ITEM 1. BUSINESS
OVERVIEW
Ameriprise Certificate Company ("ACC" or the "Company") was incorporated on October 28, 1977 under the laws of Delaware. Ameriprise Financial, Inc. ("Ameriprise Financial"), a Delaware corporation, owns 100% of the outstanding voting securities of ACC. Ameriprise Financial and its predecessor companies have more than 110 years of history providing clients with financial solutions.
ACC is registered as an investment company under the Investment Company Act of 1940 (the "1940 Act") and is in the business of issuing face-amount investment certificates. Face-amount certificates issued by ACC entitle the certificate owner to receive at maturity a stated amount of money and interest or credits declared from time to time by ACC, at its discretion. The certificates issued by ACC are not insured by any government agency. ACC's certificates are sold by Ameriprise Financial Services, Inc. ("AFSI"), an affiliate of ACC. AFSI is registered as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico.
To ACC's knowledge, ACC is the largest issuer of face-amount certificates in the United States. However, such certificates compete with many other products (including investments) offered by banks, savings and loan associations, mutual funds, broker-dealers and others, which may be viewed by potential clients as offering a comparable or superior combination of safety and return on investment. In particular, some of ACC's products are designed to be competitive with the types of investments offered by banks and thrifts. Since ACC's face-amount certificates are securities, their offer and sale are subject to regulation under federal and state securities laws. ACC's certificates are backed by ACC's qualified assets on deposit and are not insured by any governmental agency or other entity.
OUR RELATIONSHIP WITH AMERICAN EXPRESS COMPANY
Ameriprise Financial was a wholly owned subsidiary of American Express Company ("American Express"). Effective as of the close of business on September 30, 2005, American Express completed the disposition of 100% of its share holdings in Ameriprise Financial through a tax-free distribution of Ameriprise Financial common shares to its shareholders (the "Distribution").
In connection with the Distribution, Ameriprise Financial entered into certain agreements with American Express to effect the separation and to define the responsibility for obligations arising before and after the date of the Distribution, including among others, obligations relating to transition services, taxes and employees. Based on the terms of the distribution and investment advisory and services agreements set in place between ACC and its affiliates, no separation costs were allocated to ACC.
During the third quarter of 2005, ACC agreed with American Express Bank Limited ("AEB"), a subsidiary of American Express, to execute an orderly wind-down of the certificate business marketed through AEB and American Express Bank International ("AEBI"). This wind-down has been completed. The amount of certificate reserves associated with this business was approximately nil and $4.4 million as of December 31, 2007 and 2006, respectively.
PRODUCTS
As of the date of this report, ACC offers the following four different certificate products to the public:
1. Ameriprise Flexible Savings Certificate
- Single payment certificate that permits a limited amount of additional payments and on which ACC guarantees interest rates in advance for a term of six, seven, twelve, thirteen, eighteen, twenty-four, thirty or thirty-six months, and potentially other terms, at ACC's option.
- Currently sold without a sales charge.
- Currently bears surrender charges for premature surrenders.
- Available as qualified investments for IRAs, 401(k) plans, and other qualified retirement plans.
- Distributed pursuant to a Distribution Agreement with AFSI.
- Current policy is to re-evaluate the certificate product interest crediting rates weekly to respond to marketplace changes.
- ACC refers to an independent index or source to set the rates for new sales and must set the rates for an initial purchase of the certificate within a specified range of the rate from such index or source. For renewals, ACC uses such rates as an indication of the competitors' rates, but is not required to set rates within a specified range.
- National Certificate of Deposit (CD) averages courtesy of Bankrate.com are used as the guide in setting rates.
- Competes with popular short-term investment vehicles such as certificates of deposit, money market certificates, and money market mutual funds that offer comparable yields, liquidity and safety of principal.
2. Ameriprise Installment Certificate
- Installment payment certificate that declares interest rates in advance for a three-month period and offers bonuses for up to four certificate years for regular investments.
- Currently sold without a sales charge.
- Currently bears surrender charges for premature surrenders.
- Available as qualified investments for IRAs, 401(k) plans, and other qualified retirement plans.
- Distributed pursuant to a Distribution Agreement with AFSI.
- Current policy is to re-evaluate the certificate product interest crediting rates weekly to respond to marketplace changes.
- ACC refers to an independent index or source to set the rates for new sales and must set the rates for an initial purchase of the certificate within a specified range of the rate from such index or source. For renewals, ACC uses such rates as an indication of the competitors' rates, but is not required to set rates within a specified range.
- The national average interest rate for money market deposit accounts courtesy of Bankrate.com is used as a guide in setting rates.
- Intended to help clients save systematically and may compete with passbook savings and NOW accounts.
3. Ameriprise Market Strategy Certificate
- Single payment certificate, with a flexible yield, that pays interest at a fixed rate or that offers the certificate product owner the opportunity to have all or part of the certificate product returns tied to fifty-two week stock market performance, up to a maximum return, as measured by a broad stock market index, for a series of fifty-two week terms starting every month or at intervals the certificate product owner selects.
- Currently sold without a sales charge.
- Currently bears surrender charges for premature surrenders.
- Available as qualified investments for IRAs, 401(k) plans, and other qualified retirement plans.
- Distributed pursuant to a Distribution Agreement with AFSI.
- Current policy is to re-evaluate the certificate product interest crediting rates weekly and maximum return rates at least monthly to respond to marketplace changes.
- Certain banks offer certificates of deposit that have features similar to this certificate.
- The rate of interest is calculated in whole or in part based on any upward movement in a broad-based stock market index up to a maximum return, where the maximum is a fixed rate for a given term, but can be changed at ACC's discretion for prospective terms.
4. Ameriprise Stock Market Certificate
- Single payment certificate that offers the certificate product owner the opportunity to have all or part of the certificate product returns tied to fifty-two week stock market performance, up to a maximum return, as measured by a broad stock market index, with return of principal guaranteed by ACC. The owner can also choose to earn a fixed rate of interest after the first term.
- Currently sold without a sales charge.
- Currently bears surrender charges for premature surrenders.
- Available as qualified investments for IRAs, 401(k) plans, and other qualified retirement plans.
- Distributed pursuant to a Distribution Agreement with AFSI.
- Current policy is to re-evaluate the certificate product interest crediting rates weekly and maximum return rates at least monthly to respond to marketplace changes.
- Certain banks offer certificates of deposit that have features similar to this certificate.
- The rate of interest is calculated in whole or in part based on any upward movement in a broad-based stock market index up to a maximum return, where the maximum is a fixed rate for a given term, but can be changed at ACC's discretion for prospective terms.
The specified maturities of most of ACC's certificate products range from ten to twenty years. Within that maturity period, most certificates have interest crediting rate terms ranging from six to thirty-six months. Interest crediting rates are subject to change and certificate product owners can surrender their certificates without penalty at term end. Currently offered Ameriprise Certificates (listed above), as well as certain certificates previously issued by ACC (not listed above), contain renewal features which enable certificate owners to renew their certificate term until certificate maturity. Accordingly, certificate products that are currently outstanding in their renewal periods or are exercised for renewal in the future are, and continue to be, liabilities of ACC until their withdrawals or maturity whether or not such certificates are available for new sales.
DISTRIBUTION AND MARKETING CHANNELS
ACC's certificates offered by AFSI are sold pursuant to a distribution agreement which is terminable on sixty days' notice and is subject to annual approval by ACC's Board of Directors, including a majority of the directors who are not "interested persons" of AFSI or ACC as that term is defined in the 1940 Act. The distribution agreement provides for the payment of distribution fees to AFSI for services provided.
ASSET MANAGEMENT
ACC has retained RiverSource Investments, LLC, a wholly owned subsidiary of Ameriprise Financial, to manage ACC's investment portfolio under an investment management agreement, which is subject to annual review and approval by ACC's Board of Directors, including a majority of the directors who are not "interested persons" of AFSI, RiverSource Investments, LLC or ACC. On October 25, 2006, the Board approved, subject to shareholder approval, a new "Investment Advisory and Services Agreement" with RiverSource Investments, LLC, with an effective date of January 1, 2007. The agreement was subsequently approved by the Company's sole shareholder, Ameriprise Financial, on October 27, 2006, and this agreement ran through December 31, 2007 and continues from year to year thereafter, subject to the annual review and approval by ACC's Board of Directors discussed above, and unless and until terminated by either party. On November 20, 2007, ACC's Board of Directors conducted its annual review of the investment management agreement and re-approved the agreement for another year, effective January 1, 2008.
REGULATION
ACC is required to maintain cash and "qualified assets" meeting the standards of Section 28(b) of the 1940 Act, as modified by an exemptive order of the Securities and Exchange Commission (the "SEC"). The amortized cost of such investments must be at least equal to ACC's net liabilities on all outstanding face-amount certificates plus $250,000. ACC's qualified assets consist of cash and cash equivalents, first mortgage loans on real estate and other loans, U.S. government and government agency securities, municipal bonds, corporate bonds, preferred stocks and other securities meeting specified standards. So long as ACC wishes to rely on the SEC order, as a condition to the order, ACC has agreed to maintain an amount of unappropriated retained earnings and capital equal to at least 5% of certificate reserves (less outstanding certificate loans). To the extent that payment of a dividend would decrease the capital ratio below the required 5%, payment of a dividend would be restricted. In determining compliance with this condition, qualified assets are valued in accordance with the provisions of Minnesota Statutes where such provisions are applicable.
ACC has also entered into a written understanding with the State of Minnesota, Department of Commerce, that ACC will maintain capital equal to 5% of the assets of ACC (less outstanding certificate loans). To the extent that payment of a dividend would decrease this ratio below the required 5%, payment of a dividend would be restricted. When computing its capital for these purposes, ACC values its assets on the basis of statutory accounting for insurance companies rather than U.S. generally accepted accounting principles. ACC is subject to annual examination and supervision by the State of Minnesota, Department of Commerce (Banking Division).
ITEM 1A.
ITEM 1A. RISK FACTORS
If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on ACC's business, financial condition or results of operations. Based on current information the following information identifies the most significant risk factors affecting ACC in each of these categories of risk. However, the risks and uncertainties ACC faces are not limited to those described below. Additional risks and uncertainties which are not presently known or which are currently believed to be immaterial may also adversely affect ACC's business.
RISKS RELATING TO ACC'S BUSINESS
ACC'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY MARKET FLUCTUATIONS, ECONOMIC AND OTHER FACTORS.
ACC's financial condition and results of operations in the past have been, and in the future may continue to be, materially affected by many factors of a global or localized nature, including political, economic and market conditions; the availability and cost of capital; the level and volatility of equity prices, commodity prices and interest rates; currency values and other market indices; technological changes and events; the availability and cost of credit; inflation; and investor sentiment and confidence in the financial markets. These factors also may have an impact on the Company's ability to achieve its strategic objectives.
ACC's financial condition and results of operations are affected by the "spread", or the difference between the returns ACC earns on the investments that support its product obligations and the amounts that the Company must pay certificate holders.
ACC's investment products are sensitive to interest rate fluctuations and ACC's future costs associated with such variations may differ from its historical costs. During periods of increasing market interest rates, ACC expects to increase crediting rates on existing face-amount certificates. Because returns on invested assets may not increase as quickly as current interest rates, ACC may have to accept a lower spread and thus lower profitability or face a decline in sales and greater loss of existing certificates. In addition, increases in market interest rates may cause increased certificate surrenders as certificate holders seek to shift assets to products with perceived higher returns. This process may lead to an earlier than expected flow of cash out of ACC's business. Also, increases in market interest rates may result in the extension of the maturities of some of ACC's investment assets. These earlier outflows and asset maturity extensions may require investment assets to be sold at a time when the prices of those assets are lower because of the increase in market interest rates, which may result in realized investment losses. Increases in crediting rates, as well as surrenders and withdrawals, could have an adverse effect on ACC's financial condition and results of operations.
During periods of falling interest rates, ACC's spread may also be reduced. Because ACC may adjust the interest rates it credits on most of the products downward only at limited, pre-established intervals, ACC's spreads could decrease and potentially become negative. Interest rate fluctuations could also have an adverse effect on the results of ACC's investment portfolio. During periods of declining market interest rates, the interest ACC receives on variable interest rate investments decreases. In addition, during those periods, ACC is forced to reinvest the cash it receives as interest or return of principal on its investments in lower-yielding, high-grade instruments or in lower-credit instruments to maintain comparable returns. Issuers of fixed income securities also may decide to prepay their obligations in order to borrow at lower market rates. This increases the risk that ACC may have to invest the cash proceeds of these securities in lower-yielding or lower-credit instruments. Offsetting some of these risks is the fact that a significant portion of certificate balances do not have a minimum guaranteed interest crediting rate.
For additional information regarding the sensitivity of the fixed income securities in ACC's investment portfolio to interest rate fluctuations, see Item 7A of this Form 10-K--"Quantitative and Qualitative Disclosures about Market Risk."
DEFAULTS IN ACC'S FIXED INCOME MATURITIES PORTFOLIO WOULD ADVERSELY AFFECT THE COMPANY'S EARNINGS.
Issuers of the fixed income maturities owned by ACC may default on principal and interest payments. As of December 31, 2007, 6.8% of ACC's invested assets had ratings below investment grade. Moreover, economic downturns and corporate malfeasance can increase the number of companies, including those with investment grade ratings, that default on their debt obligations.
IF THE COUNTERPARTIES TO THE DERIVATIVE INSTRUMENTS ACC USES TO HEDGE CERTAIN CERTIFICATE LIABILITIES DEFAULT, ACC MAY BE EXPOSED TO RISKS IT HAD SOUGHT TO MITIGATE, WHICH COULD ADVERSELY AFFECT ACC'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ACC uses derivative instruments to hedge certain certificate liabilities. ACC enters into a variety of derivative instruments with a number of counterparties. If ACC's counterparties fail to honor their obligations under the derivative instruments, ACC's hedges of the related liabilities will be ineffective. That failure could have an adverse effect on ACC's financial condition and results of operations that could be material. This risk of failure of ACC's hedge transactions and hedging strategies may be increased by capital market volatility, such as the volatility that has been experienced since the second half of 2007.
SOME OF ACC'S INVESTMENTS ARE RELATIVELY ILLIQUID.
ACC invests a portion of its assets in privately placed fixed income securities and mortgage loans. Mortgage loans are relatively illiquid. ACC's investment manager periodically reviews ACC's private placement investments using adopted standards to categorize such investments as liquid or illiquid. As of December 31, 2007, mortgage loans and private placement fixed income securities that have been categorized as illiquid represented approximately 7.3% of the carrying value of ACC's investment portfolio. If ACC requires significant amounts of cash on short notice in excess of its normal cash requirements, ACC may have difficulty selling these investments in a timely manner or be forced to sell them for an amount less than it would otherwise have been able to realize, or both. Any inability to quickly dispose of illiquid investments could have an adverse effect on ACC's financial condition and results of operations.
IF ACC'S RESERVES FOR FUTURE CERTIFICATE REDEMPTIONS AND MATURITIES ARE INADEQUATE, ACC MAY BE REQUIRED TO INCREASE ITS RESERVE LIABILITIES, WHICH COULD ADVERSELY AFFECT ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Investment certificates may be purchased either with a lump-sum payment or by installment payments. Certificate product owners are entitled to receive, at maturity, a definite sum of money. Payments from certificate owners are credited to investment certificate reserves. Investment certificate reserves accumulate interest at specified percentage rates as declared by ACC. 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.
Certain certificates offer a return based on the relative change in a stock market index. The certificates with an equity-based return contain embedded derivatives, which are carried at fair value within investment certificate reserves on the balance sheets. The fair values of these embedded derivatives incorporate current market data inputs. Changes in fair value are reflected in provision for certificate reserves within the statements of income.
ACC monitors its reserve levels continually. If the Company concluded its reserves were insufficient to cover actual or expected redemptions or maturities, ACC would be required to increase its reserves and incur income statement charges for the period in which it makes the determination. Such a determination could adversely affect ACC's financial condition and results of operations.
INTENSE COMPETITION COULD NEGATIVELY AFFECT ACC'S ABILITY TO MAINTAIN OR INCREASE ITS MARKET SHARE AND PROFITABILITY.
ACC's business operates in an intensely competitive industry segment. ACC competes based on a number of factors including name recognition, service, investment performance, product features and perceived financial strength. ACC's competitors include broker-dealers, banks, asset managers and other financial institutions. ACC's business faces competitors that have greater market share, offer a broader range of products or have greater financial resources.
ACC'S AFFILIATED DISTRIBUTOR MAY BE UNABLE TO ATTRACT AND RETAIN FINANCIAL ADVISORS.
ACC is dependent on the branded financial advisors of its affiliated broker-dealer selling firm for all of the sales of its certificate products. A significant number of its branded financial advisors operate as independent contractors under a franchise agreement with its affiliated selling firm. There can be no assurance that ACC's affiliated selling firm will be successful in its efforts to recruit and retain new advisors to its network. If ACC's affiliated selling firm is unable to attract and retain quality financial advisors, no advisors would be available to sell ACC's certificate products and ACC's financial condition and results of operations could be materially adversely affected.
ACC'S BUSINESS IS REGULATED AND CHANGES IN REGULATION MAY REDUCE THE COMPANY'S PROFITABILITY AND LIMIT ITS GROWTH.
ACC operates in a regulated industry. Various regulatory and governmental bodies have the authority to review ACC's products and business practices and to bring regulatory or other legal actions against ACC if, in their view, ACC's practices are improper. Changes in these regulations may lead to increased fees to service providers. Additionally, ACC is subject to heightened regulatory requirements relating to privacy and protection of customer data.
CONFLICTS OF INTEREST ARE INCREASING AND A FAILURE TO APPROPRIATELY DEAL WITH CONFLICTS OF INTEREST COULD ADVERSELY AFFECT ACC'S BUSINESS.
ACC has to address potential conflicts of interest, including those relating to the activities of its affiliated entities. For example, conflicts may arise between ACC's position as a manufacturer of certificate products and the position of an ACC affiliate, AFSI, as the distributor of these products. ACC and its affiliated entities have procedures and controls in place that are designed to address conflicts of interest. Appropriately dealing with conflicts of interest, however, is complex and difficult and the enterprise's reputation could be damaged if it fails, or appears to fail, to deal appropriately with conflicts of interest. In addition, the SEC and other federal and state regulators have increased their scrutiny of potential conflicts of interest. It is possible that potential or perceived conflicts could give rise to litigation or enforcement actions. It is possible that the regulatory scrutiny of, and litigation in connection with, conflicts of interest could make the enterprise's clients less willing to enter into transactions in which such a conflict may occur, and could adversely affect ACC's business.
FAILURE OF ACC'S SERVICE PROVIDERS TO PERFORM THEIR RESPONSIBILITIES COULD ADVERSELY AFFECT ACC'S BUSINESS.
ACC's business operations, including investment management, transfer agent, custody and distribution services, are performed by affiliated service providers pursuant to formal contracts. The failure of a service provider to fulfill its responsibilities could have an adverse effect on ACC's financial condition and results of operations that could be material.
ACC IS SUBJECT TO TAX CONTINGENCIES THAT COULD ADVERSELY AFFECT ITS PROVISION FOR INCOME TAXES.
ACC is subject to the income tax laws of the U.S., its states and municipalities. These tax laws are complex and may be subject to different interpretations. ACC must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes and must also make estimates about when in the future certain items affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be settled with the taxing authority upon examination or audit.
BREACHES OF SECURITY, OR THE PERCEPTION THAT OUR TECHNOLOGY INFRASTRUCTURE IS NOT SECURE, COULD HARM OUR BUSINESS.
ACC's business requires the appropriate and secure utilization of consumer and other sensitive information. ACC's operations require the secure transmission of confidential information over public networks. Security breaches in connection with the delivery of ACC's products and services, including products and services utilizing the Internet, and the trend toward broad
consumer and general public notification of such incidents, could significantly harm ACC's business, financial condition or results of operations. Even if ACC successfully protects its technology infrastructure and the confidentiality of sensitive data, ACC could suffer harm to its business and reputation if attempted security breaches are publicized. ACC cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in ACC's systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks used in connection with ACC's products and services.
PROTECTION FROM SYSTEM INTERRUPTIONS IS IMPORTANT TO ACC'S BUSINESS. IF ACC EXPERIENCES A SUSTAINED INTERRUPTION TO ACC'S TELECOMMUNICATIONS OR DATA PROCESSING SYSTEMS, IT COULD HARM ACC'S BUSINESS.
System or network interruptions could delay and disrupt ACC's ability to develop, deliver or maintain ACC's products and services, causing harm to ACC's business and reputation and resulting in loss of customers or revenue. These interruptions can include fires, floods, earthquakes, power losses, equipment failures, software failures and other events beyond ACC's control.
RISK MANAGEMENT POLICIES AND PROCEDURES MAY NOT BE FULLY EFFECTIVE IN MITIGATING RISK EXPOSURE IN ALL MARKET ENVIRONMENTS OR AGAINST ALL TYPES OF RISK, INCLUDING EMPLOYEE AND FINANCIAL ADVISOR MISCONDUCT.
ACC has devoted significant resources toward developing ACC's risk management policies and procedures and will continue to do so in the future. Nonetheless, ACC's policies and procedures to identify, monitor and manage risks may not be fully effective in mitigating ACC's risk exposure in all market environments or against all types of risk. Many of ACC's methods of managing risk and exposures are based upon ACC's use of observed historical market behavior or statistics based on historical models. During periods of market volatility or due to unforeseen events, the historically derived correlations upon which these methods are based may not be valid. As a result, these methods may not accurately predict future exposures, which could be significantly greater than what ACC's models indicate. This could cause us to incur investment losses or cause ACC's hedging and other risk management strategies to be ineffective. Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe occurrence or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date or properly evaluated.
Moreover, ACC is subject to the risks of errors and misconduct by ACC's employees and AFSI's financial advisors -- such as fraud, non-compliance with policies, recommending transactions that are not suitable, and improperly using or disclosing confidential information -- which is difficult to detect in advance and deter, and could harm ACC's business, results of operations or financial condition. ACC is further subject to the risk of nonperformance or inadequate performance of contractual obligations by third party vendors of products and services that are used in ACC's businesses. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective in mitigating ACC's risk exposure in all market environments or against all types of risk. Insurance and other traditional risk-shifting tools may be held by or be available to us in order to manage certain exposures, but they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
ACC occupies office space in Minneapolis, Minnesota, which is leased or owned by Ameriprise Financial.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
ACC may be a party to litigation and arbitration proceedings in the ordinary course of its business. The outcome of any litigation or threatened litigation cannot be predicted with any certainty. ACC believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration or regulatory proceedings that would have a material adverse effect on its financial condition or results of operations. However, it is possible that the outcome of any such proceedings could have a material impact on ACC's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
All of ACC's outstanding common stock is owned by Ameriprise Financial. There is no established public trading market for ACC's common stock. Frequency and amount of capital transactions with Ameriprise Financial during the past two years were (in millions):
Restriction on ACC's present or future ability to pay dividends to Ameriprise Financial:
Certain series of installment certificate products outstanding provide that cash dividends may be paid by ACC only in calendar years for which additional credits of at least 1/2 of 1% on such series of certificates have been authorized by ACC. This requirement has been met for 2007 and 2006 by ACC's declaration of additional credits in meeting this requirement.
Appropriated retained earnings resulting from the pre-declaration of additional credits to ACC's certificate product owners are not available for the payment of dividends by ACC. In addition, ACC will discontinue issuance of certificates subject to the pre-declaration of additional credits and will make no further pre-declaration as to outstanding certificates if at any time the capital and unappropriated retained earnings of ACC should be less than 5% of net certificate reserves (certificate reserves less certificate loans). At December 31, 2007, the capital and unappropriated retained earnings amounted to 5.6% of net certificate reserves.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Item omitted pursuant to General Instructions (I)(2)(a) of Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS
The following information should be read in conjunction with the accompanying audited financial statements and related notes included elsewhere in this report. The following discussion may contain forward-looking statements that reflect ACC's plans, estimates and beliefs. ACC's actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below under the heading "Forward-Looking Statements" and elsewhere in this report, particularly in "Item 1A - Risk Factors."
RESULTS OF OPERATIONS
ACC's net income is derived primarily from the after-tax yield on investments and realized investment gains (losses), less investment expenses and interest credited on certificate reserve liabilities. Changes in net income trends occur largely due to changes in investment returns in ACC's portfolio, from realization of investment gains (losses), and from changes in interest crediting rates to certificate products. ACC follows U.S. generally accepted accounting principles.
In 2007, investment income decreased $56.7 million, or 20.6%, compared to 2006. This decrease was primarily a result of a reduction in holdings, due to lower client volumes and client net outflows, and the impact of smaller gains on equity index
options, due to market conditions, hedging outstanding stock market certificates. The decrease was slightly offset by a small increase in the average rate of return on investments.
In 2006, investment income decreased $37.4 million, or 12.0%, compared to 2005 mainly due to a reduction in holdings, mostly related to the American Express Bank Limited ("AEB") and American Express Bank International ("AEBI") business wind-down. This overall decrease was slightly offset by an increase in gains on equity index options due to the effect of higher appreciation in the S&P 500 on the value of options hedging outstanding stock market certificates.
Investment expense in 2007 decreased $2.3 million, or 6.0%. The decrease is mainly due to lower distribution fees, as a result of lower client volumes and less distribution fees being paid to AEB and AEBI as a result of the business wind-down of AEB and AEBI. This decrease was partially offset by an increase in transfer agent fees paid to RiverSource Service Corporation, an affiliate of ACC, due to an increase in rates in the transfer agent agreement effective in the first quarter of 2007.
In 2006, investment expense decreased $12.7 million, or 24.9%. The decrease is mainly due to less distribution fees being paid to AEB and AEBI as a result of the business wind-down of AEB and AEBI.
In 2007, net provision for certificate reserves decreased $28.9 million, or 13.7%. The decrease is the result of lower stock market participation costs and interest credited costs resulting from lower client volumes. The overall decrease was offset by an increase in client crediting rates.
In 2006, net provision for certificate reserves increased $12.2 million, or 6.1%, due to an increase in additional credits and interest authorized by ACC on fully-paid certificates. These increases are a result of increases in short-term interest rates and greater stock market participation costs resulting from equity market appreciation, partially offset by lower volumes due to the AEB and AEBI business wind-down and a $1 million adjustment for interest credited on stock market certificates.
Net realized gains on investments were $0.9 million for 2007 compared to net realized losses of $1.2 million for 2006. Investment gains for the year ended December 31, 2007 included a decrease of $1.7 million to the allowance for loan losses on commercial mortgage loans. Included in net realized gains and losses on investments are gross realized gains and losses on sales of securities using the specific identification method, as noted in the table below for the years ended December 31:
The effective tax rate was (82.0)% for the year ended December 31, 2007 compared to 34.5% for the year ended December 31, 2006. The effective tax rate for the year ended December 31, 2007 reflects the impact of a $0.9 million tax benefit related to the settlement of taxes for capital losses in prior years and the level of current year tax advantaged items relative to the level of pretax income.
RECENT ACCOUNTING PRONOUNCEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
For information regarding recent accounting pronouncements and their expected impact on the Company's future results of operations or financial condition, see Note 1 to ACC's financial statements. Also see Note 1 for significant accounting policies.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described in "Item 1A - Risk Factors" and elsewhere in ACC's Annual Report on Form 10-K. ACC's future financial condition and results of operations, as well as any forward-looking statements contained in this report, are made only as of the date hereof. ACC undertakes no obligation to update or revise any forward-looking statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IMPACT OF MARKET VOLATILITY ON RESULTS OF OPERATIONS
ACC has two principal components of market risk: interest rate risk and equity market risk. Interest rate risk results from investing in assets that are somewhat longer and reset less frequently than the liabilities they support. In prior years, ACC managed interest rate risk through the use of a variety of tools that include derivative financial instruments, such as interest rate swaps, caps, and floors, which change the interest rate characteristics of client liabilities or investment assets. Because certain of the provisions for certificates are impacted by the value of equity indices, from time to time ACC enters into risk management strategies that may include the use of equity derivative financial instruments, such as equity options, to mitigate ACC's exposure to volatility in the equity markets.
Ameriprise Financial's Asset Liability Committee ("ALCO"), which is comprised of senior business managers, holds regularly scheduled meetings to review models projecting various interest rate scenarios and risk/return measures and their effect on various portfolios managed by RiverSource Investments, LLC, including that of ACC. ACC's Board of Directors has appointed the ALCO as the investment committee of ACC. The ALCO's objectives are to structure ACC's portfolio of investment securities based upon the type and behavior of the certificates in the certificate reserve liabilities, to achieve targeted levels of profitability within defined risk parameters and to meet certificate contractual obligations.
ACC primarily invests in mortgage and asset-backed securities and intermediate term corporate debt securities to provide its certificate owners with a competitive rate of return on their certificates while managing risk. These investments provide ACC with a historically dependable and targeted margin between the interest rate earned on investments and the interest rate credited to certificate owners' accounts. ACC does not invest in securities to generate short-term trading profits for its own account.
To evaluate interest rate and equity price risk ACC performs sensitivity testing which measures the impact on pretax income from the sources listed below for a 12 month period following a hypothetical 100 basis point increase in interest rates and a hypothetical 10% decline in equity markets.
At December 31, 2007, aggregating ACC's exposure from all sources of interest rate risk net of financial derivatives hedging that exposure detailed below, ACC estimates a negative impact of $0.2 million on pretax income for the 12 month period if, hypothetically, interest rates had increased by 100 basis points and remain at that level for 12 months. This compares with an estimate of a negative impact of $4.2 million made at December 31, 2006 for 12 months following a hypothetical 100 basis point increase in interest rates at December 31, 2006.
At December 31, 2007, aggregating ACC's exposure from all sources of equity price risk net of financial derivatives hedging that exposure detailed below, ACC estimates no impact on pretax income for the 12 month period if, hypothetically, equity markets had declined by 10% and remain at that level for 12 months. This compares with an estimate of a minimal impact at December 31, 2006 for 12 months following a hypothetical 10% drop in equity markets at December 31, 2006.
The numbers below show ACC's estimate of the pretax impact of these hypothetical market moves, net of hedging, as of December 31, 2007. Following the table is a discussion by source of risk and the portfolio management techniques and derivative financial instruments ACC uses to mitigate these risks.
Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming the composition of invested assets and liabilities does not change in the 12 month period following the hypothetical market decline and assuming the increase in interest rates produces a parallel shift in the yield curve. The selection of a 100 basis point interest rate increase and a 10% equity market decline should not be construed as a prediction of future market events.
FLEXIBLE SAVINGS AND OTHER FIXED RATE CERTIFICATES
ACC has interest rate risk from its Flexible Savings and other fixed rate certificates. These are investment certificates generally ranging in amounts from $1,000 to $1 million with terms ranging from three to 36 months. ACC guarantees an
interest rate to the holders of these products. Payments collected from clients are primarily invested in fixed rate securities to fund the client credited rate with the spread between the rate earned from investments and the rate credited to clients recorded as earned income. Client liabilities and investment assets generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients generally reset at shorter intervals than the yield on underlying investments. This exposure is not currently hedged although ACC monitors its investment strategy and makes modifications based on changing liabilities and the expected rate environment. ACC has $2.6 billion in reserves included in certificate reserves on the Balance Sheet at December 31, 2007 to cover the liabilities associated with these products. At December 31, 2007, ACC estimates the interest rate risk from this exposure on pretax income for the 12 month period following a hypothetical increase of 100 basis points in interest rates to be a negative $0.2 million.
STOCK MARKET CERTIFICATES
Stock market certificates are purchased for amounts generally from $1,000 to $1 million for terms of 52 weeks which can be extended to a maximum of 14 terms. For each term the certificate holder can choose to participate 100% in any percentage increase in the S&P 500 Index up to a maximum return or choose partial participation in any increase in the S&P 500 Index plus a fixed rate of interest guaranteed in advance. If partial participation is selected, the total of equity-linked return and guaranteed rate of interest cannot exceed the maximum return. Reserves for the stock market certificates of $1.1 billion are included in certificate reserves on the Balance Sheet at December 31, 2007. The notional amount and fair value asset (liability) of derivatives hedging this product are as follows.
- ---------- (1) These S&P 500 futures are cash settled daily and, therefore, have no fair value.
Interest Rate Risk - Stock Market Certificates
Stock market certificates have some interest rate risk as changes in interest rates affect the fair value of the payout to be made to the certificate holder. This exposure to interest rate changes is hedged by the derivatives listed above. ACC estimates that if, hypothetically, interest rates had increased by 100 basis points at December 31, 2007 and remain at that level for 12 months, ACC's unhedged exposure would be a negative impact of $0.6 million on pretax income for the 12 month period offset by a positive impact of the same amount from ACC's hedging strategy for a net immaterial exposure.
Equity Price Risk - Stock Market Certificates
The equity-linked return to investors creates equity price risk exposure. ACC seeks to minimize this exposure with purchased futures and call spreads that replicate what ACC must credit to client accounts. ACC estimates that if, hypothetically, equity markets had declined by 10% at December 31, 2007 and remain at that level for 12 months, the impact to pretax income for the 12 month period without hedging would be a positive $21.6 million. The impact of ACC's hedging strategy offsets that gain for an immaterial net exposure.
CREDIT RISK
ACC's potential derivative credit exposure to each counterparty is aggregated with all of its other exposures to the counterparty to determine compliance with established credit and market risk limits at the time ACC enters into a derivative transaction. Credit exposures may take into account enforceable netting arrangements. Before executing a new type or structure of derivative contract, ACC determines the variability of the contract's potential market and credit exposures and whether such variability might reasonably be expected to create exposure to a counterparty in excess of established limits.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements at page hereof.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
ACC maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to ACC's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, ACC's disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.
ACC's management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC's Chief Executive Officer and Chief Financial Officer have concluded that ACC's disclosure controls and procedures were effective at a reasonable level of assurance as of December 31, 2007.
This annual report does not contain management's report or an attestation of the Company's independent registered public accounting firm regarding internal control over financial reporting. The requirements for such report and attestation do not apply to a registered investment company such as Ameriprise Certificate Company by reason of the exemption set forth in Section 405 of the Sarbanes-Oxley Act of 2002, exempting registered investment companies from the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and rules of the Securities and Exchange Commission promulgated thereunder.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in ACC's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter of the year to which this report relates that have materially affected, or are reasonably likely to materially affect, ACC's internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Item omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item omitted pursuant to General Instructions (I)(2)(c) of Form 10-K.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Board of Directors of ACC, at the recommendation of its Audit Committee, has appointed Ernst & Young LLP ("Ernst & Young") as independent registered public accountants to audit the financial statements of ACC for the years ended December 31, 2007 and 2006.
AUDIT FEES
The aggregate fees billed or to be billed by Ernst & Young for each of the last two years for professional services rendered for the audit of ACC's annual Financial Statements and services that were provided in connection with statutory and regulatory filings were $123,000 and $115,000 for 2007 and 2006, respectively.
AUDIT-RELATED FEES
ACC was not billed by Ernst & Young for any fees for audit-related services for 2007 or 2006.
TAX FEES
ACC was not billed by Ernst & Young for any tax fees for 2007 or 2006.
ALL OTHER FEES
ACC was not billed by Ernst & Young for any other fees for 2007 or 2006.
POLICY ON PRE-APPROVAL OF SERVICES PROVIDED BY INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the terms of the engagement of Ernst & Young are subject to the specific pre-approval of the Audit Committee of Ameriprise Financial. All audit and permitted non-audit services to be performed by Ernst & Young for ACC require pre-approval by the Audit Committee of Ameriprise Financial in accordance with pre-approval procedures established by the Audit Committee of Ameriprise Financial. The procedures require all proposed engagements of Ernst & Young for services to ACC of any kind to be directed to the General Auditor of Ameriprise Financial and then submitted for approval to the Audit Committee of Ameriprise Financial prior to the beginning of any services.
In addition, the charter of ACC's Audit Committee requires pre-approval of any engagement, including the fees and other compensation, of Ernst & Young (1) to provide any services to ACC and prohibits the performance of certain specified non-audit services, and (2) to provide any non-audit services to Ameriprise Financial or any affiliate of Ameriprise Financial that controls, is controlled by, or under common control with Ameriprise Financial. Certain exceptions apply to the pre-approval requirement.
In 2007 and 2006, 100% of the services provided by Ernst & Young for ACC were pre-approved by the Audit Committee of Ameriprise Financial.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements: See Index to Financial Statements on page hereof.
2. Financial Statement Schedules: See Index to Financial Statements on page hereof.
3. Exhibits: See Exhibit Index on pages E-1 through E-2 hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REGISTRANT AMERIPRISE CERTIFICATE COMPANY
BY /s/ William F. Truscott ---------------------------------------- NAME AND TITLE William F. Truscott, Director, President and Chief Executive Officer (Principal Executive Officer) DATE February 29, 2008
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
BY /s/ Brian J. McGrane ---------------------------------------- NAME AND TITLE Brian J. McGrane, Vice President and Chief Financial Officer (Principal Financial Officer) DATE February 29, 2008
BY /s/ David K. Stewart ---------------------------------------- NAME AND TITLE David K. Stewart, Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) DATE February 29, 2008
BY /s/ Rodney P. Burwell* ---------------------------------------- NAME AND TITLE Rodney P. Burwell, Director DATE February 29, 2008
BY /s/ Jean B. Keffeler* ---------------------------------------- NAME AND TITLE Jean B. Keffeler, Director DATE February 29, 2008
BY /s/ Thomas R. McBurney* ---------------------------------------- NAME AND TITLE Thomas R. McBurney, Director DATE February 29, 2008
BY /s/ Karen M. Bohn* ---------------------------------------- NAME AND TITLE Karen M. Bohn, Director DATE February 29, 2008
*By /s/ William F. Truscott --------------------------------- Name: William F. Truscott
Executed by William F. Truscott on behalf of those indicated pursuant to a Power of Attorney, dated February 19, 2008, filed electronically on or about February 29, 2008 as Exhibit 24(a) hereto.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS:
All other Schedules required by Article 6 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders Ameriprise Certificate Company
We have audited the accompanying balance sheets of Ameriprise Certificate Company, (a wholly owned subsidiary of Ameriprise Financial, Inc.) (the Company) as of December 31, 2007 and 2006, and the related statements of income, comprehensive income (loss), shareholder's equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedules listed in the index at Item 8. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2007 and 2006, by correspondence with the custodian. 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 Ameriprise Certificate Company at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as whole, present fairly in all material respects the information set forth therein.
As discussed in Note 3 to the financial statements, in 2007 the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.
/s/ Ernst & Young LLP Minneapolis, Minnesota February 27, 2008
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
See Notes to Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
BALANCE SHEETS DECEMBER 31, 2007 AND 2006
See Notes to Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
BALANCE SHEETS (CONTINUED) DECEMBER 31, 2007 AND 2006
See Notes to Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
See Notes to Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
See Notes to Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
See Notes to Financial Statements.
1. BASIS OF PRESENTATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Ameriprise Certificate Company ("ACC" or the "Company"), is a wholly owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"). ACC is registered as an investment company under the Investment Company Act of 1940 (the "1940 Act") and is in the business of issuing face-amount investment certificates. Face-amount certificates issued by ACC entitle the certificate owner to receive at maturity a stated amount of money and interest or credits declared from time to time by ACC, at its discretion. The certificates issued by ACC are not insured by any government agency. ACC's certificates are sold primarily by Ameriprise Financial Services, Inc. ("AFSI"), an affiliate of ACC. AFSI is registered as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico.
As of December 31, 2007, ACC offered four different certificate products to the public. ACC is impacted by significant changes in interest rates as interest crediting rates on certificate products generally reset at shorter intervals than the change in the yield on ACC's investment portfolio. The specified maturities of most of ACC's certificate products range from ten to twenty years. Within that maturity period, most certificates have interest crediting rate terms ranging from three to thirty-six months. Interest crediting rates are subject to change and certificate product owners can surrender their certificates without penalty at term end. In addition, two types of certificate products have interest tied, in whole or in part, to a broad-based stock market index. All of the certificates are available as qualified investments for Individual Retirement Accounts, 401(k) plans and other qualified retirement plans.
SEPARATION OF AMERIPRISE FINANCIAL
On February 1, 2005, American Express Company ("American Express") announced its intention to pursue the disposition of 100% of its shareholdings in Ameriprise Financial (the "Separation") through a tax-free distribution to American Express shareholders. Effective as of the close of business on September 30, 2005, American Express completed the separation and distribution of common shares to American Express shareholders (the "Distribution").
In connection with the Distribution, Ameriprise Financial entered into certain agreements with American Express to effect the separation of its business and to define the responsibility for obligations arising before and after the date of the Distribution, including among others, obligations relating to transition services, taxes and employees. Based on the terms of the distribution and investment advisory and services agreements set in place between ACC and its affiliates, no separation costs were allocated to ACC.
During the third quarter of 2005, ACC agreed with American Express Bank Limited ("AEB"), a subsidiary of American Express, to execute an orderly wind-down of the certificate business marketed through AEB and American Express Bank International ("AEBI"). This wind-down was completed during the first quarter of 2007. The amount of certificate reserves associated with this business was approximately nil and $4.4 million as of December 31, 2007 and 2006, respectively.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements are presented in accordance with U.S. generally accepted accounting principles. ACC uses the equity method of accounting for its wholly owned unconsolidated subsidiary, Investors Syndicate Development Corporation, as prescribed by the Securities and Exchange Commission ("SEC") for non-investment company subsidiaries. Certain reclassifications of prior period amounts have been made to conform to the current presentation.
Accounting estimates are an integral part of the financial statements. In part, they are based upon assumptions concerning future events. Among the more significant is investment securities valuation as discussed in Note 3. These accounting estimates reflect the best judgment of management and actual results could differ.
INTEREST INCOME
Interest income is accrued as earned using the effective interest method, which makes an adjustment for security premiums and discounts, so that the related security recognizes a constant rate of return on the outstanding balance throughout its term.
PREFERRED STOCK DIVIDEND INCOME
ACC recognizes dividend income from cumulative redeemable preferred stocks with fixed maturities 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 date basis.
CASH AND CASH EQUIVALENTS
ACC has defined cash and cash equivalents as cash in banks and highly liquid investments with original maturities of 90 days or less.
AVAILABLE-FOR-SALE SECURITIES
Debt securities and marketable equity securities are classified as Available-for-Sale and carried at fair value which is generally based on quoted market prices. Unrealized gains (losses) on securities classified as Available-for-Sale are reflected, net of taxes, in accumulated other comprehensive income (loss) as part of Shareholder's Equity.
ACC uses the specific identification method for determining cost in computing realized gains (losses) on securities. Gains (losses) are recognized in the results of operations upon disposition of the securities. In addition, losses are also recognized when management determines that a decline in value is other-than-temporary, which requires judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include issuer downgrade, default or bankruptcy. ACC also considers the extent to which cost exceeds fair value, the duration of time of that decline and management's judgment as to the issuer's current and prospective financial condition, as well as ACC's ability and intent to hold until recovery. The charges are reflected in net realized gain (loss) on investments in the Statements of Income.
FIRST MORTGAGE LOANS ON REAL ESTATE AND OTHER LOANS
First mortgage loans on real estate reflect principal amounts outstanding less allowance for loan losses, which is the basis for determining realized gains (losses). Other loans reflect amortized cost less allowance for losses.
The allowance for loan losses is measured as the excess of the loan's recorded investment over its present value of expected principal and interest payments discounted at the loan's effective interest rate or the fair value of collateral. Additionally, the level of the allowance for loan losses is determined based on several factors, including historical experience and current economic and political conditions. Management regularly evaluates the adequacy of the allowance for loan losses and believes it is adequate to absorb estimated losses in the portfolio.
ACC generally stops accruing interest on mortgage loans on real estate for which interest payments are delinquent more than three months. Based on management's judgment as to the ultimate collectibility of principal, interest payments received are either recognized as income or applied to the recorded investment in the loan.
CERTIFICATE RESERVES
Investment certificates may be purchased either with a lump-sum payment or by installment payments. Certificate product owners are entitled to receive, at maturity, a definite sum of money. Payments from certificate owners are credited to investment certificate reserves. Investment certificate reserves accumulate interest at specified percentage rates as declared by ACC. 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.
Certain certificates offer a return based on the relative change in a stock market index. The certificates with an equity-based return contain embedded derivatives, which are carried at fair value within investment certificate reserves on the Balance Sheets. The fair values of these embedded derivatives incorporate current market data inputs. Changes in fair value are reflected in provision for certificate reserves within the Statements of Income.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative instruments, consisting of interest rate swaps and options and futures contracts, if any, are classified in the Balance Sheets at fair value. The fair value of ACC's derivative financial instruments is determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market observable inputs to the extent available. The accounting for the change in the fair value of the derivative financial instrument depends on its intended use and the resulting hedge designation, if any. ACC has historically designated interest rate swaps as cash flow hedges and does not designate options and futures contracts as accounting hedges.
For derivative financial instruments that qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instruments are reported in accumulated other comprehensive income (loss) and reclassified into earnings when the hedged item or transaction impacts earnings. The amount that is reclassified into earnings is presented in the Statements of Income with the hedged instrument or transaction impact. If a hedge designation is removed or a hedge is terminated prior to maturity, the amount previously recorded in accumulated other comprehensive income (loss) may be recognized into earnings over the period that the hedged item impacts earnings. For any hedge relationships that are discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related amounts previously recorded in accumulated other comprehensive income (loss) are recognized in earnings immediately.
Derivative financial instruments that are entered into for hedging purposes are designated as such at the time that ACC enters into the contract. For all derivative financial instruments that are designated for hedging activities, ACC formally documents all of the hedging relationships between the hedge instruments and the hedged items at the inception of the relationships. Management also formally documents its risk management objectives and strategies for entering into the hedge transactions. ACC formally assesses, at inception and on a quarterly basis, whether derivatives designated as hedges are highly effective in offsetting the fair value or cash flows of hedged items. If it is determined that a derivative is no longer highly effective as a hedge, ACC will discontinue the application of hedge accounting. See Note 9 for further discussion of derivatives and hedging activities of ACC.
For derivative financial instruments that do not qualify for hedge accounting or are not designated as hedges, changes in fair value are recognized in current period earnings.
INCOME TAXES
ACC's taxable income is included in the consolidated federal income tax return of Ameriprise Financial. ACC provides for income taxes on a separate return basis, except that, under an agreement between Ameriprise Financial and ACC, tax benefits are recognized for losses to the extent they can be used in the consolidated return. It is the policy of Ameriprise Financial that it will reimburse its subsidiaries for any tax benefits recorded.
ACC's provision for income taxes represents the net amount of income taxes that the Company expects to pay or to receive from various taxing jurisdictions in connection with its operations. The Company provides for income taxes based on amounts that the Company believes it will ultimately owe, taking into account the recognition and measurement for uncertain tax positions. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain items. In connection with the provision for income taxes, ACC's financial statements reflect certain amounts related to deferred tax assets and liabilities, which result from temporary differences between the assets and liabilities measured for financial statement purposes versus the assets and liabilities measured for tax return purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 (revised 2007) "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in an acquiree, and goodwill acquired. SFAS 141(R) also requires an acquirer to disclose information about the financial effects of a business combination. SFAS 141(R) is effective prospectively for business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with early adoption prohibited. The Company will apply the standard to any business combinations within the scope of SFAS 141(R) occurring after December 31, 2008.
In December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements--an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes the accounting and reporting for ownership interest in subsidiaries not attributable, directly or indirectly, to a parent. SFAS 160 requires that noncontrolling (minority) interests be classified as equity (instead of as a liability) within the balance sheet, and net income attributable to both the parent and the
noncontrolling interest be disclosed on the face of the statement of income. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years with early adoption prohibited. The provisions of SFAS 160 are to be applied prospectively, except for the presentation and disclosure requirements which are to be applied retrospectively to all periods presented. The Company is currently evaluating the impact of SFAS 160 on its results of operations and financial condition.
In June 2007, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 07-1, "Clarification of the Scope of the Audit and Accounting Guide 'Investment Companies' and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" ("SOP 07-1"). SOP 07-1 provided clarification on the definition of an investment company. In February 2008, the FASB decided to indefinitely defer the effective date of SOP 07-1. In May 2007, the FASB issued FASB Staff Position ("FSP") FASB Interpretation No. ("FIN") 46(R)-7, "Application of FIN 46(R) to Investment Companies" ("FSP 46(R)-7"). FSP 46(R)-7 is dependent upon clarification of the definition of an investment company as provided in SOP 07-1 and is effective upon the adoption of that SOP. With the deferral of SOP 07-1, the Company will defer the adoption of both SOP 07-1 and FSP 46(R)-7.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 gives entities the option to measure certain financial instruments and other items at fair value that are not currently permitted to be measured at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 requires entities to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements. SFAS 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The Company did not adopt SFAS 159 for any of its existing eligible assets or liabilities and has no current plans to adopt SFAS 159 for any new financial instruments.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted provided that the entity has not issued financial statements for any period within the year of adoption. The provisions of SFAS 157 are required to be applied prospectively as of the beginning of the fiscal year in which SFAS 157 is initially applied, except for certain financial instruments as defined in SFAS 157 which will require retrospective application of SFAS 157. The transition adjustment, if any, will be recognized as a cumulative-effect adjustment to the opening balance of retained earnings for the fiscal year of adoption. The Company adopted SFAS 157 effective January 1, 2008. The adoption of SFAS 157 will not have a material effect on the Company's results of operations and financial condition. In accordance with FSP FAS 157-(2), "Effective Date of FASB Statement No. 157" ("FSP 157-(2)"), the Company will defer the adoption of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007. The effect of adopting FIN 48 on the Company's results of operations and financial condition was not material.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments" ("SFAS 155"). SFAS 155 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"). SFAS 155: (i) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; (ii) clarifies which interest-only and principal-only strips are not subject to the requirements of SFAS 133; (iii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iv) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (v) amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The
Company adopted SFAS 155 as of January 1, 2007. The effect of adopting SFAS 155 on the Company's results of operations and financial condition was not material.
2. DEPOSIT OF ASSETS AND MAINTENANCE OF QUALIFIED ASSETS
Under the provisions of its certificates and the 1940 Act, ACC was required to have Qualified Assets (as defined in Section 28(b) of the 1940 Act) in the amount of $3.7 billion and $4.7 billion at December 31, 2007 and 2006, respectively. ACC reported Qualified Assets of $4.0 billion and $5.1 billion at December 31, 2007 and 2006, respectively. Qualified Assets exclude net unrealized pretax losses on Available-for-Sale securities of $53.5 million and $78.1 million at December 31, 2007 and 2006, respectively, and unsettled investment purchases of $1.3 million and $1.8 million at December 31, 2007 and 2006, respectively.
Qualified Assets are valued in accordance with such provisions of Minnesota Statutes as are applicable to investments of life insurance companies. These values are the same as financial statement carrying values, except for debt securities classified as Available-for-Sale and all marketable equity securities, which are carried at fair value in the financial statements but are valued at either amortized cost, market value or par value based on the state requirements for qualified asset and deposit maintenance purposes.
Pursuant to provisions of the certificates, the 1940 Act, the Central Depository Agreement and requirements of various states, Qualified Assets (accounted for on a trade date basis) of ACC were deposited as follows:
The assets on deposit with the Central Depository at December 31, 2007 and 2006 consisted of securities and other loans having a deposit value of $3.7 billion and $4.6 billion, respectively, mortgage loans on real estate of $205.8 million and $265.5 million, respectively, and other investments of $75.5 million and $65.6 million, respectively. Additionally, these assets on deposit include unsettled purchases of investments in the amount of $1.3 million and $1.8 million at December 31, 2007 and 2006, respectively.
Ameriprise Trust Company, the custodian for ACC, is the Central Depository. See Note 7.
3. INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
Fair values of investments in securities represent market prices or estimated fair values when quoted prices are not available. Estimated fair values are determined by using established procedures involving, among other things, review of market indexes, price levels of current offerings and comparable issues, price estimates, estimated future cash flows, and market data from brokers.
Available-for-Sale securities at December 31, 2007 are distributed by type as presented below:
Available-for-Sale securities at December 31, 2006 are distributed by type as presented below:
At December 31, 2007 and 2006, fixed maturity securities comprised approximately 89% and 88%, respectively, of the Company's total investments. These securities were rated by either Moody's, Standard & Poor's ("S&P"), or by RiverSource Investments, LLC, using criteria similar to Moody's and S&P, when a public rating does not exist. Ratings on investment grade securities are presented using S&P's convention and, if the two agencies' ratings differ, the lower rating was used. A summary of fixed maturity securities was as follows:
Of the securities rated AAA, 42% and 43% at December 31, 2007 and 2006, respectively, are U.S. Government Agency mortgage-backed securities that are rated by a public rating agency. At both December 31, 2007 and 2006, approximately 3% of securities with fixed maturities, other than GNMA, FNMA and FHLMC, were rated by RiverSource Investments, LLC.
The following table provides information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2007:
The following table provides information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2006:
In evaluating potential other-than-temporary impairments, ACC considers the extent to which cost exceeds fair value and the duration and size of that difference. A key metric in performing this evaluation is the ratio of fair value to cost. The following table summarizes the unrealized losses by ratio of fair value to cost as of December 31, 2007:
As part of ACC's ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to changes in interest rates and credit spreads across asset classes. As noted in the table above, a significant portion of the gross unrealized losses relates to securities that have a fair value to amortized cost ratio of 95% or above, resulting in an overall 98% ratio of fair value to amortized cost for all securities with an unrealized loss. From an overall perspective, the gross unrealized losses were not concentrated in any individual industries or with any individual securities. The securities with a fair value to amortized cost ratio of 80-90% primarily relate to the consumer products, financial, and home building industries. The securities with a fair value to cost of less than 80% primarily relate to the financial and home building industries. The total gross unrealized loss related to the home building industry was $2.4 million. The unrealized losses in the other categories are not concentrated in any individual industry or with any individual issuer.
ACC monitors the investments and metrics described previously on a quarterly basis to identify and evaluate investments that have indications of possible other-than-temporary impairments. Additionally, ACC has the ability and intent to hold these securities for a time sufficient to recover its amortized cost and has, therefore, concluded that none had other-than-temporary impairment at December 31, 2007.
ACC's total mortgage and asset backed exposure at December 31, 2007 was $2,126.1 million which included $1,608.2 million of residential mortgage backed securities and $352.8 million of commercial mortgage backed securities. At December 31, 2007, residential mortgage backed securities included $889.3 million of agency-backed securities, $356.4 million of Alt-A securities, and $362.5 million of prime, non-agency securities. With respect to the Alt-A securities, the vast majority are rated AAA. None of the structures are levered, and the majority of the AAA-rated holdings are "super senior" bonds, meaning they have more collateral support for credit enhancement than required to receive a AAA rating. While overall delinquencies in the market continue to deteriorate, most of these positions are performing in-line or better than their vintage. With regard to asset backed securities, ACC's exposure at December 31, 2007 was $165.1 million, which included $41.4 million of securities backed by subprime collateral. These securities are predominately AAA-rated bonds backed by seasoned, traditional, first lien collateral. Holdings include both floating rate and short-duration fixed securities. ACC has no other structured or hedge fund investments with exposure to subprime residential mortgages.
The following is a distribution of Available-for-Sale securities by maturity as of December 31, 2007. Cash flows may differ from contractual maturities because issuers may call or prepay obligations.
Mortgage and other asset-backed securities primarily reflect GNMA, FNMA, and FHLMC securities at December 31, 2007 and 2006. The expected payouts on mortgage and other asset-backed securities may not coincide with their contractual maturities. As such, these securities, as well as perpetual preferred stock, were not included in the maturities distribution.
At December 31, 2007 and 2006, other than GNMA, FNMA and FHLMC, the only issuers greater than 1% of the fair market value of ACC's total investment portfolio are the following:
Included in net realized gains and losses are gross realized gains and losses on sales of securities, as well as other-than-temporary impairment losses on investments, classified as Available-for-Sale, determined using the specific identification method, as noted in the following table for the years ended December 31:
4. INVESTMENTS IN FIRST MORTGAGE LOANS ON REAL ESTATE AND OTHER LOANS
The carrying amounts of first mortgage loans on real estate and other loans at December 31 are below:
Also included in net realized gain (loss) on investments before income taxes for the year ended December 31, 2007 was a decrease of $1.7 million to the allowance for loan losses on commercial mortgage loans.
At December 31, 2007 and 2006, ACC did not hold investments in impaired mortgage or other loans. ACC recognized nil of interest income related to such investments for the years ended December 31, 2007 and 2006, respectively.
At both December 31, 2007 and 2006, approximately 5% and 6%, respectively, of ACC's invested assets were first mortgage loans on real estate. Concentrations of credit risk of first mortgage loans on real estate by region at December 31 were:
Concentrations of credit risk of first mortgage loans on real estate by property type at December 31 were:
At December 31, 2007 and 2006, ACC had no commitments to fund first mortgage loans on real estate. ACC holds the mortgage document, which gives ACC the right to take possession of the property if the borrower fails to perform according to the terms of the agreements. ACC employs policies and procedures to ensure the creditworthiness of the borrowers and that funds will be available on the funding date. ACC's first mortgage loans on commercial real estate are restricted to 80% or less of the market value of the real estate at the time of the loan funding.
5. CERTIFICATE RESERVES
Reserves maintained on outstanding certificates have been computed in accordance with the provisions of the certificates and Section 28 of the 1940 Act. The average rates of accumulation on certificate reserves at December 31, 2007 were as follows:
The average rates of accumulation on certificate reserves at December 31, 2006 were as follows:
(a) There is no minimum rate of accrual on these reserves. Interest is declared periodically, quarterly, or annually in accordance with the terms of the separate series of certificates.
(b) Certain series of installment certificates guarantee accrual of interest on advance payments at an average of 3.26%. ACC's rate of accrual is currently set at 4%, which is in effect through April 2009.
(c) Ameriprise Stock Market Certificate and Ameriprise Market Strategy Certificate enable the certificate owner to participate in any relative rise in a major stock market index up to a cap without risking loss of principal. Generally the certificates have a term of 52 weeks and may continue for up to 20 successive terms. The reserve balances on these certificates at December 31, 2007 and 2006 were $1.1 billion.
On certain series of single payment certificates, additional interest is pre-declared for periods greater than one year. The retained earnings appropriated for the pre-declared additional interest at December 31, 2007 and 2006 was $0.9 million and $3.5 million, respectively, which reflects the difference between certificate reserves on these series, calculated on a statutory basis, and the reserves maintained per books.
The carrying amounts of net certificate reserves at December 31, 2007 and 2006 consisted of the following:
6. DIVIDEND RESTRICTION
Certain series of installment certificates outstanding provide that cash dividends may be paid by ACC only in calendar years for which additional credits of at least one-half of 1% on such series of certificates have been authorized by ACC. This restriction has been satisfied for 2007 and 2006 by ACC's declaration of additional credits.
ACC is required to maintain cash and "qualified assets" meeting the standards of Section 28(b) of the 1940 Act, as modified by an order of the SEC. The amortized cost of such investments must be at least equal to ACC's net liabilities on all outstanding face-amount certificates plus $250,000. ACC's qualified assets consist of cash and cash equivalents, first mortgage loans on real estate and other loans, U.S. government and government agency securities, municipal bonds, corporate bonds, preferred stocks and other securities meeting specified standards. So long as ACC wishes to rely on the SEC order, as a condition to the order, ACC has agreed to maintain an amount of unappropriated retained earnings and capital equal to at least 5% of certificate reserves (less outstanding certificate loans). To the extent that payment of a dividend would decrease the capital ratio below the required 5%, payment of a dividend would be restricted. In determining compliance with this condition, qualified assets are valued in accordance with the provisions of Minnesota Statutes where such provisions are applicable.
ACC has also entered into a written understanding with the State of Minnesota, Department of Commerce, that ACC will maintain capital equal to 5% of the assets of ACC (less outstanding certificate loans). To the extent that payment of a dividend would decrease this ratio below the required 5%, payment of a dividend would be restricted. When computing its capital for these purposes, ACC values its assets on the basis of statutory accounting for insurance companies rather than generally accepted accounting principles. ACC is subject to annual examination and supervision by the State of Minnesota, Department of Commerce (Banking Division).
7. RELATED PARTY TRANSACTIONS
INVESTMENT ADVISORY, JOINT FACILITIES AND TECHNOLOGY SUPPORT
Effective December 31, 2006, the investment advisory and services agreement with RiverSource Investments provides for a graduated scale of fees equal on an annual basis to 0.350% on the first $250 million of total book value of investments of ACC, 0.300% on the next $250 million, 0.250% on the next $500 million and 0.200% on the amount in excess of $1 billion. The fee is payable monthly in an amount equal to one-twelfth of each of the percentages set forth above. Net invested assets for purposes of this computation are cash and cash equivalents, accounts receivable for interest and dividends and securities sold, accounts payable for invested assets purchased, securities available for sale (including any segregated assets), trading securities, purchased equity index options, written equity index options and mortgages.
The fee paid to RiverSource Investments for managing and servicing bank loans is equal to 0.35%. The fee is payable monthly and is equal to one-twelfth of 0.35%, computed each month on the basis of book value of the loans as of the close of business on the last full business day of the preceding month.
DISTRIBUTION SERVICES
Fees payable to AFSI on sales of ACC's certificates are based upon terms of agreements giving AFSI the right to distribute the certificates covered under the agreements. The agreements provide for payment of fees over a period of time.
From time to time, ACC 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 AFSI may be lowered. From September 29, 2004 through March 1, 2005, ACC sponsored a sales promotion on the 7 and 11-month Flexible Savings Certificates. ACC ran another promotion from August 30, 2006 through January 2, 2007 on the 7-month Flexible Savings Certificate. During those promotions, the distribution fee on Flexible Savings Certificates was 0.08% of the initial payment and 0.08% of the reserves maintained for these certificates at the beginning of the second and subsequent quarters after issuance. ACC is currently offering 7 and 13 month Flexible Savings Certificates. The distribution fee on the 7 month term is 0.08% of the initial payment and 0.08% of the reserves maintained for these certificates at the beginning of the second and subsequent quarters after issuance. The distribution fee on the 13 month term is 0.032% of the initial payment and 0.032% of the reserves maintained for these certificates at the beginning of the second and subsequent quarters after issuance.
The aggregate fees payable under the agreements are $25 per $1,000 face amount of installment certificates sold on or after April 30, 1997. The aggregate fees payable for the first year is $2.50 per $1,000 face amount of installment certificates and the remaining $22.50 is payable over nine subsequent years.
The previously offered American Express Investors Certificates have contractual distribution fee rates 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, twelve, twenty-four or thirty-six month term. The distribution fee rate decreased 15 basis points on October 1, 2005 and another five basis points on January 1, 2006 as a consequence of the orderly wind-down of business marketed through AEB and AEBI.
The previously offered Ameriprise Cash Reserve Certificates have contractual distribution fee rates of 0.0625% of the purchase price at the time of issuance and 0.0625% of the reserves maintained for these certificates at the beginning of the second and subsequent quarters from issue date. Effective October 1, 2007, these fees are waived.
Effective April 26, 2000, the Ameriprise Flexible Savings Certificates have contractual distribution fee rates of 0.08% of the purchase price at the time of issuance and 0.08% of the reserves maintained for these certificates at the beginning of the second and subsequent quarters from issue date.
Effective April 28, 1999, the Ameriprise Stock Market Certificate, sold through AFSI, and Ameriprise Market Strategy Certificates have contractual distribution fee rates of 0.90% of the initial investment on the first day of the certificate's term and 0.90% of the reserves maintained for these certificates at the beginning of each subsequent term.
Effective April 26, 2000, the previously offered American Express Stock Market Certificates, sold through American Express Bank International, have contractual distribution fee rates of 1.00%. 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.
The basis for computing fees paid or payable to AEB for the distribution of the previously offered American Express Special Deposits Certificates 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 six, twelve, twenty-four, or thirty-six month terms. The distribution fee rate decreased 15 basis points on October 1, 2005 and another five basis points on January 1, 2006 as a consequence of the orderly wind-down of business marketed through AEB and AEBI.
DEPOSITORY FEES
The basis for computing fees paid or payable to Ameriprise Trust Company for depository services is as follows:
Depository fees paid or payable to Ameriprise Trust Company is:
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.
TRANSFER AGENT FEES
The basis of computing transfer agent fees paid or payable to RiverSource Service Corporation is under a Transfer Agency Agreement effective December 31, 2006. RiverSource Service Corporation maintains certificate owner accounts and records. ACC pays RiverSource Service Corporation a monthly fee of one-twelfth of $20.00 per certificate owner account for this service in addition to certain out-of-pocket expenses.
8. INCOME TAXES
(Benefits) provisions for income taxes were:
The principal reasons that the aggregate income tax provision is different from that computed by using the U.S. statutory rate of 35% are as follows:
ACC's effective tax rate was (82.0)% for the year ended December 31, 2007 compared to 34.5% for the year ended December 31, 2006. The effective tax rate for the year ended December 31, 2007 reflects the impact of a $0.9 million tax benefit related to the settlement of taxes for capital losses in prior years and the level of current year tax advantaged items relative to the level of pretax income.
Deferred income tax assets and liabilities result from temporary differences between the assets and liabilities measured for GAAP reporting versus income tax return purposes. The significant components of deferred tax assets and liabilities at December 31, 2007 and 2006 were as follows:
ACC 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 ACC will realize the benefit of the deferred tax assets and, therefore, no such valuation allowance has been established.
Effective January 1, 2007, ACC adopted the provisions of FIN 48, which did not have an effect on ACC's balance sheet or statement of income.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
If recognized, approximately $0.8 million, net of federal tax benefits, of the unrecognized tax benefits as of January 1, 2007 and December 31, 2007, would affect the effective tax rate.
ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized interest and penalties of $0.3 million for the year ended December 31, 2007. ACC had $0.7 million and $1.0 million for the payment of interest and penalties accrued at January 1, 2007 and December 31, 2007, respectively.
It is not expected that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
ACC files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by tax authorities for years before 1997. The Internal Revenue Service ("IRS"), as part of the overall examination of the American Express Company consolidated return, commenced an examination of ACC's U.S. income tax returns for 1997 through 2002 in the third quarter of 2005. In the first quarter of 2007, the IRS expanded the period of the examination to include 2003 through 2004. ACC's state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2005.
9. DERIVATIVE FINANCIAL INSTRUMENTS
ACC maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate and equity market volatility. ACC may enter into interest rate swaps to manage interest rate sensitivity and currently enters into options and futures contracts to mitigate the negative effect on earnings that would result from an increase in the equity markets. ACC did not hold any interest rate swaps at December 31, 2007. ACC reclassified into earnings pretax losses of nil for the years ended December 31, 2007 and 2006, and $0.1 million for the year ended December 31, 2005 as a result of interest rate swap agreements. For the years ended December 31, 2007, 2006, and 2005, ACC recognized no losses on the derivatives as a result of ineffectiveness.
ACC offers Ameriprise Stock Market Certificates ("SMC") that offer a return based upon the relative change in a major stock market index between the beginning and end of the SMC's term. The SMC product contains an embedded derivative, essentially the equity based return of the certificate that must be separated from the host contract and accounted for as a derivative instrument. As a result of fluctuations in equity markets, and the corresponding changes in value of the embedded derivative, the amount of expenses incurred by ACC related to SMC will positively or negatively impact reported earnings. As a means of hedging its obligations under the provisions for these certificates, ACC purchases and writes call options on the major stock market index. ACC views this strategy as a prudent management of equity market sensitivity, such that earnings are not exposed to undue risk presented by changes in equity market levels. ACC also purchases futures on the major stock market index to economically hedge its obligations. The futures are marked-to-market daily and exchange traded, exposing ACC to no counterparty risk.
Derivative financial instruments are carried at fair value within other qualified assets or other liabilities. The fair value of the derivative financial instruments are determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market data inputs.
The options and futures contracts do not receive special hedge accounting under SFAS No. 133. As such, any changes in the fair value of the contracts are taken through earnings. The fair values of the purchased and written call options are included in equity indexed options and other liabilities, respectively, on the balance sheet. The fair value of the embedded derivatives is reflected in certificate reserves. Gains (losses) on options and futures are reflected in investment income, equity index options, on the Statements of Income. Changes in fair values of embedded derivative instruments are reflected in provision for certificate reserves.
By using derivative instruments, ACC is exposed to credit and market risk. Credit risk is the possibility that the counterparty will not fulfill the terms of the contract. ACC monitors credit risk related to derivative financial instruments through established approval procedures, including setting concentration limits by counterparty, reviewing credit ratings and requiring collateral where appropriate.
Market risk is the possibility that the value of the derivative financial instrument will change due to fluctuations in a factor from which the instrument derives its value, primarily an interest rate or a major stock market index. ACC manages the market risk associated with interest rate contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken. ACC primarily uses derivatives to manage risk and, therefore, cash flow and income effects of such derivatives generally offset effects of the underlying certificate product reserves.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table discloses fair value information for financial instruments. ACC discloses fair value information for financial instruments for which it is practicable to estimate that value. The fair values of the financial instruments presented are estimates based upon current market conditions and perceived risks at December 31, 2007 and 2006 and may require management judgment to estimate such values. These figures may not be indicative of future fair values. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented herein. The estimated fair value of certain financial instruments such as cash and cash equivalents and certificate loans approximate the carrying amounts disclosed in the Balance Sheets.
The following table discloses carrying value and fair value information for the financial instruments at December 31:
The following methods were used to estimate the fair values of financial assets and financial liabilities:
FINANCIAL ASSETS
Assets for which carrying values approximate fair values are cash and cash equivalents, Available-for-Sale securities, and derivative assets. Generally these assets are either short-term in duration or are recorded at fair value on the Balance Sheets.
The fair value of mortgage loans on real estate, except those with significant credit deterioration, are estimated using discounted cash flow analysis, based on current interest rates for loans with similar maturities to borrowers of similar credit quality. For loans with significant credit deterioration, fair values are based on estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections, or for collateral dependent loans, on collateral values.
FINANCIAL LIABILITIES
Liabilities for which carrying values approximate fair values include certain derivative and other liabilities. The carrying value approximates fair value because of their short-term nature or because they are recorded at fair value on the Balance Sheets.
For variable rate investment certificates that reprice within a year, carrying values approximate fair values. For other investment certificates, fair value is estimated using discounted cash flows based on current interest rates. The valuations are reduced by the amount of the applicable surrender charges.
Fair values of net certificate reserves with interest rate terms of one year or less (including embedded derivatives) approximated the carrying values less any applicable surrender charges. Fair values for other certificate reserves are determined by discounted cash flow analyses using interest rates currently offered for certificates with similar remaining terms, less any applicable surrender charges.
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
NOTES:
a) See Notes 1 and 3 to the financial statements regarding determination of cost and fair values. All available for sale securities are carried at fair value on the balance sheet.
b) In the absence of market quotations, securities are valued by Amerprise Certificate Company at fair value
c) Aggregate cost of investment in securities of unaffiliated issuers for federal income tax purposes was $3,512,312.
d) Securities acquired in private negotiation which may require registration under federal securities law if they were to be publicly sold. Also see note 3b to financial statements
e) Non-income producing securities
AMERIPRISE CERTIFICATE COMPANY SCHEDULE 1 INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS AT DECEMBER 31, 2007
SCHEDULE II
AMERIPRISE CERTIFICATE COMPANY INVESTMENTS IN AND ADVANCES TO AFFILIATES AND INCOME THEREON DECEMBER 31, 2007, 2006 AND 2005 ($ IN THOUSANDS)
NOTES:
(a) The aggregate cost for federal income tax purposes was $0, $0, and $0 at December 31, 2007, 2006 and 2005, subject to possible adjustment in certain circumstances under consolidated income tax return regulations.
(b) Investments in stocks of wholly owned subsidiaries are carried at cost adjusted for equity in undistributed net income since organization or acquisition of the subsidiaries.
(c) There were no dividends or interest earned which were not credited to income.
SCHEDULE III
AMERIPRISE CERTIFICATE COMPANY MORTGAGE LOANS ON REAL ESTATE AND INTEREST EARNED ON MORTGAGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
SCHEDULE III
AMERIPRISE CERTIFICATE COMPANY MORTGAGE LOANS ON REAL ESTATE AND INTEREST EARNED ON MORTGAGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
Part 3 - Location of mortgaged properties
NOTES:
(a) The classification "residential" includes single dwellings only. Residential multiple dwellings are included in "apartment and business".
(b) Real estate taxes and easements, which in the opinion of the Company are not undue burden on the properties, have been excluded from the determination of "prior liens".
(c) In this schedule III, carrying amount of mortgage loans represents unpaid principal balances plus unamortized premiums less unamortized discounts and reserve for loss.
(d) Interest in arrears for less than three months has been disregarded in computing the total amount of principal subject to delinquent interest. The amounts of mortgage loans being foreclosed are also included in amounts subject to delinquent interest.
(e) Information as to interest due and accrued for the various classes within the types of mortgage loans is not readily available and the obtaining thereof would involve unreasonable effort and expense. The Company does not accrue interest on loans which are over three months delinquent.
(f) Information as to interest income by type and class of loan has been omitted because it is not readily available and the obtaining thereof would involve unreasonable effort and expense. In lieu thereof, the average gross interest rates (exclusive of amortization of discounts and premiums) on mortgage loans held at December 31, 2007 are shown by type and class of loan.
The average gross interest rates on mortgage loans held at December 31, 2007, 2006 and 2005 are summarized as follows:
(g) Following is a reconciliation of the carrying amount of mortgage loans for the years ended December 31, 2007, 2006 and 2005.
(h) The aggregate cost of mortgage loans for federal income tax purposes at December 31, 2007 was $207,159.
(i) At December 31, 2007, an unallocated reserve for loss on first mortgage loans of $1,336 is recorded.
AMERIPRISE CERTIFICATE COMPANY SCHEDULE V QUALIFIED ASSETS ON DEPOSIT DECEMBER 31, 2007 ($ IN THOUSANDS)
Notes:
(a) Represents amortized cost of bonds and notes.
(b) Represents average cost of individual issues of stocks.
(c) Represents unpaid principal balance of mortgage loans less unamortized discounts and reserve for losses.
(d) Represents cost of purchased call options and accounts payable purchased.
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 1 - SUMMARY OF CHANGES YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
CERTIFICATE RESERVES PART 2 - DESCRIPTIONS OF ADDITIONS TO RESERVES CHARGED TO OTHER ACCOUNTS AND DEDUCTIONS FROM RESERVES CREDITED TO OTHER ACCOUNTS DECEMBER 31, 2007 ($ IN THOUSANDS)
CERTIFICATE RESERVES PART 2 - DESCRIPTIONS OF ADDITIONS TO RESERVES CHARGED TO OTHER ACCOUNTS AND DEDUCTIONS FROM RESERVES CREDITED TO OTHER ACCOUNTS DECEMBER 31, 2007 ($ IN THOUSANDS)
CERTIFICATE RESERVES PART 2 - DESCRIPTIONS OF ADDITIONS TO RESERVES CHARGED TO OTHER ACCOUNTS AND DEDUCTIONS FROM RESERVES CREDITED TO OTHER ACCOUNTS DECEMBER 31, 2007 ($ IN THOUSANDS)
Single-Payment certificates continued:
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VI CERTIFICATE RESERVES PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES CLASSIFIED BY AGE GROUPINGS YEAR ENDED DECEMBER 31, 2007 ($ IN THOUSANDS)
AMERIPRISE CERTIFICATE COMPANY SCHEDULE VII VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 ($ IN THOUSANDS)
Year ended December 31, 2007
Year ended December 31, 2006
Year ended December 31, 2005
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report:
E-1
E-2