Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND 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 30,2009**

** **

**or**

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

 

**For the Transition Period from                to               **

 

**CommissionFile No. ****033-28976**

 

**RIVERSOURCE LIFE INSURANCE COMPANY**

(Exact name ofregistrant as specified in its charter)

 

| **Minnesota**                                                   | ** ** | **41-0823832**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **1099 Ameriprise Financial Center, Minneapolis,  Minnesota**   | ** ** | **55474**                            |
| (Address of principal executive offices)                        |       | (Zip Code)                           |

 

Registrant’stelephone number, including area code:  **(612) 671-3131**

 

Former name, former address and former fiscal year, if changed sincelast report:  ** Not Applicable**

 

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 file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.   Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).   Yes o  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 the ExchangeAct.

 

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

 

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 3, 2009** |
|----------------------------------------|------------|--------------------------------------------|
| 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, 2009 and December 31, 2008                          | 1                 |
|              |                       | Consolidated Statements of  Income — Three months and six months ended June 30, 2009 and 2008    | 2                 |
|              |                       | Consolidated Statements of  Cash Flows — Six months ended June 30, 2009 and 2008                 | 3                 |
|              |                       | Consolidated  Statements of Shareholder’s Equity — Six months ended June 30, 2009 and  2008 | 4                 |
|              |                       | Notes to  Consolidated Financial Statements                                                                | 5-26              |
|              | Item 2.                    | Management’s  Narrative Analysis                                                                      | 27-36             |
|              | Item 4T.                   | Controls and  Procedures                                                                                   | 37                |
| **Part II.** | **Other Information:**     | ** **                                                                                                 |
|              | Item 1.                    | Legal Proceedings                                                                                          | 37                |
|              | Item 1A.                   | Risk Factors                                                                                               | 37                |
|              | Item 6.                    | Exhibits                                                                                                   | 37                |
|              | Signatures                 | 38                                                                                                         |
|              | Exhibit Index         | E-1                                                                                                        |

 

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**PART I.  FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

 

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

 

**CONSOLIDATED BALANCE SHEETS**

(in millions, except share amounts)

 
| ** **                                                                                  | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **Assets**                                                                                  |       |                    |       |                        |       |
| Investments:                                                                                |       |                    |       |                        |       |
| Available-for-Sale:                                                                         |       |                    |       |                        |       |
| Fixed  maturities, at fair value (amortized cost: 2009, $23,145; 2008, $19,452)             |       | $                       | 22,897     |                        | $          | 18,070 |   |
| Common  and preferred stocks, at fair value  (cost: 2009 and 2008, $30)                     |       | 18                      |       | 16                          |       |
| Commercial  mortgage loans, at cost (less allowance for loan losses: 2009, $25; 2008,  $17) |       | 2,620                   |       | 2,737                       |       |
| Policy  loans                                                                               |       | 709                     |       | 722                         |       |
| Trading  securities and other investments                                                   |       | 765                     |       | 452                         |       |
| Total  investments                                                                          |       | 27,009                  |       | 21,997                      |       |
|                                                                                        |       |                    |       |                        |       |
| Cash  and cash equivalents                                                                  |       | 1,200                   |       | 3,307                       |       |
| Reinsurance  recoverables                                                                   |       | 1,679                   |       | 1,592                       |       |
| Amounts  due from brokers                                                                   |       | 166                     |       | 3                           |       |
| Deferred  income taxes, net                                                                 |       | 300                     |       | 599                         |       |
| Other  accounts receivable                                                                  |       | 92                      |       | 99                          |       |
| Accrued  investment income                                                                  |       | 280                     |       | 239                         |       |
| Deferred  acquisition costs                                                                 |       | 4,307                   |       | 4,324                       |       |
| Deferred  sales inducement costs                                                            |       | 518                     |       | 518                         |       |
| Other  assets                                                                               |       | 1,151                   |       | 2,658                       |       |
| Separate  account assets                                                                    |       | 45,564                  |       | 41,787                      |       |
|                                                                                        |       |                    |       |                        |       |
| Total  assets                                                                               |       | $                       | 82,266     |                        | $          | 77,123 |   |
|                                                                                        |       |                    |       |                        |       |
| **Liabilities and Shareholder’s Equity**                                               |       |                    |       |                        |       |
| Liabilities:                                                                                |       |                    |       |                        |       |
| Future  policy benefits                                                                     |       | $                       | 30,423     |                        | $          | 28,753 |   |
| Policy  claims and other policyholders’ funds                                          |       | 120                     |       | 172                         |       |
| Amounts  due to brokers                                                                     |       | 619                     |       | 1,862                       |       |
| Other  liabilities                                                                          |       | 940                     |       | 810                         |       |
| Separate  account liabilities                                                               |       | 45,564                  |       | 41,787                      |       |
| Total  liabilities                                                                          |       | 77,666                  |       | 73,384                      |       |
|                                                                                        |       |                    |       |                        |       |
| Shareholder’s  equity:                                                                 |       |                    |       |                        |       |
| Common  shares, $30 par value; 100,000 shares authorized, issued and outstanding            |       | 3                       |       | 3                           |       |
| Additional  paid-in capital                                                                 |       | 2,115                   |       | 2,116                       |       |
| Retained  earnings                                                                          |       | 2,641                   |       | 2,336                       |       |
| Accumulated  other comprehensive loss, net                                                  |       | (159                    | )          | (716                        | )          |
| Total  shareholder’s equity                                                            |       | 4,600                   |       | 3,739                       |       |
|                                                                                        |       |                    |       |                        |       |
| Total  liabilities and shareholder’s equity                                            |       | $                       | 82,266     |                        | $          | 77,123 |   |

 

*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,** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                  | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Revenues**                                                                |       |                                  |       |                                |       |   |   |   |   |
| Premiums                                                                    |       | $                                     | 109        |                                | $          | 107 |   | $ | 219 |   | $ | 214 |   |
| Net  investment income                                                      |       | 387                                   |       | 313                                 |       | 708 |   | 640 |   |
| Policy  and contract charges                                                |       | 295                                   |       | 324                                 |       | 579 |   | 639 |   |
| Other  revenue                                                              |       | 55                                    |       | 73                                  |       | 102 |   | 138 |   |
| Net  realized investment gains (losses)                                     |       | 8                                     |       | (6                                  | )          | 35 |   | (29 | ) |
|                                                                        |       |                                  |       |                                |       |   |   |   |   |
| Total  revenues                                                             |       | 854                                   |       | 811                                 |       | 1,643 |   | 1,602 |   |
|                                                                        |       |                                  |       |                                |       |   |   |   |   |
| **Benefits and expenses**                                                   |       |                                  |       |                                |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses                           |       | 464                                   |       | 179                                 |       | 444 |   | 369 |   |
| Interest  credited to fixed accounts                                        |       | 237                                   |       | 192                                 |       | 442 |   | 387 |   |
| Amortization  of deferred acquisition costs                                 |       | (143                                  | )          | 127                                 |       | 123 |   | 261 |   |
| Other  insurance and operating expenses                                     |       | 137                                   |       | 157                                 |       | 286 |   | 341 |   |
|                                                                        |       |                                  |       |                                |       |   |   |   |   |
| Total  benefits and expenses                                                |       | 695                                   |       | 655                                 |       | 1,295 |   | 1,358 |   |
|                                                                        |       |                                  |       |                                |       |   |   |   |   |
| Pretax  income                                                              |       | 159                                   |       | 156                                 |       | 348 |   | 244 |   |
| Income  tax provision (benefit)                                             |       | 44                                    |       | 2                                   |       | 81 |   | (12 | ) |
|                                                                        |       |                                  |       |                                |       |   |   |   |   |
| Net  income                                                                 |       | $                                     | 115        |                                | $          | 154 |   | $ | 267 |   | $ | 256 |   |
|                                                                        |       |                                  |       |                                |       |   |   |   |   |
| Supplemental  Disclosures:                                                  |       |                                  |       |                                |       |   |   |   |   |
| Net  realized investment gains (losses):                                    |       |                                  |       |                                |       |   |   |   |   |
| Net  realized investment gains before impairment losses on securities       |       | $                                     | 29         |                                |       |   | $ | 76 |   |   |   |
| Total  other-than-temporary impairment losses on securities                 |       | (11                                   | )          |                                |       | (30 | ) |   |   |
| Portion  of loss recognized in other comprehensive income                   |       | (10                                   | )          |                                |       | (11 | ) |   |   |
| Net  impairment losses recognized in net realized investment gains (losses) |       | (21                                   | )          |                                |       | (41 | ) |   |   |
| Net  realized investment gains (losses)                                     |       | $                                     | 8          |                                |       |   | $ | 35 |   |   |   |

 

*See Notes to Consolidated Financial Statements.*

 

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**RIVERSOURCE LIFE INSURANCE COMPANY**

 

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

**(in millions)**

 
| ** **                                                                                   | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                   | ** ** | **2009**                            | ** ** | **2008** | ** ** |
| **Cash Flows from Operating  Activities**                                                    |       |                                |       |   |   |
| Net income                                                                                   |       | $                                   | 267        |   | $ | 256 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |                                |       |   |   |
| Capitalization of deferred acquisition costs and  deferred sales inducement costs            |       | (372                                | )          | (345 | ) |
| Amortization of deferred acquisition costs and  deferred sales inducement costs              |       | 129                                 |       | 297 |   |
| Premium and discount amortization on  Available-for-Sale securities                          |       | (24                                 | )          | 30 |   |
| Deferred income taxes, net                                                                   |       | (22                                 | )          | (66 | ) |
| Contractholder and policyholder charges, non-cash                                            |       | (130                                | )          | (120 | ) |
| Net realized investment gains                                                                |       | (76                                 | )          | (8 | ) |
| Other-than-temporary impairments recognized in net  realized investment gains                |       | 41                                  |       | 37 |   |
| Change in operating assets and liabilities:                                                  |       |                                |       |   |   |
| Trading securities and equity method investments,  net                                       |       | (296                                | )          | 18 |   |
| Future policy benefits for traditional life,  disability income and long term care insurance |       | 134                                 |       | 145 |   |
| Policy claims and other policyholders’ funds                                            |       | (52                                 | )          | 4 |   |
| Reinsurance recoverables                                                                     |       | (87                                 | )          | (127 | ) |
| Other accounts receivable                                                                    |       | 7                                   |       | (20 | ) |
| Accrued investment income                                                                    |       | (41                                 | )          | 10 |   |
| Liability for derivatives collateral held                                                    |       | (1,594                              | )          | (168 | ) |
| Other assets and liabilities, net                                                            |       | 531                                 |       | 102 |   |
|                                                                                         |       |                                |       |   |   |
| **Net cash provided by (used in)****operating activities**                                   |       | (1,585                              | )          | 45 |   |
|                                                                                         |       |                                |       |   |   |
| **Cash Flows from Investing  Activities**                                                    |       |                                |       |   |   |
| Available-for-Sale securities:                                                               |       |                                |       |   |   |
| Proceeds from sales                                                                          |       | 2,047                               |       | 100 |   |
| Maturities, sinking fund payments and calls                                                  |       | 1,667                               |       | 1,306 |   |
| Purchases                                                                                    |       | (7,080                              | )          | (627 | ) |
| Other investments, excluding policy loans:                                                   |       |                                |       |   |   |
| Proceeds from sales, maturities, sinking fund  payments and calls                            |       | 163                                 |       | 146 |   |
| Purchases                                                                                    |       | (67                                 | )          | (221 | ) |
| Change in policy loans, net                                                                  |       | 13                                  |       | (21 | ) |
|                                                                                         |       |                                |       |   |   |
| **Net cash provided by (used in)  investing activities**                                     |       | (3,257                              | )          | 683 |   |
| ** **                                                                                   |       |                                |       |   |   |
| **Cash Flows from Financing  Activities**                                                    |       |                                |       |   |   |
| Activity related to investment contracts and  universal life-type insurance:                 |       |                                |       |   |   |
| Considerations received                                                                      |       | 3,726                               |       | 876 |   |
| Net transfers from (to) separate accounts                                                    |       | 239                                 |       | (46 | ) |
| Surrenders and other benefits                                                                |       | (1,224                              | )          | (1,540 | ) |
| Other                                                                                        |       | (6                                  | )          | (32 | ) |
| Cash  dividend  to Ameriprise Financial, Inc.                                           |       | —                              |       | (400 | ) |
| **Net cash provided by (used in)  financing activities**                                     |       | 2,735                               |       | (1,142 | ) |
| ** **                                                                                   |       |                                |       |   |   |
| **Net decrease in cash and cash  equivalents**                                               |       | (2,107                              | )          | (414 | ) |
| Cash and cash equivalents at beginning of period                                             |       | 3,307                               |       | 980 |   |
|                                                                                         |       |                                |       |   |   |
| **Cash and cash equivalents at  end of period**                                              |       | $                                   | 1,200      |   | $ | 566 |   |
| ** **                                                                                   |       |                                |       |   |   |
| Supplemental Disclosures:                                                                    |       |                                |       |   |   |
| Income taxes paid, net                                                                       |       | $                                   | 2          |   | $ | 100 |   |

 

*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, 2009 AND 2008**

**(in millions)**

** **
| ** **                                                                                                                    | ** ** | **Common   Shares** | ** ** | **Additional   Paid-In   Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated Other****Comprehensive Loss** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------------------|------------|------------------------|------------|---------------------------------------------|------------|-----------|------------|
| **Balances at January 1,  2008**                                                                                         |       | $                   | 3          |                               | $          | 2,031                  |       | $                                           | 3,188      |      | $          | (156 | ) | $ | 5,066 |   |
| ** **                                                                                                                    |       |                |       |                               |       |                   |       |                                        |       |      |       |
| Change in accounting principles, net                                                                                          |       | —              |       | —                             |       | (30                    | )          | —                                      |       | (30       | )          |
| Comprehensive income:                                                                                                         |       |                |       |                               |       |                   |       |                                        |       |      |       |
| Net income                                                                                                                    |       | —              |       | —                             |       | 256                    |       | —                                      |       | 256       |       |
| Other comprehensive income (loss), net:                                                                                       |       |                |       |                               |       |                   |       |                                        |       |      |       |
| Change in net unrealized securities losses                                                                                    |       | —              |       | —                             |       | —                 |       | (204                                        | )          | (204      | )          |
| Change in unrealized derivative losses, net                                                                                   |       | —              |       | —                             |       | —                 |       | 1                                           |       | 1         |       |
| Total comprehensive income                                                                                                    |       |                |       |                               |       |                   |       |                                        |       | 53        |       |
| Cash dividends to Ameriprise Financial, Inc.                                                                             |       | —              |       | —                             |       | (400                   | )          | —                                      |       | (400      | )          |
| **Balances at June 30, 2008**                                                                                            |       | $                   | 3          |                               | $          | 2,031                  |       | $                                           | 3,014      |      | $          | (359 | ) | $ | 4,689 |   |
| ** **                                                                                                                    |       |                |       |                               |       |                   |       |                                        |       |      |       |
| **Balances at January 1,  2009**                                                                                         |       | $                   | 3          |                               | $          | 2,116                  |       | $                                           | 2,336      |      | $          | (716 | ) | $ | 3,739 |   |
| Change in accounting principles, net                                                                                          |       | —              |       | —                             |       | 38                     |       | (38                                         | )          | —    |       |
| Comprehensive income:                                                                                                         |       |                |       |                               |       |                   |       |                                        |       |      |       |
| Net income                                                                                                                    |       | —              |       | —                             |       | 267                    |       | —                                      |       | 267       |       |
| Other comprehensive income (loss), net:                                                                                       |       |                |       |                               |       |                   |       |                                        |       |      |       |
| Change in net unrealized securities losses                                                                                    |       | —              |       | —                             |       | —                 |       | 567                                         |       | 567       |       |
| Change in noncredit related impairments on securities  and net unrealized securities losses on previously impaired securities |       | —              |       | —                             |       | —                 |       | 26                                          |       | 26        |       |
| Change  in net unrealized derivative losses                                                                                   |       | —              |       | —                             |       | —                 |       | 2                                           |       | 2         |       |
| Total comprehensive income                                                                                                    |       |                |       |                               |       |                   |       |                                        |       | 862       |       |
| Tax adjustment of share-based incentive compensation  plan                                                                    |       | —              |       | (1                                 | )          | —                 |       | —                                      |       | (1        | )          |
| **Balances at June 30, 2009**                                                                                            |       | $                   | 3          |                               | $          | 2,115                  |       | $                                           | 2,641      |      | $          | (159 | ) | $ | 4,600 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (UNAUDITED)**

 

**1.****             ****Basis of Presentation**

 

The accompanyingConsolidated Financial Statements include the accounts of RiverSource LifeInsurance Company and its wholly owned subsidiaries, RiverSource Life InsuranceCo. of New York and RiverSource Tax Advantaged Investments, Inc. (“RiverSourceTax Adv. Inv.”)  RiverSource LifeInsurance 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 subsidiaries 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.

 

RiverSource Life evaluatedevents or transactions that may have occured after the balance sheet date forpotential recognition or disclosure through August 3, 2009, the date thefinancial statements were issued.

 

**Restatement for Consolidation of RiverSource TaxAdv. Inv.**

 

On December 31,2008, Ameriprise Financial contributed all of the issued and outstanding sharesof RiverSource Tax Adv. Inv. to RiverSource Life Insurance Company.  The consolidated financial statements giveeffect to the RiverSource Tax Adv. Inv. transfer on December 31, 2008 as apooling of interests for entities under common control. Prior periods have beenrestated to include the accounts of RiverSource Tax Adv. Inv. using the poolingof interests method in order to be comparable to the current year. Followingare the amounts related to RiverSource Tax Adv. Inv. which are included inRiverSource Life’s consolidated financial statements:

 
| ** **                                   | ** ** | **June 30,** | ** ** |
|----------------------------------------------|------------|-------------------|------------|
| ** **                                   | ** ** | **2008**          | ** ** |
| ** **                                   | ** ** | **(in millions)** | ** ** |
| Total revenues                               |       | $                 | (16        | ) |
| Net income                                   |       | 4                 |       |
| Shareholder’s equity: Retained earnings |       | 351               |       |
|                                              |            |                   |            |  |

 

**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.

 

In the first quarter of2009, RiverSource Life reclassified reinsurance allowances for coinsurancecontracts for traditional life and long term care insurance from premiums toother insurance and operating expenses to net with the associated expenses.

 

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

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

 

The following table showsthe impact of the reclassification of the reinsurance allowances and the effectof the pooling of interests of RiverSource Tax. Adv. Inv. to RiverSource Life’spreviously reported Consolidated Statements of Income.

 
| ** **                                        | ** ** | **Three Months Ended********June 30, 2008** | ** ** | **Six Months Ended********June 30, 2008** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                        | ** ** | **Previously Reported**                          | ** ** | **Restated and Reclassified**                  | ** ** | **Previously Reported** | ** ** | **Restated and Reclassified** | ** ** |
| ** **                                        | ** ** | **(in millions)**                                | ** ** |
| **Revenues**                                      |       |                                             |       |                                           |       |   |   |   |   |
| Premiums                                          |       | $                                                | 117        |                                           | $          | 107 |   | $ | 233 |   | $ | 214 |   |
| Net  investment income                            |       | 322                                              |       | 313                                            |       | 643 |   | 640 |   |
| Policy  and contract charges                      |       | 324                                              |       | 324                                            |       | 640 |   | 639 |   |
| Other  revenue                                    |       | 73                                               |       | 73                                             |       | 139 |   | 138 |   |
| Net  realized investment losses                   |       | (6                                               | )          | (6                                             | )          | (29 | ) | (29 | ) |
|                                              |       |                                             |       |                                           |       |   |   |   |   |
| Total  revenues                                   |       | 830                                              |       | 811                                            |       | 1,626 |   | 1,602 |   |
|                                              |       |                                             |       |                                           |       |   |   |   |   |
| **Benefits and expenses**                         |       |                                             |       |                                           |       |   |   |   |   |
| Benefits,  claims, losses and settlement expenses |       | 181                                              |       | 179                                            |       | 372 |   | 369 |   |
| Interest  credited to fixed accounts              |       | 192                                              |       | 192                                            |       | 387 |   | 387 |   |
| Amortization  of deferred acquisition costs       |       | 127                                              |       | 127                                            |       | 261 |   | 261 |   |
| Other  insurance and operating expenses           |       | 166                                              |       | 157                                            |       | 347 |   | 341 |   |
|                                              |       |                                             |       |                                           |       |   |   |   |   |
| Total  benefits and expenses                      |       | 666                                              |       | 655                                            |       | 1,367 |   | 1,358 |   |
|                                              |       |                                             |       |                                           |       |   |   |   |   |
| Pretax  income                                    |       | 164                                              |       | 156                                            |       | 259 |   | 244 |   |
| Income  tax provision (benefit)                   |       | 12                                               |       | 2                                              |       | 7 |   | (12 | ) |
|                                              |       |                                             |       |                                           |       |   |   |   |   |
| **Net income**                                    |       | $                                                | 152        |                                           | $          | 154 |   | $ | 252 |   | $ | 256 |   |

 

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

 

In June 2009,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 168 “The FASB Accounting StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles areplacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 willsupersede existing non-SEC accounting and reporting standards. The codificationwill not change GAAP but will rather organize it into a new hierarchy with twolevels: authoritative and non-authoritative. All authoritative GAAP will carryequal weight and be organized in a topical structure. SFAS 168 is effective forinterim and annual reporting periods ending after September 15, 2009. Theadoption of SFAS 168 will not have a material effect on RiverSource Life’sconsolidated financial condition and results of operations.

 

In June 2009,the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”(“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variableinterest entities (“VIEs”) under FASB Interpretation No. 46(R) “Consolidationof Variable Interest Entities—an interpretation of ARB No. 51” andrequires additional disclosures about RiverSource Life’s involvement in VIEs.SFAS 167 is effective for interim and annual reporting periods beginning after November 15,2009, with early adoption prohibited. RiverSource Life is currently evaluatingthe impact of SFAS 167 on its consolidated financial condition and results ofoperations.

 

In June 2009,the FASB issued SFAS No. 166 “Accounting for Transfers of FinancialAssets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166improves the relevance, representational faithfulness, and comparability of theinformation that a reporting entity provides in its financial statements abouta transfer of financial assets; the effects of a transfer on its financialposition, financial performance, and cash flows; and a transferor’s continuinginvolvement, if any, in transferred financial assets. SFAS 166 is effective forinterim and annual reporting periods beginning after November 15, 2009,with early adoption prohibited, and must be applied to transfers of financialassets occurring on or after the effective date. The adoption of SFAS 166 isnot expected to have a material effect on RiverSource Life’s consolidatedfinancial position and results of operations.

 

In May 2009,the FASB issued SFAS No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165provides guidance on the recognition of subsequent events and requiresadditional disclosures on the time period evaluated for such events. SFAS 165is effective for interim and annual reporting periods ending after June 15,2009, and shall be applied prospectively. RiverSource Life adopted SFAS 165 inthe second quarter of 2009. The adoption did not have a material effect on theRiverSource Life’s consolidated financial condition and results of operations.

 

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

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

 

In April 2009,the FASB issued FASB Staff Position (“FSP”) FAS 157-4 “Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP157-4”). FSP 157-4 provides guidance on estimating the fair value of a financialasset or liability when the trade volume and level of activity for the asset orliability has significantly decreased relative to historical levels. FSP 157-4requires entities to disclose in interim and annual periods the inputs andvaluation techniques used to measure fair value and any changes in valuationinputs or techniques. In addition, debt and equity securities as defined bySFAS No. 115 “Accounting for Certain Investments in Debt and EquitySecurities” shall be disclosed by major category. This FSP is effective forinterim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009, and isto be applied prospectively. RiverSource Life early adopted FSP 157-4 in thefirst quarter of 2009. The adoption did not have a material effect onRiverSource Life’s consolidated financial condition and results of operations.

 

In April 2009,the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation ofOther-Than-Temporary Impairments” (“FSP 115-2”). FSP 115-2 amends existingguidance on other-than-temporary impairments for debt securities and requiresthat the credit portion of other-than-temporary impairments be recorded inearnings and the noncredit portion of losses be recorded in other comprehensiveincome. FSP 115-2 requires presentation of both the credit and noncreditportions of other-than-temporary impairments on the financial statements andadditional disclosures in interim and annual periods. This FSP is effective forinterim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009. At thedate of adoption, the portion of previously recognized other-than-temporaryimpairments that represent the noncredit related loss component shall berecognized as a cumulative effect of adoption with an adjustment to the openingbalance of retained earnings with a corresponding adjustment to accumulatedother comprehensive income (loss). RiverSource Life adopted FSP 115-2 in the first quarter of 2009 andrecorded a cumulative effect increase to the opening balance of retainedearnings of $38 million, net of deferred acquisition costs (“DAC”) and deferredsales inducement costs (“DSIC”) amortization, certain benefit reserves andincome taxes, and a corresponding increase to accumulated other comprehensiveloss net of impacts to DAC, DSIC, certain benefit reserves and income taxes.See Note 3 for the updated accounting policy and disclosures required by thisFSP.

 

In April 2009,the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about FairValue of Financial Instruments” (“FSP 107-1”). FSP 107-1 requires interimdisclosure on the fair value of financial instruments within the scope of SFAS No. 107“Disclosures about Fair Value of Financial Instruments.” This FSP is effectivefor interim and annual reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009.RiverSource Life applied the disclosure requirements of FSP 107-1 in the firstquarter of 2009. See Note 7 for disclosures required by this FSP.

 

In March 2008,the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments andHedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”).SFAS 161 intends to improve financial reporting about derivative instrumentsand hedging activities by requiring enhanced disclosures about their impact onan entity’s financial position, financial performance and cash flows. SFAS 161requires disclosures regarding the objectives for using derivative instruments,the fair value of derivative instruments and their related gains and losses,and the accounting for derivatives and related hedged items. SFAS 161 iseffective for fiscal years and interim periods beginning after November 15,2008, with early adoption permitted. RiverSource Life applied the disclosurerequirements of SFAS 161 in the first quarter of 2009.  See Note 8 for disclosures required by SFAS161.

 

In December 2007,the FASB issued SFAS No. 160 “Noncontrolling Interests in ConsolidatedFinancial Statements-an amendment of ARB No. 51” (“SFAS 160”), whichestablishes the accounting and reporting for ownership interest in subsidiariesnot attributable, directly or indirectly, to a parent.  SFAS 160 requires that noncontrolling(minority) interests be classified as equity (instead of as a liability) withinthe consolidated balance sheet, and net income (loss) attributable to both theparent and the noncontrolling interests be disclosed on the face of theconsolidated statements of income.  SFAS160 is effective for fiscal years beginning after December 15, 2008, andinterim periods within those years with early adoption prohibited.  The provisions of SFAS 160 are to be appliedprospectively, except for the presentation and disclosure requirements whichare to be applied retrospectively to all periods presented.  RiverSource Life adopted SFAS 160 as of January 1,2009 and there was no impact on its consolidated financial condition andresults of operations.

 

In September 2006,the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS 157”) whichdefines 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

 

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Table of Contents

 

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

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

 

SFAS 157 that requireretrospective application. Any retrospective application will be recognized asa cumulative effect adjustment to the opening balance of retained earnings forthe fiscal year of adoption.  RiverSourceLife adopted SFAS 157 effective January 1, 2008 and recorded a cumulativeeffect reduction to the opening balance of retained earnings of $30 million,net of DAC and DSIC amortization and income taxes. This reduction to retainedearnings was related to adjusting the fair value of certain derivativesRiverSource Life uses to hedge its exposure to market risk related to certainvariable annuity riders.  RiverSource Lifeinitially recorded these derivatives in accordance with EITF Issue No. 02-3“Issues Involved in Accounting for Derivative Contracts Held for TradingPurposes and Contracts Involved in Energy Trading and Risk ManagementActivities” (“EITF 02-3”).  SFAS 157nullifies the guidance in EITF 02-3 and requires these derivatives to be markedto the price RiverSource Life would receive to sell the derivatives to a marketparticipant (an exit price).  Theadoption of SFAS 157 also resulted in adjustments to the fair value ofRiverSource Life’s embedded derivative liabilities associated with certainvariable annuity riders. Since there is no market for these liabilities,RiverSource Life considered the assumptions participants in a hypotheticalmarket would make to determine an exit price. As a result, RiverSource Lifeadjusted the valuation of these liabilities by updating certain policyholderassumptions, adding explicit margins to provide for profit, risk and expensesand adjusting the rate used to discount expected cash flows to reflect acurrent market estimate of RiverSource Life’s risk of nonperformance specificto these liabilities. These adjustments resulted in an adoption impact of a $4million increase in earnings, net of DAC and DSIC amortization and incometaxes, at January 1, 2008. The nonperformance risk component of theadjustment is specific to the risk of RiverSource Life not fulfilling theseliabilities. As RiverSource Life’s estimate of this credit spread widens ortightens, the liability will decrease or increase.

 

Inaccordance with FSP FAS 157-2, “Effective Date of FASB Statement No. 157”(“FSP 157-2”), RiverSource Life deferred 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. The adoption of FSP 157-2 did not have a material effect onRiverSource Life’s consolidated financial condition and results ofoperations.  See Note 7 for additionalinformation regarding the fair values of RiverSource Life’s assets andliabilities.

 

**3.****             ****Investments**

 

*Available-for-SaleSecurities*

 

Effective January 1,2009, RiverSource Life early adopted FSP 115-2. This interpretationsignificantly changed RiverSource Life’s accounting policy regarding the timingand amount of other-than temporary impairments for Available-for-Salesecurities as follows. When the fair value of an investment is less than itsamortized cost, RiverSource Life assesses whether or not: (i) it has theintent to sell the security (made a decision to sell) or (ii) it is morelikely than not RiverSource Life will be required to sell the security beforeits anticipated recovery. If either of these conditions are met, RiverSourceLife must recognize an other-than-temporary impairment for the differencebetween the investment’s amortized cost basis and its fair value throughearnings. For securities that do not meet the above criteria and RiverSourceLife does not expect to recover a security’s amortized cost basis, the securityis considered other-than temporarily impaired. For these securities,RiverSource Life separates the total impairment into the credit loss componentand the amount of the loss related to other factors. The amount of the totalother-than-temporary impairment related to credit loss is recognized inearnings. The amount of the total other-than-temporary impairment related toother factors is recognized in other comprehensive income, net of impacts toDAC, DSIC, certain benefit reserves and income taxes. For Available-for-Salesecurities that have recognized an other-than-temporary impairment throughearnings, if through subsequent evaluation there is a significant increase inthe cash flow expected, the difference between the amortized cost basis and thecash flows expected to be collected is accreted as interest income. Subsequentincreases and decreases in the fair value of Available-for-Sale securities areincluded in other comprehensive income. RiverSource Life’s Consolidated Statements of Shareholder’s Equitypresent all changes in other comprehensive income associated withAvailable-for-Sale debt securities that have been other-than-temporarilyimpaired on a separate line from fair value changes recorded in othercomprehensive income from all other securities.

 

RiverSource Life providesa supplemental disclosure on the face of its Consolidated Statements of Incomethat presents: (i) total other-than-temporary impairment losses recognizedduring the period and (ii) the portion of other-than-temporary impairment  losses recognized in other comprehensiveincome. The sum of these amounts represents the credit-related portion ofother-than-temporary impairments that were recognized in earnings during theperiod. The portion of other-than-temporary losses recognized in othercomprehensive income includes: (i) the portion of other-than-temporaryimpairment losses related to factors other than credit recognized during theperiod and (ii) reclassifications of other-than-temporary impairmentlosses previously determined to be related to factors other than credit thatare determined to be credit-related in the current period. The amount presentedon the Consolidated Statements of Income as the portion of other-than-temporarylosses recognized in other comprehensive income excludes subsequent increasesand decreases in the fair value of these securities.

 

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

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

 

For all securities thatare considered temporarily impaired, RiverSource Life does not intend to sellthese securities (has not made a decision to sell) and it is not more likelythan not that RiverSource Life will be required to sell the security beforerecovery of its amortized cost basis. RiverSource Life believes that it willcollect all principal and interest due on all investments that have amortizedcost in excess of fair value that are considered only temporarily impaired.

 

*Corporatedebt securities*

 

Factors RiverSource Lifeconsiders in determining whether declines in the fair value of fixed-maturitysecurities are other-than-temporary include: 1) the extent to which the marketvalue is below amortized cost; 2) the duration of time in which there has beena significant decline in value; 3) fundamental analysis of the liquidity,business prospects and overall financial condition of the issuer; and 4) marketevents that could impact credit ratings, economic and business climate,litigation and government actions, and similar external business factors. Inorder to determine the amount of the credit loss component for corporate debtsecurities considered other-than-temporarily impaired, a best estimate of thepresent value of cash flows expected to be collected discounted at the security’seffective interest rate is compared to the amortized cost basis of thesecurity.  The significant inputs to cashflow projections consider potential debt restructuring terms, projected cashflows available to pay creditors and RiverSource Life’s position in the debtor’soverall capital structure.

 

*Structuredinvestments*

 

For structuredinvestments (e.g., residential mortgage backed securities, commercial mortgagebacked securities, asset backed securities and other structured investments),RiverSource Life also considers factors such as overall deal structure and itsposition within the structure, quality of underlying collateral, delinquenciesand defaults, loss severities, recoveries, prepayments and cumulative lossprojections in assessing potential other-than-temporary impairments of theseinvestments. Based upon these factors, securities that have indicators ofpotential other-than-temporary impairment are subject to detailed review bymanagement. Securities for which declines are considered temporary continue tobe carefully monitored by management. For the six months ended June 30,2009, certain non-agency mortgage backed securities were deemed other-thantemporarily impaired. Generally, the credit loss component for the non-agencymortgage backed securities is determined as the amount the amortized cost basisexceeds the present value of the projected cash flows expected to be collected.Significant inputs considered in these projections are consistent with thefactors considered in assessing potential other-than-temporary impairment forthese investments.  Forward interestrates are considered in the cash flow projections and are used to calculate thediscount rate used to determine the present value of the expected cash flowswhen structures are supported by variable rate securities.  Current effective interest rates are used todiscount cash flows supported by fixed rate securities.

 

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

 
| ** **                                | ** ** | **June 30, 2009** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| **Description of Securities**             | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| ** **                                | ** ** | **(in millions)**      | ** ** |
| Fixed  maturities:                        |       |                   |       |   |   |   |   |   |   |
| Corporate  debt securities                |       | $                      | 13,382     |   | $ | 421 |   | $ | (473 | ) | $ | 13,330 |   |
| Residential  mortgage backed securities   |       | 4,947                  |       | 116 |   | (267 | ) | 4,796 |   |
| Commercial  mortgage backed securities    |       | 3,474                  |       | 87 |   | (85 | ) | 3,476 |   |
| Asset  backed securities                  |       | 822                    |       | 26 |   | (46 | ) | 802 |   |
| State  and municipal obligations          |       | 359                    |       | 3 |   | (54 | ) | 308 |   |
| Foreign  government bonds and obligations |       | 95                     |       | 13 |   | (2 | ) | 106 |   |
| U.S.  government and agencies obligations |       | 64                     |       | 6 |   | — |   | 70 |   |
| Other  structured investments             |       | 2                      |       | 7 |   | — |   | 9 |   |
| Total  fixed maturities                   |       | 23,145                 |       | 679 |   | (927 | ) | 22,897 |   |
| Common  and preferred stocks              |       | 30                     |       | — |   | (12 | ) | 18 |   |
| Total                                     |       | $                      | 23,175     |   | $ | 679 |   | $ | (939 | ) | $ | 22,915 |   |

 

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

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

 
| ** **                                | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| **Description of Securities**             | ** ** | **Amortized  Cost**        | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| ** **                                | ** ** | **(in millions)**          | ** ** |
| Fixed  maturities:                        |       |                       |       |   |   |   |   |   |   |
| Corporate  debt securities                |       | $                          | 12,030     |   | $ | 86 |   | $ | (1,123 | ) | $ | 10,993 |   |
| Residential  mortgage backed securities   |       | 3,697                      |       | 59 |   | (220 | ) | 3,536 |   |
| Commercial  mortgage backed securities    |       | 2,582                      |       | 35 |   | (174 | ) | 2,443 |   |
| Asset  backed securities                  |       | 682                        |       | 4 |   | (60 | ) | 626 |   |
| State  and municipal obligations          |       | 164                        |       | 1 |   | (20 | ) | 145 |   |
| Foreign  government bonds and obligations |       | 95                         |       | 16 |   | (4 | ) | 107 |   |
| U.S.  government and agencies obligations |       | 200                        |       | 11 |   | — |   | 211 |   |
| Other  structured investments             |       | 2                          |       | 7 |   | — |   | 9 |   |
| Total  fixed maturities                   |       | 19,452                     |       | 219 |   | (1,601 | ) | 18,070 |   |
| Common  and preferred stocks              |       | 30                         |       | — |   | (14 | ) | 16 |   |
| Total                                     |       | $                          | 19,482     |   | $ | 219 |   | $ | (1,615 | ) | $ | 18,086 |   |

 

At June 30, 2009 and December 31, 2008,fixed maturity securities comprised approximately 85% and 82%, respectively, ofRiverSource Life’s total investments. These securities were rated by Moody’s Investors Service (“Moody’s”),Standard & Poor’s Rating Services (“S&P”) and Fitch Ratings Ltd. (“Fitch”),except for approximately $1.0 billion and $1.1 billion of securities at June 30,2009 and December 31, 2008, respectively, which were rated by RiverSourceInvestments, LLC’s internal analysts using criteria similar to Moody’s andS&P.  Ratings on investment gradesecurities are presented using S&P’s convention and, if Moody’s and S&P’sratings differ, the lower rating is used. A summary of fixed maturity securities by rating was as follows:

 

| ** **              | ** ** | **June 30, 2009**                | ** ** | **December 31, 2008** | ** ** |
|-------------------------|------------|---------------------------------------|------------|----------------------------|------------|
| **Ratings**             | ** ** | **Amortized  Cost**                   | ** ** | **Fair********Value**      | ** ** | **Percent of  Total Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair********Value** | ** ** | **Percent of  Total Fair  Value** | ** ** |
| ** **              | ** ** | **(in millions, except percentages)** | ** ** |
| AAA                     |       | $                                     | 8,622      |                       | $          | 8,685 |   | 38 | % | $ | 7,038 |   | $ | 6,779 |   | 38 | % |
| AA                      |       | 684                                   |       | 651                        |       | 3 |   | 1,071 |   | 1,017 |   | 6 |   |
| A                       |       | 3,243                                 |       | 3,199                      |       | 14 |   | 4,132 |   | 3,883 |   | 21 |   |
| BBB                     |       | 8,618                                 |       | 8,651                      |       | 38 |   | 5,901 |   | 5,388 |   | 30 |   |
| Below investment  grade |       | 1,978                                 |       | 1,711                      |       | 7 |   | 1,310 |   | 1,003 |   | 5 |   |
| Total fixed  maturities |       | $                                     | 23,145     |                       | $          | 22,897 |   | 100 | % | $ | 19,452 |   | $ | 18,070 |   | 100 | % |

 

At June 30, 2009 andDecember 31, 2008, approximately 28% and 44%, respectively, of the securitiesrated AAA were GNMA, FNMA and FHLMC mortgage backed securities.  No holdings of any other issuer were greaterthan 10% of shareholder’s equity.

 

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, 2009**  | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **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                |       | $                       | 996        |   | $ | (39 | ) | $ | 4,076 |   | $ | (434 | ) | $ | 5,072 |   | $ | (473 | ) |
| Residential  mortgage backed securities   |       | 1,071                   |       | (46 | ) | 342 |   | (221 | ) | 1,413 |   | (267 | ) |
| Commercial  mortgage backed securities    |       | 383                     |       | (10 | ) | 1,072 |   | (75 | ) | 1,455 |   | (85 | ) |
| Asset  backed securities                  |       | 85                      |       | (7 | ) | 140 |   | (39 | ) | 225 |   | (46 | ) |
| State  and municipal obligations          |       | 56                      |       | (5 | ) | 134 |   | (49 | ) | 190 |   | (54 | ) |
| Foreign  government bonds and obligations |       | 6                       |       | (1 | ) | 6 |   | (1 | ) | 12 |   | (2 | ) |
| U.S.  government and agencies obligations |       | —                  |       | — |   | 10 |   | — |   | 10 |   | — |   |
| Common  and preferred stocks              |       | —                  |       | — |   | 18 |   | (12 | ) | 18 |   | (12 | ) |
| Total                                     |       | $                       | 2,597      |   | $ | (108 | ) | $ | 5,798 |   | $ | (831 | ) | $ | 8,395 |   | $ | (939 | ) |

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 
| ** **                                | ** ** | **December 31, 2008** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **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                |       | $                          | 5,086      |   | $ | (372 | ) | $ | 3,309 |   | $ | (751 | ) | $ | 8,395 |   | $ | (1,123 | ) |
| Residential  mortgage backed securities   |       | 305                        |       | (85 | ) | 466 |   | (135 | ) | 771 |   | (220 | ) |
| Commercial  mortgage backed securities    |       | 387                        |       | (23 | ) | 867 |   | (151 | ) | 1,254 |   | (174 | ) |
| Asset  backed securities                  |       | 187                        |       | (31 | ) | 124 |   | (29 | ) | 311 |   | (60 | ) |
| State  and municipal obligations          |       | 17                         |       | (1 | ) | 78 |   | (19 | ) | 95 |   | (20 | ) |
| Foreign  government bonds and obligations |       | 20                         |       | (4 | ) | — |   | — |   | 20 |   | (4 | ) |
| U.S.  government and agencies obligations |       | —                     |       | — |   | 11 |   | — |   | 11 |   | — |   |
| Common  and preferred stocks              |       | —                     |       | — |   | 16 |   | (14 | ) | 16 |   | (14 | ) |
| Total                                     |       | $                          | 6,002      |   | $ | (516 | ) | $ | 4,871 |   | $ | (1,099 | ) | $ | 10,873 |   | $ | (1,615 | ) |

 

The following tables summarize theunrealized losses by ratio of fair value to amortized cost:

 
| ** **                                   | ** ** | **June 30,  2009**                        | ** ** |
|----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                   | ** ** | **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%                                   |       | 150                                            |       | $ | 2,083 |   | $ | (28 | ) | 144 |   | $ | 2,542 |   | $ | (60 | ) | 294 |   | $ | 4,625 |   | $ | (88 | ) |
| 90% - 95%                                    |       | 23                                             |       | 286 |   | (23 | ) | 71 |   | 1,199 |   | (98 | ) | 94 |   | 1,485 |   | (121 | ) |
| 80% - 90%                                    |       | 12                                             |       | 120 |   | (18 | ) | 102 |   | 1,267 |   | (216 | ) | 114 |   | 1,387 |   | (234 | ) |
| Less than 80%                                |       | 11                                             |       | 108 |   | (39 | ) | 90 |   | 790 |   | (457 | ) | 101 |   | 898 |   | (496 | ) |
| Total                                        |       | 196                                            |       | $ | 2,597 |   | $ | (108 | ) | 407 |   | $ | 5,798 |   | $ | (831 | ) | 603 |   | $ | 8,395 |   | $ | (939 | ) |
| ** **                                   | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **December 31, 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%                                   |       | 191                                            |       | $ | 3,181 |   | $ | (75 | ) | 69 |   | $ | 1,068 |   | $ | (23 | ) | 260 |   | $ | 4,249 |   | $ | (98 | ) |
| 90% - 95%                                    |       | 98                                             |       | 1,667 |   | (129 | ) | 48 |   | 1,001 |   | (86 | ) | 146 |   | 2,668 |   | (215 | ) |
| 80% - 90%                                    |       | 62                                             |       | 747 |   | (119 | ) | 82 |   | 1,465 |   | (271 | ) | 144 |   | 2,212 |   | (390 | ) |
| Less than 80%                                |       | 47                                             |       | 407 |   | (193 | ) | 150 |   | 1,337 |   | (719 | ) | 197 |   | 1,744 |   | (912 | ) |
| Total                                        |       | 398                                            |       | $ | 6,002 |   | $ | (516 | ) | 349 |   | $ | 4,871 |   | $ | (1,099 | ) | 747 |   | $ | 10,873 |   | $ | (1,615 | ) |

 

As part of RiverSourceLife’s ongoing monitoring process, management determined that a majority of thegross unrealized losses on its Available-for-Sale securities are attributableto changes in credit spreads across sectors. The primary driver of decreasedunrealized losses during 2009 was the tightening of credit spreads acrosssectors.  A portion of the decrease inunrealized losses was offset by an increase due to the adoption of FSP 115-2.RiverSource Life recorded a cumulative effect increase to the amortized cost ofpreviously other-than-temporarily impaired investments that increased the grossunrealized losses on Available-for-Sale securities by $64 million. This impactis due to impairment of Available-for-Sale securities recognized in othercomprehensive income previously recognized through earnings for factors otherthan credit.

 

11

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Table of Contents

 

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

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

 

The following tablepresents the amounts recognized in the Consolidated Statements of Income forother-than-temporary impairments related to credit losses on securities forwhich a portion of the securities’ total other-than-temporary impairments wasrecognized in other comprehensive income:

 
| ** **                                                                                                                                                                   | ** ** | **Three Months Ended  June 30, 2009** | ** ** | **Six Months Ended  June 30, 2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **(in millions)**                          | ** ** |
| Beginning  balance of credit losses on securities held for which a portion of  other-than-temporary impairment was recognized in other comprehensive income                  |       | $                                          | 113        |                                     | $          | 101 |   |
| Additional  amount related to credit losses for which an other-than-temporary impairment  was not previously recognized                                                      |       | —                                     |       | 8                                        |       |
| Reductions  for securities sold during the period (realized)                                                                                                                 |       | (3                                         | )          | (3                                       | )          |
| Additional  increases to the amount related to credit losses for which an  other-than-temporary impairment was previously recognized                                         |       | 21                                         |       | 25                                       |       |
| Ending  balance of credit losses on securities held as of June 30 for which a  portion of other-than-temporary impairment was recognized in other  comprehensive income |       | $                                          | 131        |                                     | $          | 131 |   |

 

The change in netunrealized securities gains (losses) in other comprehensive income (loss)includes three components, net of tax: (i) unrealized gains (losses) thatarose from changes in the market value of securities that were held during theperiod; (ii) (gains) losses that were previously unrealized, but have beenrecognized in current period net income due to sales of Available-for-Salesecurities and (iii) other items primarily consisting of adjustments inasset and liability balances, such as DAC, DSIC, benefit reserves andreinsurance recoverables, to reflect the expected impact on their carryingvalues had the unrealized gains (losses) been realized as of the respectivebalance sheet dates.  As a result of theadoption of FSP 115-2, effective January 1, 2009, net unrealizedinvestment gains (losses) arising during the period also includesother-than-temporary impairment losses on Available-for-Sale securities relatedto factors other than credit that were recognized in other comprehensive incomeduring the period. Additionally, reclassification of (gains) losses included innet income contains noncredit other-than-temporary impairment losses that werepreviously unrealized, but have been recognized in current period net incomedue to their reclassification as credit losses.

 

The following tablepresents a rollforward of the net unrealized securities losses onAvailable-for-Sale securities included in accumulated other comprehensive income:

 
| ** **                                                                                                       | ** ** | **Net********Unrealized********Investment********Gains (Losses)** | ** ** | **Deferred********Income Tax** | ** ** | **Accumulated Other********Comprehensive Income  (Loss) Related to Net  Unrealized Investment   Gains (Losses)** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                             |       | **(in  millions)**                                                     |       |
| Balance  at January 1, 2008                                                                                 |       | $                                                                      | (178       | )                              | $          | 62                                                                                                               |       | $ | (116 | ) |
| Net  unrealized investment gains (losses) arising during the period                                              |       | (369                                                                   | )          | 129                            |       | (240                                                                                                             | )          |
| Reclassification  of (gains) losses included in net income                                                       |       | (8                                                                     | )          | 3                              |       | (5                                                                                                               | )          |
| Impact  of net unrealized investment (gains) losses on DAC, DSIC and benefit reserves                            |       | 62                                                                     |       | (21                            | )          | 41                                                                                                               |       |
| Balance  at June 30, 2008                                                                                   |       | $                                                                      | (493       | )                              | $          | 173                                                                                                              |       | $ | (320 | ) |
|                                                                                                             |       |                                                                   |       |                           |       |                                                                                                             |       |
| Balance  at January 1, 2009                                                                                 |       | $                                                                      | (1,043     | )                              | $          | 365                                                                                                              |       | $ | (678 | ) |
| Cumulative  effect of accounting change                                                                          |       | (58                                                                    | )(1)       | 20                             |       | (38                                                                                                              | )          |
| Net  unrealized investment gains (losses) arising during the period                                              |       | 1,236                                                                  |       | (433                           | )          | 803                                                                                                              |       |
| Reclassification  of (gains) losses included in net income                                                       |       | (44                                                                    | )          | 16                             |       | (28                                                                                                              | )          |
| Impact  of net unrealized investment (gains) losses on DAC, DSIC, benefit reserves  and reinsurance recoverables |       | (280                                                                   | )          | 98                             |       | (182                                                                                                             | )          |
| Balance  at June 30, 2009                                                                                   |       | $                                                                      | (189       | )                              | $          | 66                                                                                                               |       | $ | (123 | )(2) |

 

----

(1)   Amountrepresents the cumulative effect of adopting FSP 115-2 on January 1, 2009,net of DAC and DSIC amortization and certain benefit reserves.  See Note 2 for additional information on theadoption impact.

(2)   At June 30,2009, Accumulated Other Comprehensive Income (Loss) Related to Net UnrealizedInvestment Gains (Losses) included $(12) million of noncredit relatedimpairments on securities and net unrealized securities losses on previouslyimpaired securities.

 

12

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

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

 

Net realized gains and losses on Available-for-Salesecurities, determined using the specific identification method, recognized innet realized investment gains (losses) were as follows:

 
| ** **                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                       | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(in millions)**                     | ** ** |
| Gross realized gains from sales  |       | $                                     | 47         |                                | $          | — |   | $ | 95 |   | $ | 9 |   |
| Gross realized losses from sales |       | (9                                    | )          | —                              |       | (10 | ) | (2 | ) |
| Impairment losses                |       | (21                                   | )          | (6                                  | )          | (41 | ) | (36 | ) |
|                                  |            |                                       |            |                                     |            |  |  |  |  |  |  |  |  |

 

The $21 million of other-than-temporary impairmentsrecognized in net realized investment gains (losses) for the three months endedJune 30, 2009 are related to credit losses on non-agency residentialmortgage backed securities.  The $41million of other-than-temporary impairments recognized in net realizedinvestment gains (losses) for the six months ended June 30, 2009 arerelated to credit losses on non-agency residential mortgage backed securitiesand corporate debt securities primarily in the gaming industry.

 

Available-for-Salesecurities by maturity as of June 30, 2009 were as follows:

 
| ** **                              | ** ** | **Amortized Cost**       | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|----------------|------------|
| ** **                              | ** ** | **(in****millions****)** | ** ** |
| Due  within one year                    |       | $                        | 639        |           | $          | 644 |   |
| Due  after one year through five years  |       | 7,123                    |       | 7,001          |       |
| Due  after five years through 10 years  |       | 3,797                    |       | 3,752          |       |
| Due  after 10 years                     |       | 2,341                    |       | 2,417          |       |
|                                    |       | 13,900                   |       | 13,814         |       |
| Residential  mortgage backed securities |       | 4,947                    |       | 4,796          |       |
| Commercial  mortgage backed securities  |       | 3,474                    |       | 3,476          |       |
| Asset  backed securities                |       | 822                      |       | 802            |       |
| Other  structured investments           |       | 2                        |       | 9              |       |
| Common  and preferred stocks            |       | 30                       |       | 18             |       |
| Total                                   |       | $                        | 23,175     |           | $          | 22,915 |   |

 

The expected payments onresidential mortgage backed securities, commercial mortgage backed securities,asset backed securities and other structured investments may not coincide withtheir contractual maturities.  As such,these securities, as well as common and preferred stocks, were not included inthe maturities distribution.

 

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

 

The balances of and changes in DACwere as follows:

 
| ** **                                                   | ** ** | **2009**          | ** ** | **2008** | ** ** |
|--------------------------------------------------------------|------------|-------------------|------------|----------|------------|
| ** **                                                   | ** ** | **(in millions)** | ** ** |
| Balance at January 1                                    |       | $                 | 4,324      |     | $          | 4,334 |   |
| Cumulative effect  of accounting change                      |       | —            |       | 36       |       |
| Capitalization of acquisition costs                          |       | 333               |       | 298      |       |
| Amortization                                                 |       | (123              | )          | (261     | )          |
| Impact of change in net unrealized securities losses (gains) |       | (227              | )          | 42       |       |
| Balance at June 30                                      |       | $                 | 4,307      |     | $          | 4,449 |   |

 

The balances of andchanges in DSIC were as follows:

 
| ** **                                                   | ** ** | **2009**               | ** ** | **2008** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| ** **                                                   | ** ** | **(in millions)** | ** ** |
| Balance at January 1                                    |       | $                      |  518  |     | $          |  511 |   |
| Cumulative  effect of accounting change                      |       | —                 |       | 9        |       |
| Capitalization of sales inducements                          |       | 39                     |       | 47       |       |
| Amortization                                                 |       | (6                     | )          | (36      | )          |
| Impact of change in net unrealized securities losses (gains) |       | (33                    | )          | 7        |       |
| Balance at June 30                                      |       | $                      | 518        |     | $          | 538 |   |

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

RiverSource Life adoptedFSP 115-2 in the first quarter of 2009. The adoption had no net impact to DAC and DSIC.

 

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 Note7 for additional information regarding SFAS 157.

 

**5.****    ****Future Policy Benefits, Policy Claimsand Other Policyholders’ Funds and Separate Account Liabilities**

 

Future policy benefits and policyclaims and other policyholders’ funds consisted of the following:

 
| ** **                                                                           | ** ** | **June 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------------|------------|
| ** **                                                                           | ** ** | **(in millions)** | ** ** |
| Fixed  annuities                                                                     |       | $                      | 16,364     |                            | $          | 14,058 |   |
| Equity  indexed annuities accumulated host values                                    |       | 200                    |       | 228                             |       |
| Equity  indexed annuities embedded derivatives                                       |       | 15                     |       | 16                              |       |
| Variable  annuities fixed sub-accounts                                               |       | 5,987                  |       | 5,623                           |       |
| Variable  annuity guaranteed minimum withdrawal benefits (“GMWB”)          |       | 584                    |       | 1,471                           |       |
| Variable  annuity guaranteed minimum accumulation benefits (“GMAB”)        |       | 180                    |       | 367                             |       |
| Other  variable annuity guarantees                                                   |       | 36                     |       | 67                              |       |
| Total  annuities                                                                     |       | 23,366                 |       | 21,830                          |       |
| Variable  universal life (“VUL”)/universal life (“UL”) insurance |       | 2,571                  |       | 2,526                           |       |
| Other  life, disability income and long term care insurance                          |       | 4,486                  |       | 4,397                           |       |
| Total  future policy benefits                                                        |       | 30,423                 |       | 28,753                          |       |
| Policy  claims and other policyholders’ funds                                   |       | 120                    |       | 172                             |       |
| Total  future policy benefits and policy claims and other policyholders’ funds  |       | $                      | 30,543     |                            | $          | 28,925 |   |

 

Separate accountliabilities consisted of the following:

 
| ** **                              | ** ** | **June 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|-----------------------------------------|------------|------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **(in millions)**      | ** ** |
| Variable  annuity variable sub-accounts |       | $                      | 41,117     |                            | $          | 37,657 |   |
| VUL  insurance variable sub-accounts    |       | 4,407                  |       | 4,091                           |       |
| Other  insurance variable sub-accounts  |       | 40                     |       | 39                              |       |
| Total  separate account liabilities     |       | $                      | 45,564     |                            | $          | 41,787 |   |

 

**6.****    ****Variable Annuity and InsuranceGuarantees**

 

Themajority of the variable annuity contracts offered by RiverSource Life containguaranteed minimum death benefit (“GMDB”) provisions.  RiverSource Life also offers variableannuities with death benefit provisions that gross up the amount payable by acertain percentage of contract earnings, which are referred to as gain gross-up(“GGU”) benefits.  In addition,RiverSource Life offers contracts with GMWB provisions.  On June 1, 2009, RiverSource Lifediscontinued sales of contracts with GMAB provisions.  RiverSource Life previously offered contractscontaining guaranteed minimum income benefit (“GMIB”) provisions.

 

Certainuniversal life contracts offered by RiverSource Life provide secondaryguarantee benefits.  The secondaryguarantee ensures that, subject to specified conditions, the policy will notterminate and will continue to provide a death benefit even if there isinsufficient policy value to cover the monthly deductions and charges.

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

Thefollowing table provides summary information related to all variable annuityguarantees for which RiverSource Life has established additional liabilities:

 
| ** **                                              | ** ** | **June 30, 2009**        | ** ** | **December 31, 2008**                 | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|
| **Variable  annuity   guarantees by benefit  type (1)** | ** ** | **Total  contract  value**    | ** ** | **Contract  value in  separate  accounts** | ** ** | **Net amount  at risk(2)** | ** ** | **Weighted  average  attained  age** | ** ** | **Total  contract  value** | ** ** | **Contract  value in  separate  accounts** | ** ** | **Net  amount   at risk(2)** | ** ** | **Weighted  average  attained  age** | ** ** |
| ** **                                              | ** ** | **(in millions, except age)** | ** ** |
| **GMDB:**                                               |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Return of Premium                                       |       | $                             | 25,464     |                                       | $          | 23,121 |   | $ | 3,504 |   | 61 |   | $ | 22,249 |   | $ | 20,153 |   | $ | 4,873 |   | 61 |   |
| Six-Year Reset                                          |       | 12,748                        |       | 10,024                                     |       | 2,130 |   | 61 |   | 12,719 |   | 10,063 |   | 2,802 |   | 61 |   |
| One-Year Ratchet                                        |       | 6,160                         |       | 5,448                                      |       | 1,739 |   | 63 |   | 5,770 |   | 5,061 |   | 2,163 |   | 62 |   |
| Five-Year Ratchet                                       |       | 1,052                         |       | 977                                        |       | 140 |   | 59 |   | 951 |   | 888 |   | 199 |   | 59 |   |
| Other                                                   |       | 506                           |       | 463                                        |       | 164 |   | 67 |   | 471 |   | 429 |   | 192 |   | 66 |   |
| Total — GMDB                                       |       | $                             | 45,930     |                                       | $          | 40,033 |   | $ | 7,677 |   | 61 |   | $ | 42,160 |   | $ | 36,594 |   | $ | 10,229 |   | 61 |   |
|                                                    |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GGU death benefit**                                   |       | $                             | 738        |                                       | $          | 658 |   | $ | 66 |   | 63 |   | $ | 699 |   | $ | 619 |   | $ | 65 |   | 63 |   |
|                                                    |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMIB**                                                |       | $                             | 571        |                                       | $          | 520 |   | $ | 214 |   | 63 |   | $ | 567 |   | $ | 511 |   | $ | 245 |   | 63 |   |
|                                                    |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMWB:**                                               |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| GMWB                                                    |       | $                             | 3,691      |                                       | $          | 3,580 |   | $ | 1,040 |   | 63 |   | $ | 3,513 |   | $ | 3,409 |   | $ | 1,312 |   | 63 |   |
| GMWB for life                                           |       | 11,505                        |       | 10,990                                     |       | 2,060 |   | 63 |   | 9,194 |   | 8,764 |   | 2,704 |   | 63 |   |
| Total — GMWB                                       |       | $                             | 15,196     |                                       | $          | 14,570 |   | $ | 3,100 |   | 63 |   | $ | 12,707 |   | $ | 12,173 |   | $ | 4,016 |   | 63 |   |
|                                                    |       |                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **GMAB**                                                |       | $                             | 2,496      |                                       | $          | 2,414 |   | $ | 462 |   | 55 |   | $ | 2,006 |   | $ | 1,937 |   | $ | 608 |   | 56 |   |

 

----

(1)   Individual variable annuitycontracts may have more than one guarantee and therefore may be included inmore than one benefit type.  Variableannuity contracts for which the death benefit equals account value are notshown in this table.

(2)   Represents the currentguaranteed benefit amount in excess of the current contract value. GMIB, GMWBand GMAB benefits are subject to waiting periods and payment periods specified inthe contract.

 

Changes in additionalliabilities were as follows:

 
| ** **                                 | ** ** | **GMDB &   GGU** | ** ** | **GMIB** | ** ** | **GMWB** | ** ** | **GMAB** | ** ** | **UL** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|----------|------------|----------|------------|----------|------------|--------|------------|
| ** **                                 | ** ** | **(in millions)**         | ** ** |
| Liability  balance at January 1, 2008 |       | $                              | 24         |     | $          | 3        |       | $        | 136        |   | $          | 33 |   | $ | 4 |   |
| Incurred  claims                           |       | 6                              |       | —   |       | (35      | )          | 24       |       | 3      |       |
| Paid  claims                               |       | (4                             | )          | —   |       | —   |       | —   |       | (1     | )          |
| Liability  balance at June 30, 2008   |       | $                              | 26         |     | $          | 3        |       | $        | 101        |   | $          | 57 |   | $ | 6 |   |
|                                       |       |                           |       |     |       |     |       |     |       |   |       |
| Liability  balance at January 1, 2009 |       | $                              | 55         |     | $          | 12       |       | $        | 1,471      |   | $          | 367 |   | $ | 7 |   |
| Incurred  claims                           |       | 12                             |       | (1       | )          | (887     | )          | (187     | )          | 5      |       |
| Paid  claims                               |       | (42                            | )          | —   |       | —   |       | —   |       | — |       |
| Liability  balance at June 30, 2009   |       | $                              | 25         |     | $          | 11       |       | $        | 584        |   | $          | 180 |   | $ | 12 |   |

 

**7.****    ****Fair Values of Assets andLiabilities**

 

Effective January 1, 2008,RiverSource Life adopted SFAS 157, which defines fair value, establishes aframework 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.

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**Valuation Hierarchy**

** **

Under SFAS 157, RiverSource Lifecategorizes its fair value measurements according to a three-level hierarchy.The hierarchy prioritizes the inputs used by RiverSource Life’s valuationtechniques. A level is assigned to each fair value measurement based on thelowest level input that is significant to the fair value measurement in itsentirety. The three levels of the fair value hierarchy are defined as follows:

 

Level 1       Unadjustedquoted prices for identical assets or liabilities in active markets that areaccessible at the measurement date.

 

Level 2       Prices orvaluations based on observable inputs other than quoted prices in activemarkets for identical assets and liabilities.

 

Level 3       Prices orvaluations that require inputs that are both significant to the fair valuemeasurement and unobservable.

 

**Determination of FairValue**

** **

RiverSource Life uses valuationtechniques consistent with the market and income approaches to measure the fairvalue of its assets and liabilities. RiverSource Life’s market approach usesprices and other relevant information generated by market transactionsinvolving identical or comparable assets or liabilities. RiverSource Life’sincome approach uses valuation techniques to convert future projected cashflows to a single discounted present value amount. When applying eitherapproach, RiverSource Life maximizes the use of observable inputs and minimizesthe use of unobservable inputs.

 

The following is a description ofthe valuation techniques used to measure fair value and the generalclassification of these instruments pursuant to the fair value hierarchy.

 

**Assets**

** **

*Cash Equivalents*

* *

Cash equivalents include highly liquidinvestments with original maturities of 90 days or less. Actively traded moneymarket funds are measured at their net asset value (“NAV”) and classified asLevel 1. RiverSource Life’s remaining cash equivalents are classified as Level2 and measured at amortized cost, which is a reasonable estimate of fair valuebecause of the short time between the purchase of the instrument and itsexpected realization.

 

*Available-for-Sale Securities*

* *

When available, the fair value ofsecurities is based on quoted prices in active markets. If quoted prices arenot available, fair values are obtained from nationally-recognized pricingservices, broker quotes, or other model-based valuation techniques such as thepresent value of cash flows. Level 1 securities include U.S. Treasuries. Level2 securities include corporate and municipal bonds, agency mortgage backedsecurities, commercial mortgage backed securities, asset backed securities andU.S. and foreign government and agency securities. Level 3 securities includecorporate bonds, non-agency residential mortgage backed securities and assetbacked securities.

 

Through RiverSource Life’s ownexperience transacting in the marketplace and through discussions with itspricing vendors, RiverSource Life believes that the market for non-agencyresidential mortgage backed securities is inactive. Indicators of inactivemarkets include: pricing services’ reliance on brokers or discounted cash flowanalyses to provide prices, an increase in the disparity between pricesprovided by different pricing services for the same security, unreasonablylarge bid-offer spreads and a significant decrease in the volume of tradesrelative to historical levels. In certain cases, this market inactivity hasresulted in RiverSource Life applying valuation techniques that rely more on anincome approach (discounted cash flows using market rates) than on a marketapproach (prices from pricing services). RiverSource Life considers market observable yields for other assetclasses it considers to be of similar risk which includes nonperformance andliquidity for individual securities to set the discount rate for applying theincome approach to certain non-agency residential mortgage backed securities.

 

*Separate Account Assets*

* *

The fair value of assets held byseparate accounts is determined by the NAV of the funds in which those separateaccounts are invested. The NAV represents the exit price for the separateaccount. Separate account assets are classified as Level 2 as they are tradedin principal-to-principal markets with little publicly released pricinginformation.

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

*Derivatives*

* *

The fair value of derivatives thatare traded in certain over-the-counter markets are generally measured usingpricing models with market observable inputs such as interest rates and equityindex levels. These measurements are classified as Level 2 within the fairvalue hierarchy and include interest rate swaps and options. Derivatives thatare valued using pricing models that have significant unobservable inputs areclassified as Level 3 measurements. Structured derivatives that are used byRiverSource Life to hedge its exposure to market risk related to certainvariable annuity riders are classified as Level 3.

 

**Liabilities**

** **

*Embedded Derivatives*

* *

*Variable AnnuityRiders — GMAB and GMWB*

* *

RiverSource Life values the embeddedderivative liability attributable to the provisions of certain variable annuityriders using internal valuation models. These models calculate fair value bydiscounting expected cash flows from benefits plus margins for profit, risk,and expenses less embedded derivative fees. The projected cash flows used by these models include observable capitalmarket assumptions and incorporate significant unobservable inputs related tocontractholder behavior assumptions and margins for risk, profit and expensesthat RiverSource Life believes an exit market participant would expect. Thefair value of these embedded derivatives also reflects a current estimate ofRiverSource Life’s nonperformance risk specific to these liabilities. Given thesignificant unobservable inputs to this valuation, these measurements areclassified as Level 3. The embedded derivative liability attributable to theseprovisions is recorded in future policy 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.

 

The following tables present thebalances of assets and liabilities measured at fair value on a recurring basis:

 
| ** **                                  | ** ** | **June 30, 2009** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **Level 1**            | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **(in millions)**      | ** ** |
| Assets                                      |       |                   |       |   |   |   |   |   |   |
| Available-for-Sale:                         |       |                   |       |   |   |   |   |   |   |
| Fixed  maturities:                          |       |                   |       |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                      | —     |   | $ | 12,183 |   | $ | 1,147 |   | $ | 13,330 |   |
| Residential  mortgage backed securities     |       | —                 |       | 2,410 |   | 2,386 |   | 4,796 |   |
| Commercial  mortgage backed securities      |       | —                 |       | 3,412 |   | 64 |   | 3,476 |   |
| Asset  backed securities                    |       | —                 |       | 641 |   | 161 |   | 802 |   |
| State and  municipal obligations            |       | —                 |       | 308 |   | — |   | 308 |   |
| U.S. government  and agencies obligations   |       | 10                     |       | 60 |   | — |   | 70 |   |
| Foreign  government bonds and obligations   |       | —                 |       | 106 |   | — |   | 106 |   |
| Other structured  investments               |       | —                 |       | — |   | 9 |   | 9 |   |
| Total  Available-for-Sale: Fixed maturities |       | 10                     |       | 19,120 |   | 3,767 |   | 22,897 |   |
| Common and  preferred stocks                |       | —                 |       | 18 |   | — |   | 18 |   |
| Trading securities                          |       | —                 |       | 456 |   | — |   | 456 |   |
| Cash equivalents                            |       | 12                     |       | 1,188 |   | — |   | 1,200 |   |
| Other assets                                |       | —                 |       | 959 |   | — |   | 959 |   |
| Separate account  assets                    |       | —                 |       | 45,564 |   | — |   | 45,564 |   |
| Total assets at  fair value                 |       | $                      | 22         |   | $ | 67,305 |   | $ | 3,767 |   | $ | 71,094 |   |
|                                        |       |                   |       |   |   |   |   |   |   |
| Liabilities                                 |       |                   |       |   |   |   |   |   |   |
| Future policy benefits                      |       | $                      | —     |   | $ | 15 |   | $ | 759 |   | $ | 774 |   |
| Other  liabilities                          |       | —                 |       | 695 |   | — |   | 695 |   |
| Total  liabilities at fair value            |       | $                      | —     |   | $ | 710 |   | $ | 759 |   | $ | 1,469 |   |

 

17

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

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

 
| ** **                                  | ** ** | **December 31, 2008** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|
| ** **                                  | ** ** | **Level 1**                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **(in millions)**          | ** ** |
| Assets                                      |       |                       |       |   |   |   |   |   |   |
| Available-for-Sale:                         |       |                       |       |   |   |   |   |   |   |
| Fixed maturities:                           |       |                       |       |   |   |   |   |   |   |
| Corporate debt  securities                  |       | $                          | —     |   | $ | 9,907 |   | $ | 1,086 |   | $ | 10,993 |   |
| Residential  mortgage backed securities     |       | —                     |       | 3,016 |   | 520 |   | 3,536 |   |
| Commercial  mortgage backed securities      |       | —                     |       | 2,440 |   | 3 |   | 2,443 |   |
| Asset backed  securities                    |       | —                     |       | 531 |   | 95 |   | 626 |   |
| State and  municipal obligations            |       | —                     |       | 145 |   | — |   | 145 |   |
| U.S. government  and agencies obligations   |       | 21                         |       | 190 |   | — |   | 211 |   |
| Foreign  government bonds and obligations   |       | —                     |       | 107 |   | — |   | 107 |   |
| Other structured  investments               |       | —                     |       | — |   | 9 |   | 9 |   |
| Total  Available-for-Sale: Fixed maturities |       | 21                         |       | 16,336 |   | 1,713 |   | 18,070 |   |
| Common and  preferred stocks                |       | —                     |       | 16 |   | — |   | 16 |   |
| Trading  securities                         |       | 70                         |       | 77 |   | — |   | 147 |   |
| Cash equivalents                            |       | 432                        |       | 2,861 |   | — |   | 3,293 |   |
| Other assets                                |       | —                     |       | 2,238 |   | 200 |   | 2,438 |   |
| Separate account  assets                    |       | —                     |       | 41,787 |   | — |   | 41,787 |   |
| Total assets at  fair value                 |       | $                          | 523        |   | $ | 63,315 |   | $ | 1,913 |   | $ | 65,751 |   |
|                                        |       |                       |       |   |   |   |   |   |   |
| Liabilities                                 |       |                       |       |   |   |   |   |   |   |
| Future policy  benefits                     |       | $                          | —     |   | $ | 16 |   | $ | 1,832 |   | $ | 1,848 |   |
| Other  liabilities                          |       | —                     |       | 645 |   | — |   | 645 |   |
| Total  liabilities at fair value            |       | $                          | —     |   | $ | 661 |   | $ | 1,832 |   | $ | 2,493 |   |

 

The following tables provide a summaryof changes in Level 3 assets and liabilities measured at fair value on arecurring basis:

 
| ** **                                  | ** ** | ** **                                    | ** ** | **Total Gains   (Losses) Included in** | ** ** | **Purchases,  Sales,**               | ** ** | **Transfers**                                   | ** ** | ** **                      | ** ** |
|---------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **Balance,********April 1,********2009** | ** ** | **Net********Income**                  | ** ** | **Other********Comprehensive  Loss** | ** ** | **Issuances********and  Settlements, Net** | ** ** | **In/(Out)  of********Level 3** | ** ** | **Balance,********June 30,********2009** | ** ** |
| ** **                                  | ** ** | **(in millions)**                             | ** ** |
| Available-for-Sale:  Fixed maturities       |       |                                          |       |                                   |       |                                 |       |                                            |       |                            |       |   |   |
| Corporate  debt securities                  |       | $                                             | 1,057      |                                   | $          | —                               |       | $                                               | 53         |                            | $          | 37 |   | $ | — |   | $ | 1,147 |   |
| Residential  mortgage backed securities     |       | 1,740                                         |       | 22                                     |       | 78                                   |       | 546                                             |       | —                          |       | 2,386 |   |
| Commercial  mortgage backed securities      |       | 3                                             |       | —                                 |       | —                               |       | 61                                              |       | —                          |       | 64 |   |
| Asset  backed securities                    |       | 112                                           |       | 5                                      |       | 2                                    |       | 42                                              |       | —                          |       | 161 |   |
| Other  structured investments               |       | 8                                             |       | —                                 |       | 1                                    |       | —                                          |       | —                          |       | 9 |   |
| Total  Available-for-Sale: Fixed maturities |       | 2,920                                         |       | 27                                     | (1)        | 134                                  |       | 686                                             |       | —                          |       | 3,767 |   |
|                                        |       |                                          |       |                                   |       |                                 |       |                                            |       |                            |       |   |   |
| Other  assets                               |       | 125                                           |       | (34                                    | )(2)       | —                               |       | (91                                             | )          | —                          |       | — |   |
| Future  policy benefits                     |       | (1,516                                        | )          | 773                                    | (2)        | —                               |       | (16                                             | )          | —                          |       | (759 | ) |
|                                             |            |                                               |            |                                        |            |                                      |            |                                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

----

(1)   Represents a $2 million gain included in net realizedinvestment gains (losses) and a $25 million gain included in net investmentincome in the Consolidated Statements of Income.

(2)   Included inbenefits, claims, losses and settlement expenses in the Consolidated Statementsof Income.

 

18

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 
| ** **                                     | ** ** | ** **                                    | ** ** | **Total Gains  (Losses) Included in** | ** ** | **Purchases,  Sales,**               | ** ** | **Transfers**                                   | ** ** | ** **                           | ** ** |
|------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                     | ** ** | **Balance,********April 1,********2008** | ** ** | **Net********Income**                                | ** ** | **Other********Comprehensive  Loss** | ** ** | **Issuances********and Settlements,  Net** | ** ** | **In/(Out)  of********Level 3** | ** ** | **Balance,********June 30,********2008** | ** ** |
| ** **                                     | ** ** | **(in millions)**                        | ** ** |
| Available-for-Sale: Fixed maturities |       |                                          |       |                                                 |       |                                 |       |                                            |       |                                 |       |   |   |
| Corporate  debt securities                     |       | $                                             | 1,261      |                                                 | $          | —                               |       | $                                               | (53        | )                                    | $          | (1 | ) | $ | — |   | $ | 1,207 |   |
| Residential  mortgage backed securities        |       | 411                                           |       | (6)                                                  |       | (26                                  | )          | 44                                              |       | —                               |       | 423 |   |
| Commercial  mortgage backed securities         |       | 5                                             |       | —                                               |       | —                               |       | (1                                              | )          | —                               |       | 4 |   |
| Asset  backed securities                       |       | 130                                           |       | —                                               |       | (4                                   | )          | —                                          |       | —                               |       | 126 |   |
| Other  structured investments                  |       | 2                                             |       | —                                               |       | —                               |       | —                                          |       | —                               |       | 2 |   |
| Total  Available-for-Sale: Fixed maturities    |       | 1,809                                         |       | (6                                                   | )(1)       | (83                                  | )          | 42                                              |       | —                               |       | 1,762 |   |
|                                           |       |                                          |       |                                                 |       |                                 |       |                                            |       |                                 |       |   |   |
| Other assets                                   |       | 332                                           |       | (29                                                  | )(2)       | —                               |       | (229                                            | )          | —                               |       | 74 |   |
| Future  policy benefits                        |       | (295                                          | )          | 158                                                  | (2)        | —                               |       | (17                                             | )          | —                               |       | (154 | ) |
| Other  liabilities                             |       | —                                        |       | —                                               |       | —                               |       | (4                                              | )          | —                               |       | (4 | ) |
|                                                |            |                                               |            |                                                      |            |                                      |            |                                                 |            |                                      |            |  |  |  |  |  |  |  |  |

 

----

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

(2)          Included in benefits, claims, losses and settlement expensesin the Consolidated Statements of Income.

 

The following table presents thechanges in unrealized gains (losses) included in net income related to Level 3assets and liabilities held at June 30 for the three months then ended:

 
| ** **                                  | ** ** | **2009**                    | ** ** | **2008**                                           | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------|------------|
| ** **                                  | ** ** | **Net  Investment  Income** | ** ** | **Net realized  investment  gains  (losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Net  Investment  Income** | ** ** | **Net realized  investment  gains  (losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** |
| ** **                                  | ** ** | **(in millions)**      | ** ** |
| Available-for-Sale: Fixed maturities        |       |                        |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential  mortgage backed securities     |       | $                           | 23         |                                               | $          | (21 | ) | $ | — |   | $ | — |   | $ | (6 | ) | $ | — |   |
| Asset backed  securities                    |       | 1                           |       | —                                             |       | — |   | — |   | — |   | — |   |
| Total  Available-for-Sale: Fixed maturities |       | 24                          |       | (21                                                | )          | — |   | — |   | (6 | ) | — |   |
|                                        |       |                        |       |                                               |       |   |   |   |   |   |   |   |   |
| Other assets                                |       | —                      |       | —                                             |       | — |   | — |   | — |   | (11 | ) |
| Future  policy benefits                     |       | —                      |       | —                                             |       | 766 |   | — |   | — |   | 159 |   |

 

19

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

Thefollowing tables provide a summary of changes in Level 3 assets and liabilitiesmeasured at fair value on a recurring basis:

 
| ** **                                  | ** ** | ** **                                      | ** ** | **Total Gains  (Losses) Included in** | ** ** | **Purchases,  Sales,**               | ** ** | **Transfers**                                   | ** ** | ** **                           | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                  | ** ** | **Balance,********January 1,********2009** | ** ** | **Net********Income**                                | ** ** | **Other********Comprehensive  Loss** | ** ** | **Issuances********and Settlements,  Net** | ** ** | **In/(Out)  of********Level 3** | ** ** | **Balance,********June 30,********2009** | ** ** |
| ** **                                  | ** ** | **(in millions)**                          | ** ** |
| Available-for-Sale: Fixed maturities        |       |                                            |       |                                                 |       |                                 |       |                                            |       |                                 |       |   |   |
| Corporate  debt securities                  |       | $                                               | 1,086      |                                                 | $          | —                               |       | $                                               | 78         |                                 | $          | (3 | ) | $ | (14 | ) | $ | 1,147 |   |
| Residential  mortgage backed securities     |       | 520                                             |       | 25                                                   |       | 49                                   |       | 1,792                                           |       | —                               |       | 2,386 |   |
| Commercial  mortgage backed securities      |       | 3                                               |       | —                                               |       | —                               |       | 61                                              |       | —                               |       | 64 |   |
| Asset  backed securities                    |       | 95                                              |       | 6                                                    |       | (3                                   | )          | 63                                              |       | —                               |       | 161 |   |
| Other  structured investments               |       | 9                                               |       | —                                               |       | —                               |       | —                                          |       | —                               |       | 9 |   |
| Total  Available-for-Sale: Fixed maturities |       | 1,713                                           |       | 31                                                   | (1)        | 124                                  |       | 1,913                                           |       | (14                                  | )(3)       | 3,767 |   |
|                                        |       |                                            |       |                                                 |       |                                 |       |                                            |       |                                 |       |   |   |
| Other  assets                               |       | 200                                             |       | (37                                                  | )(2)       | —                               |       | (163                                            | )          | —                               |       | — |   |
| Future  policy benefits                     |       | (1,832                                          | )          | 1,104                                                | (2)        | —                               |       | (31                                             | )          | —                               |       | (759 | ) |
|                                             |            |                                                 |            |                                                      |            |                                      |            |                                                 |            |                                      |            |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $2 million loss included in net realizedinvestment gains (losses) and a $33 million gain included in net investmentincome in the Consolidated Statements of Income.

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

(3)          Representsa security transferred to Level 2 as the fair value is now obtained from a nationally-recognizedpricing service.  Previously, the fairvalue of the security was based on broker quotes.

 
| ** **                                  | ** ** | ** **                                      | ** ** | **Total Gains   (Losses) Included in** | ** ** | **Purchases,  Sales,**              | ** ** | **Transfers**                              | ** ** | ** **                      | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|--------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **Balance,********January 1,********2008** | ** ** | **Net********Income**                  | ** ** | **Other********Comprehensive Loss** | ** ** | **Issuances********and Settlements,  Net** | ** ** | **In/(Out)  of********Level 3** | ** ** | **Balance,********June 30,********2008** | ** ** |
| ** **                                  | ** ** | **(in millions)**                               | ** ** |
| Available-for-Sale:  Fixed maturities       |       |                                            |       |                                   |       |                                |       |                                       |       |                            |       |   |   |
| Corporate  debt securities                  |       | $                                               | 1,271      |                                   | $          | —                              |       | $                                          | (32        | )                               | $          | (32 | ) | $ | — |   | $ | 1,207 |   |
| Residential  mortgage backed securities     |       | 417                                             |       | (36                                    | )          | (81                                 | )          | 123                                        |       | —                          |       | 423 |   |
| Commercial  mortgage backed securities      |       | 5                                               |       | —                                 |       | —                              |       | (1                                         | )          | —                          |       | 4 |   |
| Asset  backed securities                    |       | 115                                             |       | 1                                      |       | (8                                  | )          | 18                                         |       | —                          |       | 126 |   |
| Other  structured investments               |       | 2                                               |       | 2                                      |       | —                              |       | (2                                         | )          | —                          |       | 2 |   |
| Total  Available-for-Sale: Fixed maturities |       | 1,810                                           |       | (33                                    | )(1)       | (121                                | )          | 106                                        |       | —                          |       | 1,762 |   |
|                                        |       |                                            |       |                                   |       |                                |       |                                       |       |                            |       |   |   |
| Other assets                                |       | 280                                             |       | 23                                     | (2)        | —                              |       | (229                                       | )          | —                          |       | 74 |   |
| Future  policy benefits                     |       | (158                                            | )          | 34                                     | (2)        | —                              |       | (30                                        | )          | —                          |       | (154 | ) |
| Other  liabilities                          |       | —                                          | ** ** | **—**                             |       | —                              |       | (4                                         | )          | —                          |       | (4 | ) |
|                                             |            |                                                 |            |                                        |            |                                     |            |                                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

----

(1)          Represents a $36 million loss included in net realizedinvestment gains (losses) and a $3 million gain included in net investmentincome in the Consolidated Statements of Income.

(2)          Included in benefits, claims, losses and settlement expensesin the Consolidated Statements of Income.

 

20

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

The following table presents thechanges in unrealized gains (losses) included in net income related to Level 3assets and liabilities held at June 30 for the six months then ended:

 
| ** **                                  | ** ** | **2009**                    | ** ** | **2008**                                      | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|
| ** **                                  | ** ** | **Net  Investment  Income** | ** ** | **Net realized  investment  gains  (losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** | **Net  Investment  Income** | ** ** | **Net realized  investment  gains  (losses)** | ** ** | **Benefits,  Claims,  Losses and  Settlement  Expenses** | ** ** |
| ** **                                  | ** ** | **(in millions)**           | ** ** |
| Available-for-Sale:  Fixed maturities       |       |                        |       |                                          |       |   |   |   |   |   |   |   |   |
| Residential  mortgage backed securities     |       | $                           | 30         |                                          | $          | (26 | ) | $ | — |   | $ | 1 |   | $ | (37 | ) | $ | — |   |
| Asset  backed securities                    |       | 1                           |       | —                                        |       | — |   | — |   | — |   | — |   |
| Total  Available-for-Sale: Fixed maturities |       | 31                          |       | (26                                           | )          | — |   | 1 |   | (37 | ) | — |   |
|                                        |       |                        |       |                                          |       |   |   |   |   |   |   |   |   |
| Other assets                                |       | —                      |       | —                                        |       | — |   | — |   | — |   | 1 |   |
| Future  policy benefits                     |       | —                      |       | —                                        |       | 1,088 |   | — |   | — |   | 35 |   |
|                                             |            |                             |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

During the reporting period, therewere no material assets or liabilities measured at fair value on anon-recurring basis.

 

The following table provides the carrying value andthe estimated fair value of financial instruments that are not reported at fairvalue. All other financial instruments that are reported at fair value havebeen included in the table above with balances of assets and liabilitiesmeasured at fair value on a recurring basis.

 
| ** **                      | ** ** | **June 30, 2009** | ** ** |
|---------------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **Carrying Value**     | ** ** | **Fair Value** | ** ** |
| ** **                      | ** ** | **(in millions)**      | ** ** |
| **Financial Assets**            |       |                   |       |   |   |
| Commercial  mortgage loans, net |       | $                      | 2,620      |   | $ | 2,479 |   |
| Policy  loans                   |       | 709                    |       | 773 |   |
| Other  investments              |       | 249                    |       | 255 |   |
| ** **                      |       |                   |       |   |   |
| **Financial Liabilities**       |       |                   |       |   |   |
| Future  policy benefits         |       | $                      | 15,373     |   | $ | 14,862 |   |
| Separate  account liabilities   |       | 364                    |       | 364 |   |

* *

*Commercial mortgage loans, net*

* *

The fair value ofcommercial mortgage loans, except those with significant credit deterioration,is determined by discounting contractual cash flows using discount rates thatreflect current pricing for loans with similar remaining maturities and characteristicsincluding loan-to-value ratio, occupancy rate, refinance risk, debt-servicecoverage, location, and property condition. For commercial mortgage loans withsignificant credit deterioration, fair value is determined using the sameadjustments as above with an additional adjustment for RiverSource Life’sestimate of the amount recoverable on the loan.

 

*Policy loans*

* *

The fair value of policyloans has been determined using discounted cash flows.

 

*Other investments*

* *

Other investmentsprimarily consist of syndicated loans. The fair value of syndicated loans isobtained from a nationally-recognized pricing service.

 

*Future policy benefits*

* *

The fair value of fixedannuities, in deferral status, is determined by discounting cash flows using arisk neutral discount rate with adjustments for profit, expense and riskmargins and for RiverSource Life’s non-performance risk specific to theseliabilities. The fair value of other liabilities including non-life contingentfixed annuities in payout status, equity indexed annuity host contracts and thefixed portion of a small number of variable annuity contracts classified asinvestment contracts is determined in a similar manner.

 

21

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

*Separate account liabilities*

* *

Certain separate account liabilitiesare classified as investment contracts and are carried at an amount equal tothe related separate account assets. Carrying value is a reasonable estimate of the fair value as itrepresents the exit value as evidenced by withdrawal transactions betweencontractholders and RiverSource Life. A non-performance adjustment is notincluded as the related separate account assets act as collateral for theseliabilities and minimize non-performance risk.

 

**8.     Derivativesand Hedging Activities**

 

Derivativeinstruments enable RiverSource Life to manage its exposure to various marketrisks. The value of such instruments is derived from an underlyingvariable or multiple variables, including equity and interest rate indices orprices. RiverSource Life primarily enters into derivative agreements for riskmanagement purposes related to RiverSource Life’s products.

 

RiverSourceLife uses derivatives as economic hedges. The following table presents thebalance sheet location and the gross fair value of derivative instruments,including embedded derivatives, by type of derivative and product at June 30,2009:

 
| **Derivatives not designated as  hedging instruments** | ** ** | **Balance  Sheet  Location** | ** ** | **Asset**         | ** ** | **Balance Sheet  Location** | ** **        | **Liability**     | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-------------------|------------|-----------------------------|-------------------|-------------------|------------|
| ** **                                             | ** ** | ** **                   | ** ** | **(in millions)** | ** ** | ** **                  | ** **        | **(in millions)** | ** ** |
| **Interest rate contracts**                            | ** ** | ** **                   | ** ** | ** **        | ** ** | ** **                  | ** **        | ** **        | ** ** |
| GMWB  and GMAB                                         |       | Other assets                 |       | $                 | 283        |                        | Other liabilities |              | $          | (307 | ) |
|                                                   |       |                         |       |              |       |                        |              |              |       |
| **Equity contracts**                                   |       |                         |       |              |       |                        |              |              |       |
| GMWB  and GMAB                                         |       | Other assets                 |       | 675               |       | Other liabilities           |              | (388              | )          |
| Equity  indexed annuities                              |       | Other assets                 |       | 1                 |       |                        |              | —            |       |
| Equity  indexed annuities embedded derivatives         |       | ** **                   |       | —            |       | Future policy benefits      |              | (15               | )          |
|                                                   |       |                         |       |              |       |                        |              |              |       |
| **Other**                                              |       |                         |       |              |       |                        |              |              |       |
| GMWB  and GMAB embedded derivatives(1)                 |       |                         |       | —            |       | Future policy benefits      |              | (759              | )          |
| Total                                                  |       |                         |       | $                 | 959        |                        |              |              | $          | (1,469 | ) |

 

----

(1)   The fair values of GMWB and GMAB embeddedderivatives fluctuate primarily based on changes in equity and interest ratemarkets.

 

See Note7 for additional information regarding RiverSource Life’s fair valuemeasurement of derivative instruments.

 

22

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

***Derivatives Not Designated as Hedges***

 

Thefollowing table presents a summary of the impact of derivatives not designatedas hedging instruments under SFAS No. 133 “Accounting for DerivativeInstruments and Hedging Activities” (“SFAS 133”) on the Consolidated Statementsof Income:

 
| ** **                                                                 | ** ** | ** **                                                                                          | ** ** | **Amount of Gain (Loss)  Recognized in Income on Derivatives** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| **Derivatives not designated as  hedging instruments** | ** ** | **Location of Gain (Loss)  Recognized in Income on Derivatives** | ** ** | **Three Months Ended  June 30, 2009**                                         | ** ** | **Six Months Ended  June 30, 2009** | ** ** |
| ** **                                                                 | ** ** | ** **                                                                                          | ** ** | **(in millions)**                                                                                 | ** ** |
| **Interest rate contracts**                                                | ** ** | ** **                                                                                          | ** ** | ** **                                                                                        | ** ** | ** ** | ** ** |
| GMWB  and GMAB                                                             |       | Benefits,  claims, losses and settlement expenses                                                   |       | $                                                                                                 | (262       | ) | $ | (385 | ) |
|                                                                       |       |                                                                                                |       |                                                                                              |       |   |   |
| **Equity contracts**                                                       |       |                                                                                                |       |                                                                                              |       |   |   |
| GMWB  and GMAB                                                             |       | Benefits,  claims, losses and settlement expenses                                                   |       | (873                                                                                              | )          | (812 | ) |
| Equity  indexed annuities                                                  |       | Interest  credited to fixed accounts                                                                |       | —                                                                                            |       | (2 | ) |
| Equity  indexed annuities embedded derivatives                             |       | Interest  credited to fixed accounts                                                                |       | —                                                                                            |       | 1 |   |
|                                                                       |       |                                                                                                |       |                                                                                              |       |   |   |
| **Other**                                                                  |       |                                                                                                |       |                                                                                              |       |   |   |
| GMWB  and GMAB embedded derivatives                                        |       | Benefits,  claims, losses and settlement expenses                                                   |       | 757                                                                                               |       | 1,073 |   |
| Total                                                                      |       |                                                                                                |       | $                                                                                                 | (378       | ) | $ | (125 | ) |

 

RiverSourceLife holds derivative instruments that either do not qualify or are notdesignated for hedge accounting treatment. These derivative instruments areused as economic hedges of equity and interest rate risk related to variousRiverSource Life products.

 

Certainannuity products contain GMWB or GMAB provisions, which guarantee the right tomake limited partial withdrawals each contract year regardless of thevolatility inherent in the underlying investments or guarantee a minimumaccumulation value of considerations received at the beginning of the contractperiod, after a specified holding period, respectively. RiverSource Lifeeconomically hedges the exposure related to GMWB and GMAB provisions usingvarious equity futures, equity options, total return swaps, interest rateswaptions and interest rate swaps. The gross notional amount of these contractswas $35.9 billion at June 30, 2009. The premium associated withcertain of these options is paid or received semi-annually over the life of theoption contract.

 

Thefollowing is a summary of the payments RiverSource Life is scheduled to makeand receive for these options:

 
| ** ** | ** ** | **Premiums  Payable** | ** ** | **Premiums  Receivable** | ** ** |
|------------|------------|-----------------------|------------|--------------------------|------------|
| ** ** | ** ** | **(in millions)**     | ** ** |
| 2009(1)    |       | $                     | (83        | )                        | $          | 7 |   |
| 2010       |       | (164                  | )          | 13                       |       |
| 2011       |       | (156                  | )          | 12                       |       |
| 2012       |       | (143                  | )          | 11                       |       |
| 2013       |       | (131                  | )          | 10                       |       |
| 2014-2023  |       | (425                  | )          | 6                        |       |
|            |            |                       |            |                          |            |  |  |

 

----

(1)   2009 amounts represent the amountspayable and receivable for the period from July 1, 2009 to December 31,2009.

 

Equityindexed annuities have returns tied to the performance of equity markets. As aresult of fluctuations in equity markets, the obligation incurred byRiverSource Life related to equity indexed annuities products will positivelyor negatively impact earnings over the life of these products. As a means ofeconomically hedging its obligations under the provisions of these products,RiverSource Life enters into index options and occasionally enters into futurescontracts. The gross notional amount of these derivative contracts was $201million at June 30, 2009.

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**EmbeddedDerivatives**

 

Certainannuities contain GMAB and non-life contingent GMWB provisions, which areconsidered embedded derivatives.  Inaddition, the equity component of the equity indexed annuity productobligations is also considered an embedded derivative.  As captured in the tables above, embeddedderivatives are bifurcated from their host contracts and reported on theConsolidated Balance Sheets at fair value with changes in fair value reportedin income.  As noted above, RiverSourceLife uses derivatives to mitigate the financial statement impact of theseembedded derivatives.

 

**Cash FlowHedges**

 

RiverSourceLife has amounts classified in accumulated other comprehensive loss related togains and losses associated with the effective portion of previously designatedcash flow hedges. RiverSource Life reclassifies these amounts into income asthe forecasted transactions impact earnings. During the six months ended June 30,2009, RiverSource Life held no derivatives that were designated as cash flowhedges under SFAS 133. The following table shows the impact of its previouslydesignated cash flow hedges on the Consolidated Statements of Income:

 
| ** **                                                        | ** ** | **Location of Gain (Loss)**                                                              | ** ** | **Amount of Gain (Loss)  Reclassified from Accumulated Other  Comprehensive Income into Income** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Derivatives designated as  hedging instruments** | ** ** | **Reclassified from Accumulated Other  Comprehensive Income into Income** | ** ** | **Three Months Ended  June 30, 2009**                                                                                     | ** ** | **Six Months Ended  June 30, 2009** | ** ** |
| ** **                                                        | ** ** | ** **                                                                                              | ** ** | **(in millions)**                                                                                                                             | ** ** |
| **Cash  flow hedges**                                             | ** ** | ** **                                                                                              | ** ** | ** **                                                                                                                                    | ** ** | ** ** | ** ** |
| Fixed annuity products                                            |       | Net investment  income                                                                                  |       | $                                                                                                                                             | (1         | ) | $ | (3 | ) |
|                                                                   |            |                                                                                                         |            |                                                                                                                                               |            |  |  |  |  |

 

At June 30, 2009,RiverSource Life expects to reclassify $6 million of deferred loss; thesewere originally losses on derivative instruments from accumulated othercomprehensive loss to earnings during the next 12 months related tointerest rate swaptions that will be recorded in net investment income.For any hedge relationships that are discontinued because the forecastedtransaction is not expected to occur according to the original strategy,related amounts previously recorded in accumulated other comprehensive loss arerecognized in earnings immediately. No hedge relationships were discontinuedduring the six months ended June 30, 2009 due to forecastedtransactions no longer expected to occur according to the original hedgestrategy.

 

Currently, the longest period oftime over which RiverSource Life is hedging exposure to the variability infuture cash flows is 10 years and relates to interest credited onforecasted fixed premium product sales.

 

**Credit Risk**

 

Credit risk associated withRiverSource Life’s derivatives is the risk that a derivative counterparty willnot perform in accordance with the terms of the applicable derivative contract.To mitigate such risk, RiverSource Life has established guidelines andoversight of credit risk through a comprehensive enterprise risk managementprogram that includes members of senior management. Key components of thisprogram are to require preapproval of counterparties and the use of masternetting arrangements and collateral arrangements wherever practical. As of June 30,2009, RiverSource Life held collateral consisting primarily of cash andsecurities of $308 million posted by counterparties. As of June 30, 2009,RiverSource Life’s maximum credit exposure related to derivative assets afterconsidering netting arrangements with counterparties and collateralarrangements was approximately $303 million.

 

Certain of RiverSource Life’sderivative instruments contain provisions that adjust the level of collateralRiverSource Life is required to post based on RiverSource Life’s financialstrength rating (or based on the debt rating of RiverSource Life’s parent,Ameriprise Financial). Additionally, certain of RiverSource Life’s derivativecontracts contain provisions that allow the counterparty to terminate thecontract if RiverSource Life does not maintain a specific financial strengthrating or Ameriprise Financial’s debt does not maintain a specific creditrating (generally an investment grade rating). If these termination provisions were to be triggered, RiverSource Life’scounterparty could require immediate settlement of any net liability position.At June 30, 2009, the aggregate fair value of all derivative instrumentscontaining such credit risk features was $102 million. The aggregate fair valueof assets posted as collateral for such instruments as of June 30, 2009was $72 million. If the credit risk features of derivative contracts that werein a net liability position at June 30, 2009 were triggered, theadditional fair value of assets needed to settle these derivative liabilitieswould have been $30 million.

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**9.****             ****Income Taxes**

 

RiverSourceLife’s effective tax rates were 28% and 23% for the three and six months ended June 30,2009, respectively. RiverSource Life’s effective tax rates were 1% and (5)% forthe three and six months ended June 30, 2008, respectively. The increasein the effective tax rates primarily reflects the impact of a $10 million and$39 million tax benefit related to changes in the status of current audits forthe three and six months ended June 30, 2008, respectively, and anincrease in pretax income relative to a decrease of tax advantaged items,including the dividends received deduction for the three and six months ended June 30,2009.

 

RiverSource Life is required to establish a valuationallowance for any portion of the deferred income tax assets that managementbelieves will not be realized.  Includedin RiverSource Life’s deferred tax assets is a significant deferred tax assetrelating to capital losses that have been recognized for financial statement purposesbut not yet for tax return purposes. Under current U.S. federal income tax law,capital losses generally must be used against capital gain income within fiveyears of the year in which the capital losses are recognized for tax purposes.  Significant judgment is required indetermining if a valuation allowance should be established, and the amount ofsuch allowance if required.  Factors usedin making this determination include estimates relating to the performance ofthe business including the ability to generate capital gains.  Consideration is given to, among other thingsin making this determination, a) future taxable income exclusive of reversingtemporary differences and carryforwards, b) future reversals of existingtaxable temporary differences, c) taxable income in prior carryback years, andd) tax planning strategies.

 

Additionally, RiverSource Life has net operating losscarryforwards of $19 million which will expire beginning December 31, 2025as well as tax credit carryforwards of $136 million which will expire beginningDecember 31, 2025.   RiverSourceLife also has $20 million of foreign tax credit carryforwards which will expirebeginning December 31, 2016.  Basedon analysis of RiverSource Life’s tax position, management believes it is morelikely than not that the results of future operations and implementation of taxplanning strategies will generate sufficient taxable income to enableRiverSource Life to utilize all of its deferred tax assets. Accordingly, novaluation allowance for deferred tax assets has been established as of June 30,2009 and December 31, 2008.

 

As of June 30, 2009 and December 31, 2008,RiverSource Life had $90 million and $89 million of gross unrecognized taxexpense, respectively.  If recognized,approximately $30 million, net of federal tax benefits, of unrecognized taxbenefits as of June 30, 2009 and December 31, 2008, would affect theeffective tax rate.

 

RiverSource Life recognizes interest and penaltiesrelated to unrecognized tax benefits as a component of the income taxprovision.  RiverSource Life recognizedinterest and penalties of $(0.3) million for the six months ended June 30,2009.  RiverSource Life had a $14.9million and a $14.6 million receivable related to interest and penaltiesaccrued at June 30, 2009 and December 31, 2008, 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 and various statejurisdictions. With few exceptions, RiverSource Life is no longer subject toU.S. federal or state and local income tax examinations by tax authorities foryears before 1997. The Internal Revenue Service (“IRS”), as part of the overallexamination of the American Express Company consolidated return, completed itsfield examination of RiverSource Life’s income tax returns for 1997 through2002 during 2008. However, for federal income tax purposes, these yearscontinue to remain open as a consequence of certain issues under appeal.  The IRS continued its examination of 2003through 2004 which is expected to be completed during 2009.  In the fourth quarter of 2008, the IRScommenced an examination of RiverSource Life’s U.S. income tax returns for 2005through 2007.  RiverSource Life orcertain of its subsidiaries’ state income tax returns are currently underexamination by various jurisdictions for years ranging from 1998 through 2006.

 

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. RevenueRuling 2007-61 suspended a revenue ruling issued in August 2007 thatpurported to change accepted industry and IRS interpretations of the statutesgoverning 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 ultimate timing andsubstance of any such regulations are unknown at this time, but they may resultin the elimination of some or all of the separate account DRD tax benefit thatRiverSource Life receives.  Managementbelieves that it is likely that any such regulations would apply prospectivelyonly.

 

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)**

 

**10.****      ****Contingencies**

 

The Securities andExchange Commission, the Financial Industry Regulatory Authority, commonlyreferred to as FINRA, and several state authorities have brought proceedingschallenging several mutual fund and variable product financial practices,generally including suitability, late trading, market timing, compensation anddisclosure of revenue sharing arrangements. RiverSource Life has received requests for information and has beencontacted by regulatory authorities concerning its practices and is cooperatingfully with these inquiries.

 

RiverSource Life is involvedin the normal course of business in a number of other legal and arbitrationproceedings concerning matters arising in connection with the conduct of itsbusiness activities.  RiverSource Lifebelieves that it is not a party to, nor are any of its properties the subjectof, any pending legal, arbitration or regulatory proceedings that would have amaterial adverse effect on its consolidated financial condition, results ofoperations or liquidity.  However, it ispossible that the outcome of any such proceedings could have a material impacton results of operations in any particular reporting period as the proceedingsare resolved.

 

**11.****      ****Variable Interest Entities**

 

RiverSource Tax Adv.Inv., a subsidiary of RiverSource Life Insurance Company, has variable interestsin affordable housing partnerships for which it is not the primary beneficiaryand, therefore, does not consolidate.

 

RiverSource Tax Adv. Inv.’smaximum exposure to loss as a result of its investment in the affordablehousing partnerships is limited to the carrying values. RiverSource Tax Adv.Inv. has no obligation to provide further financial or other support to theaffordable housing partnerships nor has RiverSource Tax Adv. Inv. provided anyadditional support to the affordable housing partnerships. RiverSource Life hadno liabilities recorded as of June 30, 2009 and December 31, 2008related to the affordable housing partnerships.

 

RiverSource Tax Adv. Inv.is a limited partner in affordable housing partnerships which qualify forgovernment sponsored low income housing tax credit programs. In most cases,RiverSource Tax Adv. Inv. has less than 50% interest in the partnershipssharing in benefits and risks with other limited partners in proportion toRiverSource Tax Adv. Inv.’s ownership interest. In the limited cases in whichRiverSource Tax Adv. Inv. has a greater than 50% interest in affordablehousing partnerships, it was determined that the relationship with the generalpartner is an agent relationship and the general partner was most closelyrelated to the partnership as it is the key decision maker and controls theoperations. The carrying values are reflected in trading securities and otherinvestments and were $41 million and $54 million as of June 30, 2009 and December 31,2008, respectively.

 

**12.****      ****Subsequent Event**

 

In July 2009,RiverSource Life Insurance Company, as the borrower, entered into a revolvingcredit agreement with Ameriprise Financial as the lender.  The line of credit is not to exceed $800million in the aggregate at any one time.  The interest rate for any borrowing under the new agreement isestablished by reference to LIBOR plus 28 basis points.  Amounts borrowed may be repaid at any timewith no prepayment penalty.  On July 27,2009, RiverSource Life borrowed $500 million pursuant to this agreement.

 

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

 

The following information should be read inconjunction with RiverSource Life Insurance Company’s Consolidated FinancialStatements and Notes presented in Part I, Item 1.  RiverSource Life Insurance Company and itssubsidiaries are referred to collectively in this Form 10-Q as “RiverSourceLife”.  This narrative analysis maycontain forward-looking statements that reflect RiverSource Life’s plans,estimates and beliefs.  Actual resultscould differ materially from those discussed in these forward-lookingstatements.  Factors that could cause or contributeto these 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, 2008, filed withthe Securities and Exchange Commission (“SEC”) on March 2, 2009 (“200810-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 first quarter of 2009,RiverSource Life reclassified reinsurance allowances for coinsurance contractsfor traditional life and long term care insurance from premiums to otherinsurance and operating expenses to net with the associated expenses.  Prior period amounts were reclassified toconform 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 Life Insurance Company is domiciled inMinnesota and holds Certificates of Authority in American Samoa, the Districtof Columbia and all states except New York. RiverSource Life Insurance Company issues insurance and annuityproducts.

 

·                  RiverSource Life of NY is a stock life insurancecompany domiciled in New York, which holds Certificates of Authority in NewYork, North Dakota and Delaware. RiverSource Life of NY issues insurance and annuity products.

 

RiverSource Life Insurance Company also wholly ownsRiverSource Tax Advantaged Investments, Inc. which is a stock companydomiciled in Delaware and is a limited partner in affordable housingpartnership investments.

 

**Critical AccountingPolicies**

** **

***Valuationof Investments***

 

Effective January 1,2009, RiverSource Life early adopted FSP FAS 115-2 and FAS 124-2 “Recognitionand Presentation of Other-Than-Temporary Impairments” (“FSP 115-2”). Thisinterpretation significantly changed RiverSource Life’s accounting policyregarding the timing and amount of other-than temporary impairments forAvailable-for-Sale securities.  Forinformation regarding the changes to RiverSource Life’s accounting policy, seeNote 3 to the Consolidated Financial Statements.

 

***DeferredAcquisition Costs and Deferred Sales Inducement Costs***

 

For RiverSource Life’sannuity and life, disability income (“DI”) and long term care (“LTC”) insuranceproducts, the deferred acquisition costs (“DAC”) and deferred sales inducementcosts (“DSIC”) balances at any reporting date are supported by projections thatshow that management expects there to be adequate premiums or estimated grossprofits after that date to amortize the remaining DAC and DSIC balances. Theseprojections are inherently uncertain because they require management to make assumptionsabout financial markets, anticipated mortality and morbidity levels andpolicyholder behavior over periods extending well into the future. Projectionperiods used for RiverSource Life’s annuity products are typically 10 to 25years, while projection periods for RiverSource Life’s life, DI and LTCinsurance products are often 50 years or longer. Management regularly monitorsfinancial market conditions and actual policyholder behavior experience andcompares them to its assumptions.

 

For annuity and universallife insurance products, the assumptions made in projecting future results andcalculating the DAC balance and DAC amortization expense are management’s bestestimates. Management is required to update these assumptions whenever itappears that, based on actual experience or other evidence, earlier estimatesshould be revised. When assumptions are changed, the percentage of estimatedgross profits used to amortize DAC might also change. A change in the requiredamortization percentage is applied retrospectively; an increase in amortizationpercentage will result in a decrease in the DAC balance and an increase in DACamortization expense, while a decrease in amortization percentage will resultin an increase in

 

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the DAC balance and adecrease in DAC amortization expense. The impact on results of operations ofchanging assumptions can be either positive or negative in any particularperiod and is reflected in the period in which such changes are made.  For products with associated DSIC, the samepolicy applies in calculating the DSIC balance and periodic DSIC amortization.

 

For other life, DI andLTC insurance products, the assumptions made in calculating the DAC balance andDAC amortization expense are consistent with those used in determining theliabilities and, therefore, are intended to provide for adverse deviations inexperience and are revised only if management concludes experience will be soadverse that DAC are not recoverable. If management concludes that DAC are notrecoverable, DAC are reduced to the amount that is recoverable based on bestestimate assumptions and there is a corresponding expense recorded in theconsolidated statements of income.

 

For annuity and life, DIand LTC insurance products, key assumptions underlying these long-termprojections include interest rates (both earning rates on invested assets andrates credited to contractholder and policyholder accounts), equity marketperformance, mortality and morbidity rates and the rates at which policyholdersare expected to surrender their contracts, make withdrawals from theircontracts and make additional deposits to their contracts. Assumptions aboutearned and credited interest rates are the primary factors used to projectinterest margins, while assumptions about equity and bond market performanceare the primary factors used to project client asset value growth rates, andassumptions about surrenders, withdrawals and deposits comprise projectedpersistency rates. Management must also make assumptions to project maintenanceexpenses associated with servicing its annuity and insurance businesses duringthe DAC amortization period.

 

The client asset valuegrowth rates are the rates at which variable annuity and variable universallife insurance contract values invested in separate accounts are assumed toappreciate in the future. The rates used vary by equity and fixed income investments.Management reviews and, where appropriate, adjusts its assumptions with respectto client asset value growth rates on a regular basis. RiverSource Lifetypically uses a five-year mean reversion process as a guideline in settingnear-term equity asset growth rates based on a long-term view of financialmarket performance as well as recent actual performance.  The suggested near-term growth rate isreviewed to ensure consistency with management’s assessment of anticipatedequity market performance.  In the firsthalf of 2009, management elected to follow the mean reversion guideline,slightly decreasing  near-term equityasset growth rates to reflect the positive market on a year-to-date basis.  At recent equity market levels, increasingthe annualized equity market return projected during the five-year meanreversion period by 100 basis points reduces DAC amortization and otherimpacted expenses by $20 — $25 million after tax.

 

Management monitors otherprincipal DAC and DSIC amortization assumptions, such as persistency,mortality, morbidity, interest margin and maintenance expense levels eachquarter and, when assessed independently, each could impact RiverSource Life’sDAC and DSIC balances.

 

The analysis of DAC andDSIC balances and the corresponding amortization is a dynamic process thatconsiders all relevant factors and assumptions described previously. Unlessmanagement identifies a significant deviation over the course of the quarterlymonitoring, management reviews and updates these DAC and DSIC amortizationassumptions annually in the third quarter of each year.  An assessment of sensitivity associated withchanges in any single assumption would not necessarily be an indicator offuture results.

 

**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.

 

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***Resultsof Operations for the******Six Months Ended June 30, 2009 comparedto the Six Months Ended June 30, 2008***

 

The following tablepresents RiverSource Life’s results of operations for the six months ended June 30,2009 and 2008:

 
| ** **                                                                  |   | **Six Months Ended   June 30,**  | ** ** | ** ** |       |       |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------|------------|------------|------------|------------|--------|
| ** **                                                                  |   | **2009**                              | ** ** | **2008**   | ** ** | **Change** |   |
| ** **                                                                  |   | **(in millions, except percentages)** |       |
| **Revenues**                                                                |   | ** **                            |       |       |       |       |   |   |   |
| Premiums                                                                    |   | $                                     | 219        |       | $          | 214        |   | $ | 5 |   | 2 | % |
| Net  investment income                                                      |   | 708                                   |       | 640        |       | 68         |   | 11 |   |
| Policy  and contract charges                                                |   | 579                                   |       | 639        |       | (60        | )      | (9 | ) |
| Other  revenue                                                              |   | 102                                   |       | 138        |       | (36        | )      | (26 | ) |
| Net  realized investment gains (losses)                                     |   | 35                                    |       | (29        | )          | 64         |   | NM |   |
| Total  revenues                                                             |   | 1,643                                 |       | 1,602      |       | 41         |   | 3 |   |
| ** **                                                                  |   |                                  |       |       |       |       |   |   |   |
| **Benefits and expenses**                                                   |   |                                  |       |       |       |       |   |   |   |
| Benefits,  claims, losses and settlement expenses                           |   | 444                                   |       | 369        |       | 75         |   | 20 |   |
| Interest  credited to fixed accounts                                        |   | 442                                   |       | 387        |       | 55         |   | 14 |   |
| Amortization  of deferred acquisition costs                                 |   | 123                                   |       | 261        |       | (138       | )      | (53 | ) |
| Other  insurance and operating expenses                                     |   | 286                                   |       | 341        |       | (55        | )      | (16 | ) |
| Total  benefits and expenses                                                |   | 1,295                                 |       | 1,358      |       | (63        | )      | (5 | ) |
| Pretax  income                                                              |   | 348                                   |       | 244        |       | 104        |   | 43 |   |
| Income  tax provision (benefit)                                             |   | 81                                    |       | (12        | )          | 93         |   | NM |   |
| Net income                                                                  |   | $                                     | 267        |       | $          | 256        |   | $ | 11 |   | 4 | % |
|                                                                        |   |                                  |       |       |       |       |   |   |   |
| Supplemental  Disclosures:                                                  |   |                                  |       |       |       |       |   |   |   |
| Net  realized investment gains (losses):                                    |   |                                  |       |       |       |       |   |   |   |
| Net  realized investment gains before impairment losses on securities       |   | $                                     | 76         |       |       |       |   |   |   |   |
| Total  other-than-temporary impairment losses on securities                 |   | (30                                   | )          |       |       |       |   |   |   |
| Portion  of loss recognized in other comprehensive income                   |   | (11                                   | )          |       |       |       |   |   |   |
| Net  impairment losses recognized in net realized investment gains (losses) |   | (41                                   | )          |       |       |       |   |   |   |
| Net  realized investment gains (losses)                                     |   | $                                     | 35         |       |       |       |   |   |   |   |

 

NM  Not Meaningful.

 

*Overview*

 

Consolidated netincome was $267 million for the six months ended June 30, 2009 compared to $256 million for the sixmonths ended June 30, 2008,an increase of $11 million or 4%.  Pretaxincome increased $104 million to $348 million for the six months ended June 30,2009 from $244 million for the six months ended June 30, 2008. Theincrease was driven by an increase in realized gains compared to the prior yearperiod and a decrease in amortization of DAC. These increases were offset by a decrease in policy and contract chargesand an increase in benefits, claims, losses and settlement expenses.  The increase in benefits, claims, losses andsettlement expenses is due to an increase in the variable annuity livingbenefit reserves which also had a related decrease in amortization of DAC.  Additionally, amortization of DAC decreaseddue to lower account values as a result of the market decline.

 

*Revenues*

 

Totalrevenues increased $41 million to $1.6 billionfor the six months ended June 30, 2009.

 

Netinvestment income increased $68 million or 11% to $708 million for the six months ended June 30, 2009.  Theincrease is due to higher invested asset levels due to fixed annuity netinflows as well as higher yields due to redeployment of cash into high quality,higher-yielding long term investments.

 

Policy and contractcharges decreased $60 million or 9% to $579 million for the six months ended June 30,2009 primarily reflecting decreased separate account fee revenue as a result ofthe decrease in average separate account assets.

 

Other revenue decreased$36 million or 26% to $102 million forthe six months ended June 30,2009 reflecting lower marketing support and administrative fees due tolower average underlying separate account asset values.

 

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Net realized investmentgains were $35 million for the sixmonths ended June 30, 2009 comparedto net realized investment losses of $29 million for the six months ended June 30,2008.  In the six months ended June 30,2009, net realized gains from sales of Available-for-Sale securities were $85million and other-than-temporary impairments recognized in earnings were $41million. In the six months ended June 30, 2009, the reserves on commercialmortgage loans increased by $8 million. In the six months ended June 30, 2008, net realized gains fromsales of securities were $7 million and other-than-temporary impairmentsrecognized in earnings were $36 million.

 

*Benefitsand Expenses*

 

Total benefits andexpenses for the six months ended June 30, 2009 were $1.3 billion, adecrease of $63 million or 5% from the six months ended June 30, 2008total of $1.4 billion.   This decrease isprimarily due to decreases in DAC amortization, partially offset by increasesin benefits, claims, losses and settlement expenses and interest credited tofixed accounts.

 

Benefits, claims, losses and settlementexpenses increased $75 million or 20% to $444 million for the six months ended June 30, 2009compared to $369 million for the six months ended June 30, 2008, driven byan increase in expenses from benefits associated with variable annuity livingbenefit guarantees.  Benefits, claims,losses and settlement expenses for the six months ended June 30, 2009 wereimpacted by $104 million in variable annuity death and living benefit expenses,which included $401 million in expenses from the non-cash impact of the creditdefault spread on the Statement of Financial Accounting Standards No. 157 “FairValue Measurements” (“SFAS 157”) valuation of living benefit liabilities.  Benefits, claims, losses and settlementexpenses for the six months ended June 30, 2008 included a $5 millionexpense related to the market impact on variable annuity guaranteed death andliving benefits, of which $23 million of benefit was related to the creditdefault spread.  Benefits, claims, lossesand settlement expenses also reflect $13 million in related lower DSICamortization in the first half of 2009 compared to $1 million in the prior yearperiod.

 

Interest credited tofixed accounts increased $55 million or 14% to $442 million for the six months ended June 30, 2009primarily driven by higher average fixed annuity account balances and higheraverage rates paid to clients on fixed annuities compared to the prior yearperiod.  Average fixed annuities contractaccumulation values increased $1.2 billion, or 10% compared to the prior yearperiod. The average crediting rate excluding capitalized interest increased to3.9% in the first half of 2009 compared to 3.7% in the same period one yearago.

 

Amortization of DAC decreased$138 million or 53% to $123 million for the six months ended June 30,2009. Amortization of DAC for the six months ended June 30, 2009 included$60 million in lower DAC amortization offsetting higher variable annuitybenefit expenses.  The impact of equityand fixed income market performance on policyholder account balances increasedDAC amortization by $1 million in the first half of 2009 compared to $34million in the first half of 2008. Variable annuity amortization decreased in the first half of 2009compared to the prior year period driven by lower period-over-period accountvalues and associated asset fees.

 

Otherinsurance and operating expenses decreased $55 million or 16% to $286 million for the six months ended June 30, 2009 primarily due to decreasedsales and marketing expenses and lower corporate overhead expenses.

 

*IncomeTaxes*

 

RiverSource Life’seffective tax rate was 23% for the sixmonths ended June 30, 2009, compared to (5%) for the six monthsended June 30, 2008.  The increasein the effective tax rate primarily reflects the impact of a $39 million taxbenefit related to changes in the status of current audits for the six monthsended June 30, 2008 and an increase in pretax income relative to adecrease of tax advantaged items, including the dividends received deductionfor the six months ended June 30, 2009.

 

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 toseparate account assets held in connection with variable contracts of lifeinsurance companies. Revenue Ruling 2007-61 suspended a revenue ruling issuedin August 2007 that purported to change accepted industry and IRSinterpretations of the statutes governing these computational questions. Anyregulations that the IRS ultimately proposes for issuance in this area will besubject to public notice and comment, at which time insurance companies andother members of the public will have the opportunity to raise legal andpractical questions about the content, scope and application of suchregulations. As a result, the ultimate timing and substance of any suchregulations are unknown at this time, but they may result in the elimination ofsome or all of the separate account DRD tax benefit that RiverSource Lifereceives. Management believes that it is likely that any such regulations wouldapply prospectively only.

 

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***MarketRisk***

* *

Equity market andinterest rate fluctuations can have a significant impact on RiverSource Life’sresults of operations, primarily due to the effects on asset-based fees andexpenses, the “spread” (the difference between the returns earned oninvestments that support obligations and the amounts that must be paid topolicyholders and contractholders) income generated on its annuities anduniversal 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 its variable annuities andthe values of derivatives held to hedge these benefits.

 

The guaranteedbenefits associated with RiverSource Life’s variable annuities are guaranteedminimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits(“GMAB”), guaranteed minimum death benefits (“GMDB”) and guaranteed minimumincome benefits (“GMIB”) options. Each of these guaranteed benefits guaranteespayouts to the annuity holder under certain specific conditions regardless ofthe performance of the underlying investment assets.

 

To evaluate interestrate and equity market risk, RiverSource Life performs sensitivity testingwhich measures the impact on pretax income from the sources listed below for a12 month period following a hypothetical 100 basis point increase in interestrates and a hypothetical 10% decline in equity markets.  The interest rate risk test assumes a sudden100 basis point parallel shift in the yield curve, with rates then staying atthose levels for the next 12 months. The equity market risk test assumes asudden 10% drop in equity prices, with equity prices then staying at thoselevels for the next 12 months. In estimating the values of variable annuityriders, equity indexed annuities and the associated hedge assets, RiverSourceLife assumed no change in implied market volatility despite the 10% drop inequity markets.

 

The numbers belowshow RiverSource Life’s estimate of the pretax impacts on income from thesehypothetical market movements, net of hedging as of June 30, 2009.

 
| ** **                                   | ** ** | **Equity Market Exposure to Pretax Income** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------------------|------------|
| **Equity Market Decline 10%** | ** ** | **Before  Hedge Impact**                                        | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                                   | ** ** | **(in millions)**                                                    | ** ** |
| Asset-based  fees and expenses               |       | $                                                                    | (45        | ) | N/A |   | $ | (45 | ) |
| DAC  and DSIC amortization(1)                |       | (156                                                                 | )          | N/A |   | (156 | ) |
| Variable  annuity riders:                    |       |                                                                 |       |   |   |   |   |
| GMDB  and GMIB                               |       | (69                                                                  | )          | N/A |   | (69 | ) |
| GMWB                                         |       | (139                                                                 | )          | $ | 170 |   | 31 |   |
| GMAB                                         |       | (36                                                                  | )          | 23 |   | (13 | ) |
| DAC  and DSIC amortization(2)                |       | N/A                                                                  |       | N/A |   | (6 | ) |
| Total  variable annuity riders               |       | (244                                                                 | )          | 193 |   | (57 | ) |
| Equity  indexed annuities                    |       | —                                                               |       | — |   | — |   |
| Total                                        |       | $                                                                    | (445       | ) | $ | 193 |   | $ | (258 | ) |

 
| ** **                                                                         | ** ** | **Interest Rate Exposure to Pretax Income** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| **Interest Rate Increase 100 Basis Points**               | ** ** | **Before  Hedge Impact**                                        | ** ** | **Hedge  Impact** | ** ** | **Net Impact** | ** ** |
| ** **                                                                         | ** ** | **(in millions)**                                                    | ** ** |
| Asset-based  fees and expenses                                                     |       | $                                                                    | (12        | ) | N/A |   | $ | (12 | ) |
| Variable  annuity riders:                                                          |       |                                                                 |       |   |   |   |   |
| GMWB                                                                               |       | 219                                                                  |       | $ | (370 | ) | (151 | ) |
| GMAB                                                                               |       | 46                                                                   |       | (23 | ) | 23 |   |
| DAC  and DSIC amortization(2)                                                      |       | N/A                                                                  |       | N/A |   | 57 |   |
| Total  variable annuity riders                                                     |       | 265                                                                  |       | (393 | ) | (71 | ) |
| Fixed  annuities, fixed portion of variable annuities and fixed insurance products |       | (3                                                                   | )          | N/A |   | (3 | ) |
| Total                                                                              |       | $                                                                    | 250        |   | $ | (393 | ) | $ | (86 | ) |

 

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N/A      NotApplicable.

(1)               Marketimpact on DAC and DSIC amortization resulting from lower projected profits.

(2)               Marketimpact on DAC and DSIC amortization related to variable annuity riders ismodeled net of hedge impact.

 

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In evaluating equity market risk,the estimated impact on DAC and DSIC amortization resulting from lowerprojected profits as a result of the equity market decline is shown separatelyfrom the estimated impact on DAC and DSIC amortization resulting from changesin the values of GMWB and GMAB riders net of hedges. In estimating the impacton DAC and DSIC amortization resulting from lower projected profits,RiverSource Life has not changed its assumed equity asset growth rates. This isa significantly more conservative estimate than if RiverSource Life assumedmanagement follows its mean reversion guideline and increased near-term ratesto recover the drop in equity values over a five-year period. See CriticalAccounting Policies for additional discussion on RiverSource Life’s DAC andDSIC accounting policies. RiverSource Life makes this same conservativeassumption in estimating the impact from GMDB and GMIB riders.

 

Net impacts shown in the above tablefrom GMWB and GMAB riders result largely from differences between the liabilityvaluation basis and the hedging basis. Liabilities are valued under SFAS 157,with key policyholder behavior assumptions loaded to provide risk margins and withdiscount rates increased to reflect a current market estimate of RiverSourceLife’s risk of nonperformance specific to these liabilities. Management haselected to hedge based on best estimate policyholder assumptions and explicitlydoes not hedge nonperformance spread risk.

 

Actual results could differmaterially from those illustrated above as they are based on a number ofestimates and assumptions. These include assuming that implied marketvolatility does not change when equity values fall by 10%, that management doesnot increase assumed equity asset growth rates to anticipate recovery of thedrop in equity values when valuing DAC, DSIC and GMDB and GMIB liability valuesand that the 100 basis point increase in interest rates is a parallel shift ofthe yield curve. Furthermore, RiverSource Life has not tried to anticipatechanges in client preferences for different types of assets or other changes inclient behavior, nor has RiverSource Life tried to anticipate actionsmanagement might take to increase revenues or reduce expenses in thesescenarios.

 

The selection of a 100 basis pointinterest rate increase as well as a 10% equity market decline should not beconstrued as a prediction of future market events.  Impacts of larger or smaller changes in interestrates or equity prices may not be proportional to those shown for a 100 basispoint increase in interest rates or a 10% decline in equity prices.

 

***Credit Risk***

* *

RiverSource Life is exposed tocredit risk within its investment portfolio, including its loan portfolio, andthrough its derivative and reinsurance activities. Credit risk relates to theuncertainty of an obligor’s continued ability to make timely payments inaccordance with the contractual terms of the financial instrument or contract.RiverSource Life considers its total potential credit exposure to eachcounterparty and its affiliates to ensure compliance with pre-establishedcredit guidelines at the time it enters into a transaction which wouldpotentially increase RiverSource Life’s credit risk. These guidelines andoversight of credit risk are managed through a comprehensive enterprise riskmanagement program that includes members of senior management.

 

RiverSource Life manages the risk ofcredit-related losses in the event of nonperformance by counterparties byapplying disciplined fundamental credit analysis and underwriting standards,prudently limiting exposures to lower-quality, higher-yielding investments, anddiversifying exposures by issuer, industry, region and underlying investmenttype.  RiverSource Life remains exposedto occasional adverse cyclical economic downturns during which default ratesmay be significantly higher than the long-term historical average used inpricing.

 

RiverSource Life manages its creditrisk related to over-the-counter derivatives by entering into transactions withcreditworthy counterparties, maintaining collateral arrangements and throughthe use of master netting arrangements that provide for a single net payment tobe made by one counterparty to another at each due date and upon termination.Generally, RiverSource Life’s current credit exposure on over-the-counterderivative contracts is limited to a derivative counterparty’s net positivefair value of derivative contracts after taking into consideration theexistence of netting arrangements and any collateral received. This exposure ismonitored and managed to an acceptable threshold level.

 

Because exchange-traded futures areeffected through regulated exchanges, and positions are marked to market andgenerally cash settled on a daily basis, RiverSource Life has minimal exposureto credit-related losses in the event of nonperformance by counterparties tosuch derivative instruments.

 

RiverSource Life manages its creditrisk related to reinsurance treaties by evaluating the financial condition ofreinsurance counterparties prior to entering into new reinsurance treaties. Inaddition, RiverSource Life regularly evaluates their financial strength duringthe terms of the treaties. As of June 30, 2009, RiverSource Life’s largestreinsurance credit risk is related to a long term care coinsurance treaty witha life insurance subsidiary of Genworth Financial, Inc.

 

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***Fair Value Measurements***

* *

RiverSource Life reports certainassets and liabilities at fair value; specifically, separate account assets,derivatives, embedded derivatives, most investments and cash equivalents.  SFAS 157 defines fair value, provides aframework for measuring fair value and expands disclosures about fair valuemeasurements.  Fair value assumes theexchange of assets or liabilities occurs in orderly transactions.  SFAS 157 does not require the use of marketprices that are the result of a forced liquidation or distressed sale.  RiverSource Life includes actual marketprices or observable inputs in its fair value measurements to the extentavailable. Broker quotes are obtained when quotes from pricing services are notavailable. RiverSource Life validates prices obtained from third partiesthrough a variety of means such as: price variance analysis, subsequent salestesting, stale price review, price comparison across pricing vendors and duediligence reviews of vendors.

 

*Inactive Markets*

 

Through RiverSource Life’s ownexperience transacting in the marketplace and through discussions with itspricing vendors, RiverSource Life believes that the market for non-agencyresidential mortgage backed securities is inactive. Indicators of inactivemarkets include: pricing services’ reliance on brokers or discounted cash flowanalyses to provide prices, an increase in the disparity between pricesprovided by different pricing services for the same security, unreasonablylarge bid-offer spreads and a significant decrease in the volume of tradesrelative to historical levels. In certain cases, this market inactivity hasresulted in RiverSource Life applying valuation techniques that rely more on anincome approach (discounted cash flows using market rates) than on a marketapproach (prices from pricing services). RiverSource Life considers market observable yields for other assetclasses of similar risk which includes nonperformance and liquidity forindividual securities to set the discount rate for applying the income approachto certain non-agency residential mortgage backed securities. The discountrates used for the fair value of these securities at June 30, 2009 rangedfrom 11% to 22%.

 

*Non-agencyResidential Mortgage Backed Securities Backed by Subprime, Alt-A or PrimeCollateral*

 

Subprime mortgage lending is theorigination of residential mortgage loans to customers with weak creditprofiles. Alt-A mortgage lending is the origination of residential mortgage loansto customers who have credit ratings above subprime but may not conform togovernment-sponsored standards. Prime mortgage lending is the origination ofresidential mortgage loans to customers with good credit profiles.  RiverSource Life has exposure to these typesof loans predominantly through mortgage backed and asset backed securities. Theslow 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. Recent market conditions have increasedthe likelihood of other-than-temporary impairments for certain non-agencyresidential mortgage backed securities. As a part of RiverSource Life’s risk management process, an internalrating system is used in conjunction with market data as the basis of analysisto assess the likelihood that RiverSource Life will not receive all contractualprincipal and interest payments for these investments. For the investments thatare more at risk for impairment, RiverSource Life performs its own assessmentof projected cash flows incorporating assumptions about default rates,prepayment speeds, loss severity, and geographic concentrations to determine ifan other-than-temporary impairment should be recognized.

 

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The following table presents, as of June 30,2009, RiverSource Life’s non-agency residential mortgage backed and assetbacked securities backed by subprime, Alt-A or prime mortgage loans by creditrating and vintage year  (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** | ** ** |
| **Subprime**           |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior |       | $                   | 4          |            | $          | 3                   |       | $               | 7          |                     | $          | 2               |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 11 |   | $ | 5 |   |
| 2005                   |       | 47                  |       | 42              |       | 16                  |       | 10              |       | —                   |       | —          |       | — |   | — |   | 19 |   | 8 |   | 82 |   | 60 |   |
| 2006                   |       | 2                   |       | 2               |       | 8                   |       | 7               |       | —                   |       | —          |       | 7 |   | 6 |   | — |   | — |   | 17 |   | 15 |   |
| 2007                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | — |   | — |   |
| 2008                   |       | —              |       | —          |       | 8                   |       | 6               |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 8 |   | 6 |   |
| Total Subprime         |       | $                   | 53         |            | $          | 47                  |       | $               | 39         |                     | $          | 25              |       | $ | — |   | $ | — |   | $ | 7 |   | $ | 6 |   | $ | 19 |   | $ | 8 |   | $ | 118 |   | $ | 86 |   |
| ** **             |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Alt-A**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior |       | $                   | 54         |            | $          | 44                  |       | $               | 31         |                     | $          | 32              |       | $ | 5 |   | $ | 3 |   | $ | — |   | $ | — |   | $ | 18 |   | $ | 10 |   | $ | 108 |   | $ | 89 |   |
| 2005                   |       | 5                   |       | 3               |       | 45                  |       | 24              |       | 39                       |       | 22              |       | 24 |   | 15 |   | 166 |   | 105 |   | 279 |   | 169 |   |
| 2006                   |       | —              |       | —          |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | 14 |   | 9 |   | 14 |   | 9 |   |
| 2007                   |       | 30                  |       | 17              |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 30 |   | 17 |   |
| Total Alt-A       |       | $                   | 89         |            | $          | 64                  |       | $               | 76         |                     | $          | 56              |       | $ | 44 |   | $ | 25 |   | $ | 24 |   | $ | 15 |   | $ | 198 |   | $ | 124 |   | $ | 431 |   | $ | 284 |   |
|                   |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Prime**              |       |                |       |            |       |                |       |            |       |                     |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| 2004 &  prior |       | $                   | 196        |            | $          | 180                 |       | $               | —     |                     | $          | —          |       | $ | 16 |   | $ | 13 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 212 |   | $ | 193 |   |
| 2005                   |       | 106                 |       | 83              |       | 28                  |       | 22              |       | 16                       |       | 16              |       | 56 |   | 33 |   | 50 |   | 25 |   | 256 |   | 179 |   |
| 2006                   |       | 26                  |       | 25              |       | —              |       | —          |       | 6                        |       | 2               |       | 38 |   | 36 |   | — |   | — |   | 70 |   | 63 |   |
| 2007                   |       | 27                  |       | 27              |       | 14                  |       | 13              |       | 16                       |       | 11              |       | — |   | — |   | — |   | — |   | 57 |   | 51 |   |
| Re-Remic(1)            |       | 1,572               |       | 1,616           |       | —              |       | —          |       | —                   |       | —          |       | — |   | — |   | — |   | — |   | 1,572 |   | 1,616 |   |
| Total Prime       |       | $                   | 1,927      |            | $          | 1,931               |       | $               | 42         |                     | $          | 35              |       | $ | 54 |   | $ | 42 |   | $ | 94 |   | $ | 69 |   | $ | 50 |   | $ | 25 |   | $ | 2,167 |   | $ | 2,102 |   |
| **Grand  Total**       |       | $                   | 2,069      |            | $          | 2,042               |       | $               | 157        |                     | $          | 116             |       | $ | 98 |   | $ | 67 |   | $ | 125 |   | $ | 90 |   | $ | 267 |   | $ | 157 |   | $ | 2,716 |   | $ | 2,472 |   |

 

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(1)         Re-Remics of mortgage backedsecurities are prior vintages with cash flows structured into senior andsubordinated bonds. Credit enhancement on senior bonds is increased through theRe-Remic process. All senior bonds are rated AAA by Moody’s Investors Service,Standard & Poor’s Rating Services or Fitch Ratings Ltd. RiverSourceLife did not have any exposure to subordinate tranches as of June 30,2009.

 

Fair Value of Liabilities andNonperformance Risk

 

SFAS 157 also requires companies tomeasure the fair value of liabilities at the price that would be received totransfer the liability to a market participant (an exit price). Since there isnot a market for RiverSource Life’s obligations of its variable annuity riders,RiverSource Life considers the assumptions participants in a hypotheticalmarket would make to reflect an exit price. As a result, RiverSource Lifeadjusts the valuation of variable annuity riders by updating certaincontractholder assumptions, adding explicit margins to provide for profit, riskand expenses, and adjusting the rates used to discount expected cash flows toreflect a current market estimate of RiverSource Life’s nonperformance risk.The nonperformance risk adjustment is based on broker quotes for credit defaultswaps that are adjusted to estimate the risk of RiverSource Life not fulfillingthese liabilities. Consistent with general market conditions, this estimateresulted in a spread over the LIBOR swap curve as of June 30, 2009. 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 $63 million, net of DAC and DSIC amortization and income taxes,based on June 30, 2009 credit spreads.

 

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**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 available lines of credit with Ameriprise Financial, nowaggregating $1 billion with the additional line of credit established, asdescribed below.

 

In July 2009,Ameriprise Financial, as the lender, entered into an $800 million revolvingcredit agreement with RiverSource Life Insurance Company, as the borrower.  On July 27, 2009, RiverSource Lifeborrowed $500 million pursuant to this agreement. This transaction is expectedto increase net investment income by allowing RiverSource Life to immediatelyinvest in longer dated securities, while maintaining the holding company’saccess to cash if a need arises.  Cashflows from RiverSource Life products and investment portfolio, generated in thenormal course of business, will be used to pay down this loan.  This transaction is expected to have nomaterial impact to RiverSource Life’s asset/liability matching or capitallevels.  See Note 12 to the ConsolidatedFinancial Statements for additional information regarding this new creditagreement.

 

In March 2009,RiverSource Life Insurance Company became a member of the Federal Home LoanBank of Des Moines (“FHLB of Des Moines”), which provides RiverSource LifeInsurance Company access to collateralized borrowings.  As of June 30, 2009, there have been noborrowings from the FHLB of Des Moines. The primary uses of funds are policy benefits, commissions, otherproduct-related acquisition 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.

 

There were nodividends paid to Ameriprise Financial during the six months ended June 30,2009.  On March 26 and June 25,2008, RiverSource Life paid cash dividends of $125 million and $275 million,respectively, to Ameriprise Financial. On June 25, 2008, RiverSource Life of NY paid cash dividends of $27million 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,****2009**        | ** ** | **December 31,  2008**             | ** ** | **December 31,  2008** | ** ** |
| ** **                                  | ** ** | **(in millions)**                | ** ** |
| RiverSource Life Insurance  Company         |       | $                                | 2,487      |                                    | $          | 2,722 |   | $ | 551 |   |
| RiverSource Life Insurance  Co. of New York |       | 237                              |       | 229                                     |       | 58 |   |
|                                             |            |                                  |            |                                         |            |  |  |  |  |  |

 

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(a)          Actual capital, as defined bythe National Association of Insurance Commissioners for purposes of meetingregulatory capital requirements, includes statutory capital and surplus, pluscertain statutory valuation reserves.

(b)         Regulatory capitalrequirement is based on the most recent statutory risk-based capital filing.

 

**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.

 

RiverSource Life has made variousforward-looking statements in this report. Examples of such forward-lookingstatements include:

 

·                  statements aboutfuture economic performance, the performance of equity markets and interestrate variations and the economic performance of the United States and of globalmarkets; and

·                  statements ofassumptions underlying such statements.

 

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.

 

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Such factors include, butare not limited to:

 

·                  changes in the valuations, liquidity and volatility inthe interest rate, credit default equity market, and foreign exchangeenvironments;

·                  changes in the litigation and regulatory environment,including ongoing legal proceedings and regulatory actions, the frequency andextent of legal claims threatened or initiated by clients, other persons andregulators, and developments in regulation and legislation;

·                  RiverSource Life’s investment management performanceand consumer acceptance of RiverSource Life’s products;

·                  effects of competition in the financial servicesindustry and changes in RiverSource Life’s product distribution mix anddistribution channels;

·                  RiverSource Life’s capital structure as a subsidiaryof Ameriprise Financial, including the ability of its parent to support itsfinancial strength and ratings, as well as the opinions of rating organizationsand other analysts or RiverSource Life’s regulators, distributors orpolicyholders and contractholders in response to any change or prospect ofchange in such opinion;

·                  risks of default by issuers or guarantors ofinvestments RiverSource Life owns or by counterparties to hedge derivative,insurance or reinsurance arrangements, experience deviations from RiverSourceLife’s assumptions regarding such risks and the evaluations or the prospect ofchanges in evaluations of such third parties published by rating organizationsor other analysts;

·                  experience deviations from RiverSource Life’sassumptions regarding morbidity, mortality and persistency in certain annuityand insurance products, or from assumptions regarding market returns assumed invaluing DAC and DSIC or market volatility underlying RiverSource Life’svaluation and hedging of guaranteed living benefit annuity riders;

·                  successfully cross-selling insurance and annuityproducts and services to Ameriprise Financial’s customer base;

·                  RiverSource Life’s ability to effectivelyhedge risks relating to guaranteed benefit riders and certain other products;

·                  the impact of intercompany allocations to RiverSourceLife from Ameriprise Financial and its affiliates;

·                  Ameriprise Financial’s ability toattract, recruit and retain qualified advisors and employees and its ability todistribute RiverSource Life’s products through current and future distributionchannels;

·                  the impact of Ameriprise Financial’s efforts toimprove distribution economics and of RiverSource Life’s efforts to grow thirdparty distribution and to realize benefits from reengineering and tax planning;

·                  changes in U.S. federal income or estatetax laws potentially making RiverSource Life’s products less attractive toclients;

·                  RiverSource Life’s ability to recoverfrom catastrophes, both natural and man-made;

·                  changes in the capital markets andcompetitive environments induced or resulting from the partial or totalownership or other support by central governments of certain financial servicesfirms for financial assets; and

·                  general economic and political factors, includingconsumer confidence in the economy, the ability and inclination of consumersgenerally to invest, as well as their ability and inclination to invest in orpurchase insurance and other products other than cash and cash equivalents, thecosts of products and services RiverSource Life consumes in the conduct of itsbusiness, and applicable legislation and regulation and changes there in,including tax laws, tax treaties, fiscal and central government treasurypolicy, and regulatory rulings and pronouncements.

 

RiverSource Life cautionsthe reader that the foregoing list of factors is not exhaustive.  There may also be other risks thatRiverSource Life is unable to predict at this time that may cause actualresults to differ materially from those in forward-looking statements.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the dateon which they are made.   RiverSourceLife undertakes no obligation to update or revise any forward-lookingstatements.

 

The foregoing list offactors should be read in conjunction with the “Risk Factors” discussion as Part I,Item 1A in RiverSource Life’s 2008 10-K.

 

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**ITEM4T.  CONTROLS AND PROCEDURES**

 

**DisclosureControls and Procedures**

 

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, 2009.

 

**Changesin Internal Control Over Financial Reporting**

 

There have been nochanges in RiverSource Life’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the fiscal quarter to which this report relates that havematerially affected, or are reasonably likely to materially affect, RiverSourceLife’s internal control over financial reporting.

 

**PART II.**                  OTHER INFORMATION

** **

**ITEM1.**                       LEGAL PROCEEDINGS

** **

The information set forthin Note 10 to the Consolidated Financial Statements in Part I, Item 1 isincorporated herein by reference.

 

**ITEM 1A.     RISK FACTORS**

 

There have been nomaterial changes in the risk factors provided in Part I, Item 1A ofRiverSource Life’s 2008 10-K.

 

**ITEM6.**                       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 3, 2009 |   | By                                 | /s/ Timothy V. Bechtold |
|                      |   |                               | Timothy V. Bechtold |
|                      |   |                               | President |
|                      |   |                               |   |
|                      |   |                               |   |
| Date: August 3, 2009 |   | 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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