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 115 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. 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.
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.
· Non-Jumbo Deposit National Rates as published by the FDIC 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.
· 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.
· As of the date of this report, ACC has a fixed rate of 0.55% for new sales.
· Intended to help clients save systematically and may compete with passbook savings and NOW accounts.
3. Ameriprise Market Strategy Certificate
· Single payment certificate that also permits additional payments, 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 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. 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 Columbia Management Investment Advisers, LLC (formerly 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, Columbia Management Investment Advisers, LLC or ACC. This investment management agreement with Columbia Management Investment Advisers, LLC, can be terminated by either party. On November 16, 2010, 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, 2011.
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 equivalents, syndicated loans and commercial mortgage loans, U.S. government and government agency securities, municipal bonds, corporate bonds, common and preferred stocks, equity index options 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 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 (“GAAP”). ACC is subject to examination and supervision by the State of Minnesota, Department of Commerce (Banking Division).
ITEM 1A.
ITEM 1A. RISK FACTORS
ACC’s operations and financial results are subject to various risks and uncertainties, including those described below, that could have a material adverse effect on ACC’s business, financial condition or results of operations. Based on information currently known, the following information identifies the material factors affecting ACC. 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 and by 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 ACC’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 ACC 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 outflow of cash from 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, or stagnancy of low 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, or stagnancy of low 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.
Significant economic or market downturns and volatility may have an adverse effect on the financial condition and results of operations of ACC. Such downturns and volatility may reduce the level of individual investor participation in the financial markets, which may cause them to refrain from purchasing or to purchase fewer ACC certificate products. Such downturns and volatility can also have an adverse effect on the performance of ACC’s investment portfolio.
For additional information regarding the sensitivity of the fixed income securities in ACC’s investment portfolio to interest rate fluctuations, see Part II, Item 7A of this Form 10-K-“Quantitative and Qualitative Disclosures About Market Risk.”
Changes in the supervision and regulation of the financial industry, including those set forth under the Dodd-Frank Wall Street Reform and Consumer Protection Act, could materially impact ACC’s results of operations, financial condition and liquidity.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was enacted into law. The Act calls for sweeping changes in the supervision and regulation of the financial industry designed to provide for greater oversight of financial industry participants, reduce risk in banking practices and in securities and derivatives trading, enhance public company corporate governance practices and executive compensation disclosures, and provide greater protections to individual consumers and investors. Certain elements of the Act became effective immediately, though the details of many provisions are subject to additional studies and will not be known until final rules are adopted by applicable regulatory agencies. The impact of the Act on ACC, the financial industry and the economy cannot be known until all such rules and regulations called for under the Act have been finalized, and, in some cases, implemented over time.
Accordingly, while the final contours of these reforms are not yet known, the Act is expected to impact the manner in which ACC markets its products and services, manages itself and its operations and interacts with regulators, all of which could materially impact ACC’s results of operations, financial condition and liquidity. Certain provisions of the Act that may impact ACC’s business include but are not limited to restrictions on proprietary trading and changes in regulatory oversight. Moreover, to the extent the Act impacts the operations, financial condition, liquidity and capital requirements of unaffiliated financial institutions with whom ACC transacts business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise present inefficiencies in their interactions with ACC.
It is uncertain whether the Act, the rules and regulations developed thereunder, or any future legislation designed to stabilize the financial markets, the economy generally, or provide better protections to consumers will have the desired effect. Any new legislation or regulatory changes could require ACC to change certain of ACC’s business practices, impose additional costs on ACC, or otherwise adversely affect ACC’s business operations, regulatory reporting relationships, results of operations or financial condition. Consequences may include substantially higher compliance costs as well as material effects on interest rates and foreign exchange rates, which could materially impact ACC’s investments, results of operations and liquidity in ways that ACC cannot predict. In addition, prolonged government support for, and intervention in the management of, private institutions could distort customary and expected commercial behavior on the part of those institutions, adversely impacting ACC.
Changes in accounting standards could have a material impact on ACC’s financial statements.
From time to time, the Financial Accounting Standards Board, the SEC, and other regulators change the financial accounting and reporting standards governing the preparation of ACC’s financial statements. In some cases, ACC could be required to apply a new or revised standard retroactively, resulting in ACC restating prior period financial statements. These changes are difficult to predict, and it is possible that such changes could have a material effect on ACC’s financial condition and results of operations.
Defaults in ACC’s fixed maturity securities portfolio could adversely affect ACC’s earnings.
Issuers of the fixed income maturities owned by ACC may default on principal and interest payments. As of December 31, 2010, 10% 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 may be increased by capital market volatility.
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, 2010, mortgage loans and private placement fixed income securities that have been categorized as illiquid represented approximately 3.8% 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.
The determination of the amount of allowances and impairments taken on certain investments is subject to management’s evaluation and judgment and could materially impact ACC’s results of operations or financial position.
The determination of the amount of allowances and impairments varies by investment type and is based upon ACC’s periodic evaluation and assessment of inherent and known risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. Historical trends may not be indicative of future impairments or allowances.
The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in fair value that considers a wide range of factors about the security issuer and management uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential, which assumptions and estimates are more difficult to make with certainty under current market conditions.
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 ACC’s results of operations and financial condition.
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 are also 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 consolidated 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 consolidated statements of operations.
ACC monitors its reserve levels continually. If ACC 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, interest rates, 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 maintain its current network of financial advisors or to recruit and retain new advisors to its
network. If ACC’s affiliated selling firm is unable to attract and retain quality financial advisors, fewer 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 legislation or regulation may reduce ACC’s profitability and limit its growth.
ACC operates in a regulated industry. As a registered investment company, ACC must observe certain governance, disclosure, record-keeping, marketing, privacy, data protection and other operating requirements. 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. Any changes to the laws and regulations applicable to ACC’s business, including incremental requirements, costs and risks imposed on ACC, may affect the operations and financial condition of ACC.
Damage to the reputation of ACC or its affiliates could adversely affect the business of ACC.
The ability of ACC to market and sell its products is highly dependent upon external perceptions of its business practices and financial condition, as well as the business practices and financial condition of its affiliates. Damage to the reputation of ACC or its affiliates could cause significant harm to the business and prospects of ACC and may arise from numerous sources, including litigation or regulatory actions, failing to deliver minimum standards of service and quality, compliance failures, unethical behavior and the misconduct of employees, financial advisors and counterparties. Adverse developments with respect to the financial industry may also, by association, negatively impact ACC’s reputation or result in greater regulatory or legislative scrutiny or litigation.
ACC’s reputation is also dependent on our continued identification of and mitigation against 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 ACC’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 ACC’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.
The occurrence of natural or man-made disasters and catastrophes could adversely affect the results of operations and financial condition of ACC.
The occurrence of natural disasters and catastrophes, including earthquakes, hurricanes, floods, tornadoes, fires, severe winter weather, explosions, pandemic disease and man-made disasters, including acts of terrorism and military actions, could adversely affect the results of operations or financial condition of ACC. Such disasters and catastrophes may impact ACC directly by damaging its facilities, preventing its employees from performing their roles or otherwise disturbing its ordinary business operations. Such disasters and catastrophes may also impact ACC indirectly by changing the condition and behaviors of its customers, business counterparties and regulators, as well as by causing declines or volatility in the economic and financial markets, which could in turn have an adverse effect on ACC’s investment portfolio.
ACC cannot predict the timing and frequency with which natural and man-made disasters and catastrophes may occur, nor can ACC predict the impact that changing climate conditions may have on the frequency and severity of natural disasters
such as hurricanes. As such, ACC cannot be sure that its actions to identify and mitigate the risks associated with such disasters and catastrophes will be effective.
Breaches of security, or the perception that ACC’s technology infrastructure is not secure, could harm ACC’s 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 identifying or mitigating risk exposure in all market environments or against all types of risk, including employee and financial advisor misconduct.
ACC has devoted significant resources to develop 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 ACC 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 are publicly available or otherwise accessible to ACC, 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 ACC 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 owned by Ameriprise Financial or a subsidiary of 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.
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 one-half of 1% on such series of certificates have been authorized by ACC. This restriction has been satisfied for 2010 and 2009 by ACC’s declaration of additional credits.
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 calculation of ACC’s capital and unappropriated retained earnings should be less than 5% of net certificate reserves (certificate reserves less certificate loans).
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 consolidated financial statements and related notes included elsewhere in this report. The following discussion may contain forward-looking statements that reflect Ameriprise Certificate Company’s (“ACC” or the “Company”) 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.” Management’s narrative analysis is presented pursuant to General Instructions I(2)(a) of Form 10-K in lieu of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recent Accounting Pronouncements and Significant Accounting Policies
For information regarding recent accounting pronouncements and their expected impact on ACC’s future results of operations or financial condition and significant accounting policies, see Note 1 to ACC’s consolidated financial statements beginning on page of this Annual Report on Form 10-K.
Results of Operations
ACC’s net income (loss) 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. Net income (loss) trends occur largely due to changes in returns on ACC’s investment portfolio, from realization of investment gains (losses) and from changes in interest credited to certificate products. ACC follows U.S. generally accepted accounting principles (“GAAP”).
For the year ended December 31, 2010, investment income was $154.0 million compared to $223.8 million for the prior year, a decrease of $69.8 million, or 31%. The decrease in investment income was driven by lower average asset balances due to net outflows primarily driven by the run-off of certificate rate promotions, as well as lower average yields.
Investment expenses in 2010 decreased $6.9 million, or 19%, to $30.1 million compared to $37.0 million in 2009. This decrease is primarily due to lower distribution fees as a result of declining certificate reserve balances in 2010, as well as lower investment advisory and services fees due to lower invested assets partially offset by an increase in other investment expenses driven by real estate owned expenses.
Net provision for certificate reserves decreased $69.3 million, or 57%, to $52.2 million for the year ended December 31, 2010 compared to $121.5 million in 2009. This decrease is a result of lower certificate balances primarily driven by the run-off of certificate rate promotions as well as lower interest crediting rates compared to the prior year.
Net realized gain on investments before income taxes was $7.1 million for the year ended December 31, 2010 compared to $3.3 million for 2009. For 2010, net realized gains from sales of Available-for-Sale securities were $6.0 million and other-than-temporary impairments recognized in earnings were $2.6 million, which related primarily to credit losses on non-agency residential mortgage backed securities. Also included in net investment gains for 2010 was a $5.8 million decrease in the syndicated loans reserve primarily due to improvement of underlying credit. For 2009, net realized gains from sales of Available-for-Sale securities were $14.9 million and other-than-temporary impairments recognized in earnings were $10.0 million, primarily related to credit losses on non-agency residential mortgage backed securities.
The effective tax rate was 36.0% for the year ended December 31, 2010 compared to 36.6% for the year ended December 31, 2009.
Fair Value Measurements
ACC reports certain assets and liabilities at fair value; specifically derivatives, embedded derivatives, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions. Companies are not permitted to use market prices that are the result of a forced liquidation or distressed sale. ACC includes actual market price or observable inputs in its fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. ACC validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors.
Non-Agency Residential Mortgage Backed Securities Backed by Subprime, Alt-A or Prime Collateral
Subprime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above subprime but may not conform to government-sponsored standards. Prime mortgage lending is the origination of residential mortgage loans to customers with good credit profiles. ACC has exposure to these types of loans predominantly through mortgage backed and asset backed securities. The slowdown in the U.S. housing market, combined with relaxed underwriting standards by some originators, has led to higher delinquency and loss rates for some of these investments. Market conditions have increased the likelihood of other-than-temporary impairments for certain non-agency residential mortgage backed securities. As a part of ACC’s risk management process, an internal rating system is used in conjunction with market data as the basis for analysis to assess the likelihood that ACC will not receive all contractual principal and interest payments for these investments. For the investments that are more at risk for impairment, ACC performs its own assessment of projected cash flows incorporating assumptions about default rates, prepayment speeds and loss severity to determine if an other-than-temporary impairment should be recognized.
The following table presents as of December 31, 2010, ACC’s non-agency residential mortgage backed and asset backed securities backed by subprime, Alt-A or prime mortgage loans by credit rating and vintage year (in thousands):
(1) Re-Remics of mortgage backed securities are prior vintages with cash flows structured into senior and subordinated bonds. Credit enhancement on senior bonds is increased through the Re-Remic process. ACC did not have any exposure to subordinate tranches as of December 31, 2010.
Forward-Looking Statements
This report contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such 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 expected 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 this 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
ACC has three principal components of market risk: interest rate risk, equity price risk, and credit risk. Interest rate risk results from investing in assets that are somewhat longer and reset less frequently than the liabilities they support. ACC manages interest rate risk through the use of a variety of tools that include derivative instruments, such as interest rate swaps, caps, and floors, which change the interest rate characteristics of client liabilities or investment assets. Due to certain provisions for certificates being 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 instruments, such as equity options, to mitigate ACC’s exposure to volatility in the equity markets.
Ameriprise Financial’s Financial Risk Management Committee (“FRMC”), which is comprised of senior 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 Columbia Management Investment Advisers, LLC, including that of ACC. ACC’s Board of Directors has appointed FRMC as the investment committee of ACC. FRMC’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 prices. The interest rate risk test assumes a sudden 100 basis point parallel shift in the yield curve, with rates then staying at those levels for the next 12 months. The equity price risk test assumes a sudden 10% drop in equity prices, with equity prices then staying at those levels for the next 12 months. In estimating the values of stock market certificates, ACC assumes no change in implied market volatility despite the 10% drop in equity prices.
The following table presents ACC’s estimate of the pretax impact of these hypothetical market movements as of December 31, 2010:
At December 31, 2010, aggregating ACC’s exposure from all sources of interest rate risk, ACC estimates a negative impact of $2.5 million on pretax income for the 12 month period if, hypothetically, interest rates had increased by 100 basis points and remained at that level for 12 months. This compares with an estimate of a negative impact of $5.5 million on pretax income for the 12 month period following a hypothetical 100 basis point increase in interest rates at December 31, 2009.
At December 31, 2010, aggregating ACC’s exposure from all sources of equity price risk, net of hedging, ACC estimates no impact on pretax income for the 12 month period if, hypothetically, equity markets had declined by 10% and remained at that level for 12 months. This compares with an estimate of no net impact on pretax income for the 12 month period following a hypothetical 10% drop in equity markets at December 31, 2009.
Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming that implied market volatility does not change when equity prices fall by 10%, the composition of invested assets and liabilities does not change in the 12 month period following the hypothetical market decline and that the 100 basis point increase in interest rates is a parallel shift in the yield curve. Furthermore, ACC has not tried to anticipate changes in client preferences for different types of assets or other changes in client behavior, nor has ACC tried to anticipate actions management might take to increase revenues or reduce expenses in these scenarios.
The selection of a 100 basis point interest rate increase and a 10% equity price decline should not be construed as a prediction of future market events. Impacts of larger or smaller changes in interest rates or equity prices may not be proportional to those shown for a 100 basis point increase in interest rates or a 10% decline in equity prices.
Flexible Savings and Other Fixed Rate Certificates
ACC has interest rate risk from its Flexible Savings and other fixed rate certificates. These products are investment certificates generally ranging in amounts from $1,000 to $1 million with interest crediting rate terms ranging from three to thirty-six 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 interest rate environment. ACC had $2.3 billion in reserves included in certificate reserves on the Consolidated Balance Sheet at December 31, 2010 to cover the liabilities associated with these products.
Stock Market Certificates
ACC has equity price risk from its 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 20 years. 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 $804 million were included in certificate reserves on ACC’s Consolidated Balance Sheet at December 31, 2010.
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.
Interest Rate Risk - Stock Market Certificates
Stock market certificates have interest rate risk as changes in interest rates affect the fair value of the payout to be made to the certificate holder. This risk continues to be fully hedged.
Credit Risk
ACC is exposed to credit risk within its investment portfolio, including its loan portfolio, and through derivative counterparties. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. ACC considers its total potential credit exposure to each counterparty and its affiliates to ensure compliance with pre-established credit guidelines at the time it enters into a transaction which would potentially increase ACC’s credit risk. These guidelines and oversight of credit risk are managed through ACC’s comprehensive enterprise risk management program that includes members of senior management.
ACC manages the risk of credit-related losses in the event of nonperformance by counterparties by applying disciplined fundamental credit analysis and underwriting standards, prudently limiting exposures to lower-quality, higher-yielding investments, and diversifying exposures by issuer, industry, region and underlying investment type. ACC remains exposed to occasional adverse cyclical economic downturns during which default rates may be significantly higher than the long-term historical average used in pricing.
ACC manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting arrangements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Generally, ACC’s current credit exposure on over-the-counter derivative contracts is limited to a derivative counterparty’s net positive fair value of derivative contracts after taking into consideration the existence of netting arrangements and any collateral received. This exposure is monitored and managed to an acceptable threshold level.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on page hereof.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. 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 in 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, under the supervision and 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, 2010.
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 consolidated financial statements of ACC for the years ended December 31, 2010 and 2009.
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 consolidated financial statements and services that were provided in connection with statutory and regulatory filings were $135,000 for 2010 and $149,000 for 2009.
Audit-Related Fees
ACC was not billed by Ernst & Young for any fees for audit-related services for 2010 or 2009.
Tax Fees
ACC was not billed by Ernst & Young for any tax fees for 2010 or 2009.
All Other Fees
ACC was not billed by Ernst & Young for any other fees for 2010 or 2009.
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 2010 and 2009, 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 AND FINANCIAL STATEMENT SCHEDULES
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.
*By
/s/ William F. Truscott
Name:
William F. Truscott
Executed by William F. Truscott on behalf of Jean B. Keffeler and Karen M. Bohn pursuant to a Power of Attorney, dated March 2, 2010, filed electronically herewith as Exhibit 24(a) to Registrant’s Form 10-K and on behalf of Lorna P. Gleason pursuant to a Power of Attorney dated February 14, 2011, filed electronically herewith as Exhibit 24(d).
Index to Consolidated Financial Statements and Schedules
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
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholder of Ameriprise Certificate Company
We have audited the accompanying consolidated balance sheets of Ameriprise Certificate Company, (a wholly owned subsidiary of Ameriprise Financial, Inc.) (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the consolidated financial statement schedules listed in the Index at Item 15(a). These consolidated financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010 and 2009, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ameriprise Certificate Company at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as whole, present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2009 the Company adopted new accounting guidance related to the recognition and presentation of other-than-temporary impairments.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 23, 2011
AMERIPRISE CERTIFICATE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to Consolidated Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
See Notes to Consolidated Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements.
AMERIPRISE CERTIFICATE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY
See Notes to Consolidated Financial Statements.
1. BASIS OF PRESENTATION AND 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 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, 2010, 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.
ACC evaluated events or transactions that occurred after the consolidated balance sheet date for potential recognition or disclosure through the date the consolidated financial statements were issued.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). ACC uses the consolidation method of accounting for its wholly owned subsidiary, Investors Syndicate Development Corp.
Accounting estimates are an integral part of the consolidated 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 Equivalents
ACC has defined cash equivalents as highly liquid investments with original maturities of 90 days or less.
Available-for-Sale Securities
Available-for-Sale securities are carried at fair value with unrealized gains (losses) recorded in accumulated other comprehensive income (loss), net of income tax provision (benefit). Gains and losses are recognized in the Consolidated Statements of Operations upon disposition of the securities.
Effective January 1, 2009, ACC early adopted an accounting standard that significantly changed ACC’s accounting policy regarding the timing and amount of other-than-temporary impairments for Available-for-Sale securities as follows. When the fair value of an investment is less than its amortized cost, ACC assesses whether or not (i) it has the intent to sell the security (made a decision to sell) or (ii) it is more likely than not that ACC will be required to sell the security before its anticipated recovery. If either of these conditions is met, an other-than-temporary impairment is considered to have occurred and ACC must recognize an other-than-temporary impairment for the difference between the investment’s amortized cost basis and its fair value through earnings. For securities that do not meet the above criteria, and ACC does not expect to recover a security’s amortized cost basis, the security is also considered other-than-temporarily impaired. For these securities, ACC separates the total impairment into the credit loss component and the amount of the loss related to other factors. The amount of the total other-than-temporary impairments related to credit loss is recognized in earnings. The amount of the total other-than-temporary impairments related to
other factors is recognized in other comprehensive income (loss), net of income taxes. For Available-for-Sale securities that have recognized an other-than-temporary impairment through earnings, if through subsequent evaluation there is a significant increase in the cash flow expected, the difference between the amortized cost basis and the cash flows expected to be collected is accreted as interest income. Subsequent increases and decreases in the fair value of Available-for-Sale securities are included in other comprehensive income (loss). ACC’s Consolidated Statements of Shareholder’s Equity present all changes in other comprehensive income (loss) associated with Available-for-Sale securities that have been other-than-temporarily impaired on a separate line from fair value changes recorded in other comprehensive income (loss) from all other securities.
ACC provides a supplemental disclosure on the face of its Consolidated Statements of Operations that presents (i) total other-than-temporary impairment losses recognized during the period and (ii) the portion of other-than-temporary impairment losses recognized in other comprehensive income (loss). The sum of these amounts represents the credit-related portion of other-than-temporary impairments that were recognized in earnings during the period. The portion of other-than-temporary losses recognized in other comprehensive income (loss) includes: (i) the portion of other-than-temporary impairment losses related to factors other than credit recognized during the period and (ii) reclassifications of other-than-temporary impairment losses previously determined to be related to factors other than credit that are determined to be credit-related in the current period. The amount presented on the Consolidated Statements of Operations as the portion of other-than-temporary losses recognized in other comprehensive income (loss) excludes subsequent increases and decreases in the fair value of these securities.
For all securities that are considered temporarily impaired, ACC does not intend to sell these securities (has not made a decision to sell) and it is not more likely than not that ACC will be required to sell the security before recovery of its amortized cost basis. ACC believes that it will collect all principal and interest due on all investments that have amortized cost in excess of fair value that are considered only temporarily impaired.
Factors ACC considers in determining whether declines in the fair value of fixed maturity securities are other-than-temporary include: (i) the extent to which the market value is below amortized cost; (ii) the duration of time in which there has been a significant decline in value; (iii) fundamental analysis of the liquidity, business prospects and overall financial condition of the issuer; and (iv) market events that could impact credit ratings, economic and business climate, litigation and government actions, and similar external business factors. In order to determine the amount of the credit loss component for corporate debt securities considered other-than-temporarily impaired, a best estimate of the present value of cash flows expected to be collected discounted at the security’s effective interest rate is compared to the amortized cost basis of the security. The significant inputs to cash flow projections consider potential debt restructuring terms, projected cash flows available to pay creditors and ACC’s position in the debtor’s overall capital structure.
For structured investments (e.g., residential mortgage backed securities, commercial mortgage backed securities, asset backed securities and other structured investments), ACC also considers factors such as overall deal structure and its position within the structure, quality of underlying collateral, delinquencies and defaults, loss severities, recoveries, prepayments and cumulative loss projections in assessing potential other-than-temporary impairments of these investments. Based upon these factors, securities that have indicators of potential other-than-temporary impairment are subject to detailed review by management. Securities for which declines are considered temporary continue to be carefully monitored by management.
Financing Receivables
Commercial Mortgage Loans and Syndicated Loans
Commercial mortgage loans are reflected within investments in unaffiliated issuers at amortized cost less the allowance for loan losses. Syndicated loans represent ACC’s investment in below investment grade loan syndications. Syndicated loans are reflected in investments in unaffiliated issuers at amortized cost less the allowance for loan losses.
Interest income is accrued on the unpaid principal balances of the loans as earned.
Certificate Loans
Certificate loans are reflected within investments in unaffiliated issuers at the unpaid principal balance, plus accrued interest. When originated, the loan balances do not exceed the cash surrender value of the underlying products. As there is minimal risk of loss related to certificate loans, ACC does not record an allowance for loan losses for certificate loans.
Nonaccrual Loans
Generally loans are evaluated for or placed on nonaccrual status when either the collection of interest or principal has become 90 days past due or is otherwise considered doubtful of collection. When a loan is placed on nonaccrual status, unpaid accrued interest is reversed. Interest payments received on loans on nonaccrual status are generally applied to principal or in accordance with the loan agreement unless the remaining principal balance has been determined to be fully collectible.
Commercial mortgage loans are evaluated for impairment when the loan is considered for nonaccrual status or foreclosure proceedings are initiated on the property. If it is determined that the fair value is less than the current loan balance, it is written down to fair value less selling costs. Foreclosed property is recorded as real estate owned. Syndicated loans are charged off when management determines that the loans are uncollectible.
Allowance for Loan Losses
Management determines the adequacy of the allowance for loan losses by portfolio based on the overall loan portfolio composition, recent and historical loss experience, and other pertinent factors, including, when applicable, internal risk ratings, loan-to-value (“LTV”) ratios, debt service coverage and occupancy rates, along with economic and market conditions. This evaluation is inherently subjective as it requires estimates, which may be susceptible to significant change.
ACC determines the amount of the allowance required for certain sectors based on management’s assessment of relative risk characteristics of the loan portfolio. The allowance is recorded for homogeneous loan categories on a pool basis, based on an analysis of product mix and risk characteristics of the portfolio, including geographic concentration, bankruptcy experiences, and historical losses, adjusted for current trends and market conditions.
While ACC attributes portions of the allowance to specific loan pools as part of the allowance estimation process, the entire allowance is available to absorb losses inherent in the total loan portfolio. The allowance is increased through provisions charged to net realized gain (loss) on investments and reduced/increased by net charge-offs/recoveries.
Impaired Loans
ACC considers a loan to be impaired when, based on current information and events, it is probable ACC will not be able to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Impaired loans also include loans that have been modified in troubled debt restructurings as a concession to borrowers experiencing financial difficulties. Management evaluates for impairment all restructured loans and loans with higher impairment risk factors. The impairment recognized is measured as the excess of the loan’s recorded investment over: (i) the present value of its expected principal and interest payments discounted at the loan’s effective interest rate, (ii) the fair value of collateral or (iii) the loan’s observable market price.
Restructured Loans
A loan is classified as a restructured loan when ACC makes certain concessionary modifications to contractual terms. Loans restructured at an interest rate equal to or greater than interest rates for new loans with comparable risk at the time the contract is modified are excluded from restructured loans. When the interest rate, minimum payments, and/or due dates have been modified in an attempt to make the loan more affordable to the borrower, the modification is considered a troubled debt restructuring. Generally, performance prior to the restructuring or significant events that coincide with the restructuring are considered in assessing whether the borrower can meet the new terms which may result in the loan being returned to accrual status at the time of the restructure or after a performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.
Real Estate Owned
ACC acquires certain parcels of real estate through foreclosure and takes physical possession of the real estate collateral. ACC records the underlying collateral as its own real estate, referred to as real estate owned (“REO”). REO is classified as held-for-sale and recorded at fair value less costs to sell.
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 Consolidated 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 Consolidated Statements of Operations.
Derivatives and Hedging Activities
Derivative instruments, consisting of options and futures contracts, if any, are classified in the Consolidated Balance Sheets at fair value. The fair value of ACC’s derivative 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 instrument depends on its intended use and the resulting hedge designation, if any. For derivative instruments that do not qualify for hedge accounting or are not designated as hedges, changes in fair value are recognized in current period earnings. ACC’s policy is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement.
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 ACC expects to pay or to receive from various taxing jurisdictions in connection with its operations. ACC provides for income taxes based on amounts that ACC 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 Consolidated 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.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
Receivables
In July 2010, the Financial Accounting Standards Board (“FASB”) updated the accounting standards for disclosures on the credit quality of financing receivables and the allowance for credit losses. The standard requires additional disclosure related to the credit quality of financing receivables, troubled debt restructurings and significant purchases or sales of financing receivables during the period. The standard requires that these disclosures and existing disclosures be presented on a disaggregated basis, similar to the manner that the entity uses to evaluate its credit losses. Disclosures of information as of the end of a reporting period are effective for interim and annual periods ending after December 15, 2010 and disclosures of activity that occurred during a reporting period are effective for interim and annual periods beginning after December 15, 2010. In January 2011, the effective date of the disclosures related to troubled debt restructurings was deferred until the FASB clarifies guidance for determining what constitutes a troubled debt restructuring. ACC’s adoption of the standard did not impact ACC’s consolidated results of operations and financial condition. See Note 4 for the required disclosures of information as of the end of the reporting period.
Subsequent Events
In February 2010, the FASB amended the accounting standards related to the recognition and disclosure of subsequent events. The amendments remove the requirement to disclose the date through which subsequent events are evaluated for SEC filers. The standard is effective upon issuance, and shall be applied prospectively. ACC adopted the standard in the first quarter of 2010. The adoption did not have any effect on ACC’s consolidated results of operations and financial condition.
Fair Value
In January 2010, the FASB updated the accounting standards related to disclosures on fair value measurements. The standard expands the current disclosure requirements to include additional detail about significant transfers between Levels 1 and 2 within the fair value hierarchy and presents activity in the rollforward of Level 3 activity on a gross basis. The standard also clarifies existing disclosure requirements related to the level of disaggregation to be used for assets and liabilities as well as disclosures on the inputs and valuation techniques used to measure fair value. The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the Level 3 rollforward, which are effective for interim and annual periods beginning after December 15, 2010. ACC adopted the standard in the first quarter of 2010, except for the additional disclosures related to the Level 3 rollforward, which ACC will adopt in the first quarter of 2011. The adoption did not have any effect on ACC’s consolidated results of operations and financial condition.
Recognition and Presentation of Other-Than-Temporary Impairment (“OTTI”)
In April 2009, the FASB updated the accounting standards for the recognition and presentation of other-than-temporary impairments. The standard amends existing guidance on other-than-temporary impairments for debt securities and requires that the credit portion of other-than-temporary impairments be recorded in earnings and the noncredit portion of losses be recorded in other comprehensive income (loss) when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to recovery of its cost basis. The standard requires separate presentation of both the credit and noncredit portions of other-than-temporary impairments on the consolidated financial statements and additional disclosures. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. At the date of adoption, the portion of previously recognized other-than-temporary impairments that represent the noncredit related loss component shall be recognized as a cumulative effect of adoption with an adjustment to the opening balance of accumulated deficit with a corresponding adjustment to accumulated other comprehensive loss. ACC adopted the standard in the first quarter of 2009 and recorded a cumulative effect decrease to the opening balance of accumulated deficit of $32 million, net of income taxes, and a corresponding increase to accumulated other comprehensive loss, net of income taxes. See Note 3 for the required disclosures.
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 $3.1 billion and $4.1 billion at December 31, 2010 and 2009, respectively. ACC reported Qualified Assets of $3.4 billion and $4.5 billion at December 31, 2010 and 2009, respectively. Qualified Assets exclude net unrealized pretax losses on Available-for-Sale securities of $33.0 million and $73.9 million at December 31, 2010 and 2009, respectively, and unsettled investment purchases of nil and $1.2 million at December 31, 2010 and 2009, 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 consolidated 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, 2010 and 2009 consisted of securities and other loans having a deposit value of $3.2 billion and $4.2 billion, respectively, mortgage loans on real estate of $107.1 million and $130.3 million, respectively, and other investments of $56.8 million and $79.8 million, respectively. Additionally, these assets on deposit included unsettled purchases of investments in the amount of nil and $1.2 million at December 31, 2010 and 2009, respectively.
Ameriprise Trust Company, the custodian for ACC, is the Central Depository. See Note 7 for information on related party transactions.
3. INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
Available-for-Sale securities distributed by type were as follows:
(1) Represents the amount of other-than-temporary impairment losses in Accumulated Other Comprehensive Loss. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.
At December 31, 2010 and 2009, fixed maturity securities comprised approximately 88% and 85%, respectively, of ACC’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”), and Fitch Ratings Ltd. (“Fitch”). ACC uses the median of available ratings from Moody’s, S&P and Fitch or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable ACC may utilize ratings from other NRSROs or rate the securities internally. At December 31, 2010 and 2009, approximately $10.0 million and $15.3 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC (formerly RiverSource Investments, LLC) using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follows:
At December 31, 2010 and 2009, approximately 31% and 38%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.
The following tables provide 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 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 credit spreads. The primary driver of lower unrealized losses at December 31, 2010 was the decline of interest rates during the period.
The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income:
The change in net unrealized securities gains (losses) in other comprehensive income includes two components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period and (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit losses.
The following table presents a rollforward of the net unrealized securities losses on Available-for-Sale securities included in accumulated other comprehensive loss:
(1) Amount represents the cumulative effect of adopting a new accounting standard on January 1, 2009. See Note 1 for additional information on the adoption impact.
(2) At December 31, 2010 and 2009, Accumulated Other Comprehensive Loss Related to Net Unrealized Securities Losses included $25.5 million and $31.7 million, respectively, of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities.
(3) Net unrealized investment gains (losses) arising during the period also include other-than-temporary impairment losses on
Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.
Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:
The other-than-temporary impairments in 2010 and 2009 primarily related to credit losses on non-agency residential mortgage backed securities. The other-than-temporary impairments in 2008 related to losses on non-agency residential mortgage backed securities and corporate debt securities.
Available-for-Sale securities by contractual maturity as of December 31, 2010 were as follows:
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities, as well as common and preferred stocks, were not included in the maturities distribution.
4. FINANCING RECEIVABLES
ACC’s financing receivables include commercial mortgage loans, syndicated loans and certificate loans. ACC does not hold any loans acquired with deteriorated credit quality. See Note 1 for information regarding ACC’s accounting policies related to loans and the allowance for loan losses.
Allowance for Loan Losses
The following table presents a rollforward of the allowance for loan losses for the year ended December 31, 2010 and the ending balance in the allowance for loan losses as of December 31, 2010 by impairment method and type of loan:
The recorded investment in financing receivables as of December 31, 2010 by impairment method and type of loan was as follows:
Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to ACC’s total loan balance. During the year ended December 31, 2010, ACC sold $37.7 million of syndicated loans. There were no significant purchases of financing receivables during the year ended December 31, 2010.
Credit Quality Information
Nonperforming loans are generally loans 90 days or more past due. All nonperforming loans as of December 31, 2010 were syndicated loans. All other loans were considered to be performing.
Commercial Mortgage Loans
ACC reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. As of December 31, 2010, ACC had no commercial mortgage loans which management had assigned its highest risk rating. Loans with the highest risk rating represent distressed loans which ACC identifies as impaired or expects to become delinquent or enter into foreclosure in the next six months. In addition, ACC reviews the concentrations of credit risk by region and property type.
Concentrations of credit risk of commercial mortgage loans by U.S. region as of December 31, 2010 were as follows:
Concentrations of credit risk of commercial mortgage loans by property type as of December 31, 2010 were as follows:
Syndicated Loans
The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. The total nonperforming syndicated loans at December 31, 2010 were $1.9 million.
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, 2010 were as follows:
The average rates of accumulation on certificate reserves at December 31, 2009 were as follows:
N/A Not Applicable.
(1) 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.
(2) Certain series of installment certificates guarantee accrual of interest on advance payments at an average rate of 3.26%. ACC’s rate of accrual is currently set at 4.00%, which is in effect through April 2012.
(3) 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 years. The reserve balances on these certificates at December 31, 2010 and 2009 were $804.1 million and $877.7 million, respectively.
On certain series of single payment certificates, additional interest is pre-declared for periods greater than one year. The retained earnings appropriated for the pre-declared additional interest at both December 31, 2010 and 2009 was nil, 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 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 2010 and 2009 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 equivalents, syndicated loans, commercial mortgage loans, U.S. government and government agency securities, municipal bonds, corporate bonds, preferred stocks, equity index options 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 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 GAAP. ACC is subject to examination and supervision by the Minnesota Department of Commerce (Banking Division).
Ameriprise Financial and ACC entered into a Capital Support Agreement on March 2, 2009, pursuant to which Ameriprise Financial agrees to commit such capital to ACC as is necessary to satisfy applicable minimum capital requirements, up to a maximum commitment of $115 million. As of December 31, 2010, Ameriprise Financial has not infused additional capital to ACC under this agreement.
7. RELATED PARTY TRANSACTIONS
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.
The aggregate fees payable under the agreements are 2.5% of all payments received during the month for installment certificates sold on or after April 30, 1997.
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 were 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. Since January 2, 2007, ACC has continuously offered 7 and 13 month Flexible Savings
Certificates. Since the continuous offering began, the distribution fee on 7 month Flexible Savings Certificates has been 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 has been 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. From April 9, 2008 through December 2, 2008, the client new purchase interest rates on the 7 and 13 month certificates were set at promotional levels. From December 24, 2008 through June 9, 2009, the client new purchase interest rates on the 6 and 7 month certificates were set at promotional levels, from December 24, 2008 through June 23, 2009, the client new purchase interest rates on the 12 and 13 month certificates were set at promotional levels, and from October 13, 2010 to present the client interest rates on new purchases of all terms are set at promotional levels.
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.
Investment advisory, joint facilities and technology support
Effective December 31, 2006, the investment advisory and services agreement with Columbia Management Investment Advisers, LLC (formerly RiverSource Investments, LLC), provides for a graduated scale of fees equal on an annual basis to 0.35% on the first $250 million of total book value of investments of ACC, 0.30% on the next $250 million, 0.25% on the next $500 million and 0.20% 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 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 Columbia Management Investment Advisers, LLC, 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.
Transfer agent fees
The basis of computing transfer agent fees paid or payable to Columbia Management Investment Services Corp. (formerly RiverSource Service Corporation) is under a Transfer Agency Agreement effective December 31, 2006. Columbia Management Investment Services Corp. maintains certificate owner accounts and records. ACC pays Columbia Management Investment Services Corp. a monthly fee of one-twelfth of $20.00 per certificate owner account for this service in addition to certain out-of-pocket expenses.
Depository fees
In December 2008, Ameriprise Trust Company entered into an agreement with a subcustodian to provide depository services for ACC’s assets. As a result, the depository fees paid to Ameriprise Trust Company are now asset-based with additional charges for transactional custody fees charged by the subcustodian. Prior to the subcustodian agreement, the fees payable to Ameriprise Trust Company were based on a maintenance charge per account of $0.05 per $1,000 of assets on deposit as well as $20 per transaction.
8. INCOME TAXES
The components of income tax provision (benefit) were as follows:
The principal reasons that the aggregate income tax provision (benefit) is different from that computed by using the U.S. statutory rate of 35% were as follows:
ACC’s effective tax rate was 36.1% for the year ended December 31, 2010 compared to 36.6% for the year ended December 31, 2009 and 33.9% for the year ended December 31, 2008.
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 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. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, i) future taxable income exclusive of reversing temporary differences and carryforwards, ii) future reversals of existing taxable temporary differences, iii) taxable income in prior carryback years, and iv) tax planning strategies. Based on analysis of ACC’s tax positions, management believes it is more likely than not that ACC’s results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable ACC to utilize all of the deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of December 31, 2010 and 2009.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
If recognized, approximately $1.2 million, net of federal tax benefits, of the unrecognized tax benefits as of December 31, 2009 and 2008 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, 2010 and $0.2 million for the years ended December 31, 2009 and 2008. ACC had $1.7 million and $1.4 million for the payment of interest and penalties accrued at December 31, 2010 and 2009, 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 states and foreign jurisdictions. With few exceptions, ACC is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1997. The Internal Revenue Service (“IRS”), completed its field examination of ACC’s U.S. income tax returns for 2005 through 2007 during the third and fourth quarters of 2010. The IRS had previously completed its field examination of the 1997 through 2004 tax returns in recent years as part of the overall examination of the American Express Company consolidated returns. However, for federal income tax purposes these years continue to remain open as a consequence of certain issues under appeal. In the fourth quarter of 2010, the IRS commenced an examination of ACC’s U.S. income tax returns for 2008 and 2009. ACC’s or its subsidiary’s state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2008.
9. FAIR VALUES OF ASSETS AND LIABILITIES
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.
Valuation Hierarchy
ACC categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by ACC’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2 Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
Determination of Fair Value
ACC uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. ACC’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. ACC’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, ACC maximizes the use of observable inputs and minimizes the use of unobservable inputs.
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of 90 days or less. ACC’s cash equivalents are classified as Level 2 and are measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
Investments in Unaffiliated Issuers (Available-for-Sale Securities)
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from nationally-recognized pricing services, broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and common and preferred stocks. Level 2 securities include agency residential mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate bonds, U.S. agency securities and common and preferred stock. The fair value of these Level 2 securities is based on a market approach with prices obtained from nationally-recognized pricing services. Observable inputs used to value these securities can include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes. Level 3 securities primarily include asset backed securities, commercial mortgage backed securities, corporate bonds and non-agency residential mortgage backed securities. The fair value of these Level 3 securities is typically based on a single broker quote, except for the valuation of non-agency residential mortgage backed securities. Effective March 31, 2010, ACC returned to using prices from nationally-recognized pricing services to determine the fair value of non-agency residential mortgage backed securities because the difference between these prices and the results of ACC’s discounted cash flows was not significant. ACC continues to classify its non-agency residential mortgage backed securities as Level 3 because ACC believes the market for these securities is still inactive and their valuation includes significant unobservable inputs.
Derivatives (Equity Derivatives, Purchased and Written)
The fair values of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy. Derivatives that are valued using pricing models that have significant unobservable inputs are classified as Level 3 measurements.
Certificate Reserves
ACC uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities, and equity index levels. As a result, these measurements are classified as Level 2.
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:
The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:
(1) Represents a $(2,121) loss included in net realized gain on investments and $3,699 included in investment income in the Consolidated Statements of Operations.
(2) Represents a $(289) loss included in net realized gain on investments and $4,709 included in investment income in the Consolidated Statements of Operations.
(3) Represents a $(2,121) loss included in net realized gain on investments and $3,373 included in investment income in the Consolidated Statements of Operations.
(4) Represents a $(289) loss included in net realized gain on investments and $4,380 included in investment income in the Consolidated Statements of Operations.
(5) Included in investment income in the Consolidated Statements of Operations.
(6) Represents two securities with a fair value of $230 that were transferred to Level 3 as the fair value of the securities is now based on broker quotes.
(1) Represents a $(8,310) loss included in net realized gain on investments and $5,046 included in investment income in the Consolidated Statements of Operations.
(2) Represents a $202 gain included in net realized gain on investments and $7,711 included in investment income in the Consolidated Statements of Operations.
(3) Represents a $(8,132) loss included in net realized gain on investments and $5,244 included in investment income in the Consolidated Statements of Operations.
(4) Represents a $(276) loss included in net realized gain on investments and $7,688 included in investment income in the Consolidated Statements of Operations.
(5) Included in net realized gain on investments in the Consolidated Statements of Operations.
(6) Included in investment income in the Consolidated Statements of Operations.
ACC recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred.
During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.
The following table provides the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities measured at fair value on a recurring basis.
The fair value of syndicated loans is obtained from a nationally-recognized pricing service.
The fair value of commercial mortgage loans, except those with significant credit deterioration, has been determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for ACC’s estimate of the amount recoverable on the loan.
The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and ACC’s nonperformance risk specific to these liabilities.
10. DERIVATIVES AND HEDGING ACTIVITIES
Derivative instruments enable ACC to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices. ACC primarily enters into derivative agreements for risk management purposes related to ACC’s products.
ACC uses derivatives as economic hedges of equity and interest rate risk related to stock market certificates. ACC does not designate any derivatives for hedge accounting. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives, by type of derivative and product:
See Note 9 for additional information regarding ACC’s fair value measurement of derivative instruments.
The following table presents a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operations for the years ended December 31:
Ameriprise Stock Market Certificates (“SMC”) 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. The equity based return of the certificate 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 the SMC product 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 S&P 500 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. The gross notional amount of these derivative contracts was $1.4 billion and $1.5 billion at December 31, 2010 and 2009, respectively. ACC also purchases futures on the S&P 500 Index to economically hedge its obligations. The futures are marked-to-market daily and exchange traded, exposing ACC to no counterparty risk. The gross notional amount of these derivative contracts was $0.3 million and nil at December 31, 2010 and 2009, respectively.
Equity warrants were received as part of a syndicated loan restructure and do not constitute a hedge of underlying assets or liabilities.
Credit Risk
Credit risk associated with ACC’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, ACC has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical. As of December 31, 2010 and 2009, ACC held $4.6 million and $15.6 million, respectively, in cash and recorded a corresponding liability in other liabilities for collateral ACC is obligated to return to counterparties. As of December 31, 2010 and 2009, ACC’s maximum credit exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was approximately $8.9 million and $9.9 million, respectively.
11. CONTINGENCIES
ACC is not aware that it is a party to any pending legal, arbitration, or regulatory proceedings that would have a material adverse effect on its consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material adverse effect on the consolidated results of operations in any particular reporting period as the proceedings are resolved.
Schedule I
Submission for Schedule 1 to follow.
NOTES:
(a) Cash equivalents as highly liquid investments with original maturities of 90 days or less per Note 1 to the financial statements. See Note 1 and Note 3 to the financial statements regarding determination of cost and fair values. For Syndicated Loans see Notes 1 and 4 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) All Cash Equivalents and Available For Sale Invests are carried at fair vlaue. In the absence of market quotations, securities are valued by Amerprise Certificate Company at fair value. All Syndicated Loans are carried at amortized cost less allowance for loan losses on the balance sheet.
(c) Aggregate cost of Cash Equivalents in Investments in Securities of Unaffiliated Issuers for federal income tax was $182.2 million. Available For Sale Investments in Securities of Unaffiliated Issuers for federal income tax purposes was $2.956 billion. Aggregate cost of Syndicated Loan Investments in Securities of Unaffiliated Issuers for federal income tax purposes was $97.3 million.
(d) Non-income producing securities.
(e) Securities acquired in private negotiation which may require registration under federal securities law if they were to be publicly sold.
SCHEDULE III
Ameriprise Certificate Company
Mortgage Loans on Real Estate and Interest Earned on Mortgages
Year Ended December 31, 2009
(Thousands)
AMERIPRISE CERTIFICATE COMPANY
Mortgage Loans on Real Estate and Interest Earned on Mortgages
Year Ended December 31, 2010
(Thousands)
SCHEDULE III
AMERIPRISE CERTIFICATE COMPANY
Mortgage Loans on Real Estate and Interest Earned on Mortgages
Year Ended December 31, 2010
(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, 2010 are shown by type and class of loan.
The average gross interest rates on mortgage loans held at December 31, 2010, 2009 and 2008 are summarized as follows:
(g) Following is a reconciliation of the carrying amount of mortgage loans for the years ended December 31, 2010, 2009 and 2008.
(h) The aggregate cost of mortgage loans for federal income tax purposes at December 31, 2010 was $109,641.
(i) At December 31, 2010, an unallocated reserve for loss on first mortgage loans of $2,576 is recorded.
Ameriprise Certificate Company
SCHEDULE IV
Real Estate Owned and Rental Income
Reconciliation of real estate owned for the years ended December 31, 2010 and 2009:
Ameriprise Certificate Company
SCHEDULE V
Qualified Assets on Deposit
December 31, 2010
Notes:
(a) Represents amortized cost of bonds.
(b) Represents amortized cost of stocks.
(c) Represents unpaid principal balance of mortgage loans less unamortized discounts and reserve for losses.
(d) Represents cost of purchased call options.
AMERIPRISE CERTIFICATE COMPANY
SCHEDULE VI
Certificate Reserves
Part 1 - Summary of Changes
Year ended December 31, 2008
(Thousands)
Certificate Reserves
(In thousands)
December 31, 2008
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Certificate Reserves
(In thousands)
December 31, 2008
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Certificate Reserves
(In thousands)
December 31, 2008
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
SOURCE: 2790-70, unless specified.
PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES
Totals must agree to Part 1
Confiddential: For Internal Use Only.
AMERIPRISE CERTIFICATE COMPANY
SCHEDULE VI
Certificate Reserves
Part 1 - Summary of Changes
Year ended December 31, 2009
(Thousands)
Certificate Reserves
(In thousands)
December 31, 2009
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Certificate Reserves
(In thousands)
December 31, 2009
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Certificate Reserves
(In thousands)
December 31, 2009
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Confiddential: For Internal Use Only.
SCHEDULE VI
Certificate Reserves
(In thousands)
December 31, 2010
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Certificate Reserves
(In thousands)
December 31, 2010
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
Certificate Reserves
(In thousands)
December 31, 2010
Part 2 - Descriptions of Additions to Reserves Charged to Other Accounts and Deductions from Reserves Credited to Other Accounts
AMERIPRISE CERTIFICATE COMPANY, INC.
CERTIFICATE RESERVES SCHEDULE VI
PART 3
December 31, 2010
DATE PRINTED
02/21/11
PART 3 - INFORMATION REGARDING INSTALLMENT CERTIFICATES
Totals must agree to Part 1
Confiddential: For Internal Use Only.
Ameriprise Certificate Company
SCHEDULE VII
Valuation and Qualifying Accounts
Years ended December 31, 2010, 2009 and 2008
($ thousands)
Year ended December 31, 2010
Year ended December 31, 2009
Year ended December 31, 2008
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report:
Exhibit
Description
3(a)
Amended and Restated Certificate of Incorporation of American Express Certificate Company, dated Aug. 1, 2005, filed electronically on or about March 10, 2006 as Exhibit 3(a) to Registrant’s Form 10-K is incorporated by reference.
3(b)
By-Laws of Ameriprise Certificate Company, filed electronically on or about November 5, 2010 as Exhibit 3(b) to Registrant’s Form 10-Q, are incorporated herein by reference.
10(a)
Investment Advisory and Services Agreement, dated Dec. 31, 2006, between Registrant and RiverSource Investments, LLC, now known as Columbia Management Investment Advisers, LLC, filed electronically on or about Feb 26, 2007 as Exhibit 10(a) to Post-Effective Amendment No. 35 to Registration Statement No. 2-95577 for Ameriprise Flexible Savings Certificate is incorporated herein by reference.
10(b)
Distribution Agreement, dated Dec. 31, 2006, between Registrant and Ameriprise Financial Services, Inc. filed electronically on or about Feb. 26, 2007 as Exhibit 1 to Post-Effective Amendment No. 35 to Registration Statement No. 2-95577 for Ameriprise Flexible Savings Certificate is incorporated herein by reference.
10(c)
Depositary and Custodial Agreement, dated Dec. 31, 2006, between Registrant and Ameriprise Trust Company, filed electronically on or about Feb. 26, 2007 as Exhibit 10(c) to Post-Effective Amendment No. 35 to Registration Statement No. 2-95577 for Ameriprise Flexible Savings Certificate is incorporated herein by reference.
10(d)
Transfer Agent Agreement, dated Dec. 31, 2006 between Registrant and RiverSource Client Service Corporation, now known as Columbia Management Investment Services Corp., filed electronically on or about Feb. 26, 2007 as Exhibit 10(e) to Post-Effective Amendment No. 35 to Registration Statement No. 2-95577 for Ameriprise Flexible Savings Certificate is incorporated herein by reference.
10(e)
Administration and Services Agreement, dated October 1, 2005 between RiverSource Investments, LLC, now known as Columbia Management Investment Advisers, LLC, and Ameriprise Financial, Inc. filed electronically on or about March 10, 2006 as Exhibit 10(s) to Registrant’s Form 10-K is incorporated by reference.
10(f)
Capital Support Agreement by and between Ameriprise Financial, Inc. and Ameriprise Certificate Company, dated as of March 2, 2009, filed electronically on or about March 3, 2009 as Exhibit 10(f) to Registrant’s Form 10-K is incorporated by reference.
14(a)
Code of Ethics under rule 17j-1 for Ameriprise Certificate Company, filed electronically as Exhibit 10 (p)(1) to Pre-Effective Amendment No. 1 to Registration Statement No. 333-34982, is incorporated herein by reference.
*14(b)
Code of Ethics adopted under Rule 17j-1 for Registrant’s investment adviser and principal underwriter, dated May 1, 2010, is filed electronically herewith as Exhibit (14)(b) to Registrant’s Form 10-K.
*24(a)
Directors’ Power of Attorney, dated March 2, 2010, is filed electronically herewith as Exhibit 24 (a) to Registrant’s Form 10-K.
24(b)
Officers’ Power of Attorney, dated Feb. 24, 2009, filed electronically on or about March 3, 2009 as Exhibit 24 (b) to Registrant’s Form 10-K is incorporated by reference.
24(c)
Director’s and Officer’s Power of Attorney, dated Feb. 24, 2009, filed electronically on or about March 3, 2009 as Exhibit 24 (c) to Registrant’s Form 10-K is incorporated by reference.
*24(d)
Director’s Power of Attorney, dated Feb. 14, 2011, is filed electronically herewith as Exhibit 24(d) to Registrant’s Form 10-K.
*31.1
Certification of William F. Truscott pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
*31.2
Certification of Ross P. Palacios pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
*32.1
Certification of William F. Truscott and Ross P. Palacios pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Filed electronically herewith
E-1