SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT NUMBER 333-34982
AMERICAN EXPRESS EQUITY INDEXED SAVINGS CERTIFICATES
UNDER
THE SECURITIES ACT OF 1933
AMERICAN EXPRESS CERTIFICATE COMPANY
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
6725
--------------------------------------------------------------------------------
(Primary Standard Industrial Classification Code Number)
41-6009975
--------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
IDS Tower 10, Minneapolis, MN 55440, (612) 671-3131
--------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Bruce A. Kohn - IDS Tower 10, Minneapolis, MN 55440-0010, (612) 671-2221
--------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Approximate date of commencement of proposed sale to the public August 9, 2000.
<PAGE>
CONTENTS OF THIS PRE-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT NUMBER 333-34982
Cover Page
Prospectus
Part II Information
Signatures
<PAGE>
American Express Equity Indexed Savings Certificates
PROSPECTUS AUGUST 9, 2000
Potential for stock market growth with safety of principal.
American Express Certificate Company (the Issuer) issues American Express Equity
Indexed Savings Certificates (the Certificates). The Issuer offers two classes
of Certificates -- Full Participation Certificates and Partial Participation
Certificates.
You may:
o Purchase a Certificate in any amount from $2,000 through $1 million unless
you receive prior authorization from the Issuer to invest more.
o Participate in any increase of the stock market based on the Standard &
Poor's 500 Composite Stock Price Index (S&P 500 Index) while protecting
your principal, up to a maximum return between 10% and 11% for a 52-week
term (see page 2p).
o Decide whether to link all of your return to the index by buying a Full
Participation Certificate or whether the Issuer will guarantee part of your
return, with a reduced participation in the index, by buying a Partial
Participation Certificate.
o Keep your Certificate for up to ten successive 52-week terms.
The Certificates are debt securities that pay interest based on the performance
of the S&P500 Index up to the maximum return. The Certificates do not pass
through the performance of a stock portfolio as an indexed mutual fund does and
therefore do not use indexed investment strategies as a mutual fund.
Purchasers of the Certificates or other similar certificates through some
distribution channels may be eligible for special rates. See "Initial Interest
and Participation Rates" on page 2p.
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.
The Certificates are backed solely by the assets of the Issuer. To the extent
you link your interest to the S&P 500 Index, you might earn no interest. See
"Risk Factors" on page 2p.
The Issuer 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 dealers are not required to sell any specific amount
of securities.
Issuer:
American Express Certificate Company
200 AXP Financial Center
Minneapolis, MN 55474
888-322-7234 (toll free)
Distributor:
American Express Financial Advisors Inc.
American Express companies
<PAGE>
Initial Interest and Participation Rates
The Issuer is a face amount certificate company, a kind of investment company,
and the Certificates are face amount certificates.
The Issuer guarantees return of your principal. The interest on your Certificate
is linked to stock market performance as measured by the S&P 500 Index, based on
Tuesday closing values of the S&P 500 Index at the beginning and end of a
52-week term. The index used for the Certificates excludes dividends on the 500
stocks in the index. See "About the Certificates" for more explanation.
Here are the interest rates and market participation percentages in effect
August 9, 2000:
Class of Certificate Maximum Market participation Minimum
Return percentage Interest
Full Participation 10% 100% None
Partial Participation 10% 25% 2.75%
These rates may or may not have changed when you apply to purchase your
Certificate. For your first term, your maximum return will be between 10% and
11%. Rates for later terms are set at the discretion of the Issuer and may
differ from the rates shown here.
The Issuer may offer different maximum returns, market participation percentages
and minimum interest rates for the Certificates or other similar face-amount
certificates for different distribution channels or in other circumstances. For
more information call 888-322-7234 and see "Promotions and Pricing Flexibility"
under "About the Certificates." Face-amount certificates from the Issuer and
certificates of deposit (CDs) from American Express Centurion Bank, an affiliate
of the Issuer, may be available with different rates, including high rate CDs
through Membership B@nkingSM.
RISK FACTORS
You should consider the following when investing in a Certificate:
To the extent you link your interest to the S&P 500 Index, you might earn no
interest. If you choose to link all of your return on your Certificate to the
S&P 500 Index, you earn interest only if the value of the S&P 500 Index is
higher on the last day of your term than it was on the first day of your term.
See "Interest" under "About the Certificates."
The Certificates are backed solely by the assets of the Issuer. Most of our
assets are debt securities and are subject to the following risks:
Interest rate risk: The price of debt securities generally falls as interest
rates increase, and rises as interest rates decrease. In general, the longer the
maturity of a bond, the greater its loss of value as interest rates increase,
and the greater its gain in value as interest rates decrease. See "How Your
Money Is Used and Protected."
Credit risk: This is the risk that the issuer of a security, or the counterparty
to a contract, will default or otherwise become unable to honor a financial
obligation (such as payments due on a bond or note). Credit ratings of the
issuers of securities in our portfolio vary. See "How Your Money Is Used and
Protected."
<PAGE>
Table of Contents
Initial Interest and Participation Rates 2p
Risk Factors 2p
About the Certificates 4p
The Issuer and You 4p
Read and Keep This Prospectus 4p
Investment Amounts 4p
Face Amount and Principal 5p
Certificate Term 5p
Value at Maturity 6p
Receiving Cash Before the End of Term 6p
Interest 6p
Promotions and Pricing Flexibility 8p
Historical Data on the S&P 500 Index 9p
Calculation of Return 11p
About the S&P 500 Index 13p
Opportunities at the End of a Term 14p
How to Invest and Withdraw Funds 15p
Buying Your Certificate 15p
Full and Partial Withdrawal Policies 15p
Retirement Plans:Special Policies 17p
Ownership and Transfer by Book Entry Only 17p
Taxes on Your Earnings 20p
Retirement Accounts 20p
Gifts to Minors 21p
How to Determine the Correct TIN 21p
Foreign Investors 22p
How Your Money Is Used and Protected 24p
Invested and Guaranteed by the Issuer 24p
<PAGE>
Regulated by Government 24p
Backed by Our Investments 25p
Investment Policies 26p
How Your Money Is Managed 30p
Relationship Between the Issuer and American Express Financial
Corporation 31p
Capital Structure and Certificates Issued 31p
Investment Management and Services 31p
Distribution 33p
Selling Dealers 34p
Transfer Agent 34p
Employment of Other American Express Affiliates 34p
Directors and Officers 35p
Independent Auditors 37p
Appendix 38p
Annual Financial Information 39p
Summary of Selected Financial Information 39p
Management's Discussion and Analysis of Financial Condition and Results
of Operations 40p
Interim Financial Statements 48p
Responsibility for Preparation of Financial Statements 57p
Report of Independent Auditors 58p
Financial Statements 59p
Notes to Financial Statements 67p
<PAGE>
About the Certificates
THE ISSUER AND YOU
In this prospectus, "we," "us," "our" and "ours" refer to the Issuer and "you,"
"your" and "yours" refer to the owner of a Certificate. An investor must
purchase and hold a Certificate through a Direct Participant in the Depository
Trust Company, New York, New York ("DTC"). A Direct Participant is a corporation
or other entity approved by DTC to become a participant and have direct access
to DTC's services. See "Ownership and Transfer by Book Entry Only."
READ AND KEEP THIS PROSPECTUS
This prospectus describes terms and conditions of your American Express Equity
Indexed Savings Certificate. It contains facts that can help you decide if a
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 Equity Indexed Savings Certificates
as described in the prospectus, or to bind the Issuer by any statement not in
it.
INVESTMENT AMOUNTS
You may purchase an American Express Equity Indexed Savings Certificate in any
amount from $2,000 through $1 million (unless you receive prior approval from
the Issuer to invest more) payable in U.S. currency. The Issuer will accept an
offer to purchase a Certificate only from a Direct Participant in DTC. To
purchase a Certificate, you must arrange for a selling dealer to offer to
purchase the Certificate as or through a Direct Participant in DTC on your
behalf. The Issuer has complete discretion to determine whether to accept an
offer and sell a Certificate. If you wish to invest more than $1 million, you
should seek prior approval from the Issuer through your selling dealer.
The Certificate may be used as an investment for your Individual Retirement
Account (IRA). If so used, the amount of your contribution (investment) will be
subject to limitations in applicable federal law.
<PAGE>
FACE AMOUNT AND PRINCIPAL
The face amount of your Certificate is the amount of your initial investment.
Your principal is the value of your Certificate at the beginning of each term.
The Issuer guarantees your principal. It consists of the amount you actually
invest plus interest credited to your account less withdrawals, penalties and
any interest paid to you in cash.
For example: Assume your initial investment (face amount) of $10,000 has earned
a return of 7.25%. The Issuer credits interest to your account at the end of the
term. You have not taken any interest as cash, or made any withdrawals.
Your principal for the next term will equal:
$10,000 Face amount (initial investment)
plus $725 Interest credited to your account at the end of the
term
minus $(0) Interest paid to you in cash
minus $(0) Withdrawals and applicable penalties
_______
$10,725 Principal at the beginning of the next term
CERTIFICATE TERM
Your first Certificate term is a 52-week period. It begins on the Wednesday the
Issuer accepts a selling dealer's offer on your behalf and ends the Tuesday
before the 52-week anniversary of its acceptance. Initially, the Issuer expects
to accept offers for Certificates on the fourth Wednesday of the month, though
the Issuer in its sole discretion may accept offers on any day. Under normal
circumstances, to consider an offer for acceptance on a Wednesday, the Issuer
must receive it by the preceding Tuesday. Your Certificate will not earn any
interest until the term begins. You will be notified in advance of the end of
your term. This notice will include the new maximum return and the new market
participation percentage for Certificates and the minimum interest rate for
Partial Participation Certificates. We will follow your instructions on the
amount to surrender, if any. We will automatically renew the remainder of your
Certificate for a new 52-week term.
<PAGE>
VALUE AT MATURITY
Your Certificate matures after 10 terms. Then you will receive a distribution
for its value. Your Certificate term is always 52 weeks. At maturity, the value
of your Certificate will be the total of your actual investment, plus credited
interest not paid to you in cash, less any withdrawals and withdrawal penalties.
Certain other fees may apply.
RECEIVING CASH BEFORE END OF TERM
If you need money before your Certificate term ends, you may withdraw part or
all of its value at any time, less any penalties that apply. For procedures for
withdrawing money, contact your selling dealer and see "Full and Partial
Withdrawal Policies" and "Ownership and Transfer by Book Entry Only" under "How
to Invest and Withdraw Funds." For conditions under which penalties apply, see
"Penalties for withdrawal during a term" and "Loss of interest" in "Buying Your
Certificate" and "Other Full and Partial Withdrawal Policies" under "How to
Invest and Withdraw Funds" below.
INTEREST
By choosing whether to buy a Full Participation Certificate or a Partial
Participation Certificate, you choose from two types of participation interest
for your first term: 1) full participation interest (with a Full Participation
Certificate), or 2) partial participation interest together with minimum
interest (with a Partial Participation Certificate). Interest earned on both of
these Certificates has an upper limit which is the maximum return explained
below. After your first term, you may transfer from a Full Participation
Certificate to a Partial Participation Certificate, or from a Partial
Participation Certificate to a Full Participation Certificate. Such a transfer
is a purchase of a new Certificate, and you must meet the requirements for new
purchases of Certificates.
Full Participation Certificate: With this Certificate:
o you participate 100% in any percentage increase in the S&P 500 Index,
calculated as explained below under "Calculation of Return," up to the
maximum return. For the maximum return in effect on the date of this
prospectus, see "Initial Interest and Participation Rates" on page 2p.
o you earn interest only if the value of the S&P 500 Index is higher on the
last day of your term than it was on the first day of your term.
o your return is linked to stock market performance.
<PAGE>
The S&P 500 Index is frequently used to measure the relative performance of the
stock market. For a more detailed discussion of the S&P 500 Index, see "About
the S&P 500 Index."
Partial Participation Certificate: This Certificate allows you to participate in
a specified part (market participation rate) of any percentage increase in the
S&P 500 Index together with a rate of interest guaranteed by the Issuer in
advance for each term (minimum interest). Your return consists of two parts:
o a percentage of any percentage increase in the S&P 500 Index, calculated as
explained below under "Calculation of Return," and
o a rate of interest guaranteed by the Issuer in advance for each term.
Together, they cannot exceed the maximum return. For the maximum return in
effect on the date of this prospectus, see "Initial Interest and Participation
Rates" on page 2p.
The market participation rate and the minimum interest rate on the date of this
prospectus are listed on the inside front cover under "Initial Interest and
Participation Rates."
Maximum return: This is the cap, or upper limit, of your return for a
Certificate term. Your total return including both market participation and, if
you own a Partial Participation Certificate, minimum interest will be limited to
this maximum return percentage. For the maximum return in effect on the date of
this prospectus, see "Initial Interest and Participation Rates" on page 2p.
Determining the S&P 500 Index value: The stock market closes at 3 p.m. Central
time. The S&P 500 Index value is available at approximately 4:30 p.m. This is
the value we currently use to determine participation interest. Occasionally,
Standard & Poor's (S&P) makes minor adjustments to the closing value after 4:30
p.m., and the value we use may not be exactly the one that is published the next
business day. In the future, we may use a later time cut-off if it becomes
feasible to do so. If the stock market is not open or the S&P 500 Index is
unavailable as of the last day of your term, the preceding business day for
which a value is available will be used instead. Each Tuesday's closing value of
the S&P 500 Index is used for establishing the term start and the term end
values each week.
<PAGE>
Earning interest: The Issuer calculates, credits and compounds participation
interest at the end of your Certificate term. Minimum interest accrues daily and
is credited and compounded at the end of your Certificate term. Minimum interest
is calculated on a 30-day month and 360-day year basis.
Rates for future periods: After the initial term, the maximum return, market
participation percentage or minimum interest rate on your Certificate may be
greater or less than those shown in the front of this prospectus. We review
rates at least monthly, and have complete discretion to decide what maximum
return, market participation percentage and minimum interest rate will be
declared.
To find out what your Certificate's new maximum return, market participation
percentage and minimum interest rate will be for your next term, please consult
your selling dealer, or call the Issuer at the telephone numbers listed on the
back cover.
The Certificates or a similar face-amount certificate may be available through
other distributors or selling dealers with different interest rates or related
features and consequently with different returns. You may obtain information
about other such distributors or selling dealers by calling 888-322-7234.
PROMOTIONS AND PRICING FLEXIBILITY
The Issuer may sponsor or participate in promotions involving the Certificates
or similar face-amount certificates and their respective terms. For example, we
may offer a different maximum return, market participation percentage and
minimum rate to new clients, to existing clients, or to individuals who purchase
or use other products or services offered by American Express Company or its
affiliates. These promotions will generally be for a specified period of time.
We also may offer a different maximum return, market participation percentage
and minimum rate based on the amount invested and geographic location.
<PAGE>
HISTORICAL DATA ON THE S&P500 INDEX
The following chart illustrates the month-end closing values of the index from
Dec. 31, 1983 through April 25, 2000. The values of the S&P 500 Index are
reprinted with the permission of S&P.
S&P 500 Index values - December 1983 to April 2000
1400
1200 Chart shows closing values of the S&P from
above 100 in Dec. 1983 to just under 1400 in
1000 April 2000.
800
600
400
200
'83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
S&P 500 Index Average Annual Return
Beginning date Period held Average annual
Dec. 31, in years return
1989 10 15.31%
1994 5 26.18
1998 1 19.39
<PAGE>
The next chart illustrates, on a moving 52-week basis, the price return of the
S&P 500 Index measured for every 52-week period beginning with the period ended
Dec. 31, 1984. The price return is the percentage return for each period using
month-end closing prices of the S&P 500 Index. Dividends and other distributions
on the securities comprising the S&P 500 Index are not included in calculating
the price return.
S&P 500 Index - December 1984 to April 2000
12-Month Return
50%
40% 52-Week Moving
Price Return
30%
20%
10%
0%
-10%
-20%
'84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Chart shows 52-week Moving Price Return of the S&P from a high of almost 50% to
a low of approximately -20%.
Using the same data on price returns described above, the next graph expands on
the information in the preceding chart by illustrating the distribution of all
the 52-week price returns of the S&P 500 Index beginning with the 52-week period
ending Dec. 31, 1984. The graph also shows the number of times these price
returns fell within certain ranges.
S&P 500 Index - December 1984 to April 2000
Observations
25 Distribution of
52-Week Moving
20 Price Returns
15
10
5
-15 -10 -5 0 5 10 15 20 25 29.9 >=30
<PAGE>
Your interest earnings are tied to the movement of the S&P 500 Index. They will
be based on any increase in this Index as measured on the beginning and ending
date of each 52-week term. Of course, if this Index is not higher on the last
day of your term than it was on the first day, your principal will be secure but
you will earn no participation interest.
How an index has performed in the past does not indicate how the stock market or
the Certificates will perform in the future. There is no assurance that
Certificate owners will receive interest on their accounts beyond any minimum
interest selected. The index could decline.
CALCULATION OF RETURN
The increase or decrease in the S&P 500 Index, as well as the actual return paid
to you, is calculated as follows:
Rate of return on S&P 500 Index
Term ending value of S&P 500 Index minus
Term beginning value of S&P 500 Index divided by
Term beginning value of S&P 500 Index equals
Rate of return on S&P 500 Index
The actual return paid to you will depend on whether or not you select a Full
Participation Certificate or a Partial Participation Certificate.
For example, assume:
Term ending value of S&P 500 Index 1,425
Term beginning value of S&P 500 Index 1,300
Maximum return 10%
Minimum return 2.75%
Partial Participation Certificate participation percentages 25%
1,425 Term ending value of S&P 500 Index
minus 1,300 Term beginning value of S&P 500 Index
equals 125 Difference between beginning and ending values
125 Difference between beginning and ending values
divided by 1,300 Term beginning value of S&P 500 Index
equals 9.62% Percent increase-- Full Participation Return
9.62% Percent increase or decrease
times 25% Partial Participation Certificate participation
percentages
equals 2.40%
plus 2.75% 2.75% minimum interest rate
equals 5.15% Partial Participation Certificate return
In both cases in the example, the return would be less than the 10% maximum.
<PAGE>
Examples:
To help you understand the way the Certificates work, here are some hypothetical
examples. The following are three different examples of market scenarios and how
they affect a Certificate's return. Assume for all examples that:
o you purchased a Certificate with a $10,000 original investment;
o the Partial Participation Certificate market participation percentage is
25%;
o the minimum interest rate for Partial Participation Certificates is 2.75%;
o the maximum return for Full Participation Certificates and Partial
Participation Certificates is 10%.
1. If the S&P 500 Index value rises
<TABLE>
<CAPTION>
<S> <C>
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 8% increase in the S&P 500 Index Index 1,080
Full Participation Certificate Partial Participation Certificate
$10,000 Original investment $10,000 Original investment
+ 800 8% x $10,000 + 275 2.75% (Minimum interest rate) x $10,000
Participation interest + 200 25% x 8% x $10,000 Participation interest
$10,800 Ending balance $10,475 Ending balance
(8% Total return) (4.75% Total return)
2. If the Market and the S&P 500 Index value fall
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 4% decrease in the S&P 500 Index Index 961
Full Participation Certificate Partial Participation Certificate
$10,000 Original investment $10,000 Original investment
+ 0 Participation interest + 275 2.75% (Minimum interest rate) x $10,000
$10,000 Ending balance + 0 Participation interest
(0% Total return) $10,275 Ending balance
(2.75% Total return)
3. If the Market and the S&P 500 Index value rise above the maximum return
Week 1/Wed Week 52/Tues
S&P 500 S&P 500
Index 1,000 16% increase in the S&P 500 Index Index 1,160
Full Participation Certificate Partial Participation Certificate
$10,000 Original investment $10,000 Original investment
+ 1,000 10% x $10,000 + 275 2.75% (Minimum interest rate) x $10,000
Participation interest + 400 25% x 16% x $10,000 Participation interest
$11,000 Ending balance $10,675 Ending balance
(10% Total return) (6.75% Total return)
</TABLE>
<PAGE>
ABOUT THE S&P 500 INDEX
The description in this prospectus of the S&P 500 Index, including its make-up,
method of calculation and changes in its components, are derived from publicly
available information regarding the S&P 500 Index. The Issuer does not assume
any responsibility for the accuracy or completeness of such information.
The S&P 500 Index is composed of 500 common stocks, most of which are listed on
the New York Stock Exchange. The S&P 500 Index is published by S&P and is
intended to provide an indication of the pattern of common stock movement. S&P
chooses the 500 stocks to be included in the S&P 500 Index with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the U.S. common stock population. Changes in
the S&P 500 Index are reported daily in the financial pages of many major
newspapers. The index used for American Express Equity Indexed Savings
Certificates excludes dividends on the 500 stocks.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500" and
"500" are trademarks of The McGraw-Hill Companies Inc. and have been licensed
for use by the Issuer. The Certificates are not sponsored, endorsed, sold or
promoted by S&P. S&P makes no representation or warranty, express or implied, to
the owners of the Certificates or any member of the public regarding the
advisability of investing in securities generally or in the Certificates
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Issuer is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index, which is determined,
composed and calculated by S&P without regard to the Issuer or the Certificates.
S&P has no obligation to take the needs of the Issuer or the owners of the
Certificates into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Certificates to
be issued or in the determination or calculation of the equation by which the
Certificates are to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the Certificates.
<PAGE>
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to the results to be obtained by the Issuer, owners of the Certificates, or
any person or entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
If for any reason the S&P 500 Index were to become unavailable or not reasonably
feasible to use, we would use a comparable stock market index for determining
participation interest. If this were to occur, we would provide the selling
dealer through which you hold your Certificate with a notice to pass on to you
by a practical means such as correspondence (which may be electronic if you have
so agreed) or a quarterly account statement. The notice would indicate the
comparable index and give you the option to withdraw your principal without an
early withdrawal penalty. If you chose early withdrawal, you would lose any
interest accrued during the term.
OPPORTUNITIES AT THE END OF A TERM
When your Certificate term ends, you may:
o withdraw all of your interest,
o withdraw part of your principal (except the withdrawal cannot reduce your
Certificate balance to less than the minimum investment requirement of
$2,000), or
o withdraw all of your principal and interest
without a withdrawal penalty or loss of interest. The remainder, if any, of your
Certificate will automatically renew for a new 52-week term. When your next term
starts, you won't know your earned interest on the term just ended. If you give
appropriate notice to withdraw money from your Certificate at term end, the
Issuer typically will pay that amount to DTC on the Wednesday after the Tuesday
on which your term ends -- or on the next business day if that Tuesday or
Wednesday is not a business day. For processing of funds, see "Ownership and
Transfer by Book Entry Only." On giving notice of requests for withdrawals, see
"Full and Partial Withdrawal Policies."
<PAGE>
How to Invest and Withdraw Funds
BUYING YOUR CERTIFICATE
You may apply to purchase a Certificate only through the distributor or a
selling dealer. For a description of distribution and arrangements with selling
dealers, see "Distribution" and "Selling Dealers" under "How Your Money is
Managed." To purchase a Certificate, you must apply through a participant in
DTC. See "Ownership and Transfer by Book Entry Only". Your purchase occurs when
the Issuer accepts an offer to purchase Certificates from a DTC participant (a
"Direct Participant") for which you are the beneficial owner and receives
federal funds (funds of the Federal Reserve System) from that Direct Participant
for the purchase. Initially, the Issuer expects to accept offers to purchase
Certificates on the fourth Wednesday of the month, though the Issuer in its sole
discretion may accept offers on any day. Under normal circumstances, to consider
an offer for acceptance on a Wednesday, the Issuer must receive it by the
preceding Tuesday. The Issuer in its sole discretion may accept or decline an
offer to purchase a Certificate.
The selling dealer purchasing a Certificate on your behalf is to send you a
confirmation showing the purchase date, the date your term begins and the
interest selection you have made detailing your market participation percentage
and, if applicable, the minimum interest rate for your first term, and the value
of the S&P 500 Index on the day your term began. The rates in effect on the date
we accept the offer from the Direct Participant are the rates that apply to your
Certificate.
Important: You must provide the selling dealer who purchases on your behalf with
your correct Taxpayer Identification Number (TIN), which is either your Social
Security or Employer Identification number. See "Taxes on Your Earnings."
FULL AND PARTIAL WITHDRAWAL POLICIES
You may withdraw your Certificate for its full value or make a partial
withdrawal of $100 or more at any time. You may withdraw principal of and
interest on your Certificate only through the distributor or a selling dealer
that is, or has made arrangements with, a Direct Participant in DTC. See
"Ownership and Transfer by Book Entry Only." Because of processing time,
assuming that you tell your selling dealer of your request for withdrawal on a
business day and the selling dealer acts promptly on the request, the request
for withdrawal normally will be processed on the next business day. However, you
normally must give your request for a withdrawal at term end to your selling
dealer by seven business days before the end of the term, and the selling dealer
normally must inform DTC and the Issuer of the withdrawal request by appropriate
means at least five business days before term end.
<PAGE>
If the Issuer has received a report from DTC that, as of the open of business
five business days before a requested withdrawal, the amount of Full
Participation Certificates or Partial Participation Certificates owned by a
Direct Participant is less than the amount of a withdrawal requested by that
Direct Participant, then the Issuer normally will not honor the request for
withdrawal. Such a DTC report may reflect only information provided to DTC as
much as two weeks or more before the date of the report. Thus, for example, if
you transfer your Certificate to an account at a different selling dealer than
the one through which you purchased your Certificate, you may have to wait up to
three weeks or more before you can withdraw part or all of your Certificate.
Penalties for withdrawal during a term: If you withdraw money during a term, you
will pay a penalty of 2% of the principal withdrawn. The 2% penalty is waived
upon death of the Certificate owner. The Issuer may require a certified death
certificate and other evidence satisfactory to the Issuer before waiving the
penalty.
You may not make a partial withdrawal if it would reduce your Certificate
balance to less than $2,000. If you request such a withdrawal, the Direct
Participant who purchased on your behalf is to contact you for revised
instructions.
When the Direct Participant requests a full or partial withdrawal on your behalf
during a term, we pay the Direct Participant on your behalf from the principal
of your Certificate.
Loss of interest: If you make a withdrawal at any time other than at the end of
the term, you will lose any interest accrued on the withdrawal amount since we
credit minimum and participation interest only at the end of a term.
Following is an example describing a $2,000 withdrawal during a term:
Account balance $10,000
Interest (interest is credited at the end of the term) 0
Withdrawal of principal (2,000)
2% withdrawal penalty (40)
_______
Balance after withdrawal $7,960
You will forfeit any accrued interest on the withdrawal amount.
Retirement plans:In addition, you may be subject to IRSpenalties for early
withdrawals if your Certificate is in an IRA, 401(k) or other qualified
retirement plan account.
<PAGE>
Other full and partial withdrawal policies:
o If your Certificate is pledged as collateral on our books, any withdrawal
will be delayed until we get approval from the secured party. Because
purchases of Certificates generally are made through selling dealers,
however, the Issuer's books generally will not reflect whether you have
pledged your Certificate as collateral.
o If we have not received federal funds (funds of the Federal Reserve System)
for the purchase of a Certificate, you cannot make a withdrawal. This will
be unusual because payment is to be by wire transfer from the selling
dealer through DTC.
o Any payments to you may be delayed under applicable rules, regulations or
orders of the Securities and Exchange Commission (SEC).
RETIREMENT PLANS:SPECIAL POLICIES
o If the Certificate is purchased for a 401(k) plan or other qualified
retirement plan account, the terms and conditions of the Certificate apply
to the plan as the owner of this Certificate. However, the terms of the
plan, as interpreted by the plan trustee or administrator, will determine
how a participant's benefit under the plan is administered. These terms may
differ from the terms of the Certificate.
o If your Certificate is held in a custodial or trusteed retirement plan
(including a Keogh plan), special rules may apply at maturity.
o Retirement plan withdrawals may be subject to withdrawal penalties or loss
of interest even if they are not subject to federal tax penalties.
OWNERSHIP AND TRANSFER BY BOOK ENTRY ONLY
DTC will act as securities depository for the Certificates. You can only buy
Certificates through a broker-dealer or other entity that participates in DTC.
The Certificates will be issued as fully-registered securities registered in the
name of Cede & Co. (DTC's partnership nominee) or such other name as may be
requested by an authorized representative of DTC. While the Certificates are not
negotiable, AECC will transfer ownership upon written notification to AECCfrom
the registered owner, which is expected to be Cede &Co.
DTC is:
o a limited-purpose trust company organized under the New York Banking Law,
o a "banking organization" within the meaning of the New York Banking Law,
o a member of the Federal Reserve system,
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and
o a "clearing agency"registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934.
<PAGE>
DTC holds securities that Direct Participants deposit with DTC. DTC also
facilitates the settlement among Direct Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Direct Participants' accounts. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange LLC, and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Direct and
Indirect Participants (the "Rules") are on file with the Securities and Exchange
Commission.
Purchases of Certificates under the DTC system must be made by or through Direct
Participants. These Direct Participants will receive a credit for the
Certificates on DTC's records. The ownership interest of each actual purchaser
of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct
and Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC or the Issuer of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Certificates are to be accomplished by
entries made on the books of Direct and Indirect Participants acting on behalf
of Beneficial Owners. The Issuer expects to issue only book-entry securities and
does not expect to deposit a physical certificate with DTC. Beneficial Owners
will not receive physical certificates representing their ownership interests in
Certificates.
To facilitate subsequent transfers, all Certificates deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Certificates with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Certificates. DTC's records reflect only the identity of the
Direct Participants to whose accounts such Certificates are credited, which may
or may not be the Beneficial Owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers. The Issuer and its affiliates, including American Express Financial
Advisors Inc. and American Express Client Service Corporation, are not obligated
to pay fees or costs to facilitate transfer of Certificates. You may not be able
to transfer your ownership of Certificates
<PAGE>
from one broker-dealer -- or other Direct or Indirect Participant -- to another
if the second Direct or Indirect Participant is unwilling to pay the cost of
preparing a system to process ownership of Certificates. For other possible
effects of such a transfer, see "Full and Partial Withdrawal Policies."
Conveyance of notices and other communications by DTC to Direct Participants, by
Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Withdrawal proceeds and interest payments on the Certificates will be paid to
Cede & Co., or such other nominee as may be requested by an authorized
representative of DTC. DTC's practice is to credit Direct Participants'
accounts, upon DTC's receipt of funds and corresponding detail information from
the Issuer on payable date in accordance with their respective holdings shown on
DTC's records. Payments by Direct Participants or Indirect Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers and
registered in "street name," and will be the responsibility of such Participant
and not of DTC or the Issuer, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of withdrawal
proceeds and interest to Cede & Co. (or such other nominee as may be requested
by an authorized representative of DTC) is the responsibility of the Issuer,
disbursement of such payments to Direct Participants shall be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect
to the Certificates at any time by giving reasonable notice to the Issuer. Under
such circumstances, in the event that a successor securities depository is not
obtained, the Issuer may rely solely on the books of its transfer agent to
reflect registered ownership of Certificates.
The Issuer may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, the Issuer
may rely solely on the books of its transfer agent to reflect registered
ownership of Certificates.
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that the Issuer believes to be reliable, but the
Issuer takes no responsibility for the accuracy thereof.
<PAGE>
Taxes on Your Earnings
Participation and minimum interest on your Certificate is taxable when credited
to your account and reportable each calendar year to you and the Internal
Revenue Service (the IRS) and the distributor or selling agent carrying your
account. Withdrawals are reportable to the Certificate owner and the IRS on Form
1099-B, "Proceeds from Broker and Barter Exchange Transactions."
Revised proposed regulations: The IRS has issued revised proposed regulations
governing the tax treatment of debt instruments which provide for variable rates
of interest. This includes interest based on the price of property that is
actively traded or on an index of the prices of such property. Under these
revised proposed regulations, the Certificates are likely to constitute a debt
instrument that would be treated as a variable rate debt instrument (VRDI)
rather than a contingent debt instrument (CDI). If the Certificates constitute a
VRDI, then the income earned on the Certificates will be treated as original
issue discount and reported when credited to the owner's account. If the
Certificates are not treated as a VRDI, but rather are treated as a CDI, then
the owner may have taxable income to report, even though the account owner has
not received any cash distributions. Furthermore, the timing and character of
the income may be different from that of a VRDI. The Issuer cannot guarantee
whether the revised proposed regulations will be adopted as final in this
present form or will again be modified. As always, you should consult your tax
advisor for information regarding the tax implications of your Certificate.
RETIREMENT ACCOUNTS
If you are using the Certificate as an investment for a 401(k) plan account or
other qualified retirement plan account or an IRA, income tax rules for your
qualified plan or IRA apply. Generally, you will pay no income taxes on your
investment's earnings -- and, in many cases, on part or all of the investment
itself -- until you begin to make withdrawals.
Withdrawals from retirement accounts are generally subject to a penalty tax of
10% by the IRS if you make them before age 591/2 unless you are disabled or if
they are made by your beneficiary in the event of your death. Other exceptions
may also apply.
Consult your tax advisor to see how these rules apply to you before you request
a distribution from your plan or IRA.
<PAGE>
GIFTS TO MINORS
If permitted under the terms of your account with a selling dealer, a
Certificate may be given to a minor under either the Uniform Gifts or Uniform
Transfers to Minors Act (UGMA/UTMA), whichever applies in your state.
UGMAs/UTMAs are irrevocable. Generally, under federal tax laws, income over
$1,400 for the year 2000 on property owned by children under age 14 will be
taxed at the parents' marginal tax rate, while income on property owned by
children 14 or older will be taxed at the child's rate.
Your TIN and backup withholding: As with any financial account you open, when
you open your account with a selling dealer, you must list your current and
correct TIN, which is either your Social Security or Employer Identification
number. You must certify your TIN under penalties of perjury. If you purchase
through the distributor filling the role of a selling dealer, your certification
of your TIN is required by the time you apply to purchase a Certificate.
If you don't provide the correct TIN, you could be subject to backup withholding
of 31% of your interest earnings. You could also be subject to further
penalties, such as:
o a $50 penalty for each failure to supply your correct TIN;
o a civil penalty of $500 if you make a false statement that results in no
backup withholding; and
o criminal penalties for falsifying information.
You could also be subject to backup withholding because you failed to report
interest on your tax return as required.
To help you determine the correct TIN to use on various types of accounts,
please use this chart:
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
For this type of account: Use the Social Security or Employer Identification Number of:
Individual or joint account The individual or one of the owners listed on the joint account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors Act)
A revocable living trust The grantor-trustee (the person who puts the money into
the trust)
An irrevocable trust, pension trust or estate The legal entity (not the personal representative or trustee,
unless no legal entity is designated in the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
</TABLE>
For details on TIN requirements, ask your registered representative for federal
Form W-9, "Request for Taxpayer Identification Number and Certification." You
also may obtain the form on the Internet at
(http://www.irs.gov/prod/forms_pubs/).
<PAGE>
FOREIGN INVESTORS
Tax treatment of your investment: If you are not a citizen or resident of the
United States (nonresident alien), and you have supplied a form W-8, Certificate
of Foreign Status, interest paid on your Certificate is most likely "portfolio
interest" as defined in U.S. Internal Revenue Code Section 871(h). If the
Certificate is treated as a CDI, part of the earned income may be treated as a
capital gain instead of portfolio interest. Form W-8 must be supplied with both
a current mailing address and an address of foreign residency, if different. The
distributor (if filling the role of a selling dealer) will not, and a selling
dealer might 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 or capital gain 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 or capital gain will be reported to
the IRS even though it is not taxed by the U.S. government. The United States
participates in various tax treaties with foreign countries. Those treaties
provide that tax information may be shared upon request between the United
States and such foreign governments.
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 are required. Your selling dealer should
have your new form on file by January 1, 2001. Depending on your status, you may
provide 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, and if you purchase or hold through the distributor or another
affiliate of the Issuer, then, depending on the circumstances, the distributor
or other affiliate generally will not act on instructions with regard to the
Certificate before receiving, at a minimum, a statement from persons the
distributor or other affiliate believes are knowledgeable about your estate. The
statement must be satisfactory to the distributor or other affiliate 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, the distributor
or other affiliate generally will not take action regarding your Certificate
before receiving a transfer certificate from the IRS or evidence satisfactory to
the distributor or other affiliate that the estate is being administered by an
executor or administrator appointed, qualified and acting within the United
States. In general, a transfer certificate requires the opening of an estate in
the United States and provides assurance that the IRS will not claim your
Certificate to satisfy estate taxes.
If you purchase or hold a Certificate through a selling dealer and need
information on procedures and policies in the event of your death while owning a
Certificate, contact your selling dealer.
Trusts: If the investor is a trust, the policies and procedures described above
will apply with regard to each grantor who is a nonresident alien.
Important: The information in this prospectus is a brief and selective summary
of certain federal tax rules that apply to a 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 American Express Financial Corporation
(AEFC), issues and guarantees the American Express Equity Indexed Savings
Certificates. We are by far the largest issuer of face amount certificates in
the United States, with total assets of more than $3.8 billion and a net worth
in excess of $131 million on March 31, 2000.
We back our certificates by investing the money received and keeping the
invested assets on deposit. Our investments generate interest and dividends, out
of which we pay:
o interest to certificate owners,
o and various expenses, including taxes, fees to AEFC for advisory and other
services, distribution fees to American Express Financial Advisors Inc, and
selling agent fees to selling agents.
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 or our other face amount
certificates.
Most banks and thrifts offer investments known as CDs that are similar to our
certificates in many ways. Early withdrawals of bank CDs often result in
penalties. Banks and thrifts generally have federal deposit insurance for their
deposits and lend much of the money deposited to individuals, businesses and
other enterprises. Other financial institutions and some insurance companies may
offer investments with comparable combinations of safety and return on
investment.
REGULATED BY GOVERNMENT
Because the American Express Equity Indexed Savings Certificates are securities,
their offer and sale are subject to regulation under federal and state
securities laws. (The American Express Equity Indexed Savings Certificates are
face-amount certificates. They are not bank products, equity investments, a form
of life insurance or an investment trust.)
<PAGE>
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 face
amount certificates. These investments back the entire value of your
Certificate. Their amortized cost must exceed the required carrying value of the
outstanding certificates by at least $250,000. As of March 31, 2000, the
amortized cost of these investments exceeded the required carrying value of our
outstanding face amount certificates by more than $273 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 the Issuer as
described in Note 2 to the Dec. 31, 1999 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, the Issuer has agreed to
maintain capital and surplus equal to 5% of outstanding liabilities on face
amount certificates (not including loans made on certificates in accordance with
terms of some certificates that no longer are offered by the Issuer). The Issuer
is not obligated to continue to rely on the relief and continue to comply with
the conditions of the relief. Similarly, the Issuer has entered into a written,
informal understanding with the Minnesota Commerce Department that the Issuer
will maintain capital equal to 5% of the assets of the Issuer (less any loans on
outstanding certificates). When computing its capital for these purposes, the
Issuer values its assets on the basis of statutory accounting for insurance
companies rather than generally accepted accounting principles.
BACKED BY OUR INVESTMENTS
Our investments are varied and of high quality. This was the composition of our
portfolio as of March 31, 2000:
Type of investment Net amount invested
Corporate and other bonds 49%
Government agency bonds 22
Preferred stocks 15
Mortgages 11
Municipal bonds 1
Cash and cash equivalents 2
As of March 31, 2000, 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 Dec. 31, 1999
financial statements.
<PAGE>
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 Dec. 31, 1999 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."
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, the Issuer relies both on independent rating
agencies and the investment manager's credit analysis. Under normal
circumstances, at least 85% of the securities in the Issuer's portfolio will be
rated investment grade, or in the opinion of the Issuer's investment advisor
will be the equivalent of investment grade. Under normal circumstances, the
Issuer 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 the Issuer and will be sold
only when the Issuer believes it is advantageous to do so.
As of March 31, 2000, the Issuer held about 11% of its investment portfolio
(including bonds, preferred stocks and mortgages) in investments rated below
investment grade.
<PAGE>
Purchasing securities on margin --
We will not purchase any securities on margin or participate on a joint basis or
a joint-and-several basis in any trading account in securities.
Commodities --
We have not and do not intend to purchase or sell commodities or commodity
contracts except to the extent that transactions described in "Financial
transactions including hedges" in this section may be considered commodity
contracts.
Underwriting --
We do not intend to engage in the public distribution of securities issued by
others. However, if we purchase unregistered securities and later resell them,
we may be considered an underwriter (selling securities for others) under
federal securities laws.
Borrowing money --
From time to time we have established a line of credit with banks if management
believed borrowing was necessary or desirable. We may pledge some of our assets
as security. We may occasionally use repurchase agreements as a way to borrow
money. Under these agreements, we sell debt securities to our lender, and
repurchase them at the sales price plus an agreed-upon interest rate within a
specified period of time. There is no limit on the extent to which we may borrow
money, except that borrowing must be through the sale of certificates, or must
be short-term and privately arranged and not intended to be publicly offered.
Real estate --
We may invest in limited partnership interests in limited partnerships that
either directly, or indirectly through other limited partnerships, invest in
real estate. We may invest directly in real estate. We also invest in mortgage
loans secured by real estate. We expect that equity investments in real estate,
either directly or through a subsidiary of the Issuer, will be less than 5% of
the Issuer's assets.
<PAGE>
Lending securities --
We may lend some of our securities to broker-dealers and receive cash equal to
the market value of the securities as collateral. We invest this cash in
short-term securities. If the market value of the securities goes up, the
borrower pays us additional cash. During the course of the loan, the borrower
makes cash payments to us equal to all interest, dividends and other
distributions paid on the loaned securities. We will try to vote these
securities if a major event affecting our investment is under consideration. We
expect that outstanding securities loans will not exceed 10% of our assets.
When-issued securities --
Some of our investments in debt securities 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. The Issuer'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 the Issuer'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. The
Issuer's investment advisor will follow guidelines established by the Issuer's
board of directors and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 15% of the Issuer's investment portfolio will be held in
securities that are illiquid. In valuing its investment portfolio to determine
this 15% limit, the Issuer will use statutory accounting under an order of the
Securities and Exchange Commission (SEC). 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 Forms 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, NW, 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 face amount 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 March 31, 2000, AEFC managed or
administered investments, including its own, of more than $289 billion.
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.
<PAGE>
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) and Travelers Cheque and related service.
CAPITAL STRUCTURE AND CERTIFICATES ISSUED
The Issuer has authorized, has issued and has outstanding 150,000 shares of
common stock, par value of $10 per share. AEFC owns all of the outstanding
shares.
As of the fiscal year ended Dec. 31, 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.
<PAGE>
All these activities are subject to direction and control by our board of
directors and officers. Our agreement with AEFC requires annual renewal by our
board, including a majority of directors who are not interested persons of AEFC
or the Issuer as defined in the federal Investment Company Act of 1940.
For its services, we pay AEFC a monthly fee, equal on an annual basis to a
percentage of the total book value of certain assets (included assets).
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.
<PAGE>
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.
DISTRIBUTION
Under a Distribution Agreement with American Express Financial Advisors Inc.
(AEFA), a wholly owned subsidiary of AEFC, we pay for the distribution of the
Certificates by American Express Financial Advisors Inc. as follows:
o 1.00% of the initial investment on the first day of each Certificate's
term,
o 1.00% of the Certificate's reserve at the beginning of each subsequent
term,
and all DTC fees and charges incurred by AEFA and American Express Client
Service Corporation in distribution and support of American Express Equity
Indexed Savings Certificates.
This fee is not assessed to your Certificate.
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. We expect to pay American Express Financial Advisors Inc. distribution
fees amounting to $29,408,000 during 2000.
See note 1 to the Dec. 31, 1999 financial statements regarding deferral of
distribution fee expense.
American Express Financial Advisors Inc. pays other selling expenses in
connection with services to us. Our board of directors, including a majority of
directors who are not interested persons of American Express Financial Advisors
Inc. or the Issuer, approved this distribution agreement.
<PAGE>
American Express Financial Advisors Inc. also may play the role of a selling
dealer as described in this prospectus.
SELLING DEALERS
These Certificates may be sold through selling dealers, under arrangements with
American Express Financial Advisors Inc., at commissions of up to:
o 0.80% of the initial investment on the first day of the Certificate's term;
and
o 0.80% of the Certificate's reserve at the beginning of each subsequent
term.
This fee is not assessed to your Certificate.
In addition, the Issuer may pay distributors, and American Express Financial
Advisors Inc. may pay selling dealers, additional compensation for selling and
distribution activities under certain circumstances. For example, American
Express Financial Advisors Inc. may pay or reimburse charges or other fees from
transfer agents or others to a selling dealer, or may pay a fee to a selling
dealer in order to attend a national sales conference of a selling dealer and,
among other activities, promote sales of Certificates. From time to time, the
Issuer or American Express Financial Advisors Inc. may pay or permit other
promotional incentives, in cash or credit or other compensation to selling
dealers or registered representatives.
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. The Issuer pays AECSC a monthly fee of one-twelfth of $10.353 per
certificate owner account for this service. In the case of American Express
Equity Indexed Savings Certificates, the accounts maintained by AECSC will
reflect registered ownership of Certificates by Direct Participants in DTC.
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
the Issuer's operations. The board annually elects the directors, chairman,
president and controller for a term of one year. The president appoints the
other executive officers.
We paid a total of $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.
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.
<PAGE>
Pamela J. Moret*
Born in 1956. Director since December 1999. Chairman 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 the Issuer as that term is defined in the Investment
Company Act of 1940.
Executive officers
Paula R. Meyer
Born in 1954. President since June 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.
Bruce A. Kohn
Born in 1951. Vice president and general counsel since 1993. Group counsel to
AEFC since 1996. Counsel to AEFC from 1992 to 1996. Associate counsel from 1987
to 1992.
Philip C. Wentzel
Born in 1961. Vice president and controller 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.
<PAGE>
The officers and directors as a group beneficially own less than 1% of the
common stock of American Express Company.
The Issuer has provisions in its bylaws relating to the indemnification of its
officers and directors against liability, as permitted by law. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (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 our 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
the Issuer.
<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, the Issuer will consider the financial condition of the
issuer of the securities or the protection afforded by the terms of the
security.
<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.
Year Ended Dec. 31, ($ thousands)
Statement of Operations Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
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), subsequently renamed American Express
Certificate Company, is 100% owned by American Express Financial Corporation
(Parent).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For the Three Months Ended March 31, 2000
Results of operations:
As of March 31, 2000, total assets and certificate reserves increased $68
million and $71 million respectively, from Dec. 31, 1999. The increase in total
assets resulted primarily from certificate payments exceeding certificate
maturities and surrenders by $20 million and purchases of investment securities
of $39 million during the first quarter of 2000 that will settle in April 2000.
The increase in certificate reserves resulted primarily from interest accruals
of $51 million and the excess of certificate payments over certificate
maturities and surrenders.
Sales of face-amount certificates totaled $432 million during the first quarter
of 2000 compared to $279 million during the prior year's period. Certificate
maturities and surrenders totaled $427 million during the first quarter of 2000
compared to $333 million during the prior year's period.
Investment income increased 2.8% during the first three months of 2000 from the
prior year's period primarily reflecting higher investment yields.
Investment expenses increased 8.5% during the first three months of 2000 from
the prior year's period. The increase reflects higher amortization of premiums
paid for index options of $2.6 million and higher distribution fees of $.7
million. These increases were partially offset by lower interest expense on
reverse repurchase and interest rate swap agreements of $.5 million and $1.2
million, respectively.
Net provision for certificate reserves increased 4.0% during the first three
months of 2000 from the prior year's period reflecting a higher average balance
of certificate reserves.
During the first three months of 2000, IDSC realized net losses on investments
of $6.5 million compared to net realized gains of $0.1 million during the prior
year's period. Due to credit concerns, IDSC sold, during the first three months
of 2000, available-for-sale securities with a carrying value of $12 million and
realized a net loss of $2.8 million from the sales. In addition, during the same
period of 2000, a write-down of $3.2 million was recorded on IDSC's
below-investment-grade securities and the reserve for possible losses on first
mortgage loans was increased by $0.5 million.
<PAGE>
At March 31, 2000, approximately 9.1% of IDSC's invested assets were
below-investment-grade bonds, compared to 9.4% at Dec. 31, 1999. In recent
months, the industry-wide default rate on below-investment-grade bonds has
increased significantly and this trend is expected to continue over the next
several months and possibly beyond.* Additional investment security losses
throughout the remainder of 2000 are likely but the amount of any such losses is
dependent on a number of factors and cannot be estimated at this time.* IDSC's
management believes that there will be no adverse impact on the certificate
owners of any such losses.*
Net certificate reserve financing activities provided cash of $20 million during
the first three months of 2000 compared to cash used of $33 million during the
prior year's period. The change resulted from the net of higher certificate
payments received of $147 million and higher maturities and surrenders of $94
million during the first three months of 2000 compared to the prior year's
period.
*Statements in this discussion of IDSC's results of operations marked with an
asterisk are forward-looking statements which are subject to risks and
uncertainties. Important factors that could cause results to differ materially
from these forward-looking statements include, among other things, changes in
the ability of issuers of investment securities held by IDSC to meet their debt
obligations.
<PAGE>
For the Year Ended December 31, 1999
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.
<PAGE>
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.
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.
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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>
INTERIM FINANCIAL STATEMENTS
The condensed balance sheet of IDS Certificate Company as of March 31, 2000 and
the condensed statements of operations, comprehensive income and cash flows for
the three months ended March 31, 2000 and 1999 and the related condensed notes
thereto appearing on pages 0p through 0p are unaudited. Management of IDS
Certificate Company believes that all adjustments (none of which were other than
of a normal recurring nature) necessary to present fairly the financial position
of IDS Certificate Company at March 31, 2000 and the results of operations and
cash flows for the three months ended March 31, 2000 and 1999, respectively,
have been included. The results of operations for the interim periods presented
may not be indicative of the results of operations on an annual basis. The
condensed financial statements and notes thereto should be read in conjunction
with the audited financial statements as of and for the three years ended Dec.
31, 1999.
The financial statements of IDS Certificate Company as of and for the three
years ended Dec. 31, 1999 and the related notes to financial statements
appearing on pages 59p through 89p have been audited by Ernst & Young LLP,
independent auditors, whose report thereon appears on page 58p.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Condensed Balance Sheet, March 31, (Unaudited)
($ thousands) 2000
Assets
Qualified Assets (note 1)
Investments in unaffiliated issuers:
Cash and cash equivalents $ 81,054
Held-to-maturity securities (note 2) 453,813
Available-for-sale securities (note 2) 2,665,266
First mortgage loans on real estate 369,000
Certificate loans-secured by certificate reserves 28,019
Investments in and advances to affiliates 422
Total investments 3,597,574
Receivables:
Dividends and interest 40,780
Investment securities sold 1,128
Total receivables 41,908
Other (note 3) 127,674
Total qualified assets 3,767,156
Other Assets
Deferred federal income taxes 50,085
Deferred distribution fees 11,393
Total other assets 61,478
Total assets $3,828,634
<PAGE>
Condensed Balance Sheet, March 31, (continued) (Unaudited)
Liabilities and Stockholder's Equity
($ thousands) 2000
Liabilities
Certificate reserves $3,607,248
Accounts payable and accrued liabilities (note 3) 90,330
Total liabilities 3,697,578
Stockholder's Equity:
Common stock 1,500
Additional paid-in capital 143,844
Retained earnings:
Appropriated for predeclared additional credits/interest 2,767
Appropriated for additional interest on advance payments 10
Unappropriated 57,071
Accumulated other comprehensive loss-net of tax (74,136)
Total stockholder's equity 131,056
Total liabilities and stockholder's equity $3,828,634
See condensed notes to condensed financial statements.
</TABLE>
<PAGE>
Condensed Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
<S> <C> <C>
($ thousands) 2000 1999
Investment Income
Investment income $63,906 $62,195
Investment expenses (note 3) 21,037 19,397
Net investment income before provision for
certificate reserves and income tax (expense) 42,869 42,798
Net provision for certificate reserves (note 3) 35,517 34,137
Net investment income before income tax (expense) 7,352 8,661
Income tax (expense) (363) (746)
Net investment income 6,989 7,915
Realized (loss) gain on investments-net (6,524) 130
Income tax benefit (expense) 2,284 (37)
Net realized (loss) gain on investments (4,240) 93
Net income $ 2,749 $ 8,008
See condensed notes to condensed financial statements.
<PAGE>
Condensed Statement of Comprehensive Income (Unaudited)
Three months ended March 31,
($ thousands) 2000 1999
Net Income
Net income $ 2,749 $ 8,008
Other comprehensive loss
Unrealized losses on available-for-sale securities:
Unrealized holding losses arising during period (15,755) (16,126)
Income tax (benefit) (5,514) (5,644)
Net unrealized holding losses arising during period (10,241) (10,482)
Reclassification adjustment for losses (gains)
included in net income 2,840 (2)
Income tax (benefit) expense (994) 1
Net reclassification adjustment for losses (gains)
included in net income 1,846 (1)
Net other comprehensive loss (8,395) (10,483)
Total comprehensive loss $(5,646) $(2,475)
See condensed notes to condensed financial statements.
<PAGE>
Condensed Statement of Cash Flows (Unaudited)
Three months ended March 31,
($ thousands) 2000 1999
Cash flows from operating activities:
Net income $ 2,749 $ 8,008
Adjustments to reconcile net income to net cash
provided by operating activities:
Net provision for certificate reserves 35,517 34,137
Interest income added to certificate loans (239) (255)
Amortization of premiums/discounts-net 9,165 7,023
Provision for deferred federal income taxes (2,975) 682
Net realized loss (gain) on investments before income taxes 6,524 (130)
Decrease in dividends and interest receivable 804 6,543
Decrease in deferred distribution fees 858 1,080
Decrease in other assets -- 1,082
Decrease in other liabilities (3,198) (16,048)
Net cash provided by operating activities 49,205 42,122
Cash flows from investing activities:
Maturity and redemption of investments:
Held-to-maturity securities 10,946 94,312
Available-for-sale securities 101,830 164,180
Other investments 21,338 13,975
Sale of investments:
Available-for-sale securities 9,028 --
Certificate loan payments 865 1,142
Purchase of investments:
Held-to-maturity securities (161) (1,856)
Available-for-sale securities (136,440) (24,958)
Other investments (12,076) (51,311)
Certificate loan fundings (816) (888)
Net cash (used in) provided by investing activities $ (5,486) $194,596
<PAGE>
Condensed Statement of Cash Flows (Continued) (Unaudited)
Three months ended March 31,
($ thousands) 2000 1999
Cash flows from financing activities:
Payments from certificate owners $446,262 $299,264
Proceeds from reverse repurchase agreements -- 98,500
Certificate maturities and cash surrenders (426,013) (332,164)
Payments under reverse repurchase agreements (25,000) (239,500)
Dividends paid (5,000) (13,000)
Net cash used in financing activities (9,751) (186,900)
Net increase in cash and cash equivalents 33,968 49,818
Cash and cash equivalents beginning of period 47,086 --
Cash and cash equivalents end of period $ 81,054 $ 49,818
Supplemental disclosures including non-cash transactions:
Cash paid for income taxes $ 4,136 $ 7,623
Certificate maturities and surrenders through loan reductions 1,066 925
See condensed notes to condensed financial statements.
</TABLE>
<PAGE>
Condensed Notes to Condensed Financial Statements (Unaudited)
($ in thousands)
1. DEPOSIT OF ASSETS AND MAINTENANCE OF QUALIFIED ASSETS
At March 31, 2000 IDSC was required to have qualified assets in the amount of
$3,543,722. IDSC had qualified assets of $3,841,778 at March 31, 2000, excluding
net unrealized depreciation on available-for-sale securities of $114,056 and
payable for securities purchased of $39,434.
Qualified assets of IDSC were deposited at March 31, 2000 as follows:
Required
deposits Deposits Excess
Deposits to meet certificate
liability requirements:
States $360 $322 $38
Central Depository 3,786,273 3,512,395 273,878
Total $3,786,633 $3,512,717 $273,916
The assets on deposit at March 31, 2000 consisted of securities having a deposit
value of $3,322,236, mortgage loans of $369,000 and other assets of $95,397.
2. INVESTMENTS IN SECURITIES
The following is a summary of securities held to maturity and securities
available for sale at March 31, 2000.
<TABLE>
<CAPTION>
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
<S> <C> <C> <C> <C>
Held to maturity
U.S. Government and agencies obligations $360 $361 $1 $--
Mortgage-backed securities 15,579 15,296 119 402
Corporate debt securities 68,584 68,777 1,020 827
Stated maturity preferred stock 369,290 374,413 5,626 503
Total $453,813 $458,847 $6,766 $1,732
<PAGE>
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
Available for sale
Mortgage-backed securities $789,677 $777,374 $2,851 $15,154
State and municipal obligations 29,317 29,437 133 13
Corporate debt securities 1,790,404 1,690,933 1,513 100,984
Stated maturity preferred stock 60,915 60,414 243 744
Perpetual preferred stock 109,009 107,108 158 2,059
Total $2,779,322 $2,665,266 $4,898 $118,954
</TABLE>
At March 31, 2000, there were no securities classified as trading securities.
During the three months ended March 31, 2000, debt securities classified as
available for sale were sold with proceeds of $9,203 and gross realized gains of
$181 and gross realized losses of $3,025 on such sales.
There were no sales of or transfers from securities classified as held to
maturity during the three months ended March 31, 2000.
3. DERIVATIVE FINANCIAL INSTRUMENTS
IDSC's holdings of derivative financial instruments were as follows at March 31,
2000.
Total
Contract Carrying Fair credit
amount value value risk
Assets:
Purchased call options $565 $127,674 $120,211 $120,211
Liabilities:
Written call options $565 $45,883 $70,154 $--
The index options expire in 2000 and 2001. The premiums paid or received on
these index options are reported in other qualified assets or other liabilities,
as appropriate, and are amortized into investment expenses over the life of the
option. The intrinsic value of these index options is also reported in other
qualified assets or other liabilities, as appropriate. Changes in the intrinsic
value of these options are recognized currently in provision for certificate
reserves.
4. SUBSEQUENT EVENT
The name of the company changed on April 26, 2000, from IDS Certificate Company
to American Express Certificate Company.
<PAGE>
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.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Minneapolis, Minnesota
February 3, 2000
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
Balance Sheets, Dec. 31,
Assets
($ thousands) 1999 1998
Qualified Assets (note 2)
<S> <C> <C>
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 $3,834,244
<PAGE>
Balance Sheets, Dec. 31, (continued) Liabilities and Stockholder's Equity
($ thousands) 1999 1998
Liabilities
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 $3,834,244
</TABLE>
See notes to financial statements.
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
Year ended Dec. 31, ($ thousands) 1999 1998 1997
Investment Income
<S> <C> <C> <C>
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 $188,095
<PAGE>
Statements of Operations (continued)
Year ended Dec. 31, ($ thousands) 1999 1998 1997
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.
<PAGE>
Statements of Comprehensive Income
Year ended Dec. 31, ($ thousands) 1999 1998 1997
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 $44,960
See notes to financial statements.
<PAGE>
Statements of Stockholder's Equity
Year ended Dec. 31, ($ thousands) 1999 1998 1997
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 $239,510
See notes to financial statements.
<PAGE>
Statements of Cash Flows
Year ended Dec. 31, ($ thousands) 1999 1998 1997
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)
<PAGE>
Statements of Cash Flows (continued)
Year ended Dec. 31, ($ thousands) 1999 1998 1997
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
</TABLE>
See notes to financial statements.
<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.
<PAGE>
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.
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.
<PAGE>
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>
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.
<PAGE>
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.
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.
<PAGE>
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
<S> <C> <C> <C>
Required
Deposits deposits Excess
Deposits to meet certificate
liability requirements:
States $364 $325 $39
Central Depository 3,682,847 3,444,056 238,791
Total $3,683,211 $3,444,381 $238,830
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>
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.
<PAGE>
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
Dec. 31, 1998
Gross Gross
Amortized Fair unrealized unrealized
cost value gains losses
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>
<PAGE>
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.
Amortized Fair
cost value
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
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:
1999 1998 1997
Proceeds $105,112 $346,353 $161,188
Gross realized gains 3,270 4,487 1,292
Gross realized losses 195 1,461 1,637
<PAGE>
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
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:
Rating 1999 1998
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%
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 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.
<PAGE>
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>
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
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
amount value amount value
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>
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>
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 $3,387,122
</TABLE>
<PAGE>
6. DIVIDEND RESTRICTION
Certain series of installment certificates outstanding provide that cash
dividends may be paid by IDSC only in calendar years for which additional
credits of at least one-half of 1% on such series of certificates have been
authorized by IDSC. This restriction has been removed for 2000 and 2001 by
IDSC's declaration of additional credits in excess of this requirement.
7. FEES PAID TO PARENT AND AFFILIATED COMPANIES ($ 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%.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
Deferred income taxes result from the net tax effects of temporary differences.
Temporary differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years. Principal components of IDSC's deferred tax
assets and liabilities as of Dec. 31, are as follows.
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.
<PAGE>
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.
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.
<PAGE>
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>
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.
<PAGE>
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.
Following is a summary of open option contracts at Dec. 31, 1999 and 1998.
1999
Contract Average Index at
amount strike price Dec. 31,1999
Purchased call options $532 1,326 1,469
Written call options 532 1,453 1,469
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
<PAGE>
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 Equity Indexed Savings Certificates
200 AXP Financial Center
Minneapolis, MN 55474
Web site address: http://www.americanexpress.com/advisors
Distributed by American Express Financial Advisors Inc.
S-6034 A (8/00)
<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 American Express Certificate Company, to private banking
clients of AEB in the United Kingdom and Hong Kong.
(c) Consideration
All American Express Special Deposits were sold for cash. The aggregate offering
price was the same as the amount sold in the table above. Aggregate marketing
fees to AEB were $301,946.44 in 1996, $592,068.70 in 1997, $967,791.95 in 1998
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 is filed electronically
herewith.
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. (l)
<PAGE>
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) Form of Selling Dealer Agreement of American Express
Financial Advisors Inc. is filed electronically herewith.
(p)(1) Code of Ethics under rule 17j-1 for Registrant, filed
electronically as Exhibit 10(p)(1) to Pre-Effective
Amendment No. 1 to Registration Statement Number 333-34982,
is incorporated herein by reference.
(p)(2) Code of Ethics under rule 17j-1 for Registrant's investment
advisor and principal underwriters filed electronically as
Exhibit 10(p)(2) to Pre-Effective Amendment No. 1 to
Registraion Statement Number 333-34982, is incorporated
herein by reference.
11. through 22. -- None.
23. Consent of Independent Auditors' Report is filed
electronically herewith.
24. (a) Officers' Power of Attorney, dated 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.
<PAGE>
Item 17. Undertakings.
Without limiting or restricting any liability on the part of
the other, American Express Financial Advisors Inc. (formerly,
IDS Financial Services Inc.), as underwriter, will assume any
actionable civil liability which may arise under the Federal
Securities Act of 1933, the Federal Securities Exchange Act of
1934 or the Federal Investment Company Act of 1940, in
addition to any such liability arising at law or in equity,
out of any untrue statement of a material fact made by its
agents in the due course of their business in selling or
offering for sale, or soliciting applications for, securities
issued by the Company or any omission on the part of its
agents to state a material fact necessary in order to make the
statements so made, in the light of the circumstances in which
they were made, not misleading (no such untrue statements or
omissions, however, being admitted or contemplated), but such
liability shall be subject to the conditions and limitations
described in said Acts. American Express Financial Advisors
Inc. will also assume any liability of the Company for any
amount or amounts which the Company legally may be compelled
to pay to any purchaser under said Acts because of any untrue
statements of a material fact, or any omission to state a
material fact, on the part of the agents of American Express
Financial Advisors Inc. to the extent of any actual loss to,
or expense of, the Company in connection therewith. The
By-Laws of the Registrant contain a provision relating to
Indemnification of Officers and Directors as permitted by
applicable law.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis and State of
Minnesota, on the 4th day, of August, 2000.
AMERICAN EXPRESS CERTIFICATE COMPANY
By: /s/ Paula R. Meyer*
Paula R. Meyer, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on the 4th day, of August, 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/ Philip C. Wentzel* Vice President and Controller
Philip C. Wentzel (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
