Edgar Filing: AMERIPRISE FINANCIAL INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File No. 1-32525

AMERIPRISE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-3180631
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1099 Ameriprise Financial Center, Minneapolis, Minnesota		55474
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (612) 671-3131

Former name, former address and former fiscal year, if changed since last report: Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x		Accelerated Filer o

Non-Accelerated Filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 23, 2010
Common Stock (par value $.01 per share)		251,048,544 shares

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AMERIPRISE FINANCIAL, INC.

FORM 10-Q

INDEX

Part I.	Financial Information:

	Item 1.	Financial Statements

		Consolidated Statements of Operations — Three months and six months ended June 30, 2010 and 2009	3

		Consolidated Balance Sheets — June 30, 2010 and December 31, 2009	4

		Consolidated Statements of Cash Flows — Six months ended June 30, 2010 and 2009	5

		Consolidated Statements of Equity — Six months ended June 30, 2010 and 2009	7

		Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84

	Item 4.	Controls and Procedures	84

Part II.	Other Information:

	Item 1.	Legal Proceedings	85

	Item 1A.	Risk Factors	85

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86

	Item 6.	Exhibits	86

	Signatures		87

	Exhibit Index		E-1

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AMERIPRISE FINANCIAL, INC.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenues
Management and financial advice fees	$	955		$	606		$	1,729		$	1,160
Distribution fees	453			351			844			662
Net investment income	654			511			1,244			929
Premiums	299			269			581			535
Other revenues	236			175			491			384
Total revenues	2,597			1,912			4,889			3,670
Banking and deposit interest expense	20			38			41			80
Total net revenues	2,577			1,874			4,848			3,590

Expenses
Distribution expenses	621			432			1,146			816
Interest credited to fixed accounts	231			237			459			442
Benefits, claims, losses and settlement expenses	298			587			652			687
Amortization of deferred acquisition costs	171			(125		)	289			161
Interest and debt expense	74			28			138			54
General and administrative expense	716			600			1,337			1,181
Total expenses	2,111			1,759			4,021			3,341
Pretax income	466			115			827			249
Income tax provision	68			28			133			46
Net income	398			87			694			203
Less: Net income (loss) attributable to noncontrolling interests	139			(8		)	221			(22		)
Net income attributable to Ameriprise Financial	$	259		$	95		$	473		$	225

Earnings per share attributable to Ameriprise Financial, Inc. common shareholders
Basic	$	0.99		$	0.41		$	1.81		$	1.00
Diluted	0.98			0.41			1.78			0.99

Weighted average common shares outstanding
Basic	261.1			228.8			260.9			225.6
Diluted	265.3			230.0			265.1			226.8
Cash dividends paid per common share	$	0.18		$	0.17		$	0.35		$	0.34

Supplemental Disclosures:
Net investment income:
Net investment income before impairment losses on securities	$	655		$	542		$	1,275		$	995
Total other-than-temporary impairment losses on securities	—			(30		)	(32		)	(55		)
Portion of loss recognized in other comprehensive income	(1		)	(1		)	1			(11		)
Net impairment losses recognized in net investment income	(1		)	(31		)	(31		)	(66		)
Net investment income	$	654		$	511		$	1,244		$	929

See Notes to Consolidated Financial Statements.

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AMERIPRISE FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

	June 30, 2010			December 31, 2009
	(unaudited)
Assets
Cash and cash equivalents	$	3,827		$	3,097
Investments	36,526			36,938
Separate account assets	58,029			58,129
Receivables	4,906			4,435
Deferred acquisition costs	4,123			4,334
Restricted and segregated cash	1,272			1,452
Other assets	5,643			4,286
Total assets before consolidated investment entities	114,326			112,671

Consolidated Investment Entities:
Cash	570			181
Investments, at fair value	5,437			36
Receivables (includes $45 and nil, respectively, at fair value)	92			49
Other assets, at fair value	685			833
Total assets of consolidated investment entities	6,784			1,099
Total assets	$	121,110		$	113,770

Liabilities and Equity Liabilities:
Future policy benefits and claims	$	30,677		$	30,886
Separate account liabilities	58,029			58,129
Customer deposits	8,421			8,554
Short-term borrowings	484			—
Long-term debt	2,684			1,868
Accounts payable and accrued expenses	1,050			918
Other liabilities	3,166			3,093
Total liabilities before consolidated investment entities	104,511			103,448

Consolidated Investment Entities:
Debt (includes $5,048 and nil, respectively, at fair value)	5,296			381
Accounts payable and accrued expenses	21			28
Other liabilities (includes $151 and $30, respectively, at fair value)	163			41
Total liabilities of consolidated investment entities	5,480			450
Total liabilities	109,991			103,898

Equity:
Ameriprise Financial, Inc.:
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 299,053,176 and 295,839,581, respectively)	3			3
Additional paid-in capital	5,869			5,748
Retained earnings	5,658			5,276
Appropriated retained earnings of consolidated investment entities	620			—
Treasury shares, at cost (47,014,926 and 40,744,090 shares, respectively)	(2,259		)	(2,023		)
Accumulated other comprehensive income, net of tax	607			265
Total Ameriprise Financial, Inc. shareholders’ equity	10,498			9,269
Noncontrolling interests	621			603
Total equity	11,119			9,872
Total liabilities and equity	$	121,110		$	113,770

See Notes to Consolidated Financial Statements.

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AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

	Six Months Ended June 30,
	2010			2009
Cash Flows from Operating Activities
Net income	$	694		$	203
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Capitalization of deferred acquisition and sales inducement costs	(259		)	(405		)
Amortization of deferred acquisition and sales inducement costs	324			167
Depreciation, amortization and accretion, net	48			81
Deferred income tax expense	426			90
Share-based compensation	70			86
Net realized investment gains	(39		)	(97		)
Other-than-temporary impairments and provision for loan losses	35			82
Net (income) loss attributable to noncontrolling interests	(221		)	22
Changes in operating assets and liabilities before consolidated investment entities:
Restricted and segregated cash	22			150
Trading securities and equity method investments, net	7			(327		)
Future policy benefits and claims, net	54			379
Receivables	(490		)	27
Brokerage deposits	(39		)	(123		)
Accounts payable and accrued expenses	83			(74		)
Derivatives collateral, net	533			(1,588		)
Other, net	(12		)	(192		)
Changes in operating assets and liabilities of consolidated investment entities	80			(27		)
Net cash provided by (used in) operating activities	1,316			(1,546		)

Cash Flows from Investing Activities
Available-for-Sale securities:
Proceeds from sales	1,906			2,359
Maturities, sinking fund payments and calls	3,204			2,500
Purchases	(4,188		)	(10,188		)
Proceeds from sales and maturities of commercial mortgage loans	107			158
Funding of commercial mortgage loans	(82		)	(57		)
Proceeds from sales of other investments	92			28
Purchase of other investments	(40		)	(10		)
Purchase of investments by consolidated investment entities	(1,010		)	—
Proceeds from sales and maturities of investments by consolidated investment entities	933			—
Return of capital in investments of consolidated investment entities	2			—
Purchase of land, buildings, equipment and software	(54		)	(35		)
Change in policy and certificate loans, net	(6		)	13
Acquisitions	(866		)	—
Change in consumer banking loans and credit card receivables, net	(196		)	(52		)
Other, net	(8		)	3
Net cash used in investing activities	(206		)	(5,281		)

See Notes to Consolidated Financial Statements.

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AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

(in millions)

	Six Months Ended June 30,
	2010			2009
Cash Flows from Financing Activities
Investment certificates and banking time deposits:
Proceeds from additions	$	554		$	1,798
Maturities, withdrawals and cash surrenders	(1,120		)	(1,780		)
Change in other banking deposits	463			1,097
Policyholder and contractholder account values:
Consideration received	833			3,726
Net transfers (to) from separate accounts	(1,277		)	239
Surrenders and other benefits	(692		)	(1,224		)
Deferred premium options, net	(77		)	(6		)
Proceeds from issuance of common stock	—			869
Issuances of debt, net of issuance costs	744			491
Repayments of debt	—			(87		)
Change in short-term borrowings, net	484			—
Dividends paid to shareholders	(91		)	(74		)
Repurchase of common shares	(206		)	(9		)
Exercise of stock options	45			—
Excess tax benefits from share-based compensation	5			1
Borrowings of consolidated investment entities	30			41
Repayments of debt of consolidated investment entities	(50		)	—
Noncontrolling interests investments in subsidiaries	29			2
Distributions to noncontrolling interests	(40		)	(38		)
Other, net	(2		)	—
Net cash (used in) provided by financing activities	(368		)	5,046

Effect of exchange rate changes on cash	(12		)	22
Net increase (decrease) in cash and cash equivalents	730			(1,759		)
Cash and cash equivalents at beginning of period	3,097			6,228
Cash and cash equivalents at end of period	$	3,827		$	4,469

Supplemental Disclosures:
Interest paid on debt before consolidated investment entities	$	61		$	58
Income taxes paid, net	53			3

See Notes to Consolidated Financial Statements.

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AMERIPRISE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

	Ameriprise Financial, Inc.
										Appropriated
										Retained					Accumulated
										Earnings of					Other
	Number of				Additional					Consolidated					Comprehensive			Non-
	Outstanding		Common		Paid-In		Retained			Investment		Treasury			Income			controlling
	Shares		Shares		Capital		Earnings			Entities		Shares			(Loss)			Interests			Total
	(in millions, except share data)
Balances at January 1, 2009	216,510,699		$	3	$	4,688	$	4,586		$	—	$	(2,012	)	$	(1,091	)	$	289		$	6,463
Change in accounting principles, net of tax	—		—		—		132			—		—			(132		)	—			—
Comprehensive income:
Net income (loss)	—		—		—		225			—		—			—			(22		)	203
Other comprehensive income, net of tax:
Change in net unrealized securities losses	—		—		—		—			—		—			737			—			737
Change in noncredit related im-pairments on securities and net unrealized securities losses on previously impaired securities	—		—		—		—			—		—			35			—			35
Change in net unrealized derivatives losses	—		—		—		—			—		—			(1		)	—			(1		)
Foreign currency translation adjustment	—		—		—		—			—		—			66			33			99
Total comprehensive income																					1,073
Issuance of common stock	36,000,000		—		869		—			—		—			—			—			869
Dividends paid to shareholders	—		—		—		(74		)	—		—			—			—			(74		)
Noncontrolling interests investments in subsidiaries	—		—		—		—			—		—			—			2			2
Distributions to noncontrolling interests	—		—		—		—			—		—			—			(38		)	(38		)
Repurchase of common shares	(624,538	)	—		—		—			—		(9		)	—			—			(9		)
Share-based compensation plans	3,152,251		—		84		—			—		—			—			—			84
Balances at June 30, 2009	255,038,412		$	3	$	5,641	$	4,869		$	—	$	(2,021	)	$	(386	)	$	264		$	8,370

Balances at January 1, 2010	255,095,491		$	3	$	5,748	$	5,276		$	—	$	(2,023	)	$	265		$	603		$	9,872
Change in accounting principles	—		—		—		—			473		—			—			—			473
Comprehensive income:
Net income	—		—		—		473			—		—			—			221			694
Net income reclassified to appropriated retained earnings	—		—		—		—			147		—			—			(147		)	—
Other comprehensive income, net of tax:
Change in net unrealized securities gains	—		—		—		—			—		—			379			—			379
Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities	—		—		—		—			—		—			2			—			2
Change in net unrealized derivatives gains	—		—		—		—			—		—			(2		)	—			(2		)
Foreign currency translation adjustment	—		—		—		—			—		—			(37		)	(45		)	(82		)
Total comprehensive income																					991
Dividends paid to shareholders	—		—		—		(91		)	—		—			—			—			(91		)
Noncontrolling interests investments in subsidiaries	—		—		—		—			—		—			—			29			29
Distributions to noncontrolling interests	—		—		—		—			—		—			—			(40		)	(40		)
Repurchase of common shares	(6,270,836	)	—		—		—			—		(236		)	—			—			(236		)
Share-based compensation plans	3,213,595		—		121		—			—		—			—			—			121
Balances at June 30, 2010	252,038,250		$	3	$	5,869	$	5,658		$	620	$	(2,259	)	$	607		$	621		$	11,119

See Notes to Consolidated Financial Statements.

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

1. Basis of Presentation

Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning and products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The Company’s foreign operations in the United Kingdom (“UK”) are conducted through its subsidiary, Threadneedle Asset Management Holdings Sàrl (“Threadneedle”).

The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). The income or loss generated by consolidated entities which will not be realized by the Company’s shareholders is attributed to noncontrolling interests in the Consolidated Statements of Operations. Noncontrolling interests are the ownership interests in subsidiaries not attributable, directly or indirectly, to Ameriprise Financial, Inc. and are classified as equity within the Consolidated Balance Sheets. The Company excluding noncontrolling interests is defined as Ameriprise Financial. All material intercompany transactions and balances have been eliminated in consolidation. See Note 3 for additional information related to the consolidated VIEs.

The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. Except for the adjustments described below, all adjustments made were of a normal recurring nature.

In the second quarter of 2010, the Company made an adjustment for revisions to certain calculations in its valuation of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”), which resulted in increases to the DAC and DSIC balances and decreases to amortization of DAC and benefits expense totaling $33 million. The impact to net income attributable to Ameriprise Financial was $21 million.

In the second quarter of 2010, the Company purchased an additional $6 million ownership interest in Cofunds, a leading investment platform that provides distribution access to over 1,300 funds from over 90 UK fund managers. This additional investment increased the Company’s ownership percentage from 16% to 20%, and as a result, the Company adopted the equity method of accounting and recorded a retrospective adjustment to the investment balance, results of operations and retained earnings as if the equity method had been in effect during all previous periods in which the investment was held. The effect of the change to the Company’s prior period consolidated results of operations and financial condition was not material.

The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain reclassifications of prior period amounts have been made to conform to the current presentation. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2010.

The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued.

2. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Consolidation of Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to the consolidation of VIEs. The standard amends the guidance on the determination of the primary beneficiary of a VIE from a quantitative model to a qualitative model and requires additional disclosures about an enterprise’s involvement in VIEs. Under the new qualitative model, the primary beneficiary must have both the power to direct the activities of the VIE and the obligation to absorb losses or the right to receive gains that could be potentially significant to the VIE. In February 2010, the FASB amended this guidance to defer application of the consolidation requirements for certain investment funds. The standards are effective for interim and annual reporting periods beginning after November 15, 2009. The Company adopted the standards effective January 1, 2010 and consolidated certain collateralized debt obligations (“CDOs”). As a result of the adoption, the Company recorded a $5.5 billion increase to assets and a $5.1 billion increase to liabilities. The difference between the fair value of the assets and liabilities of the CDOs was recorded as a cumulative effect increase of $473 million to appropriated retained earnings of consolidated investment entities. Such amounts are recorded as appropriated retained earnings as the CDO note holders, not Ameriprise Financial, ultimately will receive the benefits or absorb the losses associated with the assets and liabilities of the

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

CDOs. Subsequent to the adoption, the net change in fair value of the assets and liabilities of the CDOs will be recorded as net income (loss) attributable to noncontrolling interests and as an adjustment to appropriated retained earnings of consolidated investment entities. See Note 3 for additional information related to the application of the amended VIE consolidation model and the required disclosures.

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. The Company adopted the standard in the first quarter of 2010. The adoption did not have any effect on the Company’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. The Company adopted the standard in the first quarter of 2010, except for the additional disclosures related to the Level 3 rollforward, which the Company will adopt in the first quarter of 2011. The adoption did not have any effect on the Company’s consolidated results of operations and financial condition.

Recognition and Presentation of Other-Than-Temporary Impairments (“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 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 retained earnings with a corresponding adjustment to accumulated other comprehensive income (loss). The Company adopted the standard in the first quarter of 2009 and recorded a cumulative effect increase to the opening balance of retained earnings of $132 million, net of DAC and DSIC amortization, certain benefit reserves and income taxes, and a corresponding increase to accumulated other comprehensive loss, net of impacts to DAC and DSIC amortization, certain benefit reserves and income taxes. See Note 4 for the required disclosures.

Future Adoption of New Accounting Standards

Receivables

In July 2010, the FASB updated the accounting standards for disclosures about 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. The Company is currently evaluating the impact of the standard on its disclosures. The Company’s adoption of the standard will not impact its consolidated results of operations and financial condition.

How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments

In April 2010, the FASB updated the accounting standards regarding accounting for investment funds determined to be VIEs. Under this standard an insurance enterprise would not be required to consolidate a voting-interest investment fund when it

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

holds the majority of the voting interests of the fund through its separate accounts. In addition, the enterprise would not consider the interests held through separate accounts in evaluating its economic interests in a VIE, unless the separate account contract holder is a related party. The standard is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2010. The adoption of the standard is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

3. Consolidated Investment Entities

The Company provides asset management services to various CDOs and other investment products (collectively, “investment entities”), which are sponsored by the Company for the investment of client assets in the normal course of business. Certain of these investment entities are considered to be VIEs while others are considered to be voting rights entities (“VREs”). The Company consolidates certain of these investment entities.

Variable Interest Entities

A VIE is an entity that either has equity investors that lack certain essential characteristics of a controlling financial interest (including substantive voting rights, the obligation to absorb the entity’s losses, or the rights to receive the entity’s returns) or has equity investors that do not provide sufficient financial resources for the entity to support its activities. A VIE is required to be assessed for consolidation under two models:

· If the VIE is a money market fund or is an investment company, or has the financial characteristics of an investment company, and the following is true:

(i) the entity does not have an explicit or implicit obligation to fund the investment company’s losses; and

(ii) the investment company is not a securitization entity, asset-backed financing entity, or an entity formally considered a qualifying special purpose entity,

then, the VIE will be consolidated by the entity that determines it stands to absorb a majority of the VIE’s expected losses or to receive a majority of the VIE’s expected residual returns. Examples of entities that are likely to be assessed for consolidation under this framework include hedge funds, property funds, private equity funds and venture capital funds.

· If the VIE does not meet the criteria above, the VIE will be consolidated by the entity that determines it has both:

(i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance; and

(ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company’s CDOs are generally assessed for consolidation under this framework.

When determining whether the Company stands to absorb the majority of the VIE’s expected losses or receive a majority of the VIE’s expected returns, it analyzes the design of the VIE to identify the variable interests it holds. Then the Company quantitatively determines whether its variable interests will absorb a majority of the VIE’s variability. If the Company determines it has control over the activities that most significantly impact the economic performance of the VIE and it will absorb a majority of the VIE’s expected variability, the Company consolidates the VIE. The calculation of variability is based on an analysis of projected probability-weighted cash flows based on the design of the particular VIE. When determining whether the Company has the power and the obligation to absorb losses or rights to receive benefits from the VIE that could potentially be significant, the Company qualitatively determines if its variable interests meet these criteria. If the Company consolidates a VIE under either scenario, it is referred to as the VIE’s primary beneficiary.

Investment Entities

Collateralized Debt Obligations

The Company provides collateral management services to CDOs which are considered VIEs. These CDOs are asset-backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CDO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CDOs are non-recourse to the Company. The CDO’s debt holders have recourse only to the assets of the CDO. The assets the CDOs collateralize cannot be used by the Company. Scheduled debt payments are based on the performance of the CDO’s collateral pool. The Company generally earns management fees from the CDOs based on the par value of outstanding debt and, in certain instances, may also receive performance-based fees. In the normal course of business, the Company has invested in certain CDOs, generally taking an insignificant portion of the unrated, junior subordinated debt.

For certain of the CDOs, the Company has determined that consolidation is required as it has power over the CDOs and holds a variable interest in the CDOs for which the Company has the potential to receive significant benefits or the potential obligation

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

to absorb significant losses. For other CDOs managed by the Company, the Company has determined that consolidation is not required as the Company does not hold a variable interest in the CDOs.

Other Investment Products

The Company provides investment advice and related services to private, pooled investment vehicles organized as limited partnerships, limited liability companies or foreign (non-U.S.) entities. Certain of these pooled investment vehicles are considered VIEs while others are VREs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The Company provides seed money occasionally to certain of these funds. For certain of the pooled investment vehicles, the Company has determined that consolidation is required as the Company stands to absorb a majority of the entity’s expected losses or receive a majority of the entity’s expected residual returns. For other VIE pooled investment vehicles, the Company has determined that consolidation is not required because the Company is not expected to absorb the majority of the expected losses or receive the majority of the expected residual returns. For the pooled investment vehicles which are VREs, the Company consolidates the structure when it has a controlling financial interest.

The Company also provides investment advisory, distribution and other services to the RiverSource, Columbia, and Threadneedle mutual fund families. The Company has determined that consolidation is not required for these mutual funds.

In addition, the Company may invest in structured investments including VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities, and residential mortgage backed securities. The Company includes these investments in Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to its relative size, position in the capital structure of these entities, and the Company’s lack of power over the structures. See Note 4 for additional information about these structured investments.

The Company’s maximum exposure to loss as a result of its investment in structured investments is limited to its carrying value. The Company has no obligation to provide further financial or other support to these structured investments nor has the Company provided any support to these structured investments.

The following tables reflect the impact of consolidated investment entities on the Consolidated Balance Sheet as of June 30, 2010 and the Consolidated Statements of Operations for the three and six months ended June 30, 2010:

	June 30, 2010
	Before		Consolidated
	Consolidation		Investment Entities		Eliminations			Total
	(in millions)

Total assets	$	114,413	$	6,784	$	(87	)	$	121,110

Total liabilities	104,511		5,480		—			109,991
Total Ameriprise Financial shareholders’ equity	9,902		683		(87		)	10,498
Noncontrolling interests equity	—		621		—			621
Total liabilities and equity	$	114,413	$	6,784	$	(87	)	$	121,110

	Three Months Ended June 30, 2010
	Before		Consolidated
	Consolidation		Investment Entities		Eliminations			Total
	(in millions)

Total net revenues	$	2,386	$	201	$	(10	)	$	2,577
Total expenses	2,059		62		(10		)	2,111
Pretax income	327		139		—			466
Income tax provision	68		—		—			68
Net income	259		139		—			398
Net income attributable to noncontrolling interests	—		139		—			139
Net income attributable to Ameriprise Financial	$	259	$	—	$	—		$	259

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

	Six Months Ended June 30, 2010
	Before		Consolidated
	Consolidation		Investment Entities		Eliminations			Total
	(in millions)

Total net revenues	$	4,530	$	337	$	(19	)	$	4,848
Total expenses	3,924		116		(19		)	4,021
Pretax income	606		221		—			827
Income tax provision	133		—		—			133
Net income	473		221		—			694
Net income attributable to noncontrolling interests	—		221		—			221
Net income attributable to Ameriprise Financial	$	473	$	—	$	—		$	473

The following tables present the balances of assets and liabilities held by consolidated investment entities at June 30, 2010 measured at fair value on a recurring basis:

	June 30, 2010
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Investments
Corporate debt securities	$	—	$	442	$	6	$	448
Common stocks	2		56		—		58
Other structured investments	—		37		10		47
Syndicated loans	—		4,843		—		4,843
Trading securities	—		41		—		41
Total investments	2		5,419		16		5,437
Receivables	—		45		—		45
Other assets	—		3		682		685
Total assets at fair value	$	2	$	5,467	$	698	$	6,167
Liabilities
Debt	—		—		5,048		5,048
Other liabilities	—		151		—		151
Total liabilities at fair value	$	—	$	151	$	5,048	$	5,199

	December 31, 2009
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Investments
Trading securities	$	—	$	36	$	—	$	36
Total investments	—		36		—		36
Other assets	—		2		831		833
Total assets at fair value	$	—	$	38	$	831	$	869
Liabilities
Other liabilities	—		30		—		30
Total liabilities at fair value	$	—	$	30	$	—	$	30

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis as of June 30:

	2010												2009
	Corporate Debt Securities			Other Structured Investments			Other Assets			Debt			Other Assets
	(in millions)
Balance, April 1	$	15		$	6		$	870		$	(5,144	)	$	262
Cumulative effect of accounting change	—			—			—			—			—
Total gains (losses) included in:
Net income	(1		)(1)	(1		)(1)	(34		)(2)	77		(1)	(15		)(3)
Comprehensive income	—			—			(14		)	—			39
Purchases, sales, issuances and settlements, net	(8		)	5			(140		)	19			55
Balance, June 30	$	6		$	10		$	682		$	(5,048	)	$	341

Changes in unrealized gains (losses) included in income relating to assets held at June 30	$	—	(1)	$	—	(1)	$	(5	)(4)	$	77	(1)	$	(15	)(3)

(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Represents a $33 million loss included in other revenues and a $1 million loss included in net investment income in the Consolidated Statements of Operations.

(3) Included in other revenues in the Consolidated Statements of Operations.

(4) Represents a $4 million loss included in other revenues and a $1 million loss included in net investment income in the Consolidated Statements of Operations.

	2010												2009
	Corporate Debt Securities			Other Structured Investments			Other Assets			Debt			Other Assets
	(in millions)
Balance, January 1	$	—		$	—		$	831		$	—		$	287
Cumulative effect of accounting change	15			5			—			(4,962		)	—
Total gains (losses) included in:
Net income	(1		)(1)	1		(1)	21		(2)	(106		)(1)	(34		)(3)
Comprehensive income	—			—			(64		)	—			33
Purchases, sales, issuances and settlements, net	(8		)	4			(106		)	20			55
Balance, June 30	$	6		$	10		$	682		$	(5,048	)	$	341

Changes in unrealized gains (losses) included in income relating to assets held at June 30	$	—	(1)	$	1	(1)	$	50	(4)	$	(106	)(1)	$	(29	)(3)

(1) Included in net investment income in the Consolidated Statements of Operations.

(2) Represents a $22 million gain included in other revenue and a $1 million loss included in net investment income in the Consolidated Statements of Operations.

(3) Included in other revenues in the Consolidated Statements of Operations.

(4) Represents a $51 million gain included in other revenues and a $1 million loss included in net investment income in the Consolidated Statements of Operations.

The Company has elected the fair value option within the consolidation standards issued June 2009 for the financial assets and liabilities of the consolidated CDOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CDOs.

For receivables, other assets and other liabilities of the consolidated CDOs, the carrying value approximates fair value as the nature of these assets and liabilities have historically been short term and the receivables have been collectible. The fair value of these assets and liabilities is classified as Level 2. The fair value of syndicated loans is obtained from nationally-recognized pricing services and is classified as Level 2. Other assets consist primarily of properties held in consolidated pooled investment vehicles managed by Threadneedle. The fair value of these properties is determined using discounted cash flows and market comparables. Inputs into the valuation of these properties include: rental cash flows, current occupancy, historical vacancy rates, tenant history and assumptions regarding how quickly the property can be occupied and at what rental rates. Given the significance of the unobservable inputs to these measurements, these assets are classified as Level 3. The fair value of the CDO’s debt is valued using a discounted cash flow methodology. Inputs used to determine the expected cash flows include assumptions about default and recovery rates of the CDO’s underlying assets. Given the significance of the unobservable inputs to this fair value measurement, the CDO debt is classified as Level 3. Other liabilities consist primarily of short securities held in consolidated hedge funds. The fair value of these

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

securities is obtained from nationally-recognized pricing services and is classified as Level 2. See Note 10 for a description of the Company’s determination of the fair value of investments.

The following table presents the fair value and unpaid principal balance of assets and liabilities carried at fair value under the fair value option as of June 30, 2010:

	(in millions)
Syndicated loans
Unpaid principal balance	$	5,226
Excess unpaid principal over fair value	(383		)
Fair value	$	4,843

Fair value of loans more than 90 days past due	181
Fair value of loans in non-accrual status	162
Difference between fair value and unpaid principal of loans more than 90 days past due, loans in non-accrual status or both	83
Debt
Unpaid principal balance	6,002
Excess unpaid principal over fair value	(954		)
Carrying value at estimated fair value	$	5,048

Interest income from loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.

Total gains and losses recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $100 million and $128 million for the three months and six months ended June 30, 2010, respectively. The majority of the syndicated loans and debt have floating rates, as such changes in their fair values are primarily attributable to changes in credit spreads.

Debt of the consolidated investment entities and the stated interest rates as of June 30, 2010 were as follows:

	Carrying Value		Stated Interest Rate
	(in millions)
Debt of consolidated CDOs due 2012-2021	$	5,048	1.0	%
Floating rate revolving credit borrowings due 2014	183		5.9
Floating rate revolving credit borrowings due 2014	38		5.0
Floating rate revolving credit borrowings due 2015	27		4.9
Total	$	5,296

The debt of the consolidated CDOs has both fixed and floating interest rates. The stated interest rate of the debt of consolidated CDOs is a weighted average rate based on the principal and stated interest rate according to the terms of each CDO structure, which range from 0% to 14.1%. The carrying value of the debt of the consolidated CDOs represents the fair value of the aggregate debt as of June 30, 2010. The carrying value of the floating rate revolving credit borrowings represent the outstanding principal amount of debt of certain consolidated pooled investment vehicles managed by Threadneedle. The fair value of this debt was $248 million as of June 30, 2010.

At June 30, 2010, future maturities of debt were as follows:

	(in millions)
2011	$	—
2012	21
2013	150
2014	221
2015	383
Thereafter	5,475
Total future maturities	$	6,250

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. Investments

The following is a summary of Ameriprise Financial investments:

	June 30, 2010		December 31, 2009
	(in millions)
Available-for-Sale securities, at fair value	$	32,216	$	32,546
Commercial mortgage loans, net	2,631		2,663
Trading securities	547		556
Policy loans	725		720
Other investments	407		453
Total	$	36,526	$	36,938

Available-for-Sale securities distributed by type were as follows:

	June 30, 2010
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI (1)
	(in millions)
Corporate debt securities	$	14,855	$	1,279	$	(56	)	$	16,078	$	10
Residential mortgage backed securities	7,497		372		(396		)	7,473		(149		)
Commercial mortgage backed securities	4,369		314		(2		)	4,681		—
Asset backed securities	1,921		90		(45		)	1,966		(17		)
State and municipal obligations	1,605		66		(63		)	1,608		—
U.S. government and agencies obligations	168		10		—			178		—
Foreign government bonds and obligations	93		17		—			110		—
Common and preferred stocks	53		2		(7		)	48		—
Other debt obligations	74		—		—			74		—
Total	$	30,635	$	2,150	$	(569	)	$	32,216	$	(156	)

	December 31, 2009
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI (1)
	(in millions)
Corporate debt securities	$	15,336	$	894	$	(107	)	$	16,123	$	12
Residential mortgage backed securities	8,050		218		(498		)	7,770		(152		)
Commercial mortgage backed securities	4,437		196		(20		)	4,613		—
Asset backed securities	1,984		72		(62		)	1,994		(18		)
State and municipal obligations	1,472		21		(76		)	1,417		—
U.S. government and agencies obligations	379		9		(1		)	387		—
Foreign government bonds and obligations	95		14		(1		)	108		—
Common and preferred stocks	52		1		(10		)	43		—
Other structured investments	22		36		—			58		21
Other debt obligations	33		—		—			33		—
Total	$	31,860	$	1,461	$	(775	)	$	32,546	$	(137	)

(1) Represents the amount of other-than-temporary impairment losses in Accumulated Other Comprehensive Income. 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.

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AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

At both June 30, 2010 and December 31, 2009, fixed maturity securities comprised approximately 88% of Ameriprise Financial investments. These securities were rated by Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”), except for approximately $1.3 billion and $1.2 billion of securities at June 30, 2010 and December 31, 2009, respectively, which were rated by the Company’s internal analysts using criteria similar to Moody’s, S&P and Fitch. Ratings on fixed maturity securities are presented using the median of ratings from Moody’s, S&P and Fitch. If only two of the ratings are available, the lower rating is used. A summary of fixed maturity securities by rating was as follows:

	June 30, 2010						December 31, 2009
Ratings	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in millions, except percentages)
AAA	$	12,367	$	13,091	41	%	$	13,003	$	13,396	41	%
AA	1,746		1,840		6		1,616		1,601		5
A	4,329