Table of Contents

** **

 

** **

**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, 2008**                  |
| ** ** | ** ** | ** **                                                              |
| ** ** | ** ** | **or**                                                                  |
| ** ** | ** ** | ** **                                                              |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE** |
| ** ** | ** ** | **SECURITIES EXCHANGE ACT OF 1934**                                     |

 

**For theTransition Period from                to            **

 

**Commission file number****333-114888**

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name ofregistrant as specified in its charter)

 

| **Minnesota**                                                 | ** ** | **41-0823832**                        |
|---------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of                              |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                               |       |                                  |
|                                                          |       |                                  |
| **1099 Ameriprise  Financial Center, Minneapolis, Minnesota** | ** ** | **55474**                             |
| (Address of  principal executive offices)                     |       | (Zip Code)                            |
|                                                          |       |                                  |
| Registrant’s telephone  number, including area code      |       | **(612) 671-3131**                    |

 

**Not Applicable**

(Former name, former address and former fiscal year,if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

|   |   |   |   | Yes | x | No | o |
|--------|--------|--------|--------|-----|---|----|---|

 

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

 
| Large accelerated filer  o |   | Accelerated filer o |   | Non-accelerated filer x     |   | Smaller reporting  company o |
|----------------------------|--------|---------------------|--------|-----------------------------|--------|------------------------------|
|                       |   |                |   | (Do not check if a  smaller |   |                         |
|                       |   |                |   | reporting company)          |   |                         |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 

|   |   |   |   | Yes | o | No | x |
|--------|--------|--------|--------|-----|---|----|---|

 

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

 
| **Class**                               | ** ** | **Outstanding at ****August 5, 2008** |
|-----------------------------------------|------------|-----------------------------------------------------------|
| Common Stock  (par value $30 per share) |       | 100,000 shares                                            |

 

THE REGISTRANT MEETS THECONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OFFORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCEDDISCLOSURE FORMAT.

 

 

 

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**RIVERSOURCE****LIFE INSURANCE COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| ** **        | ** **                 | ** **                                                                                                 | **Page No.** |
|-------------------|----------------------------|------------------------------------------------------------------------------------------------------------|-------------------|
| **Part I.**  | **Financial Information:** | ** **                                                                                                 | ** **        |
| ** **        | ** **                 | ** **                                                                                                 | ** **        |
|              | Item 1.                    | Financial Statements                                                                                       |              |   |
|              |                       |                                                                                                       |              |   |
|              |                       | Consolidated Balance  Sheets – June 30, 2008 and December 31, 2007                          |              | 1 |
|              |                       |                                                                                                       |              |   |
|              |                       | Consolidated  Statements of Income – Three months and six months ended June 30, 2008  and 2007   |              | 2 |
|              |                       |                                                                                                       |              |   |
|              |                       | Consolidated  Statements of Cash Flows – Six months ended June 30, 2008 and 2007                 |              | 3 |
|              |                       |                                                                                                       |              |   |
|              |                       | Consolidated  Statements of Shareholder’s Equity – Six months ended June 30, 2008 and  2007 |              | 4 |
|              |                       |                                                                                                       |              |   |
|              |                       | Notes to Consolidated Financial Statements                                                                 |              | 5-16 |
|              |                       |                                                                                                       |              |   |
|              | Item 2.                    | Management’s  Narrative Analysis                                                                      |              | 17-22 |
|              |                       |                                                                                                       |              |   |
|              | Item 4T.                   | Controls and  Procedures                                                                                   |              | 23 |
|              |                       |                                                                                                       |              |   |
| **Part II.** | **Other Information:**     | ** **                                                                                                 | ** **        |
| ** **        | ** **                 | ** **                                                                                                 | ** **        | ** ** |
|              | Item 1.                    | Legal Proceedings                                                                                          |              | 23 |
|              |                       |                                                                                                       |              |   |
|              | Item 1A.                   | Risk Factors                                                                                               |              | 23 |
|              |                       |                                                                                                       |              |   |
|              | Item 6.                    | Exhibits                                                                                                   |              | 23 |
|              |                       |                                                                                                       |              |   |
|              | Signatures                 |                                                                                                       | 24                |
|              |                       |                                                                                                       |              |
|              | Exhibit Index         |                                                                                                       | E-1               |

 

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Table of Contents

 

**PART I.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

 

**RIVERSOURCE****LIFE INSURANCE COMPANY**

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                               | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| ** **                                                                               | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                               | ** ** | ** **        | ** ** | ** **            | ** ** |
| Investments:                                                                             |       |              |       |                  |       |
| Available-for-Sale:                                                                      |       |              |       |                  |       |
| Fixed  maturities, at fair value (amortized cost: 2008, $20,156; 2007, $21,020)          |       | $                 | 19,553     |                  | $          | 20,792 |   |
| Common  and preferred stocks, at fair value  (cost: 2008 and 2007, $30)                  |       | 26                |       | 29                    |       |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2008 and 2007, $16) |       | 2,855             |       | 2,892                 |       |
| Policy  loans                                                                            |       | 718               |       | 697                   |       |
| Trading  securities and other investments                                                |       | 196               |       | 67                    |       |
| Total  investments                                                                       |       | 23,348            |       | 24,477                |       |
|                                                                                     |       |              |       |                  |       |
| Cash  equivalents                                                                        |       | 564               |       | 973                   |       |
| Reinsurance  recoverables                                                                |       | 1,417             |       | 1,290                 |       |
| Amounts  due from brokers                                                                |       | 147               |       | 123                   |       |
| Other  accounts receivable                                                               |       | 139               |       | 118                   |       |
| Accrued  investment income                                                               |       | 242               |       | 252                   |       |
| Deferred  acquisition costs                                                              |       | 4,547             |       | 4,429                 |       |
| Deferred  sales inducement costs                                                         |       | 538               |       | 511                   |       |
| Deferred  income taxes, net                                                              |       | 58                |       | —                |       |
| Other  assets                                                                            |       | 222               |       | 491                   |       |
| Separate  account assets                                                                 |       | 55,150            |       | 58,070                |       |
|                                                                                     |       |              |       |                  |       |
| Total  assets                                                                            |       | $                 | 86,372     |                  | $          | 90,734 |   |
|                                                                                     |       |              |       |                  |       |
| **Liabilities and Shareholder’s Equity**                                            |       |              |       |                  |       |
| Liabilities:                                                                             |       |              |       |                  |       |
| Future  policy benefits                                                                  |       | $                 | 26,269     |                  | $          | 26,977 |   |
| Policy  claims and other policyholders’ funds                                       |       | 95                |       | 91                    |       |
| Amounts  due to brokers                                                                  |       | 178               |       | 361                   |       |
| Deferred  income taxes, net                                                              |       | —            |       | 133                   |       |
| Other  liabilities                                                                       |       | 341               |       | 382                   |       |
| Separate  account liabilities                                                            |       | 55,150            |       | 58,070                |       |
| Total  liabilities                                                                       |       | 82,033            |       | 86,014                |       |
| Shareholder’s  equity:                                                              |       |              |       |                  |       |
| Common  shares, $30 par value; 100,000 shares authorized, issued and outstanding         |       | 3                 |       | 3                     |       |
| Additional  paid-in capital                                                              |       | 2,031             |       | 2,031                 |       |
| Retained  earnings                                                                       |       | 2,664             |       | 2,842                 |       |
| Accumulated  other comprehensive loss, net of tax                                        |       | (359              | )          | (156                  | )          |
| Total  shareholder’s equity                                                         |       | 4,339             |       | 4,720                 |       |
|                                                                                     |       |              |       |                  |       |
| Total  liabilities and shareholder’s equity                                         |       | $                 | 86,372     |                  | $          | 90,734 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)**

**(in millions)**

 
| ** **                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                        | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                        | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                                      |       |                                            |       |                                          |       |   |   |   |   |
| Premiums                                          |       | $                                               | 117        |                                          | $          | 122 |   | $ | 233 |   | $ | 238 |   |
| Net investment  income                            |       | 322                                             |       | 379                                           |       | 643 |   | 769 |   |
| Policy and  contract charges                      |       | 324                                             |       | 299                                           |       | 640 |   | 585 |   |
| Other revenue                                     |       | 73                                              |       | 63                                            |       | 139 |   | 121 |   |
| Net realized  investment gains (losses)           |       | (6                                              | )          | —                                        |       | (29 | ) | 7 |   |
|                                              |       |                                            |       |                                          |       |   |   |   |   |
| Total revenues                                    |       | 830                                             |       | 863                                           |       | 1,626 |   | 1,720 |   |
|                                              |       |                                            |       |                                          |       |   |   |   |   |
| **Benefits  and expenses**                        |       |                                            |       |                                          |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 181                                             |       | 176                                           |       | 372 |   | 331 |   |
| Interest  credited to fixed accounts              |       | 192                                             |       | 215                                           |       | 387 |   | 433 |   |
| Amortization of  deferred acquisition costs       |       | 127                                             |       | 104                                           |       | 261 |   | 217 |   |
| Separation costs                                  |       | —                                          |       | 26                                            |       | — |   | 64 |   |
| Other insurance  and operating expenses           |       | 166                                             |       | 193                                           |       | 347 |   | 377 |   |
|                                              |       |                                            |       |                                          |       |   |   |   |   |
| Total benefits  and expenses                      |       | 666                                             |       | 714                                           |       | 1,367 |   | 1,422 |   |
|                                              |       |                                            |       |                                          |       |   |   |   |   |
| Pretax income                                     |       | 164                                             |       | 149                                           |       | 259 |   | 298 |   |
| Income tax  provision                             |       | 12                                              |       | 36                                            |       | 7 |   | 69 |   |
|                                              |       |                                            |       |                                          |       |   |   |   |   |
| Net income                                        |       | $                                               | 152        |                                          | $          | 113 |   | $ | 252 |   | $ | 229 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**(in millions)**

** **
| ** **                                                                                   | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| **Cash  Flows from Operating Activities**                                                    |       |                                          |       |   |   |
| Net income                                                                                   |       | $                                             | 252        |   | $ | 229 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:           |       |                                          |       |   |   |
| Capitalization  of deferred acquisition costs and deferred sales inducement costs            |       | (348                                          | )          | (431 | ) |
| Amortization of  deferred acquisition costs and deferred sales inducement costs              |       | 297                                           |       | 247 |   |
| Premium and  discount amortization on Available-for-Sale                                     |       | 30                                            |       | 37 |   |
| Deferred income  taxes                                                                       |       | (66                                           | )          | 53 |   |
| Contractholder  and policyholder charges, non-cash                                           |       | (120                                          | )          | (101 | ) |
| Net realized  investment losses (gains)                                                      |       | 29                                            |       | (7 | ) |
| Net realized  gain on trading securities and equity method investments in hedge funds        |       | —                                        |       | (2 | ) |
| Change in  operating assets and liabilities:                                                 |       |                                          |       |   |   |
| Trading  securities and equity method investments in hedge funds, net                        |       | 1                                             |       | 91 |   |
| Future policy  benefits for traditional life, disability income and long term care insurance |       | 145                                           |       | 140 |   |
| Policy claims  and other policyholders’ funds                                           |       | 4                                             |       | 13 |   |
| Reinsurance  recoverables                                                                    |       | (127                                          | )          | (78 | ) |
| Other accounts  receivable                                                                   |       | (21                                           | )          | (25 | ) |
| Accrued  investment income                                                                   |       | 10                                            |       | 42 |   |
| Other assets and  liabilities, net                                                           |       | (36                                           | )          | (95 | ) |
|                                                                                         |       |                                          |       |   |   |
| **Net  cash provided by operating activities**                                               |       | 50                                            |       | 113 |   |
| ** **                                                                                   |       |                                          |       |   |   |
| **Cash  Flows from Investing Activities**                                                    |       |                                          |       |   |   |
| Available-for-Sale  securities:                                                              |       |                                          |       |   |   |
| Proceeds from  sales                                                                         |       | 100                                           |       | 2,296 |   |
| Maturities,  sinking fund payments and calls                                                 |       | 1,306                                         |       | 955 |   |
| Purchases                                                                                    |       | (627                                          | )          | (296 | ) |
| Other  investments, excluding policy loans:                                                  |       |                                          |       |   |   |
| Proceeds from  sales, maturities, sinking fund payments and calls                            |       | 146                                           |       | 291 |   |
| Purchases                                                                                    |       | (221                                          | )          | (189 | ) |
| Change in policy  loans, net                                                                 |       | (21                                           | )          | (20 | ) |
|                                                                                         |       |                                          |       |   |   |
| **Net  cash provided by investing activities**                                               |       | 683                                           |       | 3,037 |   |
| ** **                                                                                   |       |                                          |       |   |   |
| **Cash  Flows from Financing Activities**                                                    |       |                                          |       |   |   |
| Activity related  to investment contracts and universal life-type insurance:                 |       |                                          |       |   |   |
| Considerations  received                                                                     |       | 876                                           |       | 491 |   |
| Net transfers to  separate accounts                                                          |       | (46                                           | )          | (201 | ) |
| Surrenders and  other benefits                                                               |       | (1,540                                        | )          | (1,984 | ) |
| Other                                                                                        |       | (32                                           | )          | — |   |
| Cash dividends to Ameriprise Financial, Inc.                                            |       | (400                                          | )          | (250 | ) |
|                                                                                         |       |                                          |       |   |   |
| **Net  cash used in financing activities**                                                   |       | (1,142                                        | )          | (1,944 | ) |
| ** **                                                                                   |       |                                          |       |   |   |
| **Net  increase (decrease) in cash equivalents**                                             |       | (409                                          | )          | 1,206 |   |
| Cash equivalents  at beginning of period                                                     |       | 973                                           |       | 160 |   |
|                                                                                         |       |                                          |       |   |   |
| **Cash  equivalents at end of period**                                                       |       | $                                             | 564        |   | $ | 1,366 |   |
| ** **                                                                                   |       |                                          |       |   |   |
| Supplemental  Disclosures:                                                                   |       |                                          |       |   |   |
| Income taxes  paid, net                                                                      |       | $                                             | 100        |   | $ | 47 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)**

**SIX MONTHS ENDED JUNE 30, 2008 AND 2007**

**(in millions)**

** **
| ** **                                                         | ** ** | **Common  Shares** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income/(Loss)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|------------------------|------------|------------------------------------------------------|------------|-----------|------------|
| **Balances at December 31, 2006**                             |       | $                  | 3          |                             | $          | 2,021                  |       | $                                                    | 3,455      |      | $          | (209 | ) | $ | 5,270 |   |
| ** **                                                         |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| Change in accounting principles                                    |       | —             |       | —                           |       | (134                   | )          | —                                               |       | (134      | )          |
| Other  comprehensive income:                                       |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| Net income                                                         |       | —             |       | —                           |       | 229                    |       | —                                               |       | 229       |       |
| Change in unrealized holding losses on securities, net             |       | —             |       | —                           |       | —                 |       | (125                                                 | )          | (125      | )          |
| Total other comprehensive income                                   |       |               |       |                             |       |                   |       |                                                 |       | 104       |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (250                   | )          | —                                               |       | (250      | )          |
| Non-cash capital contribution from Ameriprise Financial, Inc. |       | —             |       | 9                                |       | —                 |       | —                                               |       | 9         |       |
| **Balances at June 30, 2007**                                 |       | $                  | 3          |                             | $          | 2,030                  |       | $                                                    | 3,300      |      | $          | (334 | ) | $ | 4,999 |   |
|                                                               |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| **Balances at December 31, 2007**                             |       | $                  | 3          |                             | $          | 2,031                  |       | $                                                    | 2,842      |      | $          | (156 | ) | $ | 4,720 |   |
| Change in accounting principles                                    |       | —             |       | —                           |       | (30                    | )          | —                                               |       | (30       | )          |
| Other  comprehensive income:                                       |       |               |       |                             |       |                   |       |                                                 |       |      |       |
| Net income                                                         |       | —             |       | —                           |       | 252                    |       | —                                               |       | 252       |       |
| Change in unrealized holding losses on securities, net             |       | —             |       | —                           |       | —                 |       | (204                                                 | )          | (204      | )          |
| Change in unrealized derivative losses, net                        |       | —             |       | —                           |       | —                 |       | 1                                                    |       | 1         |       |
| Total other comprehensive income                                   |       |               |       |                             |       |                   |       |                                                 |       | 49        |       |
| Cash dividends to Ameriprise Financial, Inc.                  |       | —             |       | —                           |       | (400                   | )          | —                                               |       | (400      | )          |
| **Balances at June 30, 2008**                                 |       | $                  | 3          |                             | $          | 2,031                  |       | $                                                    | 2,664      |      | $          | (359 | ) | $ | 4,339 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

 

**1.****              Basis ofPresentation**

 

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned operating subsidiary, RiverSource LifeInsurance Co. of New York.  RiverSourceLife Insurance Company is a wholly owned subsidiary of Ameriprise Financial, Inc.(“Ameriprise Financial”).  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.  RiverSource LifeInsurance Company and its subsidiary are referred to collectively in this Form 10-Qas “RiverSource Life”.

 

The interim financialinformation in this report has not been audited. In the opinion of management,all adjustments necessary for a fair presentation of the consolidated financialposition and results of operations for the interim periods have been made. Alladjustments made were of a normal recurring nature.

 

**Reclassifications**

 

The accompanyingConsolidated Financial Statements are prepared in accordance with U.S.generally accepted accounting principles (“GAAP”).  Certain reclassifications of prior periodamounts have been made to conform to the current presentation, including newincome statement captions which are described in Note 1 of RiverSource Life’sAnnual Report on Form 10-K for the year ended December 31, 2007,filed with the Securities and Exchange Commission (“SEC”) on February 29,2008 (the “2007 10-K”).  In the secondquarter of 2008, RiverSource Life reclassified the mark-to-market adjustmentson certain derivatives from net investment income to various expense lineswhere the mark-to-market adjustment on the related embedded derivative resides.The mark-to-market adjustment on derivatives hedging variable annuity livingbenefits and equity indexed annuities were reclassified to benefits, claims,losses and settlement expenses and interest credited to fixed accounts,respectively.  As part of theDecember 31, 2007 reclassifications, portions of these mark-to-marketadjustments were reclassified from other insurance and operating expenses tonet investment income.

 

These reclassificationswere made to enhance transparency and to better align the financial statementline captions with the key drivers of the business.  The reclassifications did not result in anychanges to consolidated net income or shareholder’s equity.  Results of operations reported for interimperiods are not necessarily indicative of results for the entire year.  These Consolidated Financial Statements andNotes should be read in conjunction with the Consolidated Financial Statementsand Notes in RiverSource Life’s 2007 10-K.

 

***        Income Statement Reclassifications***

 

The following table showsthe impact of the new captions and the reclassifications made to RiverSourceLife’s previously reported Consolidated Statements of Income.

 
| ** **                                        | ** ** | **Three Months Ended  June 30, 2007** | ** ** | **Six Months Ended  June 30, 2007** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                        | ** ** | **Previously  Reported**                                  | ** ** | **Reclassified**                                        | ** ** | **Previously  Reported** | ** ** | **Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                                    | ** ** |
| **Revenues**                                      |       |                                                      |       |                                                    |       |   |   |   |   |
| Premiums                                          |       | $                                                         | 97         |                                                    | $          | 122 |   | $ | 190 |   | $ | 238 |   |
| Net investment  income                            |       | 387                                                       |       | 379                                                     |       | 769 |   | 769 |   |
| Policy and  contract charges                      |       | 169                                                       |       | 299                                                     |       | 333 |   | 585 |   |
| Other revenue                                     |       | 206                                                       |       | 63                                                      |       | 394 |   | 121 |   |
| Net realized  investment gains                    |       | —                                                    |       | —                                                  |       | 7 |   | 7 |   |
|                                              |       |                                                      |       |                                                    |       |   |   |   |   |
| Total revenues                                    |       | 859                                                       |       | 863                                                     |       | 1,693 |   | 1,720 |   |
|                                              |       |                                                      |       |                                                    |       |   |   |   |   |
| **Benefits  and expenses**                        |       |                                                      |       |                                                    |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 116                                                       |       | 176                                                     |       | 232 |   | 331 |   |
| Interest  credited to fixed accounts              |       | 248                                                       |       | 215                                                     |       | 484 |   | 433 |   |
| Amortization of  deferred acquisition costs       |       | 104                                                       |       | 104                                                     |       | 217 |   | 217 |   |
| Separation costs                                  |       | 26                                                        |       | 26                                                      |       | 64 |   | 64 |   |
| Other insurance  and operating expenses           |       | 216                                                       |       | 193                                                     |       | 398 |   | 377 |   |
|                                              |       |                                                      |       |                                                    |       |   |   |   |   |
| Total benefits  and expenses                      |       | 710                                                       |       | 714                                                     |       | 1,395 |   | 1,422 |   |
|                                              |       |                                                      |       |                                                    |       |   |   |   |   |
| Pretax income                                     |       | 149                                                       |       | 149                                                     |       | 298 |   | 298 |   |
| Income tax  provision                             |       | 36                                                        |       | 36                                                      |       | 69 |   | 69 |   |
|                                              |       |                                                      |       |                                                    |       |   |   |   |   |
| **Net  income**                                   |       | $                                                         | 113        |                                                    | $          | 113 |   | $ | 229 |   | $ | 229 |   |

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**1.****              Basis ofPresentation (Continued)**

 

***        Statement of Cash Flows Reclassifications***

 

The effect ofreclassifications on prior period net cash flows related to operating,investing and financing activities is summarized below.

 
| ** **                                                                       | ** ** | **Six Months  Ended  June 30, 2007** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                       | ** ** | **(in millions)**                              | ** ** |
|                                                                             |       |                                                |       |
| Net cash used in  operating activities, previous presentation                    |       | $                                                   | (62        | ) |
| Reclassification  for annuity transfers                                          |       | 143                                                 |       |
| Reclassification  for policy loans                                               |       | 1                                                   |       |
| Other  reclassifications                                                         |       | 31                                                  |       |
| Net cash  provided by operating activities, adjusted for these reclassifications |       | $                                                   | 113        |   |
|                                                                             |       |                                                |       |
| Net cash  provided by investing activities, previous presentation                |       | $                                                   | 3,087      |   |
| Reclassification  for policy loans                                               |       | (20                                                 | )          |
| Other  reclassifications                                                         |       | (30                                                 | )          |
| Net cash  provided by investing activities, adjusted for these reclassifications |       | $                                                   | 3,037      |   |
|                                                                             |       |                                                |       |
| Net cash used in  financing activities, previous presentation                    |       | $                                                   | (1,819     | ) |
| Reclassification  for annuity transfers                                          |       | (143                                                | )          |
| Reclassification  for policy loans                                               |       | 19                                                  |       |
| Other  reclassifications                                                         |       | (1                                                  | )          |
| Net cash used in  financing activities, adjusted for these reclassifications     |       | $                                                   | (1,944     | ) |

 

**2.****              Recent Accounting****Pronouncements**

 

In March 2008, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 161 “Disclosures about DerivativeInstruments and Hedging Activities—an amendment of FASB Statement No. 133”(“SFAS 161”). SFAS 161 intends to improve financial reporting about derivativeinstruments and hedging activities by requiring enhanced disclosures abouttheir impact on an entity’s financial position, financial performance and cashflows. SFAS 161 requires disclosures regarding the objectives for usingderivative instruments, the fair value of derivative instruments and theirrelated gains and losses, and the accounting for derivatives and related hedgeditems. SFAS 161 is effective for fiscal years and interim periods beginningafter November 15, 2008, with early adoption permitted. RiverSource Lifeis currently evaluating the impact of SFAS 161 on its disclosures. RiverSourceLife’s adoption of SFAS 161 will not impact its consolidated financialcondition and results of operations.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS141(R)”).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures theidentifiable assets acquired, the liabilities assumed, any noncontrollinginterest in an acquiree, and goodwill acquired. SFAS 141(R) also requires an acquirer to disclose information aboutthe financial effects of a business combination.  SFAS 141(R) is effective prospectivelyfor business combinations with an acquisition date on or after the beginning ofthe first annual reporting period beginning on or after December 15, 2008,with early adoption prohibited. RiverSource Life will apply the standard to any business combinationswithin the scope of SFAS 141(R) occurring after December 31, 2008.

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements — an amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 establishes the accounting andreporting for ownership interest in subsidiaries not attributable, directly orindirectly, to a parent.  SFAS 160requires that noncontrolling (minority) interests be classified as equity(instead of as a liability) within the Consolidated Balance Sheets, and netincome attributable to both the parent and the noncontrolling interest bedisclosed on the face of the Consolidated Statements of Income.  SFAS 160 is effective for fiscal yearsbeginning after December 15, 2008, and interim periods within those yearswith early adoption prohibited.  Theprovisions of SFAS 160 are to be applied prospectively, except for thepresentation and disclosure requirements which are to be appliedretrospectively to all periods presented. RiverSource Life will apply the provisions of SFAS 160 to anynoncontrolling interests held after December 31, 2008.

 

6

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Table ofContents

 

**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**2.****              Recent Accounting****Pronouncements (Continued)**

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS157 defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements.  SFAS 157 applies under other accountingpronouncements that require or permit fair value measurements. Accordingly,SFAS 157 does not require any new fair value measurements. The provisions ofSFAS 157 are required to be applied prospectively as of the beginning of thefiscal year in which SFAS 157 is initially applied, except for certainfinancial instruments as defined in SFAS 157 that require retrospectiveapplication. Any retrospective application will be recognized as a cumulativeeffect adjustment to the opening balance of retained earnings for the fiscalyear of adoption. RiverSource Life adopted SFAS 157 effective January 1,2008 and recorded a cumulative effect reduction to the opening balance ofretained earnings of $30 million, net of deferred acquisition costs (“DAC”) anddeferred sales inducement costs (“DSIC”) amortization and income taxes. Thisreduction to retained earnings was related to adjusting the fair value ofcertain derivatives RiverSource Life uses to hedge its exposure to market riskrelated to certain variable annuity riders. RiverSource Life initially recorded these derivatives in accordance withEmerging Issues Task Force (“EITF”) Issue No. 02-3 “Issues Involved inAccounting for Derivative Contracts Held for Trading Purposes and ContractsInvolved in Energy Trading and Risk Management Activities” (“EITF 02-3”).  SFAS 157 nullifies the guidance in EITF 02-3and requires these derivatives to be marked to the price RiverSource Life wouldreceive to sell the derivatives to a market participant (an exit price).  The adoption of SFAS 157 also resulted in adjustmentsto the fair value of RiverSource Life’s embedded derivative liabilitiesassociated with certain variable annuity riders. Since there is no market forthese liabilities, RiverSource Life considered the assumptions participants ina hypothetical market would make to determine an exit price. As a result,RiverSource Life adjusted the valuation of these liabilities by updatingcertain policyholder assumptions, adding explicit margins to provide forprofit, risk and expenses and adjusting the rate used to discount expected cashflows to reflect a current market estimate of RiverSource Life’s risk ofnonperformance specific to these liabilities. These adjustments resulted in anadoption impact of a $4 million increase in earnings, net of DAC and DSICamortization and income taxes, at January 1, 2008. The nonperformance riskcomponent of the adjustment is specific to the risk of RiverSource Life notfulfilling these liabilities. As RiverSource Life’s estimate of this creditspread widens or tightens, the liability will decrease or increase.

 

In accordancewith FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157”(“FSP 157-2”), RiverSource Life will defer the adoption of SFAS 157 until January 1,2009 for all nonfinancial assets and nonfinancial liabilities, except for thosethat are recognized or disclosed at fair value in the financial statements on arecurring basis.  In January 2008,the FASB published for comment Proposed FSP FAS 157-c “Measuring Liabilitiesunder FASB Statement No. 157” (“FSP 157-c”).  FSP 157-c would amend SFAS 157 to clarify theaccounting principles on the fair value measurement of liabilities.  RiverSource Life is monitoring the impactthat this proposed FSP could have on its consolidated financial condition andresults of operations.   See Note 5 foradditional information regarding the fair values of RiverSource Life’s assetsand liabilities.

 

In June 2006,the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”).FIN 48 clarifies the accounting for uncertainty in income taxes recognized inaccordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN48 prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure and transition.  RiverSource Life adopted FIN 48 as of January 1, 2007.  The effect of adopting FIN 48 on RiverSourceLife’s consolidated financial condition and results of operations was not material.

 

In September 2005, theAmerican Institute of Certified Public Accountants (“AICPA”) issued Statementof Position (“SOP”) 05-1, “Accounting by Insurance Enterprises for DeferredAcquisition Costs in Connection With Modifications or Exchanges of InsuranceContracts,” (“SOP 05-1”).  SOP 05-1provides clarifying guidance on accounting for DAC associated with an insuranceor annuity contract that is significantly modified or is internally replacedwith another contract.  Prior toadoption, RiverSource Life accounted for many of these transactions as contractcontinuations and continued amortizing existing DAC against revenue for the newor modified contract.  Effective January 1,2007, RiverSource Life adopted SOP 05-1 resulting in these transactions beingprospectively accounted for as contract terminations.  Consistent with this, RiverSource Life nowanticipates these transactions in establishing amortization periods and othervaluation assumptions.  As aresult of adopting SOP 05-1, RiverSource Life recorded as a cumulative changein accounting principle $206 million, reducing DAC by $204 million, DSIC by $11million and liabilities for future policy benefits by $9 million.  The after-tax decrease to retained earningsfor these changes was $134 million.

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**3.****              Separation andDistribution of Ameriprise Financial, Inc. from American Express**

 

Ameriprise Financial was formerly a wholly ownedsubsidiary of American Express Company (“American Express”).  On February 1, 2005, the AmericanExpress Board of Directors announced its intention to pursue the disposition of100% of its shareholdings in Ameriprise Financial (the “Separation”) through atax-free distribution to American Express shareholders.  Effective as of the close of business on September 30,2005, American Express completed the Separation and the distribution ofAmeriprise Financial common shares to American Express shareholders (the “Distribution”).  In connection with the Distribution,Ameriprise Financial entered into certain agreements with American Express toeffect the Separation and to define the responsibility for obligations arisingbefore and after the date of the Distribution, including, among others,obligations relating to transition services, taxes, and employees.  Through 2007, RiverSource Life was allocatedcertain expenses incurred as a result of Ameriprise Financial becoming anindependent company.  The separation fromAmerican Express was completed in 2007.

 

**4.****              Investments**

 

The following is asummary of Available-for-Sale securities by type:

 
| **June 30, 2008**                 | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
|                                        |       | **(in millions)** |       |
| Fixed  maturities:                          |       |                   |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $12,321                |       | $65                          |       | $(472                         | )          | $11,914         |       |
| Mortgage and  other asset-backed securities |       | 7,326                  |       | 28                           |       | (240                          | )          | 7,114           |       |
| U.S. government  and agencies obligations   |       | 247                    |       | 7                            |       | (1                            | )          | 253             |       |
| State and municipal  obligations            |       | 164                    |       | 2                            |       | (6                            | )          | 160             |       |
| Foreign  government bonds and obligations   |       | 96                     |       | 14                           |       | —                        |       | 110             |       |
| Structured  investments(a)                  |       | 2                      |       | —                       |       | —                        |       | 2               |       |
| Total fixed  maturities                     |       | 20,156                 |       | 116                          |       | (719                          | )          | 19,553          |       |
| Common and  preferred stocks                |       | 30                     |       | —                       |       | (4                            | )          | 26              |       |
| Total                                       |       | $20,186                |       | $116                         |       | $(723                         | )          | $19,579         |       |

 

----

(a)   Includes unconsolidated collateralized debt obligations.

 
| **December 31, 2007**             | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Fixed  maturities:                          |       |                   |       |                         |       |                          |       |            |       |
| Corporate debt  securities                  |       | $                      | 12,870     |                         | $          | 112                           |       | $               | (307       | ) | $ | 12,675 |   |
| Mortgage and  other asset-backed securities |       | 7,637                  |       | 33                           |       | (84                           | )          | 7,586           |       |
| U.S. government  and agencies obligations   |       | 249                    |       | 7                            |       | (1                            | )          | 255             |       |
| State and  municipal obligations            |       | 165                    |       | 3                            |       | (6                            | )          | 162             |       |
| Foreign  government bonds and obligations   |       | 97                     |       | 15                           |       | —                        |       | 112             |       |
| Structured  investments(a)                  |       | 2                      |       | —                       |       | —                        |       | 2               |       |
| Total fixed  maturities                     |       | 21,020                 |       | 170                          |       | (398                          | )          | 20,792          |       |
| Common and  preferred stocks                |       | 30                     |       | —                       |       | (1                            | )          | 29              |       |
| Total                                       |       | $                      | 21,050     |                         | $          | 170                           |       | $               | (399       | ) | $ | 20,821 |   |

 

----

(a)   Includes unconsolidated collateralized debt obligations.

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**4.     Investments (Continued)**

 

Net realizedinvestment gains and losses on Available-for-Sale securities, determined usingthe specific identification method, were as follows:

 
| ** **                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                       | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                       | ** ** | **(in millions)**                          | ** ** |
| Gross realized investment gains  |       | $                                               | —     |                                          | $          | 15 |   | $ | 9 |   | $ | 28 |   |
| Gross realized investment losses |       | —                                          |       | (13                                           | )          | (2 | ) | (19 | ) |
| Other-than-temporary impairments |       | (6                                              | )          | (2                                            | )          | (36 | ) | (2 | ) |
|                                  |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

RiverSource Life regularly reviews Available-for-Salesecurities for impairments in value considered to be other-than-temporary. Thecost basis of securities that are determined to be other-than-temporarilyimpaired is written down to current fair value with a corresponding charge tonet income. A write-down for impairment can be recognized for bothcredit-related events and for changes in fair value due to changes in interestrates. Once a security is written down to fair value through net income, anysubsequent recovery in value cannot be recognized in net income until theprincipal is returned.

 

Factors RiverSource Life considers in determiningwhether declines in the fair value of fixed-maturity securities areother-than-temporary include: 1) the extent to which the market value is belowamortized cost; 2) RiverSource Life’s ability and intent to hold the investmentfor a sufficient period of time for it to recover to an amount at least equalto its carrying value; 3) the duration of time in which there has been asignificant decline in value; 4) fundamental analysis of the liquidity,business prospects and overall financial condition of the issuer; and 5) marketevents that could impact credit ratings, economic and business climate,litigation and government actions and similar external business factors. Forstructured investments (e.g., mortgage-backed securities), RiverSource Lifealso considers factors such as overall deal structure and its position withinthe structure, quality of underlying collateral, delinquencies and defaults,loss severities, recoveries, prepayments, cumulative loss projections anddiscounted cash flows in assessing potential other-than-temporary impairment ofthese investments.  Based upon thesefactors, securities that have indicators of potential other-than-temporaryimpairment are subject to detailed review by management. Securities for whichdeclines are considered temporary continue to be carefully monitored bymanagement.

 

For the three and six months ended June 30, 2008,other-than-temporary impairments of $6 million and $36 million, respectively,primarily relate to four Alt-A mortgage-backed securities.

 

The following tablesprovide information about Available-for-Sale securities with gross unrealizedlosses and the length of time that individual securities have been in acontinuous unrealized loss position:

 
| ** **                                  | ** ** | **June 30, 2008**            | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **Less than 12 months** | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **Fair**                               | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** |
| **Description of securities:**    | ** ** | **Value**                              | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** |
| ** **                                  | ** ** | **(in millions)**                 | ** ** |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                                      | 5,100      |   | $ | (134 | ) | $ | 3,756 |   | $ | (338 | ) | $ | 8,856 |   | $ | (472 | ) |
| Mortgage and  other asset-backed securities |       | 2,756                                  |       | (107 | ) | 2,212 |   | (133 | ) | 4,968 |   | (240 | ) |
| U.S. government  and agencies obligations   |       | 49                                     |       | — |   | 36 |   | (1 | ) | 85 |   | (1 | ) |
| State and  municipal obligations            |       | 63                                     |       | (4 | ) | 45 |   | (2 | ) | 108 |   | (6 | ) |
| Foreign  government bonds and obligations   |       | 8                                      |       | — |   | — |   | — |   | 8 |   | — |   |
| Common and  preferred stocks                |       | 26                                     |       | (4 | ) | — |   | — |   | 26 |   | (4 | ) |
| Total                                       |       | $                                      | 8,002      |   | $ | (249 | ) | $ | 6,049 |   | $ | (474 | ) | $ | 14,051 |   | $ | (723 | ) |

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**4.     Investments (Continued)**

 
| ** **                                  | ** ** | **December 31, 2007**        | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **Less than 12 months** | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Description of securities:**    | ** ** | **Fair  Value**                        | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                                  | ** ** | **(in millions)**                 | ** ** |
|                                        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                                      | 1,477      |   | $ | (45 | ) | $ | 7,083 |   | $ | (262 | ) | $ | 8,560 |   | $ | (307 | ) |
| Mortgage and  other asset-backed securities |       | 888                                    |       | (15 | ) | 4,219 |   | (69 | ) | 5,107 |   | (84 | ) |
| U.S. government  and agencies obligations   |       | —                                 |       | — |   | 154 |   | (1 | ) | 154 |   | (1 | ) |
| State and  municipal obligations            |       | 47                                     |       | (4 | ) | 63 |   | (2 | ) | 110 |   | (6 | ) |
| Foreign  government bonds and obligations   |       | —                                 |       | — |   | 2 |   | — |   | 2 |   | — |   |
| Common and  preferred stocks                |       | 29                                     |       | (1 | ) | — |   | — |   | 29 |   | (1 | ) |
| Total                                       |       | $                                      | 2,441      |   | $ | (65 | ) | $ | 11,521 |   | $ | (334 | ) | $ | 13,962 |   | $ | (399 | ) |

 

In evaluatingpotential other-than-temporary impairments, RiverSource Life considers theextent to which amortized cost exceeds fair value and the duration of thatdifference. A key metric in performing this evaluation is the ratio of fairvalue to amortized cost. The following tables summarize the unrealized lossesby ratio of fair value to amortized cost:

 
| ** **                                                          | ** ** | **June 30, 2008**                                         | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Less than 12 months**                              | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Ratio of Fair Value  to Amortized Cost** | ** ** | **Number  of  Securities**                                          | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** |
| ** **                                                          | ** ** | **(in millions, except  number of securities)** | ** ** |
| 95% - 100%                                                          |       | 388                                                                 |       | $ | 7,117 |   | $ | (120 | ) | 182 |   | $ | 3,344 |   | $ | (100 | ) | 570 |   | $ | 10,461 |   | $ | (220 | ) |
| 90% - 95%                                                           |       | 39                                                                  |       | 544 |   | (41 | ) | 85 |   | 1,702 |   | (130 | ) | 124 |   | 2,246 |   | (171 | ) |
| 80% - 90%                                                           |       | 15                                                                  |       | 175 |   | (29 | ) | 57 |   | 717 |   | (129 | ) | 72 |   | 892 |   | (158 | ) |
| Less than 80%                                                       |       | 21                                                                  |       | 166 |   | (59 | ) | 31 |   | 286 |   | (115 | ) | 52 |   | 452 |   | (174 | ) |
| Total                                                               |       | 463                                                                 |       | $ | 8,002 |   | $ | (249 | ) | 355 |   | $ | 6,049 |   | $ | (474 | ) | 818 |   | $ | 14,051 |   | $ | (723 | ) |

 
| ** **                                                          | ** ** | **December 31, 2007**                                     | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Less than 12 months**                              | ** ** | **12 months or more** | ** ** | **Total** | ** ** |
| **Ratio of Fair Value  to Amortized Cost** | ** ** | **Number  of  Securities**                                          | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Number  of  Securities** | ** ** | **Fair  Value** | ** ** | **Gross  Unrealized  Losses** | ** ** |
| ** **                                                          | ** ** | **(in millions, except  number of securities)** | ** ** |
| 95% - 100%                                                          |       | 164                                                                 |       | $ | 2,015 |   | $ | (25 | ) | 486 |   | $ | 10,169 |   | $ | (180 | ) | 650 |   | $ | 12,184 |   | $ | (205 | ) |
| 90% - 95%                                                           |       | 31                                                                  |       | 305 |   | (22 | ) | 48 |   | 811 |   | (57 | ) | 79 |   | 1,116 |   | (79 | ) |
| 80% - 90%                                                           |       | 4                                                                   |       | 121 |   | (18 | ) | 32 |   | 461 |   | (66 | ) | 36 |   | 582 |   | (84 | ) |
| Less than 80%                                                       |       | 1                                                                   |       | — |   | — |   | 10 |   | 80 |   | (31 | ) | 11 |   | 80 |   | (31 | ) |
| Total                                                               |       | 200                                                                 |       | $ | 2,441 |   | $ | (65 | ) | 576 |   | $ | 11,521 |   | $ | (334 | ) | 776 |   | $ | 13,962 |   | $ | (399 | ) |

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**5.****             ****Fair Values of Assets and Liabilities**

 

Effective January 1,2008, RiverSource Life adopted SFAS 157, which defines fair value, establishesa framework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS 157 defines fair value as the price that would be receivedto sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date; that is, an exit price.The exit price assumes the asset or liability is not exchanged subject to aforced liquidation or distressed sale.

 

**Valuation Hierarchy**

 

UnderSFAS 157, RiverSource Life categorizes its fair value measurements according toa three-level hierarchy. The hierarchy prioritizes the inputs used byRiverSource Life’s valuation techniques. A level is assigned to each fair valuemeasurement based on the lowest level input that is significant to the fairvalue measurement in its entirety. The three levels of the fair value hierarchyare 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.               |

 

**Determinationof Fair Value**

 

RiverSource Life usesvaluation techniques consistent with the market and income approaches tomeasure the fair value of its assets and liabilities. RiverSource Life’s marketapproach uses prices and other relevant information generated by markettransactions involving identical or comparable assets or liabilities.RiverSource Life’s income approach uses valuation techniques to convert futureprojected cash flows to a single discounted present value amount. When applyingeither approach, RiverSource Life maximizes the use of observable inputs andminimizes the use of unobservable inputs.

 

The following is adescription of the valuation techniques used to measure fair value and thegeneral classification of these instruments pursuant to the fair valuehierarchy.

 

**Assets**

 

*Cash Equivalents*

* *

Cash equivalentsinclude highly liquid investments with original maturities of 90 days or less.Actively traded money market funds are measured at their net asset value (“NAV”)and classified as Level 1. RiverSource Life’s remaining cash equivalents areclassified as Level 2 and are measured at amortized cost, which is a reasonableestimate of fair value because of the short time between the purchase of theinstrument and its expected realization.

 

*Available-for-SaleSecurities*

* *

When available, thefair value of securities is based on quoted prices in active markets. If quotedprices are not available, fair values are obtained from nationally-recognizedpricing services, broker quotes, or other model-based valuation techniques suchas the present value of cash flows. Level 1 securities include U.S. Treasuries.Level 2 securities include agency mortgage-backed securities; and certainnon-agency mortgage-backed securities, asset-backed securities, municipal andcorporate bonds, and U.S. and foreign government and agency securities. Level 3securities include certain non-agency mortgage-backed securities, asset-backedsecurities, and corporate bonds.

 

*Separate AccountAssets*

* *

The fair value ofassets held by separate accounts is determined by the NAV of the funds in whichthose separate accounts are invested. The NAV represents the exit price for theseparate account. These assets are classified as Level 2.

 

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**RIVERSOURCE LIFE INSURANCECOMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**5.****             ****Fair Values of Assets and Liabilities (Continued)**

 

*Derivatives*

* *

The fair value ofderivatives that are traded in certain over-the-counter markets are generallymeasured using pricing models with market observable inputs such as interestrates and equity index levels. These measurements are classified as Level 2within the fair value hierarchy and include interest rate swaps and options.Derivatives that are valued using pricing models that have significantunobservable inputs are classified as Level 3 measurements. Structuredderivatives that are used by RiverSource Life to hedge its exposure to marketrisk related to certain variable annuity riders are classified as Level 3.

 

**Liabilities**

 

*Embedded Derivatives*

* *

*VariableAnnuity Riders – Guaranteed Minimum Accumulation Benefit and Guaranteed MinimumWithdrawal Benefit*

* *

RiverSource Lifevalues the embedded derivative liability attributable to the provisions ofcertain variable annuity riders using internal valuation models. These modelscalculate fair value by discounting expected cash flows from benefits plusmargins for profit, risk, and expenses less embedded derivative fees.  The projected cash flows used by these modelsinclude observable capital market assumptions and incorporate significantunobservable inputs related to policyholder behavior assumptions and marginsfor risk, profit and expenses that RiverSource Life believes an exit marketparticipant would expect. The fair value of these embedded derivatives alsoreflects a current estimate of RiverSource Life’s nonperformance risk specificto these liabilities. Given the significant unobservable inputs to thisvaluation, these measurements are classified as Level 3. The embeddedderivative liability attributable to these provisions is recorded in futurepolicy benefits.

 

*Equity Indexed Annuities*

* *

RiverSourceLife uses various Black-Scholes calculations to determine the fair value of theembedded derivative liability associated with the provisions of its equityindexed annuities. The inputs to these calculations are primarily marketobservable. As a result, these measurements are classified as Level 2. Theembedded derivative liability attributable to the provisions of RiverSourceLife’s equity indexed annuities is recorded in future policy benefits.

 

Thefollowing table presents the balances of assets and liabilities measured atfair value on a recurring basis:

 
|                             |   | **June 30, 2008** |       |
|----------------------------------|--------|-----------------------------|------------|
|                             |   | **Level 1**            | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** |   |
|                             |   | **(in millions)**      |       |
| Assets                           |   |                        |       |   |   |   |   |   |   |
| Available-for-Sale:              |   |                        |       |   |   |   |   |   |   |
| Fixed maturities                 |   | $                           | 19         |   | $ | 17,772 |   | $ | 1,762 |   | $ | 19,553 |   |
| Common and  preferred stocks     |   | —                      |       | 26 |   | — |   | 26 |   |
| Cash equivalents                 |   | 10                          |       | 554 |   | — |   | 564 |   |
| Other assets                     |   | —                      |       | (16 | ) | 74 |   | 58 |   |
| Separate account  assets         |   | —                      |       | 55,150 |   | — |   | 55,150 |   |
| Total assets at  fair value      |   | $                           | 29         |   | $ | 73,486 |   | $ | 1,836 |   | $ | 75,351 |   |
|                             |   |                        |       |   |   |   |   |   |   |
| Liabilities                      |   |                        |       |   |   |   |   |   |   |
| Future policy  benefits          |   | $                           | —     |   | $ | 31 |   | $ | 154 |   | $ | 185 |   |
| Other  liabilities               |   | —                      |       | (3 | ) | 4 |   | 1 |   |
| Total  liabilities at fair value |   | $                           | —     |   | $ | 28 |   | $ | 158 |   | $ | 186 |   |

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**5.****             ****Fair Values of Assets andLiabilities (Continued)**

 

The following tablesprovide a summary of changes in Level 3 assets and liabilities measured at fairvalue on a recurring basis:

 
| ** **                                                                                                           | ** ** | **Three Months Ended June 30, 2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                           | ** ** | **Available-for-  Sale  Securities:  Fixed  Maturities**      | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** |
| ** **                                                                                                           | ** ** | **(in millions)**                                        | ** ** |
| Balance, March 31                                                                                               | ** ** | $                                                             | 1,809      |   | $ | 332 |   | $ | (295 | ) | $ | — | ** ** |
| Total gains  (losses) included in:                                                                                   | ** ** |                                                          |       |   |   |   |   |   | ** ** |
| Net income                                                                                                           | ** ** | (6                                                            | )(1)       | (29 | )(2) | 158 | (2) | — | ** ** |
| Other  comprehensive income                                                                                          | ** ** | (83                                                           | )          | — |   | — |   | — | ** ** |
| Purchases,  sales, issuances and settlements, net                                                                    | ** ** | 42                                                            |       | (229 | ) | (17 | ) | (4 | ) |
| Balance, June 30                                                                                                | ** ** | $                                                             | 1,762      |   | $ | 74 |   | $ | (154 | ) | $ | (4 | ) |
|                                                                                                                 | ** ** |                                                          |       |   |   |   |   |   |   |
| Change in  unrealized gains (losses) included in net income relating to assets and  liabilities held at June 30 | ** ** | $                                                             | (6         | )(1) | $ | (11 | )(2) | $ | 159 | (2) | $ | — | ** ** |

 

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(1)   Included in net realized investment gains(losses) in the Consolidated Statements of Income.

(2)          Includedin benefits, claims, losses and settlement expenses in the ConsolidatedStatements of Income.

 
| ** **                                                                                                          | ** ** | **Six Months Ended June 30, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **Available-  for-Sale  Securities:  Fixed  Maturities**    | ** ** | **Other  Assets** | ** ** | **Future  Policy  Benefits** | ** ** | **Other  Liabilities** | ** ** |
| ** **                                                                                                          | ** ** | **(in millions)**                                      | ** ** |
| Balance,  January 1                                                                                            |       | $                                                           | 1,810      |   | $ | 280 |   | $ | (158 | ) | $ | — |   |
| Total gains (losses)  included in:                                                                                  |       |                                                        |       |   |   |   |   |   |   |
| Net income                                                                                                          |       | (33                                                         | )(1)       | 23 | (3) | 34 | (3) | — |   |
| Other  comprehensive income                                                                                         |       | (121                                                        | )          | — |   | — |   | — |   |
| Purchases,  sales, issuances and settlements, net                                                                   |       | 106                                                         |       | (229 | ) | (30 | ) | (4 | ) |
| Balance,  June 30                                                                                              |       | $                                                           | 1,762      |   | $ | 74 |   | $ | (154 | ) | $ | (4 | ) |
|                                                                                                                |       |                                                        |       |   |   |   |   |   |   |
| Change in unrealized gains (losses) included in net  income relating to assets and liabilities held at June 30 |       | $                                                           | (36        | )(2) | $ | 1 | (3) | $ | 35 | (3) | $ | — |   |

 

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| (1) |   | Represents a $34 million loss included in net realized  investment gains (losses) and a $1 million gain included in net investment  income in the Consolidated Statements of Income. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Included in net realized investment gains (losses) in the  Consolidated Statements of Income.                                                                                        |
| (3) |   | Included in benefits, claims, losses and settlement  expenses in the Consolidated Statements of Income.                                                                              |

 

During the reporting period, there were no material assets orliabilities measured at fair value on a non-recurring basis.

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**6.     Deferred Acquisition Costs****and Deferred Sales Inducement Costs**

 

The balances of andchanges in DAC were as follows:

 
| ** **                                                      | ** ** | **2008**               | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                      | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                      |       | $                      | 4,429      |     | $          | 4,411 |   |
| Cumulative  effect of accounting change                         |       | 36                     |       | (204     | )          |
| Capitalization  of acquisition costs                            |       | 301                    |       | 365      |       |
| Amortization                                                    |       | (261                   | )          | (217     | )          |
| Impact of change  in net unrealized securities gains and losses |       | 42                     |       | 27       |       |
| Balance at  June 30                                        |       | $                      | 4,547      |     | $          | 4,382 |   |

 

The balances of andchanges in DSIC were as follows:

 
| ** **                                                      | ** ** | **2008**               | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                      | ** ** | **(in millions)** | ** ** |
| Balance at  January 1                                      |       | $                      | 511        |     | $          | 452 |   |
| Cumulative  effect of accounting change                         |       | 9                      |       | (11      | )          |
| Capitalization  of sales inducements                            |       | 47                     |       | 66       |       |
| Amortization                                                    |       | (36                    | )          | (30      | )          |
| Impact of change  in net unrealized securities gains and losses |       | 7                      |       | 4        |       |
| Balance at  June 30                                        |       | $                      | 538        |     | $          | 481 |   |

 

Effective January 1,2008, RiverSource Life adopted SFAS 157 and recorded as a cumulative change inaccounting principle a pretax increase of $36 million and $9 million to DAC andDSIC, respectively.  See Note 2 and Note5 for additional information regarding SFAS 157.

 

Effective January 1,2007, RiverSource Life adopted SOP 05-1 and recorded as a cumulative change inaccounting principle a pretax reduction of $204 million and $11 million to DACand DSIC, respectively.

 

**7.     Future Policy Benefits, Policy Claims andOther Policyholders’ Funds and Separate Account Liabilities**

 

Futurepolicy benefits and policy claims and other policyholders’ funds consisted ofthe following:

 
|                                                                                |   | **June 30,  2008** | ** ** | **December 31,  2007** |   |
|-------------------------------------------------------------------------------------|--------|-------------------------|------------|-----------------------------|--------|
|                                                                                |   | **(in millions)**  |       |
| Fixed annuities                                                                     |   | $                       | 13,617     |                        | $      | 14,382 |   |
| Equity indexed  annuities accumulated host values                                   |   | 245                     |       | 253                         |   |
| Equity indexed  annuities embedded derivatives                                      |   | 31                      |       | 53                          |   |
| Variable  annuities fixed sub-accounts                                              |   | 5,366                   |       | 5,419                       |   |
| Guaranteed  minimum withdrawal benefits variable annuity guarantees                 |   | 101                     |       | 136                         |   |
| Guaranteed  minimum accumulation benefits variable annuity guarantees               |   | 57                      |       | 33                          |   |
| Other variable  annuity guarantees                                                  |   | 29                      |       | 27                          |   |
| Total annuities                                                                     |   | 19,446                  |       | 20,303                      |   |
| Variable  universal life (“VUL”)/universal life insurance                 |   | 2,578                   |       | 2,568                       |   |
| Other life,  disability income and long term care insurance                         |   | 4,245                   |       | 4,106                       |   |
| Total future  policy benefits                                                       |   | 26,269                  |       | 26,977                      |   |
| Policy claims  and other policyholders’ funds                                  |   | 95                      |       | 91                          |   |
| Total future  policy benefits and policy claims and other policyholders’ funds |   | $                       | 26,364     |                        | $      | 27,068 |   |

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**7.     Future Policy Benefits, Policy Claims andOther Policyholders’ Funds and Separate Account Liabilities (Continued)**

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **(in millions)**      | ** ** |
| Variable annuity  variable sub-accounts |       | $                           | 49,376     |                            | $          | 51,764 |   |
| VUL insurance  variable sub-accounts    |       | 5,720                       |       | 6,244                           |       |
| Other insurance  variable sub-accounts  |       | 54                          |       | 62                              |       |
| Total separate  account liabilities     |       | $                           | 55,150     |                            | $          | 58,070 |   |

 

**8.****              Income Taxes**

 

RiverSourceLife’s effective tax rates were 7% and 3% for the three and six months ended June 30,2008, respectively, compared to 24% and 23% for the three and six months ended June 30,2007, respectively. The decrease in the effective tax rates primarily reflectsa $10 million and a $39 million tax benefit for the three and six months ended June 30,2008, respectively, related to changes in the status of current audits as wellas the level of pretax income relative to tax advantaged items, including thedividends received deduction for the three and six months ended June 30,2008.

 

RiverSource Life is required to establish a valuationallowance for any portion of the deferred tax assets that management believeswill not be realized.  Included inRiverSource Life’s deferred tax assets is a significant deferred tax assetrelating to capital losses that have been recognized for financial statementpurposes but not yet for tax return purposes. Under current U.S. federal incometax law, capital losses generally must be used against capital gain incomewithin five years of the year in which the capital losses are recognized fortax purposes.  Based on analysis ofRiverSource Life’s tax position, management believes it is more likely than notthat the results of future operations and implementation of tax planningstrategies will generate sufficient taxable income to enable RiverSource Lifeto utilize all of its deferred tax assets. Accordingly, no valuation allowancefor deferred tax assets has been established as of June 30, 2008 and December 31,2007.

 

As of June 30, 2008 and December 31, 2007,RiverSource Life had $5 million and $97 million, respectively, of grossunrecognized tax benefits.  Ifrecognized, approximately $15 million and $49 million of permanent items, netof federal tax benefits as of June 30, 2008 and December 31, 2007,respectively, would affect the effective tax rate.

 

RiverSource Life recognizes interest and penaltiesrelated to unrecognized tax benefits as a component of the income taxprovision.  RiverSource Life recognized anet reduction of interest and penalties of $14 million and $19 million for thethree and six months ended June 30, 2008, respectively.  RiverSource Life had a $20 million and a $1million receivable related to interest and penalties accrued at June 30,2008 and December 31, 2007, respectively.

 

It is reasonably possible that the total amounts ofunrecognized tax benefits will change in the next 12 months.   However, there are a number of open auditsand quantification of a range cannot be made at this time.

 

RiverSource Life or one or more of its subsidiariesfiles income tax returns in the U.S. federal jurisdiction as well as variousstate jurisdictions. With few exceptions, RiverSource Life is no longer subjectto U.S. federal or state and local income tax examinations by tax authoritiesfor years before 1997. The Internal Revenue Service (“IRS”), as part of theoverall examination of the American Express Company consolidated return,commenced an examination of RiverSource Life’s U.S. income tax returns for 1997through 2002 in the third quarter of 2005. In the first quarter of 2007, theIRS expanded the period of the examination to include 2003 through 2004.RiverSource Life or certain of its subsidiaries’ state income tax returns arecurrently under examination by various jurisdictions for years ranging from1998 through 2005.

 

On September 25,2007, the IRS issued Revenue Ruling 2007-61 in which it announced that itintends to issue regulations with respect to certain computational aspects ofthe Dividends Received Deduction (“DRD”) related to separate account assetsheld in connection with variable contracts of life insurance companies and hasadded the project to the 2007-2008 Priority Guidance Plan. Revenue Ruling2007-61 suspended a revenue ruling issued in August 2007 that purported tochange accepted industry and IRS interpretations of the statutes governingthese computational questions. Any regulations that the IRS ultimately proposesfor issuance in this area will be subject to public notice and comment, atwhich time insurance companies and other members of the public will have theopportunity to raise legal and practical questions about the content, scope andapplication of such regulations.   As aresult, the ultimate timing and substance of any such regulations are unknownat this time, but they may result in the elimination of some or all of theseparate account DRD tax benefit that RiverSource Life receives.  Management believes that it is likely thatany such regulations would apply prospectively only.

 

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**RIVERSOURCE LIFEINSURANCE COMPANY**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED) (Continued)**

 

**9.****              Contingencies**

 

The SEC, the FinancialIndustry Regulatory Authority, commonly referred to as FINRA, and several stateauthorities have brought proceedings challenging several mutual fund andvariable product financial practices, generally including suitability, latetrading, market timing, compensation and disclosure of revenue sharingarrangements.  RiverSource Life hasreceived requests for information and has been contacted by regulatoryauthorities concerning its practices and is cooperating fully with theseinquiries.

 

RiverSource Life isinvolved in the normal course of business in a number of other legal andarbitration proceedings concerning matters arising in connection with theconduct of its business activities. RiverSource Life believes that it is not a party to, nor are any of itsproperties the subject of, any pending legal, arbitration or regulatoryproceedings that would have a material adverse effect on its consolidatedfinancial condition, results of operations or liquidity.  However, it is possible that the outcome ofany such proceedings could have a material impact on results of operations inany particular reporting period as the proceedings are resolved.

 

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**ITEM 2.**                       MANAGEMENT’S NARRATIVE ANALYSIS

 

The following information should be read inconjunction with RiverSource Life Insurance Company’s Consolidated Financial Statementsand Notes presented in Part I, Item 1. RiverSource Life Insurance Company and its subsidiary are referred tocollectively in this Form 10-Q as “RiverSource Life”.  This narrative analysis may containforward-looking statements that reflect RiverSource Life’s plans, estimates andbeliefs.  Actual results could differmaterially from those discussed in these forward-looking statements.  Factors that could cause or contribute tothese differences include, but are not limited to, those discussed under “Forward-LookingStatements.”  RiverSource Life believesit is useful to read this narrative analysis in conjunction with its AnnualReport on Form 10-K for the year ended December 31, 2007, filed withthe Securities and Exchange Commission (“SEC”) on February 29, 2008 (“200710-K”), as well as its current reports on Form 8-K and other publiclyavailable information.

 

RiverSource Life follows U.S. generally acceptedaccounting principles (“GAAP”), and the following discussion is presented on aconsolidated basis consistent with GAAP. In the second quarter of 2008, RiverSource Life reclassified themark-to-market adjustments on certain derivatives from net investment income tovarious expense lines where the mark-to-market adjustment on the related embeddedderivative resides. The mark-to-market adjustment on derivatives hedgingvariable annuity living benefits and equity indexed annuities were reclassifiedto benefits, claims, losses and settlement expenses and interest credited tofixed accounts, respectively.  Priorperiod amounts were reclassified to conform to the current presentation.

 

Management’s narrative analysis of the results ofoperations is presented in lieu of management’s discussion and analysis offinancial condition and results of operations, pursuant to General InstructionsH(2)(a) of Form 10-Q.

 

**Overview**

 

RiverSource Life Insurance Company is a stock lifeinsurance company with one wholly owned operating subsidiary, RiverSource LifeInsurance Co. of New York (“RiverSource Life of NY”).  RiverSource Life Insurance Company is awholly owned subsidiary of Ameriprise Financial, Inc. (“AmeripriseFinancial”).

 

·                  RiverSource LifeInsurance Company is domiciled in Minnesota and holds Certificates of Authorityin American Samoa, the District of Columbia and all states except NewYork.  RiverSource Life Insurance Companyissues insurance and annuity products.

 

·                  RiverSource Lifeof NY is a stock life insurance company domiciled in New York, which holdsCertificates of Authority in New York, North Dakota and Delaware.  RiverSource Life of NY issues insurance andannuity products.

 

Ameriprise Financial was formerly a wholly ownedsubsidiary of American Express Company (“American Express”).  On February 1, 2005, the AmericanExpress Board of Directors announced its intention to pursue the disposition of100% of its shareholdings in Ameriprise Financial (the “Separation”) through atax-free distribution to American Express shareholders.  Effective as of the close of business on September 30,2005, American Express completed the Separation and the distribution ofAmeriprise Financial common shares to American Express shareholders (the “Distribution”).  In connection with the Distribution,Ameriprise Financial entered into certain agreements with American Express toeffect the Separation and to define the responsibility for obligations arisingbefore and after the date of the Distribution, including, among others,obligations relating to transition services, taxes, and employees.  Through 2007, RiverSource Life was allocatedcertain expenses incurred as a result of Ameriprise Financial becoming anindependent company.  The separation fromAmerican Express was completed in 2007.

 

**Recent Accounting Pronouncements**

 

For information regarding recent accountingpronouncements and their expected impact on future consolidated financialcondition or results of operations, see Note 2 to the Consolidated FinancialStatements.

 

***Resultsof Operations for the Six MonthsEnded June 30, 2008 compared to the Six Months Ended June 30, 2007***

 

*Overview*

 

Consolidated net income was $252 million for the sixmonths ended June 30, 2008 comparedto $229 million for the six months endedJune 30, 2007, an increase of $23 million.  Pretax income decreased $39 million to $259million for the six months ended June 30, 2008 from $298 million for thesix months ended June 30, 2007. Financial markets drove the decrease through an increase in the cost ofproviding for variable annuity living benefit guarantees, after hedging, higherdeferred acquisition cost (“DAC”) and deferred sales inducement cost (“DSIC”)amortization and net realized investment losses due to the other-than-temporaryimpairment of four Alt-A mortgage-backed securities offset partially by incomefrom policy and contract charges.

 

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Included in consolidated net income for the six monthsended June 30, 2007 was $64 million in pretax non-recurring separationcosts.

 

RiverSource Life also recognized $39 million of taxbenefits in the six months ended June 30, 2008.

 

*Revenues*

 

Totalrevenues decreased $94 million or 5.5% to $1.6 billion for the six months endedJune 30, 2008.

 

Netinvestment income decreased $126million or 16.4% to $643 million for the six months ended June 30, 2008, primarilydue to decreased assets driven by a reduction in fixed annuity balances as wellas a decline in yield.

 

Policy and contractcharges increased $55 million or 9.4% to $640 million for the six months ended June 30,2008.   The increase is driven by growthin guaranteed benefit rider fees on variable annuities andcost-of-insurance fees for variable universal life/universal life insurance.

 

Other revenue increased$18 million or 14.9% to $139 million forthe six months ended June 30,2008 reflecting higher marketing support and administrative fees due tohigher average underlying separate account asset values.

 

Net realized investmentlosses were $29 million for the sixmonths ended June 30, 2008 comparedto net realized investment gains of $7 million for the six months ended June 30,2007.  Included in net realizedinvestment losses for the six months ended June 30, 2008 was theother-than-temporary impairment of four Alt-A mortgage-backed securities of $36million.   For the six months ended June 30,2008, $9 million of gross realized investment gains were offset by $2 million of gross realized losses,classified as Available-for-Sale.  Forthe six months ended June 30, 2007, $28 millionof gross realized investment gains were partially offset by $19 million ofgross realized investment losses as well as $2 million of other-than-temporaryimpairment losses on investments, classified as Available-for-Sale.

 

*Benefitsand Expenses*

 

Total benefits andexpenses for the six months ended June 30, 2008 were $1.37 billion, adecrease of $55 million from the six months ended June 30, 2007 total of$1.42 billion.

 

Benefits,claims, losses and settlement expenses increased $41 million or 12.4% to $372million for the six months endedJune 30, 2008 driven by an increase in the cost of providing for variableannuity guaranteed living benefits, net of hedges and after recognizingfavorable valuation impacts related to Statement of Financial AccountingStandards No. 157, “Fair Value Measurements” (“SFAS 157”).  Also contributing to the increase in expensewas an increase in life insurance claims, up 14%, an increase in long term carebenefit claims and a higher cost of providing for variable annuity guaranteeddeath benefits.  Expenses in the firsthalf of 2007 included an unfavorable $12 million adjustment to reserves fordisability income insurance claims.

 

Interest credited tofixed accounts decreased by $46 million or 10.6% to $387 million for the six months ended June 30, 2008primarily due to a continued decline in fixed annuity account balances.

 

The amortization of DACincreased $44 million or 20.3% to $261 million. The increase was driven by theimpact of the current period market decline on estimated gross profit in futureperiods offset in part by a decrease in amortization driven by the increasedcost of providing for variable annuity guarantees, net of hedging.  Amortization of DAC in the first six monthsof 2007 was reduced by favorable adjustments from recognizing increases incertain policyholder charges on select policies, as well as other modelenhancements.  The current periodincluded additional DAC amortization of $34 million related to market impactscompared to an $11 million benefit in the prior year period.

 

Separation costs incurredin 2007 were primarily associated with separating and reestablishing technologyplatforms.  All separation costs wereincurred as of December 31, 2007.

 

Otherinsurance and operating expenses decreased $30 million or 8.0% to $347 millionfor the six months ended June 30, 2008 primarily due to decreased salesand marketing expenses and lower corporate overhead expenses.

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 3% for the sixmonths ended June 30, 2008, compared to 23% for the six monthsended June 30, 2007.  The decreasein the effective tax rates primarily reflects a $39 million tax benefit,related to changes in the status of current audits as well as the level ofpretax income relative to tax advantaged items, including the dividendsreceived deduction for the six months ended June 30, 2008.  RiverSource Life expects its effective taxrate for the full year 2008 to be in the 12% to 14% range.

 

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On September 25,2007, the Internal Revenue Service (“IRS”) issued Revenue Ruling 2007-61 inwhich it announced that it intends to issue regulations with respect to certaincomputational aspects of the Dividends Received Deduction (“DRD”) related to separateaccount assets held in connection with variable contracts of life insurancecompanies and has added the project to the 2007-2008 Priority Guidance Plan.Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007that purported to change accepted industry and IRS interpretations of thestatutes governing these computational questions. Any regulations that the IRSultimately proposes for issuance in this area will be subject to public noticeand comment, at which time insurance companies and other members of the publicwill have the opportunity to raise legal and practical questions about thecontent, scope and application of such regulations. As a result, the ultimatetiming and substance of any such regulations are unknown at this time, but theymay result in the elimination of some or all of the separate account DRD taxbenefit that RiverSource Life receives. Management believes that it is likelythat any such regulations would apply prospectively only.

 

***Market Risk***

 

Equity market and interestrate fluctuations can have a significant impact on RiverSource Life’s resultsof operations, primarily due to the “spread” income generated on its annuitiesand universal life (“UL”) insurance products, the value of DAC and DSIC, assetsassociated with variable annuity and variable UL products, the values ofliabilities for guaranteed benefits associated with RiverSource Life’s variableannuities and the values of derivatives held to hedge these benefits.

 

There have been nomaterial changes in RiverSource Life’s net risk exposure to pretax income basedon its sources of market risk during the six months ended June 30, 2008,except for its interest rate risk exposure related to its variable annuityriders. The guaranteed benefits associated with RiverSource Life’s variableannuities are guaranteed minimum withdrawal benefit (“GMWB”), guaranteedminimum accumulation benefit (“GMAB”), guaranteed minimum death benefit (“GMDB”)and guaranteed minimum income benefit (“GMIB”) options. Each of the guaranteedbenefits mentioned above guarantees payouts to the annuity holder under certainspecific conditions regardless of the performance of the underlying investmentassets.

 

Interest Rate Risk –Variable Annuity Riders

 

The GMAB and thenon-life contingent benefits associated with the GMWB provisions createembedded derivatives which are carried at fair value separately from theunderlying host variable annuity contract. Increases in interest rates reducethe fair value of the GMWB and GMAB liabilities. At June 30, 2008, ifinterest rates had hypothetically increased by 100 basis points, and remain atthat level for 12 months, RiverSource Life estimates that the fair value of itsGMWB and GMAB liabilities would decrease by $133 million and $28 million,respectively, with a favorable impact to pretax income. The GMWB and GMABinterest rate exposure is hedged with a portfolio of longer dated put and callderivatives and interest rate swaps. During the six months ended June 30,2008, RiverSource Life continued to adjust the hedge portfolio to reflect thesensitivity of the liabilities. At June 30, 2008, RiverSource Lifeestimates that for a hypothetical 100 basis point increase in interestrates sustained for a 12 month period, the negative impact of the derivatives onpretax income would be $147 million. Of the $147 million, $123 million isattributable to its GMWB and $24 million is attributable to its GMAB. At June 30,2008, RiverSource Life estimates that the net impact on pretax income would bea favorable $4 million, which consists of a favorable impact of $10million for GMWB and $4 million attributable to GMAB, and a $10 millionnegative impact related to DAC amortization. At December 31, 2007,RiverSource Life estimated that the net combined impact of these same items onpretax income would be a favorable $14 million.

 

Nonperformance Risk –Variable Annuity Riders

 

SFAS 157 requirescompanies to measure the fair value of liabilities at the price that would bereceived to transfer the liability to a market participant (an exit price).Since there is not a market for these liabilities, RiverSource Life consideredthe assumptions participants in a hypothetical market would make to reflect anexit price. As a result, RiverSource Life adjusted the valuation of variableannuity riders by updating certain policyholder assumptions, adding explicitmargins to provide for profit, risk and expenses, and adjusting the rates usedto discount expected cash flows to reflect a current market estimate ofRiverSource Life’s nonperformance risk. The nonperformance risk adjustment isspecific to the risk of RiverSource Life not fulfilling these liabilities.Consistent with general market conditions, this estimate resulted in asignificant spread over the LIBOR swap curve as of June 30, 2008. AsRiverSource Life’s estimate of this spread widens or tightens, the liabilitywill decrease or increase. If this nonperformance credit spread moves to a zerospread over the LIBOR swap curve, the reduction to net income would beapproximately $23 million, net of DAC and DSIC amortization and income taxes,based on June 30, 2008 credit spreads.

 

***Credit Risk***

 

RiverSource Life isexposed to credit risk within its investment portfolio, which includes loans,and through derivative and reinsurance counterparties. Credit risk relates tothe uncertainty of an obligor’s continued ability to make timely payments inaccordance with the contractual terms of the instrument or contract.RiverSource Life’s potential derivative credit exposure to each counterparty isaggregated with all of its other exposures to the counterparty to determinecompliance with established

 

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credit guidelines atthe time it enters into a derivative transaction. RiverSource Life managescredit risk through fundamental credit analysis, issuer and industryconcentration guidelines, and diversification requirements. These guidelinesand oversight of credit risk are managed through its comprehensive enterpriserisk management program that includes members of senior management.

 

RiverSource Lifemanages the risk of adverse default experience on these investments by applyingdisciplined fundamental credit analysis and underwriting standards, prudentlylimiting exposures to lower-quality, higher-yielding investments, anddiversifying exposures by issuer, industry, region and property type. For eachcounterparty or borrowing entity and its affiliates, RiverSource Life’sexposures from all types of transactions are aggregated and managed in relationto guidelines set by risk tolerance thresholds and external and internal ratingquality. RiverSource Life remains exposed to occasional adverse cyclicaleconomic downturns during which default rates may be significantly higher thanthe long term historical average used in pricing.

 

Credit exposures onderivative contracts may take into account enforceable netting arrangements andcollateral arrangements. Before executing a new type of structure of derivativecontract, RiverSource Life determines the variability of the contract’spotential market and credit exposures and whether such variability mightreasonably be expected to create exposure to a counterparty in excess ofestablished limits.

 

Additionally, RiverSource Lifereinsures a portion of the insurance risks associated with its life, disabilityincome and long term care insurance products through reinsurance agreementswith unaffiliated reinsurance companies. Reinsurance is used in order to limitlosses, reduce exposure to large risks and provide additional capacity forfuture growth. To manage exposure to losses from reinsurer insolvencies, thefinancial condition of reinsurers is evaluated prior to entering into newreinsurance treaties and on a periodic basis during the terms of the treaties.RiverSource Life remains primarily liable as the direct insurer on all risksreinsured.

 

For additionalinformation regarding our sensitivity to market and credit risk, see “Management’sNarrative Analysis—Risk Management” in RiverSource Life’s 2007 10-K.

 

***Fair ValueMeasurements***

 

SFAS 157 defines fairvalue, provides a framework for measuring fair value and expands disclosuresabout fair value measurements. Fair value assumes the exchange of assets orliabilities in orderly transactions. RiverSource Life includes actual marketprices, or observable inputs in its fair value measurements to the extentavailable. SFAS 157 does not require the use of market prices that are theresult of a forced liquidation or distressed sale. Recent market conditionshave increased the likelihood of other-than-temporary impairments for certainnon-agency residential mortgage-backed and asset-backed securities.

 

Sub-prime mortgagelending is the origination of residential mortgage loans to customers with weakcredit profiles. Alt-A mortgage lending is the origination of residentialmortgage loans to customers who have credit ratings above sub-prime but may notconform to government-sponsored standards. RiverSource Life has exposure tothese types of loans only through mortgage-backed and asset-backed securities.The slow down in the U.S. housing market, combined with relaxed underwritingstandards by some originators, has recently led to higher delinquency and lossrates for some of these investments. As a part of RiverSource Life’s riskmanagement process, an internal rating system is used in conjunction withmarket data as the basis for analysis to assess the likelihood that RiverSourceLife will not receive all contractual principal and interest payments for theseinvestments. For the investments that are more at risk for impairment,RiverSource Life performs its own assessment of projected cash flowsincorporating assumptions about default rates, prepayment speeds, lossseverity, and geographic concentrations to determine if an other-than-temporaryimpairment should be recognized. Based on this analysis, other than the fourAlt-A mortgage-backed securities that had credit-related impairments recordedin the six months ended June 30, 2008, all contractual payments areexpected to be received.

 

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The following tablepresents, as of June 30, 2008, RiverSource Life’s residentialmortgage-backed and asset-backed securities backed by sub-prime and Alt-Amortgage loans by credit rating and vintage year.  For presentation in this table,other-than-temporarily impaired securities are shown at their internal ratingof BB and below (amounts in millions):

 
| ** **             | ** ** | **AAA**             | ** ** | **AA**          | ** ** | **A**               | ** ** | **BBB**         | ** ** | **BB & Below** | ** ** | **Total**       | ** ** |
|------------------------|------------|---------------------|------------|-----------------|------------|---------------------|------------|-----------------|------------|------------------------------|------------|-----------------|------------|
| ** **             | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost**          | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| **Sub-prime**          | ** ** | ** **          | ** ** | ** **      | ** ** | ** **          | ** ** | ** **      | ** ** | ** **                   | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2004 &  prior |       | $                   | 6          |            | $          | 5                   |       | $               | 8          |                         | $          | 6               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 14 |   | $ | 11 |   |
| 2005                   |       | 79                  |       | 74              |       | 6                   |       | 4               |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 85 |   | 78 |   |
| 2006                   |       | 26                  |       | 25              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 26 |   | 25 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | 13                  |       | 12              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 13 |   | 12 |   |
| **Total  Sub-prime**   |       | $                   | 124        |            | $          | 116                 |       | $               | 14         |                         | $          | 10              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 138 |   | $ | 126 |   |
| ** **             |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior |       | $                   | 46         |            | $          | 42                  |       | $               | 15         |                         | $          | 7               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 61 |   | $ | 49 |   |
| 2005                   |       | 294                 |       | 249             |       | 76                  |       | 49              |       | —                       |       | —          |       | — |   | — |   | 20 |   | 20 |   | 390 |   | 318 |   |
| 2006                   |       | 34                  |       | 30              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 34 |   | 30 |   |
| 2007                   |       | 33                  |       | 26              |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | 33 |   | 26 |   |
| 2008                   |       | —              |       | —          |       | —              |       | —          |       | —                       |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| **Total Alt-A**   |       | $                   | 407        |            | $          | 347                 |       | $               | 91         |                         | $          | 56              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 20 |   | $ | 20 |   | $ | 518 |   | $ | 423 |   |
| **Grand Total**        |       | $                   | 531        |            | $          | 463                 |       | $               | 105        |                         | $          | 66              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 20 |   | $ | 20 |   | $ | 656 |   | $ | 549 |   |

 

**Liquidityand Capital Resources**

 

***LiquidityStrategy***

 

The liquidityrequirements of RiverSource Life are generally met by funds provided byinvestment income, maturities and periodic repayments of investments, deposits,premiums and proceeds from sales of investments as well as capitalcontributions from Ameriprise Financial. Other liquidity sources RiverSource Life has established are repurchaseagreements and an available line of credit with Ameriprise Financialaggregating $200 million.  The primaryuses of funds are policy benefits, commissions, other product-relatedacquisition and sales inducement costs, operating expenses, policy loans,dividends to Ameriprise Financial and investment purchases.  RiverSource Life routinely reviews itssources and uses of funds in order to meet its ongoing obligations.

 

On March 26and June 25, 2008, RiverSource Life paid cash dividends of $125 millionand $275 million, respectively, to Ameriprise Financial.  On June 25, 2008, RiverSource Life of NYpaid cash dividends of $27 million to RiverSource Life Insurance Company.  During 2007, RiverSource Life paid cashdividends of $900 million to Ameriprise Financial.  Also during 2007, RiverSource Life of NY paidcash dividends of $83 million to RiverSource Life Insurance Company.

 

RiverSource LifeInsurance Company and RiverSource Lifeof NY are subject to regulatory capital requirements as follows:

 
| ** **                                  | ** ** | **Actual Capital as of (a)** | ** ** | **Regulatory  Capital  Requirement(b)** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                  | ** ** | **June 30,  2008**                          | ** ** | **December 31,  2007**             | ** ** | **December 31,  2007** | ** ** |
| ** **                                  | ** ** | **(in millions)**                           | ** ** |
| RiverSource Life  Insurance Company         |       | $                                                | 2,579      |                                    | $          | 3,017 |   | $ | 442 |   |
| RiverSource Life  Insurance Co. of New York |       | 278                                              |       | 288                                     |       | 34 |   |
|                                             |            |                                                  |            |                                         |            |  |  |  |  |  |

 

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| (a)    |   | Actual  capital, as defined by the National Association of Insurance Commissioners  for purposes of meeting regulatory capital requirements, includes statutory  capital and surplus, plus certain statutory valuation reserves. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                             |
| (b)    |   | Regulatory  capital requirement is based on the most recent statutory risk-based capital  filing.                                                                                                                                |

 

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**Forward-LookingStatements**

 

This report containsforward-looking statements that reflect RiverSource Life’s plans, estimates andbeliefs.  RiverSource Life’s actualresults could differ materially from those described in these forward-lookingstatements.  The words “believe,” “expect,”“anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,”“would,” “likely” and similar expressions are intended to identifyforward-looking statements but are not the exclusive means of identifying suchstatements.  Forward-looking statementsare subject to risks and uncertainties which could cause actual results todiffer materially from such statements. RiverSource Life cautions the reader that the following list of factorsis not exhaustive.  There may also beother risks that RiverSource Life is unable to predict at this time that maycause actual results to differ materially from those in forward-lookingstatements.  Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date on which they are made.  RiverSource Life undertakes no obligation to update or revise anyforward-looking statements.

 

Factors that could causeactual results to differ materially from these forward-looking statementsinclude, but are not limited to, the following:

 

·                  changesin the valuations, liquidity and volatility in the interest rate, equitymarket, and foreign exchange environments;

·                  changesin the litigation and regulatory environment, including ongoing legalproceedings and regulatory actions, the frequency and extent of legal claimsthreatened or initiated by clients, other persons and regulators, anddevelopments in regulation and legislation;

·                  RiverSourceLife’s investment management performance and consumer acceptance of RiverSourceLife’s products;

·                  effectsof competition in the financial services industry and changes in RiverSourceLife’s product distribution mix and distribution channels;

·                  RiverSourceLife’s capital structure as a subsidiary of Ameriprise Financial, including theability of its parent to support its financial strength and ratings;

·                  risksof default by issuers or guarantors of investments RiverSource Life owns or bycounterparties to hedge derivative, insurance or reinsurance arrangements;

·                  experiencedeviations from RiverSource Life’s assumptions regarding morbidity, mortalityand persistency in certain annuity and insurance products, or from assumptionsregarding market volatility underlying RiverSource Life’s hedges on guaranteedbenefit annuity riders;

·                  successfullycross-selling insurance and annuity products and services to Ameriprise Financial’scustomer base;

·                  RiverSource Life’sability to effectively hedge risks relating to guaranteed benefit riders andcertain other products;

·                  theimpact of intercompany allocations to RiverSource Life from AmeripriseFinancial and its affiliates;

·                  AmeripriseFinancial’s ability to attract, recruit and retain qualified advisors andemployees and its ability to distribute RiverSource Life’s products throughcurrent and future distribution channels;

·                  theimpact of Ameriprise Financial’s efforts to improve distribution economics andof RiverSource Life’s efforts to grow third party distribution and to realizebenefits from reengineering and tax planning;

·                  changes in U.S.federal income or estate tax laws potentially making RiverSource Life’sproducts less attractive to clients;

·                  RiverSource Life’sability to recover from catastrophes, both natural and man-made; and

·                  generaleconomic and political factors, including consumer confidence in the economy aswell as the ability and inclination of consumers generally to invest, the costsof products and services RiverSource Life consumes in the conduct of itsbusiness, and applicable legislation and regulation, including tax law, taxtreaties, fiscal and central government treasury policy, and regulatory rulingsand pronouncements.

 

The foregoing list offactors should be read in conjunction with the “Risk Factors” discussion as Part I,Item 1A of RiverSource Life’s 2007 10-K.

 

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**ITEM 4T. CONTROLS AND PROCEDURES**

** **

**Disclosure Controls andProcedures**

 

RiverSource Lifemaintains disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) designed to provide reasonable assurance that the information requiredto be reported in the Exchange Act filings is recorded, processed, summarizedand reported within the time periods specified and pursuant to SEC regulations,including controls and procedures designed to ensure that this information isaccumulated and communicated to RiverSource Life’s management, including itsprincipal executive officer and chief financial officer, as appropriate, toallow timely decisions regarding the required disclosure.  It should be noted that, because of inherentlimitations, RiverSource Life’s disclosure controls and procedures, howeverwell designed and operated, can provide only reasonable, and not absolute,assurance that the objectives of the disclosure controls and procedures aremet.

 

RiverSource Life’smanagement, with the participation of RiverSource Life’s principal executiveofficer and chief financial officer, evaluated the effectiveness of thedisclosure controls and procedures as of the end of the period covered by thisreport.  Based upon that evaluation,RiverSource Life’s principal executive officer and chief financial officer haveconcluded that RiverSource Life’s disclosure controls and procedures wereeffective at a reasonable level of assurance as of June 30, 2008.

 

**Changes in Internal Control OverFinancial Reporting**

 

During the second quarterof 2008, RiverSource Life made certain changes to internal controls overfinancial reporting related to the implementation of a new general ledgersystem. The system changes were not undertaken in response to any actual orperceived deficiencies in the internal control over financial reporting.  There were no other changes in RiverSourceLife’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to which thisreport relates that have materially affected, or are reasonably likely tomaterially affect, RiverSource Life’s internal control over financialreporting.

 

**PART II.**                  OTHER INFORMATION

** **

**ITEM 1.**                       LEGAL PROCEEDINGS

** **

The information set forthin Note 9 to the Consolidated Financial Statements in Part I, Item 1 isincorporated herein by reference.

 

**ITEM 1A.**              RISKFACTORS

** **

There have been nomaterial changes in the risk factors provided in Part I, Item 1A ofRiverSource Life’s 2007 10-K.

 

**ITEM 6.**                       EXHIBITS

** **

The list of exhibitsrequired to be filed as exhibits to this report are listed on page E-1hereof, under “Exhibit Index,” which is incorporated herein by reference.

 

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**SIGNATURES**

 

Pursuant to the requirements 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.

 

 
|                      |   | RIVERSOURCE LIFE INSURANCE COMPANY |
|---------------------------|--------|------------------------------------|
|                      |   | (Registrant)                       |
|                      |   |                               |   |
|                      |   |                               |   |
| Date: August 5, 2008 |   | By                                 | /s/ Timothy V. Bechtold |
|                      |   |                               | Timothy V. Bechtold |
|                      |   |                               | President |
|                      |   |                               |   |
|                      |   |                               |   |
| Date: August 5, 2008 |   | By                                 | /s/ Brian J. McGrane |
|                      |   |                               | Brian J. McGrane |
|                      |   |                               | Executive Vice President and |
|                      |   |                               | Chief Financial Officer |

 

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**EXHIBITINDEX**

 

The following exhibits are filed as part of thisQuarterly Report:

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                        |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                                                                             |
| *31.1       |       | Certification of Timothy V. Bechtold, President, pursuant to  Rule 13a-14(a) promulgated under the Securities Exchange Act of  1934, as amended.                                                             |
|        |       |                                                                                                                                                                                                                   |
| *31.2       |       | Certification of Brian J. McGrane, Chief Financial  Officer,  pursuant to Rule 13a-14(a) promulgated under the Securities  Exchange Act of 1934, as amended.                                                 |
|        |       |                                                                                                                                                                                                                   |
| *32.1       |       | Certification of Timothy V. Bechtold, President, and Brian J. McGrane,  Chief Financial Officer,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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*              Filedelectronically herewith.

 

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