporate and other bonds 49%
Government agency bonds 22
Preferred stocks 16
Mortgages 11
Municipal bonds 1
Cash and cash equivalents 1
As of Dec. 31, 1999 about 89% of our securities portfolio (including bonds and
preferred stocks) is rated investment grade. For additional information
regarding securities ratings, please refer to Note 3B to the financial
statements.
Most of our investments are on deposit with American Express Trust Company,
Minneapolis, although we also maintain separate deposits as required by certain
states. American Express Trust Company is a wholly owned subsidiary of AEFC.
Copies of our Dec. 31, 1999 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.
<PAGE>
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
Corporation. 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, 1999, AECC held about 11% 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.
<PAGE>
Commodities --
We have not and do not intend to purchase or sell commodities or commodity
contracts except to the extent that transactions described in "Financial
transactions including hedges" in this section may be considered commodity
contracts.
Underwriting --
We do not intend to engage in the public distribution of securities issued by
others. However, if we purchase unregistered securities and later resell them,
we may be considered an underwriter (selling securities for others) under
federal securities laws.
Borrowing money --
From time to time we have established a line of credit with banks if management
believed borrowing was necessary or desirable. We may pledge some of our assets
as security. We may occasionally use repurchase agreements as a way to borrow
money. Under these agreements, we sell debt securities to our lender, and
repurchase them at the sales price plus an agreed-upon interest rate within a
specified period of time. There is no limit on the extent to which we may borrow
money, except that borrowing must be through the sale of certificates, or must
be short-term and privately arranged and not intended to be publicly offered.
Real estate --
We may invest in limited partnership interests in limited partnerships that
either directly, or indirectly through other limited partnerships, invest in
real estate. We may invest directly in real estate. We also invest in mortgage
loans secured by real estate. We expect that equity investments in real estate,
either directly or through a subsidiary of AECC, will be less than 5% of AECC's
assets.
Lending securities --
We may lend some of our securities to broker-dealers and receive cash equal to
the market value of the securities as collateral. We invest this cash in
short-term securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan, the borrower
makes cash payments to us equal to all interest, dividends and other
distributions paid on the loaned securities. We will try to vote these
securities if a major event affecting our investment is under consideration. We
expect that outstanding securities loans will not exceed 10% of AECC's assets.
<PAGE>
When-issued securities --
Some of our investments in debt securities are purchased on a when-issued or
similar basis. It may take as long as 45 days or more before these securities
are available for sale, issued and delivered to us. We generally do not pay for
these securities or start earning on them until delivery. We have established
procedures to ensure that sufficient cash is available to meet when-issued
commitments. AECC's ability to invest in when-issued securities is not limited
except by its ability to set aside cash or high quality investments to meet
when-issued commitments. When-issued securities are subject to market
fluctuations and they may affect AECC's investment portfolio the same as owned
securities.
Financial transactions including hedges --
We buy or sell various types of options contracts for hedging purposes or as a
trading technique to facilitate securities purchases or sales. We may buy
interest rate caps for hedging purposes. These pay us a return if interest rates
rise above a specified level. If interest rates do not rise above a specified
level, the interest rate caps do not pay us a return. The Issuer may enter into
other financial transactions, including futures and other derivatives, for the
purpose of managing the interest rate exposures associated with the Issuer's
assets or liabilities. Derivatives are financial instruments whose performance
is derived, at least in part, from the performance of an underlying asset,
security or index. A small change in the value of the underlying asset, security
or index may cause a sizable gain or loss in the fair value of the derivative.
There is not a limit on the Issuer's ability to enter into financial
transactions to manage the interest rate risk associated with the Issuer's
assets and liabilities, but the Issuer 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.
<PAGE>
Illiquid securities --
A security is illiquid if it cannot be sold in the normal course of business
within seven days at approximately its current market value. Some investments
cannot be resold to the U.S. public because of their terms or government
regulations. All securities, however can be sold in private sales, and many may
be sold to other institutions and qualified buyers or on foreign markets. AECC's
investment advisor will follow guidelines established by the board and consider
relevant factors such as the nature of the security and the number of likely
buyers when determining whether a security is illiquid. No more than 15% of
AECC's investment portfolio will be held in securities that are illiquid. In
valuing its investment portfolio to determine this 15% limit, AECC will use
statutory accounting under an SEC order. This means that, for this purpose, the
portfolio will be valued in accordance with applicable Minnesota law governing
investments of life insurance companies, rather than generally accepted
accounting principles.
Restrictions --
There are no restrictions on concentration of investments in any particular
industry or group of industries or on rates of portfolio turnover.
<PAGE>
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. As of Dec. 31, 1999, AEFC managed or
administered investments, including its own, of more than $262 billion. American
Express Financial Advisors Inc., a wholly owned subsidiary of AEFC, provides a
broad range of financial planning services for individuals and businesses
through its nationwide network of more than 600 supervisory offices, more than
3,800 branch offices and 9,480 financial advisors. American Express Financial
Advisors' financial planning services are comprehensive, beginning with a
detailed written analysis that's tailored to your needs. Your analysis may
address one or all of these six essential areas: financial position, protection
planning, investment planning, income tax planning, retirement planning and
estate planning.
<PAGE>
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 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, 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, 1999, the Issuer had issued (in face
amount) $90,939,275 of installment certificates and $1,508,505,715 of single
payment certificates. As of Dec. 31, 1999, the Issuer had issued (in face
amount) $13,684,206,836 of installment certificates and $19,860,383,374 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.
<PAGE>
For its services, we pay AEFC a monthly fee, equal on an annual basis to a
percentage of the total book value of certain assets (included assets).
Advisory and services fee computation
Percentage of
Included assets 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.
Advisory and services fee for the past three years
Percentage of
Year Total fees Included assets
1999 $8,691,974 0.26%
1998 9,084,332 0.24%
1997 17,232,602 0.50%
Estimated advisory and services fees for 2000 are $8,604,000.
Other expenses payable by the Issuer: The Investment Advisory and Services
Agreement provides that we will pay:
o costs incurred by us in connection with real estate and mortgages;
o taxes;
o depository and custodian fees;
o brokerage commissions;
o fees and expenses for services not covered by other agreements and provided
to us at our request, or by requirement, by attorneys, auditors, examiners
and professional consultants who are not officers or employees of AEFC;
o fees and expenses of our directors who are not officers or employees of
AEFC;
o provision for certificate reserves (interest accrued on certificate owner
accounts); and
o expenses of customer settlements not attributable to sales function.
<PAGE>
DISTRIBUTION
Under a Distribution Agreement with American Express Financial Advisors Inc.,
the Issuer pays an annualized fee equal to 1% of the amount outstanding for the
distribution of this certificate. Payments are made at the end of each term on
certificates with a one-, two- or three-month term. Payments are made each
quarter from issuance date on certificates with a six-, 12-, 24- or 36-month
term.
Total distribution fees paid to American Express Financial Advisors Inc. for all
series of certificates amounted to $27,950,987 during the year ended Dec. 31,
1999. The Issuer expects to pay American Express Financial Advisors Inc.
distribution fees amounting to $29,408,000 during 2000.
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 the Issuer. The Issuer's board of directors, including a
majority of directors who are not interested persons of AEFC or AECC, approved
this distribution agreement.
SELLING AGENT AGREEMENTS WITH AMERICAN EXPRESS BANK INTERNATIONAL
In turn, under a Selling Agent Agreement with AEBI, American Express Financial
Advisors compensates AEBI for its services as selling agent of this certificate
as follows:
AEBI is paid an annualized fee ranging from 0.50% to 1.25% of the reserve
balance of each certificate, depending on the amount outstanding for each such
certificate, with this exception: the fee will be 0.30% of the reserve balance
of each certificate with an amount outstanding of $1 million or more when:
o the aggregate reserve balance for that certificate, and any other
certificate with identical ownership and an amount outstanding of $1
million or more, is at least $20 million;
o the aggregate reserve balance is invested for terms that average at least
six months; and
o at least $5 million of this aggregate reserve balance is invested for a
term of 12 months or longer.
<PAGE>
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 and other Edge Act
corporations. For these services, American Express Financial Advisors pays AEBI
a fee for this certificate ranging from 0.075% to 0.12% of the reserve balance
of each certificate, depending on the amount outstanding for each certificate
for which another Edge Act corporation is the selling agent.
Such payments will be made periodically in arrears.
These fees are not assessed to your certificate account.
ABOUT AEBI
AEBI is an Edge Act corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act. It is a wholly owned subsidiary of American Express
Bank Ltd. (AEBL). As an Edge Act corporation, AEBI is subject to the provisions
of Section 25(a) of the Federal Reserve Act and Regulation K of the Board of
Governors of the Federal Reserve System (the Federal Reserve). It is supervised
and regulated by the Federal Reserve.
AEBI has an extensive international high net-worth client base that is serviced
by a marketing staff in New York and Florida. The banking and financial products
offered by AEBI include checking, money market and time deposits, credit
services, check collection services, foreign exchange, funds transfer,
investment advisory services and securities brokerage services. As of Dec. 31,
1999, AEBI had total assets of $491 million and total equity of $174 million.
Although AEBI is a banking entity, the American Express Investors 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.
<PAGE>
OTHER SELLING AGENTS
This certificate may be sold through other selling agents, under arrangements
with American Express Financial Advisors 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.
TRANSFER AGENT
Under a Transfer Agency Agreement, American Express Client Service Corporation
(AECSC), a wholly owned subsidiary of AEFC, maintains certificate owner accounts
and records. AECC pays AECSC a monthly fee of one-twelfth of $10.353 per
certificate owner account for this service.
EMPLOYMENT OF OTHER AMERICAN EXPRESS AFFILIATES
AEFC may employ an affiliate of American Express Company as executing broker for
our portfolio transactions only if:
o we receive prices and executions at least as favorable as those offered by
qualified independent brokers performing similar services;
o the affiliate charges us commissions consistent with those charged to
comparable unaffiliated customers for similar transactions; and
o the affiliate's employment is consistent with the terms of the current
Investment Advisory and Services Agreement and federal securities laws.
<PAGE>
DIRECTORS AND OFFICERS
The Issuer'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 $32,000 during 1999 to directors not employed by AEFC.
Board of directors
Rodney P. Burwell
Born in 1939. Director beginning in 1999. Chairman, Xerxes Corporation
(fiberglass storage tanks). Director, Fairview Corporation.
Charles W. Johnson
Born in 1929. Director since 1989. Director, Communications Holdings, Inc.
Acting president of Fisk University from 1998 to 1999. Former vice president and
group executive, Industrial Systems, with Honeywell, Inc. Retired 1989.
Jean B. Keffeler
Born in 1945. Director beginning in 1999. Independent management consultant.
Richard W. Kling*
Born in 1940. Director since 1996.
Chairman of the board of directors from 1996 to 2000. Director of IDS Life
Insurance Company since 1984; president since 1994. Executive vice president of
Marketing and Products of AEFC from 1988 to 1994. Senior vice president of AEFC
since 1994. Director of IDS Life Series Fund, Inc. and member of the board of
managers of IDS Life Variable Annuity Funds A and B.
Thomas R. McBurney
Born in 1938. Director beginning in 1999. President, McBurney Management
Advisors. Director, The Valspar Corporation (paints), Wenger Corporation,
Allina, Space Center Enterprises and Greenspring Corporation.
<PAGE>
Paula R. Meyer*
Born in 1954. President since 1998. Piper Capital Management (PCM) President
from 1997 to 1998. PCM Director of Marketing from 1995 to 1997. PCM Director of
Retail Marketing from 1993 to 1995.
Pamela J. Moret*
Born in 1956. Director since December 1999. Chair of the board of directors
since January 2000. Senior vice president Investment Products since November
1999. Vice president - Variable Assets & Services from 1997 to 1999. Vice
president Retail Services Group from 1996 to 1997. Vice President Communications
from 1992 to 1996. Various attorney positions in General Counsel's Office from
1982 to 1992.
*"Interested Person" of AECC as that term is defined in Investment Company Act
of 1940.
Executive officers
Paula R. Meyer
Born in 1954. President since 1998.
Jeffrey S. Horton
Born in 1961. Vice president and treasurer since 1997. Vice president and
corporate treasurer of AEFC since 1997. Controller, American Express
Technologies - Financial Services of AEFC from July 1997 to December 1997.
Controller, Risk Management Products of AEFC from 1994 to 1997. Director of
finance and analysis, Corporate Treasury of AEFC from 1990 to 1994.
Timothy S. Meehan
Born in 1957. Secretary since 1995. Secretary of AEFC and American Express
Financial Advisors Inc. since 1995. Senior counsel to AEFC since 1995. Counsel
from 1990 to 1995.
Lorraine R. Hart
Born in 1951. Vice president - Investments since 1994. Vice president Insurance
Investments of AEFC since 1989. Vice president - Investments of IDS Life
Insurance Company since 1992.
<PAGE>
Bruce A. Kohn
Born in 1951. Vice president and general counsel since 1993. Senior counsel to
AEFC since 1996. Counsel to AEFC from 1992 to 1996. Associate counsel from 1987
to 1992.
Philip C. Wentzel
Born 1961. Vice president and controller of AECC since January 2000. Vice
president - Finance, Insurance Products of AEFC since 1977. Vice president and
controller of IDS Life since 1998. Director, Financial Reporting and Analysis -
IDS Life from 1992 to 1997.
The officers and directors as a group beneficially own less than 1% of the
common stock of American Express Company.
AECC has provisions in its bylaws relating to the indemnification of its
officers and directors against liability, as permitted by law. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
1933 Act) may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
INDEPENDENT AUDITORS
A firm of independent auditors audits our financial statements at the close of
each fiscal year (Dec. 31). Copies of our annual financial statements (audited)
and semiannual financial statements (unaudited) are available to any certificate
owner upon request.
Ernst & Young LLP, Minneapolis, has audited our financial statements at Dec. 31,
1999 and 1998 and for each of the years in the three-year period ended Dec. 31,
1999. These statements are included in this prospectus. Ernst & Young LLP is
also the auditor for American Express Company, the parent company of AEFC and
AECC.
<PAGE>
Appendix
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change which could affect its price. Ratings by Moody's Investors Service,
Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA -- Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA -- Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A -- Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB -- Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Ba/BB -- Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.
B -- Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.
Caa/CCC -- Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.
Ca/CC -- Represent obligations that are highly speculative. Such issues are
often in default or have other marked shortcomings.
C -- Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.
D -- Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
Non-rated securities will be considered for investment. When assessing each
non-rated security, AECC will consider the financial condition of the issuer or
the protection afforded by the terms of the security.
<PAGE>
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.
American Express
Investors Certificate
200 AXP Financial Center
Minneapolis, MN 55474
800-862-7919
612-671-3131
Distributed by
American Express
Financial Advisors Inc.
S-6040 E (4/00)
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item
Number
Item 13. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and distribution
of the securities being registered are to be borne by the
registrant.
Item 14. Indemnification of Directors and Officers.
The By-Laws of IDS Certificate Company provide that it shall
indemnify any person who was or is a party or is threatened to
be made a party, by reason of the fact that he was or is a
director, officer, employee or agent of the company, or is or
was serving at the direction of the company, or any
predecessor corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture,
trust or other enterprise, to any threatened, pending or
completed action, suit or proceeding, wherever brought, to the
fullest extent permitted by the laws of the state of Delaware,
as now existing or hereafter amended.
The By-Laws further provide that indemnification questions
applicable to a corporation which has been merged into the
company relating to causes of action arising prior to the date
of such merger shall be governed exclusively by the applicable
laws of the state of incorporation and by the by-laws of such
merged corporation then in effect.
See also Item 17.
Item 15. Recent Sales of Unregistered Securities.
(a) Securities Sold
1996 IDS Special Deposits* 41,064,846.74
1997 American Express Special Deposits 182,788,631.00
1998 American Express Special Deposits 91,416,078.00
1999 American Express Special Deposits 50,132,542.00
* Renamed American Express Special Deposits in April 1996.
(b) Underwriters and other purchasers
American Express Special Deposits are marketed by American Express Bank Ltd.
(AEB), an affiliate of IDS Certificate Company, to private banking clients of
AEB in the United Kingdom and Hong Kong.
(c) Consideration
All American Express Special Deposits were sold for cash. The aggregate offering
price was the same as the amount sold in the table above. Aggregate marketing
fees to AEB were $301,946.44 in 1996, $592,068.70 in 1997, $967,791.95 in 1998
and $877,981.60 in 1999.
<PAGE>
(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. 18 to Registration Statement No. 33-26844
is incorporated herein by reference.
6. through 9. -- None.
10.(a) Investment Advisory and Services Agreement between Registrant and
IDS/American Express Inc. dated January 12, 1984, filed electronically
as Exhibit 10(b) to Registrant's Post-Effective Amendment No. 3 to
Registration Statement No. 2-89507, is incorporated herein by
reference.
<PAGE>
(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.
<PAGE>
(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., is filed electronically
herewith.
11. through 22. -- None.
23. Consent of Independent Auditors' Report is filed electronically
herewith.
24.(a) Officers' Power of Attorney, dated January 28, 2000, filed
electronically as Exhibit 24(a) to Post-Effective Amendment No. 47 to
Registration Statement No. 2-55252, is incorporated herein by
reference.
(b) Directors' Power of Attorney, dated January 28, 2000, filed
electronically as Exhibit 24(b) to Post-Effective Amendment No. 47 to
Registration Statement No. 2-55252 is incorporated herein by
reference.
25. through 27. -- None.
(b) The financial statement schedules for IDS Certificate Company filed
electronically as Exhibit 16(b) to Post-Effective Amendment No. 47 to
Registration Statement No. 2-55252 are incorporated herein 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
<PAGE>
admitted or contemplated), but such liability shall be subject
to the conditions and limitations described in said Acts.
American Express Financial Advisors Inc. and American Express
Bank International will also assume any liability of the
Company for any amount or amounts which the Company legally
may be compelled to pay to any purchaser under said Acts
because of any untrue statements of a material fact, or any
omission to state a material fact, on the part of the
respective agents of American Express Financial Advisors Inc.
and American Express Bank International to the extent of any
actual loss to, or expense of, the Company in connection
therewith. The By-Laws of the Registrant contain a provision
relating to Indemnification of Officers and Directors as
permitted by applicable law.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis and State of Minnesota, on
the 18th day of, April, 2000.
IDS 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 on the 18th day
of, April, 2000.
Signature Capacity
/s/ Paula R. Meyer* ** President and Director
Paula R. Meyer (Principal Executive Officer)
/s/ Jeffrey S. Horton* Vice President and Treasurer
Jeffrey S. Horton (Principal Financial Officer)
/s/ Jay C. Hatlestad* Vice President and Controller
Jay C. Hatlestad (Principal Accounting Officer)
/s/ Rodney P. Burwell** Director
Rodney P. Burwell
/s/ Charles W. Johnson** Director
Charles W. Johnson
/s/ Jean B. Keffeler** Director
Jean B. Keffeler
/s/ Richard W. Kling** Director
Richard W. Kling
/s/ Pamela J. Moret** Director
Pamela J. Moret
/s/ Thomas R. McBurney** Director
Thomas R. McBurney
<PAGE>
*Signed pursuant to Officers' Power of Attorney dated January 28, 2000 filed
electronically as Exhibit 24(a) to Post-Effective Amendment No. 47 to
Registration Statement No. 2-55252, incorporated herein by reference.
/s/ Bruce A. Kohn
Bruce A. Kohn
**Signed pursuant to Directors' Power of Attorney dated January 28, 2000 filed
electronically as Exhibit 24(b) to Post-Effective Amendment No. 47 to
Registration Statement No. 2-55252, incorporated herein by reference.
/s/ Bruce A. Kohn
Bruce A. Kohn
EXHIBIT INDEX
Exhibit 10 (o): Letter Agreement between American Express Financial
Advisors Inc. and Securities America, Inc.
Exhibit 23: Independent Auditors' Consent
April 10, 2000
Securities America Inc.
7100 West Center Road
Suite 500
Omaha, NE 68106-5001
Ladies and Gentlemen:
This is to confirm our agreement that:
(1) Effective as of April 1, 2000, in Section 2 of Schedule A to the Selling
Agent Agreement made as of March 10, 1999, by and between American Express
Financial Advisors Inc. and Securities America Inc. (the "Selling Agent
Agreement"), ".0.08%" shall replace ".0.10%".
Please note that this is the first amendment to the Selling Agent Agreement or a
schedule thereto.
Very truly yours,
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By: /s/ Douglas K. Dunning By: /s/ Chris A. Ingvalson
Print name: Douglas K. Dunning Print name: Chris A. Ingvalson
Print title: Vice President - Assured Print title: Assistant Secretary
Assets Product Development
and Management
Accepted and agreed to by
SECURITIES AMERICA INC.
By: /s/ Steven F. McWhorter
Print name: Steven F. McWhorter
Print title: Chairman & CEO
Date: 4/11/2000
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated February 3, 2000 in the Post-Effective
Amendment Number 20 to Registration Statement Number 33-26844 on Form S-1 and
related prospectuses of IDS Certificate Company for the registration of its
American Express Investors Certificate.
Our audits also included the financial statements schedules of IDS Certificate
Company listed in Item 16(b) of this Registration Statement. These schedules are
the responsibility of the management of the IDS Certificate Company. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
April 18, 2000
