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Slide 2: 2007 Consolidated Highlights ($ in millions, except per share amounts and as noted) 2007 GAAP Net revenues Net income Earnings per diluted share Return on equity Shareholders’ equity Non-GAAP Financial Information* Adjusted earnings Adjusted earnings per diluted share Adjusted return on equity Weighted average common shares outstanding—diluted Cash dividends paid per common share Owned, managed and administered assets (billions) Net revenue per advisor (thousands) Life insurance inforce (billions) $968 $4.03 12.6% $866 $3.48 11.8% 12% 16% $8,654 $814 $3.39 10.5% $7,810 $8,020 $631 $2.54 8.3% $7,925 (1%) 8% 29% 33% 2006 Change 239.9 $0.56 248.5 $0.44 (3%) 27% $480 $315 $187 $466 $268 $174 3% 18% 8% *Management believes that the presentation of adjusted financial measures best reflects the underlying performance of our ongoing operations and facilitates a more meaningful trend analysis. The adjusted financial measures exclude the effects of non-recurring separation costs. See Non-GAAP Financial Information included in our Management’s Discussion & Analysis.
Slide 3: Adjusted Earnings Per Diluted Share 2005 2006 2007 Left to right: Gloria Vallejo, Interactive Marketing; Jake Dunlap, Field Leader, Pacific Northwest; Paul Stocking, RiverSource Investments (Equities) Ameriprise Financial 2007 Annual Report 1
Slide 4: To Our Shareholders “We’ve been consistently focused on executing our strategy, and it’s working. In 2007, we delivered another strong year despite increasingly challenging market conditions.” When Ameriprise Financial became an independent public company in October 2005, we were focused on unleashing our potential. All of us—my executive team, our advisors and field staff and our employees— recognized that we had a great deal to accomplish while simultaneously generating solid financial performance. We’ve delivered on our commitments, and we’re proud of the company we’ve built together. In this, our third annual report, we’ll outline our growth to date and how we intend to continue to realize our opportunities by building on the strong platform we’ve created. We have a clear vision of what we want to achieve, and we have the strategy, foundation and talent to bring our vision to life. 2007: A year of progress We’ve been consistently focused on executing our strategy, and it’s working. In 2007, we delivered another strong year despite increasingly challenging market conditions. We met our on-average, over-time growth goals even as we concluded a complex separation from our former parent company. For the year, net revenues grew 8 percent, adjusted earnings per diluted share increased 16 percent and our adjusted return on equity of 12.6 percent reached our target range for the first time. We met our financial targets by executing our strategy: grow mass affluent and affluent client relationships, strengthen our lead in financial planning, drive gains in advisor productivity, grow our assets and continue to reinforce our corporate foundation. In 2007, mass affluent and affluent client assets increased 10 percent as we deepened our financial planning relationships with these clients. This contributed to our growth in advisor productivity, as measured by net revenue per advisor, which increased 18 percent compared to last year. As we deepened client relationships, drove product innovation and delivered solid investment performance, our owned, managed and administered assets grew to $480 billion. Meanwhile, we reinforced our foundation by continuing to 2 Ameriprise Financial 2007 Annual Report
Slide 5: invest in our talent and infrastructure, and by capitalizing on our proven re-engineering and expense management strengths. These results were achieved against the backdrop of substantial challenges from capital markets. While we are not immune to market weakness and volatility, our long-term client relationship focus and balance sheet strength helped us effectively weather these challenges. Importantly, we did not experience any material impairments related to the deteriorating mortgage and credit market conditions, a testament to the strength and soundness of our balance sheet and risk James M. Cracchiolo, Chairman and CEO management. We remain committed to our conservative approach and believe it will continue to serve us well across ongoing market cycles. Focused on growth Ameriprise Financial serves 2.8 million clients, and more people come to Ameriprise for financial planning than any other company. We are one of very few firms dedicated to a personalized approach to financial planning for the 41 million* mass affluent and affluent American households—the majority of whom prefer one-to-one financial advice. Current demographic trends—with baby boomers approaching retirement and Americans living longer—serve to reinforce our large market opportunity. We believe we have created an ideal platform to continue to strengthen our position as the leader in financial planning. The Ameriprise Financial brand—nonexistent just two and a half years ago and now highly recognizable within the retail financial services industry— will continue to be an important contributor to our client growth. Our innovative advertising is authentic and positive, speaking to consumers’ dreams rather than their fears. We intend to continue to improve the *SRI Consulting Business Intelligence Ameriprise Financial 2007 Annual Report 3
Slide 6: To Our Shareholders (continued) “We believe we have created an ideal platform to continue to strengthen our position as the leader in financial planning.” financial planning conversation through national advertising, localized marketing programs and our compelling client experience. Our 11,800-strong advisor force, the third largest in the industry, is motivated, satisfied and highly productive. In fact, over the last two years, gains in advisor productivity were the strongest in many years, reaching $315,000 in net revenue per advisor, and our franchisee advisor retention rate continues to be very high. We intend to help advisors further grow their productivity levels by implementing several important initiatives. We are in the process of rolling out an industry-leading technology platform, including new financial planning tools and a desktop system that allows more time for personal client service. And in the first half of 2008, we are bringing thousands of our advisors to our training facilities in Minneapolis to assist them in growing their practices by implementing powerful new tools, capabilities and support programs. In addition, we are evolving our advisor recruitment efforts—bringing in fewer but more promising employee advisors, reducing training costs and increasing their opportunities to succeed. At the same time, we are beginning to recruit more advisors with established practices. Advisor productivity is dependent upon our ability to serve a full range of clients’ needs. We offer an extensive set of product solutions, including mutual funds, advisory, a wide range of insurance offerings, annuities and traditional banking products. Innovation is the driving force of our product development strategy and many of our solutions are among the most innovative in retail financial services today. We intend to build on the success of our suite of Advice-Built solutions: t SM M they’re designed to navigate changing market conditions and help clients achieve their short- and long-term goals. Solutions such as Active Portfolios® s investments, as well as accumulation and withdrawal benefits in RiverSource® e variable annuities, have received an enthusiastic reception from financial advisors and clients. These products have been key contributors to RiverSource Funds moving to net inflows for the first time in many years. 4 Ameriprise Financial 2007 Annual Report
Slide 7: Snapshot Key Metrics 2.8 million retail, institutional and business clients $480 billion in owned, managed and administered assets 11,800 advisors 8,750 employees 3,600 U.S. advisor offices U.S. and International presence Advice & Wealth Management The leader in financial planning1 Third largest advisor force in the U.S.2 Largest mutual fund advisory program in assets3 Capabilities: financial planning, wealth management, brokerage, banking and trust Asset Management $287 billion in managed assets U.S./International balance Retail capabilities: mutual funds, separate accounts and Advice-Built solutions t Institutional capabilities: separate accounts, subadvisory and alternative investments Annuities $72 billion in annuity account values Ninth largest variable annuity provider 4 Capabilities: variable and fixed annuities Protection $187 billion in life insurance inforce Leading Variable Universal Life Insurance provider in sales5 Capabilities: life, health, and auto & home insurance 1. Based on the number of financial plans annually disclosed in Form ADV, Part 1A, Item 5, as of Dec. 31, 2006 and the number of CERTIFIED FINANCIAL PLANNER™ professionals documented by the Certified Financial Planner Board of Standards, Inc. 2. Investment News—Top independent broker-dealers ranked by number of reps—Jan. 28, 2008 issue 3. Cerulli Associates, through third quarter 2007 4. Morningstar Annuity Research Center, through third quarter 2007 5. Tillinghast Towers Perrin Value™ Survey, through third quarter 2007—No. 1 in number of policies sold and No. 4 in total premiums All data as of Dec. 31, 2007, except as noted. Ameriprise Financial 2007 Annual Report 5
Slide 8: To Our Shareholders (continued) “While we are not immune to market weakness and volatility, our long-term client relationship focus and balance sheet strength helped us effectively weather these challenges.” In fact, Active Portfolios investments has been one of our best new product s launches, amassing approximately $2.9 billion in assets since it opened in February 2007. This rapid growth contributed to a strong year-over-year increase in our wrap account assets, which were up 23 percent from last year. Another important contributor to the turnaround in our asset management business has been solid investment performance. Three- and five-year track records at RiverSource continued to improve, and equity investment performance at Threadneedle reached an all-time best. Combined, these businesses create valuable geographic diversity, with RiverSource in the U.S. and Threadneedle internationally. We continued to invest in Threadneedle—including its acquisition of Convivo Capital Management in the second half of the year—and the business continued to deliver strong profitability. The annuity business produced solid results again in 2007, despite decreasing balances in fixed annuities due to low interest rates. We generated net inflows of $4.9 billion in variable annuities as clients continued to gravitate toward products that provide guaranteed lifelong income. Our protection businesses continued to grow, with life insurance inforce increasing 8 percent, to $187 billion. We are a leader in variable universal life insurance, and we broadened our protection offerings during the year. We introduced Succession Protector life insurance to further address SM clients’ estate planning needs as well as new disability income insurance. The ability to capture these growth opportunities is in large part due to the talent of our people. Cross-organizational teams representing client service, technology, marketing, finance and other areas work together to provide exceptional support and to protect the company and its assets. Employees and advisors express very high levels of satisfaction with the company, which leads to a commitment to quality in an environment where engagement is high and corporate values are lived. We operate foremost with integrity, and with all our energies focused on delivering a consistently strong and positive Ameriprise Financial experience to our clients. 6 Ameriprise Financial 2007 Annual Report
Slide 9: Our commitment to you All of us at Ameriprise Financial understand that we work for our shareholders, and we are constantly mindful of the imperative to deliver shareholder value. We are disciplined in our growth and focused on returning capital to you. In 2007 alone, we bought back 15.9 million shares of our common stock for $948 million. Since we became an independent public company, we have returned more than 80 percent of our adjusted earnings to our shareholders. We also remain committed to prudent management of our resources, particularly in view of the difficult market conditions prevailing in early 2008. Our investments for growth remain robust, and we will continue to fund them through re-engineering and expense management while also working to contribute more of our expense savings directly to earnings. Our balance sheet is strong, and we will remain conservative as we continue to optimize the use of our excess capital. In short, we are managing Ameriprise Financial for long-term success. Thank you Together, we at Ameriprise Financial have accomplished more in two and a half years than many of us thought possible, and I am both proud of and deeply grateful for the efforts of our people. The collaborative work of our national and international organization, as well as our committed and talented board of directors, has affirmed our current position of strength. The company today is focused on growth, with the scale and capabilities, the energy and talent to realize our great potential. Thank you for your ongoing investment in our company. We will continue to do all we can to reward your trust. Sincerely, Sincerely James M. Cracchiolo Chairman and Chief Executive Officer Ameriprise Financial 2007 Annual Report 7
Slide 10: Capturing our client opportunity 41 million mass affluent and affluent U.S. households— each with its own dreams and goals Mass affluent and affluent Americans hold more than $19 trillion in investable assets and this population has been steadily increasing.1 Our financial planning focus positions us well to grow and deepen relationships with these consumers. In 2007, mass affluent and affluent client assets grew by 10 percent, and over the past several years, this important measure has increased 43 percent. People are living longer than ever before, and they are increasingly required to generate more of their retirement income on their own. They also expect more from their retirement—they expect to live their dreams, regardless of market cycles. Ameriprise Financial is the company to serve this dynamic. We believe the best way for people to reach their long-term financial goals is through an ongoing financial planning relationship—a personal approach that addresses not only their investments, but also encompasses their full financial picture—saving, spending, investing and protecting what is most important. Consumers want an advice-based relationship, and we’re the leader in financial planning. In fact, more people come to Ameriprise for financial planning than any other firm.2 “Our focus is serving the mass affluent, and we’re growing our practice. As we meet with potential clients, we engage them in our process and demonstrate the value of fee-based planning. My clients understand that I’m here for them over the long term as their source of knowledgeable advice.” —Randy Linde, CFP,® Senior Financial Advisor, Washington Number of U.S. Mass Affluent and Affluent Households1 Millions 50 40 41 33 29 30 32 20 10 0 2000 2002 2004 2006 The 2007 Ameriprise Financial Money Across Generations SM study found family financial decisions impact their ability to reach retirement goals. This research reinforced the role advisors can play in opening family dialogue. 1. SRI Consulting Business Intelligence 2. Based on the number of financial plans annually disclosed in Form ADV, Part 1A, Item 5, available at adviser.sec.gov as of Dec. 31, 2006 8 Ameriprise Financial 2007 Annual Report
Slide 11: Mass Affluent and Affluent Client Asset Growth Indexed to Year-End 2004 2005 2006 Left to right: Kevin Palmer, Finance; Steve Tizzano, RiverSource Insurance; Patti Naas, Human Resources 2007 Ameriprise Financial 2007 Annual Report 9
Slide 12: Changing the conversation The power of dreams Since the launch of our groundbreaking advertising in 2005, we’ve been changing the conversation in retail financial services through our focus on clients’ dreams and our approach to serving them through financial planning. Our messages capture consumers’ attention, creating a uniquely positioned, stand-out brand in a crowded field. Today, our brand awareness is strong and our voice is distinct. During 2007, we continued our brand evolution, moving from our initial advertising that defined what we do and how we do it, to why investors should work with an Ameriprise t w y financial advisor. We continue to differentiate Ameriprise Financial through broadcast, print and online advertising—gaining accolades from the industry and from our advisors as they maximize the alignment between their business goals and our advertising messages. “With the Ameriprise Financial brand, people are increasingly thinking of our company as a household name—one that’s recognizable and identified with an advice-based client experience. As advisors, we bring the brand to life every day and mean it when we say we’re shaping financial solutions for a lifetime.” —Renee Hanson, CFP,® Private Wealth Advisor, Arizona Award-winning advertising: Ameriprise Financial won 10 awards from the Financial Communications Society in 2007. Our wins spanned TV, print, radio, collateral, online and out-of-home advertising. National presence, local impact Our brand is well established nationally, with brand awareness reaching 56 percent by year end. We’re further reaching consumers by building our local marketing presence, community by community. We’re helping our advisors form new client relationships through events, seminars, local advertising and sponsorships. And we’ve begun implementing a new branded office design that further differentiates our client experience—where the relationship begins. Our advisors have always built their businesses on referrals and individual connections in their communities. It’s an important outcome of the collaborative and unique relationships between our advisors and clients. Our local marketing platform reinforces these connections and complements national advertising as we continue to build our brand. Our advertising incorporates red chair imagery that symbolizes the breakdown of retirement stereotypes. It’s the anti-rocking chair. We’ve distributed approximately three million copies of our unique Dream Book ® guide, the first step in our Dream > Plan > Track > ® approach to financial planning. 10 Ameriprise Financial 2007 Annual Report
Slide 13: Ameriprise Financial Brand Awareness 2005 2006 2007 Left to right: Deb Chagnon, Corporate Communications and Community Relations; Susan Johnson, Marketing Field Implementation, Southeast and Mid-America; Randy Woolley, CRPC,® Advanced Financial Advisor, Pennsylvania Ameriprise Financial 2007 Annual Report 11
Slide 14: Building on our financial planning leadership Our competitive advantage Everything we do revolves around effectively serving clients. More than two million people in the U.S. work with our advisors, and our mass affluent and affluent clients are increasingly embracing the benefits of financial planning. We helped pioneer financial planning in the 1970s, and today we are the largest financial planning company, with more Certified Financial Planner professionals than any other firm.* r TM M “The information a financial advisor provides helps develop a life plan that can only be done with a trained professional. Financial planning is a process that creates a relationship-building experience for clients that helps identify and track individual goals. “After 30 years in the business, I know our company supports that process not only with training and tools, but also with a cohesive goal— helping clients plan for their dreams. Ameriprise is unique in our ability to bring financial planning into our clients’ lives. Clients want advice and Ameriprise financial advisors bring that to them.” —Jim Barnash, CFP,® National Director of Financial Planning We continued to improve our financial planning process through enhancements to our planning tools and technology, which will be implemented through 2008. Our focus on serving clients in ongoing financial planning relationships drove increased fees in 2007, with 10 percent growth in branded financial plan net cash sales. A personal approach Our unique Dream > Plan > Track > approach starts with advisors understanding their clients’ dreams. It includes a long-term, one-to-one relationship with an advisor, proven principles of financial planning and access to a wide range of solutions. We develop plans tailored to clients’ goals and track progress as needs and goals evolve over their lifetime. As market and consumer needs become increasingly complex, we believe our approach will further resonate with consumers. Financial planning benefits multiple constituencies. Clients clearly articulate their dreams, which are then translated into actionable strategies to grow, protect and distribute their wealth. Advisors gain a more complete picture of clients’ financial position and goals, and develop close, long-lasting relationships. For the company, financial planning clients are more satisfied, have more assets at the firm and generate greater profitability. *Certified Financial Planner Board of Standards, Inc. 12 Ameriprise Financial 2007 Annual Report
Slide 15: Financial Planning (Branded Financial Plan Net Cash Sales) 2005 2006 2007 Left to right: Adam Buttress, Service Delivery and Technology; Kris Petersen, Financial Planning; Rockell Metcalf, Legal Counsel Ameriprise Financial 2007 Annual Report 13
Slide 16: Driving advisor productivity A powerful distribution force With the third largest advisor sales force in the U.S., Ameriprise Financial has robust advisory capabilities. Our 11,800 advisors are experienced financial professionals equipped with sophisticated tools and a broad product set to help deliver for our clients today, tomorrow and in the years to come. We constantly strive to help our advisors become even more productive, and they are succeeding, with 18 percent growth in net revenue per advisor last year. Our advisors are energized and motivated about the opportunities at hand. Throughout 2007, our advisor satisfaction and franchisee advisor retention rates remained very high. The technology improvements we’ve made have been instrumental in improving productivity. During the year, we launched the AdvisorCompass® site, our new desktop technology portal. Once fully implemented, our advisor desktop technology will be among the top tier of our peers.* “We’re growing our practice and today have three advisors and seven associate financial advisors. My goal is to build a practice that’s multigenerational and continues to grow after I retire. I’d like our legacy to be that we’re taking care of our clients’ children’s financial needs in the years ahead.” —Mark Spinnato, CFP,® Senior Financial Advisor, Colorado Growing advisor practices Advisors choose to build their careers at Ameriprise because of our financial planning focus, broad capabilities and commitment to help them grow their practices. Our approach appeals to those who see their work—helping clients plan for their dreams— as more than a job. With three main platforms—employee, franchisee and independent—we offer advisors a choice in how to best build their practices. Over time, we plan to grow our advisor force both organically and by attracting experienced advisors through individual recruitment and practice acquisition. The number of our branded franchisee advisors, which as a group are often the most productive, increased from the prior year to more than 7,750 at year end. Our employee advisors decreased over the same time period to approximately 2,450 reflecting our ongoing efforts to strengthen employee advisor productivity. AdvisorCompass, our new desktop technology portal *CapGemini Advisor Technology Assessment 14 Ameriprise Financial 2007 Annual Report
Slide 17: Net Revenue Per Financial Advisor* 2005 2006 2007 Left to right: Tracy Lumpkin, Compliance; Siddharth Gandhi, Strategy and Business Development; Ginger Ewing, Senior Financial Advisor, Minnesota *Net revenue per financial advisor is calculated as the Advice & Wealth Management segment net revenue divided by the number of advisors. Ameriprise Financial 2007 Annual Report 15
Slide 18: Assets under management: $158 billion Growing assets Client focused Our clients have access to product solutions they need, including cash management, savings, borrowing, investing, protection, retirement income and estate planning. This contributes to our ability to grow owned, managed and administered assets— which ended the year at $480 billion—and to generate sustainable and diverse sources of revenue and profits. With advisors focused on achieving their clients’ goals, we grew assets across our businesses. In 2007, we strengthened our leadership position in wrap programs, e with total wrap assets reaching $94 billion; RiverSource variable annuity balances grew to $57 billion; RiverSource Funds assets increased to $87 billion; and e RiverSource life insurance inforce reached $187 billion. Assets under management: $134 billion Includes $5.6 billion managed for RiverSource Total Wrap Ending Assets $ in billions $100 $94 80 $76 60 $58 40 20 0 2005 2006 2007 Asset management—a balanced approach Our asset management business is balanced geographically, with RiverSource Investments primarily serving U.S. clients and Threadneedle primarily serving international investors. Combined, we have $287 billion in managed assets and a broad footprint that allows us to reach retail, institutional and private investors in the U.S., Europe, Asia and the Middle East. During the year, RiverSource strengthened three- and five-year investment performance track records and introduced compelling new products, including the RiverSource Advanced Alpha series of mutual funds. We also broadened our product distribution: RiverSource Funds wholesalers now have access to approximately 118,000 brokers and advisors on third-party bank and broker-dealer platforms. To increase RiverSource brand awareness, we launched a print and online advertising campaign targeting financial professionals and demonstrating the depth of our asset management capabilities. SM RiverSource Variable Annuity Ending Balances $ in billions $60 $57 50 $49 40 $40 30 20 10 0 2005 2006 2007 RiverSource Funds Ending Assets $ in billions $100 Threadneedle delivered its strongest year ever for equity investment performance, with 80 percent of portfolios above the median of their respective U.K. peer groups at year end. In addition to generating strong organic growth and revenue diversification, Threadneedle acquired Convivo Capital Management to add to its well established and expanding hedge fund business. 80 $87 $82 $77 60 40 20 0 2005 2006 2007 Data as of Dec. 31, 2007 16 Ameriprise Financial 2007 Annual Report
Slide 19: Owned, Managed and Administered Assets 2005 2006 2007 Left to right: Michael Seymour, Threadneedle; Nancy Seely-Butler, CFP,® Senior Financial Advisor, Connecticut; Tiffany Glidden-Rude, RiverSource Distributors Ameriprise Financial 2007 Annual Report 17
Slide 20: Delivering innovation Building on our innovation track record Whether it’s developing new product solutions, transforming advisor technology or delivering tailored client service support, we’re recognized as a leader in financial services innovation. Through our combined strengths in advice, asset management, annuities and protection, we’re designing products with compelling features and built-in asset allocation that appeal to both clients and advisors. Examples include RiverSource Portfolio Builder, RiverSource Income Builder, Portfolio Navigator Asset Allocation e Program and Active Portfolios investments. New features such as our SecureSource s optional living benefit rider on RiverSource variable annuities, along with e competitive investment performance, have been essential to clients embracing these products and ultimately improving RiverSource Funds net flows. In 2007 alone, we grew assets in these Advice-Built solutions by 75 percent, reaching $26 billion in t assets under management. SM In February 2007 we combined our deep understanding of client needs with our broad capabilities in equities, fixed income, asset allocation and trading to launch innovative product solutions ideally suited to our financial advice model—Active Accumulation Portfolios ® and Active Income Portfolios ® investments. These portfolios utilize proprietary quantitative investment methodology to create a sophisticated risk-managed discretionary wrap product with dynamic monthly rebalancing across multiple asset classes. With approximately $2.9 billion in assets at year end, these new and enhanced portfolio management strategies have been embraced by clients and advisors. The retirement income dilemma We listen closely to our clients, so we know firsthand the importance and complexity of managing assets for what could be 30 or more years in retirement. To achieve their retirement dreams, clients need to generate income from multiple sources and invest to stay ahead of inflation, while managing market risks and e planning to reduce taxes. That’s why RiverSource variable annuities, variable universal life insurance and other investment vehicles are important options for many clients. Clients have multiple choices for funding their retirement, from market-based investment products to the power of guaranteed income for life that annuities can provide, and our advisors are committed to helping clients select options best suited to manage risk. 18 Ameriprise Financial 2007 Annual Report
Slide 21: Assets Under Management in Advice-Built Solutions 2005 2006 2007 Left to right: Peg Sibbet, RiverSource Investments (Fixed Income); Ray Carothers, CFP,® Financial Advisor, Georgia; Matt Hudnut, Brokerage and Managed Products Ameriprise Financial 2007 Annual Report 19
Slide 22: Creating shareholder value Meeting our commitments Generating long-term shareholder value is a top priority, and we are delivering that by meeting our on-average, over-time financial targets. In 2007 we achieved net revenue growth of 8 percent, adjusted earnings per diluted share growth of 16 percent and adjusted return on equity of 12.6 percent. Investment decisions come down to risk and return: How much risk can we accept to generate appropriate returns? In the end, when it comes to investing the company’s resources, we remain conservative. While this approach can reduce returns during bull markets, it also helps protect us—and shareholders—during downturns. Balance sheet strength and flexibility For many financial services companies, the capital markets of 2007 presented significant challenges. No company was immune; however, our strong balance sheet and conservative approach to our investments helped us avoid significant losses related to the value of our investments, and provided important flexibility as we continue to manage the company for long-term success. Supported by the strength of our balance sheet and capital position, we are making investments to consistently achieve our growth targets while maintaining prudent expense controls and appropriate risk management. Enhanced financial reporting: In the fourth quarter of 2007, we presented enhanced financial reporting that is more closely aligned with the industry. We now report five business segments rather than three—investors can link business metrics to financial results and gain a better understanding of how we create shareholder value. Returning capital to shareholders We are focused on optimizing the use of our capital and returning excess capital to shareholders, consistent with our capital needs and investment plans. In 2007, we returned more than our adjusted earnings to shareholders through total dividends of 56 cents per share and the repurchase of more than 15.9 million shares of our common stock at a cost of $948 million. At the end of 2007, excess capital remained at more than $1 billion. We intend to continue investing for the future and delivering returns to shareholders. 20 Ameriprise Financial 2007 Annual Report
Slide 23: Adjusted Return on Equity 2005 2006 2007 Left to right: Pete Gallus, RiverSource Investments (Operations); Jody Johnson, CFP,® Field Leader, Northeast; Gumer Alvero, RiverSource Annuities Ameriprise Financial 2007 Annual Report 21
Slide 24: Underpinning our growth: our foundation and values Our strong foundation, values and culture reinforce our growth potential. We’ve invested in our infrastructure and people as we strive to provide strong, dedicated advisor support and a compelling client experience. We’ve built a highly effective organization. Working closely with our advisors, we’ve transformed their technology and tools and continue to strengthen the client experience through personalized, award-winning client service. We’ve restructured our field leadership to provide even greater support to our multiple advisor groups. And we continue to enhance our compliance policies, programs and training for the purpose of ensuring that we operate in the best interests of our clients. Our values—client focused, integrity, excellence and respect—drive our day-to-day actions and our involvement in the communities where we conduct business. Corporate citizenship plays an important role in strengthening the communities in which we live and work. Through our grantmaking, gift matching and volunteer efforts of our employees, advisors and retirees, we contribute our time, talent and financial resources to more than 5,000 nonprofit organizations across the country. As an example, our employee giving campaign matched employee gifts dollar-fordollar, raising more than $4 million in 2007. We focus our grantmaking on meeting basic needs of food, shelter and self-sufficiency; strengthening community vitality; and supporting volunteer-driven causes. The unified strength of Ameriprise Financial comes from many sources—our clients, advisors and employees, our technology and resources, our brand and innovation—all underpinned by our steadfast commitment to operating ethically and in the best interests of our shareholders. “The strength of Ameriprise Financial is derived from our people— our dedicated advisors, employees and board of directors. We operate foremost with integrity, and with all of our energies focused on delivering to clients a consistently strong and positive Ameriprise Financial experience.” —James Cracchiolo, Chairman and CEO Award-winning service: We secured four DALBAR service awards in 2007. We were recognized for producing positive, thorough and consistent client service in Annuities, Insurance, Mutual Funds and Managed Products/ Brokerage. 22 Ameriprise Financial 2007 Annual Report
Slide 25: Ameriprise Financial 2007 Annual Report 23
Slide 26: This report is not a solicitation for any of the products or services mentioned. Investment products, including shares of mutual funds, are not federally or FDICinsured, are not deposits or obligations, or guaranteed by any financial institution, and involve investment risks, including possible loss of principal and fluctuation in value. Ameriprise helped pioneer the financial planning process more than 30 years ago. Our unique Dream > Plan > Track > approach is about more than numbers, it’s both science and art. We have more financial planning clients and more CERTIFIED FINANCIAL PLANNER™ professionals than any other company in the U.S. based on data filed at adviserinfo.sec.gov and documented by the CFP Board of Standards. Ameriprise Financial Services, Inc., offers financial advisory services, investments, insurance and annuity products. RiverSource products are offered by affiliates of Ameriprise Financial Services, Inc., Member FINRA and SIPC. RiverSource mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. Ameriprise Bank, FSB, member FDIC, provides certain deposit and lending products and services for Ameriprise Financial Services, Inc. RiverSource insurance and annuity products are issued by RiverSource Life Insurance Company and in New York, by RiverSource Life Insurance Co. of New York, Albany, New York, and distributed by RiverSource Distributors, Inc. Ameriprise Auto & Home Insurance issues auto, home and umbrella insurance underwritten by IDS Property Casualty Insurance Company (IDS Property Casualty) or, in some states, Ameriprise Insurance Company (AIC), DePere, Wisconsin. The Threadneedle group of companies constitutes the Ameriprise Financial international investment platform. The group consists of wholly owned subsidiaries of Ameriprise Financial, Inc., and provides services independent from Ameriprise Financial Services, Inc., including Ameriprise Financial Services broker-dealer business. 2007 Financial Review Ameriprise Financial, Inc.
Slide 27: 26 49 53 54 55 Management’s Discussion and Analysis Quantitative and Qualitative Disclosures About Market Risk Forward-Looking Statements Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders’ Equity Notes to Consolidated Financial Statements Consolidated Five-Year Summary of Selected Financial Data Glossary of Selected Terminology Performance Graph General Information 56 57 58 59 61 62 103 105 107 108 Ameriprise Financial 2007 Annual Report 25
Slide 28: Management’s Discussion and Analysis You should read the following discussion and analysis of our consolidated results of operations and financial condition in conjunction with the “Forward-Looking Statements,” our Consolidated Financial Statements and Notes and the “Consolidated Five-Year Summary of Selected Financial Data” that follow and the “Risk Factors” included in our Annual Report on Form 10-K. Certain key terms and abbreviations are defined in the Glossary of Selected Terminology. Overview We are engaged in providing financial planning, products and services that are designed to be utilized as solutions for our clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. As of December 31, 2007, we had approximately 2.8 million individual, business and institutional clients and a network of more than 11,800 financial advisors and registered representatives (“affiliated financial advisors”). Our asset management, annuity, and auto and home protection products are also distributed outside of our affiliated financial advisors, through third party advisors and affinity relationships. We strive to deliver solutions to our clients through an approach focused on building long term personal relationships. We offer financial planning and advice that aims to be responsive to our clients’ evolving needs and helps them achieve their identified financial goals by recommending clients’ actions and a range of product solutions consisting of investment, annuities, insurance, banking and other financial products that position our clients to realize a positive return or form of protection while accepting what they determine to be an appropriate range and level of risk. The financial product solutions we offer through our affiliated advisors include both our own products and services and products of other companies. Our financial planning and advisory process is designed to provide comprehensive advice, when appropriate, to address our clients’ cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. We believe that our focus on personal relationships, together with our strengths in financial planning and product development, allows us to better address our clients’ financial needs, including the financial needs of our primary target market segment, the mass affluent and affluent, which we define as households with investable assets of more than $100,000. This focus also puts us in a strong position to capitalize on significant demographic and market trends, which we believe will continue to drive increased demand for our financial planning and other financial services. We have four main operating segments: Advice & Wealth Management, Asset Management, Annuities and Protection, as well as a Corporate & Other segment. Our four main operating segments are aligned with the financial solutions we offer to address our clients’ needs. The products and services we provide retail clients and, to a lesser extent, institutional clients, are the primary source of our revenues and net income. Revenues and net income are significantly impacted by the relative investment performance and the total value and composition of assets we manage and administer for our retail and institutional clients as well as the distribution fees we receive from other companies. These factors, in turn, are largely determined by overall investment market performance and the depth and breadth of our individual client relationships. It is management’s priority to increase shareholder value over a multiyear horizon by achieving our on-average, over-time financial targets. We measure progress against these goals excluding the impact of our separation from American Express Company (“American Express”), specifically, non-recurring separation costs and AMEX Assurance Company (“AMEX Assurance”) results. Our financial targets, adjusted to exclude these impacts, are: • Adjusted net revenue growth of 6% to 8%, • Adjusted earnings per diluted share growth of 12% to 15%, and • Adjusted return on equity of 12% to 15%. For 2007, we met or exceeded our targets for annual adjusted net revenue growth, adjusted earnings per diluted share growth and adjusted return on equity growth, excluding the impact of the separation. Our net revenues for 2007 were $8.7 billion, an increase of 8% over 2006. The strong revenue growth in 2007 primarily reflected growth in our fee-based businesses, including growth in management and financial advice fees and distribution fees, driven by continued strong net inflows in wrap accounts and annuity variable accounts, market appreciation and continued advisor productivity gains. These positives were partially offset by lower net investment income, driven by lower fixed annuity and certificate account balances. Our consolidated net income for the year ended December 31, 2007 was $814 million, up $183 million, or 29%, from net income of $631 million for the year ended December 31, 2006. Our adjusted earnings, which exclude after-tax non-recurring separation costs from both 2007 and 2006, rose 12% to $968 million in 2007 from $866 million in 2006. Adjusted return on equity for the year ended December 31, 2007 rose to 12.6% from 11.8% for the year ended December 31, 2006. We continue to establish Ameriprise Financial as a financial services leader as we focus on meeting the financial needs of the mass affluent and affluent, as evidenced by the growth in our mass affluent and affluent client base, continued leadership in financial planning, gains in advisor productivity, growth in our assets, and our strong corporate foundation. The number of our mass affluent and affluent client groups increased 5% since year end last year. While our franchisee 26 Ameriprise Financial 2007 Annual Report
Slide 29: advisors increased 1%, the total number of advisors decreased 6% from the prior year, as we hired fewer novice employee advisors, which reduced the costs of training advisors. Advisor productivity increased from the year-ago period as reflected by an 18% growth in net revenue per advisor compared to 2006. Our franchisee advisor retention as of December 31, 2007 remained consistent with the annual retention rate of 93% as of the end of 2006. Our owned, managed and administered (“OMA”) assets increased to $480.2 billion at December 31, 2007, a net increase of 3% from December 31, 2006 OMA assets of $466.3 billion. Since December 31, 2006, we had net inflows in wrap accounts of $11.7 billion and net inflows in RiverSource annuity variable accounts of $4.9 billion. Our annuity fixed accounts had total net outflows of $2.9 billion since December 31, 2006, reflecting the current interest rate environment and our strategy to focus on products that offer a more attractive return on capital. RiverSource Funds had net inflows of $0.5 billion in 2007 compared to net outflows of $4.4 billion in 2006. This improvement was driven by increased sales and lower redemption rates in our branded advisor channel. Net outflows in RiverSource Funds in 2006 included $0.7 billion of outflow related to American Express repositioning its 401(k) offerings. Sale of our Defined Contribution Recordkeeping Business On June 1, 2006, our trust company subsidiary completed the sale of its defined contribution recordkeeping business for $66 million, recognizing a pretax gain of $36 million. The trust company continued to provide recordkeeping services through a transition period that ended in 2007. On December 31, 2007, the buyer of the business made a final payment of $25 million to the trust company that was based on the level of client revenues retained by the buyer 18 months from the sale closing date, resulting in a combined 2006 and 2007 pretax gain of $61 million. The administered assets transferred in connection with this sale were approximately $16.7 billion. Although our defined contribution recordkeeping business generated approximately $60 million in annual revenue, we experienced expense savings related to this sale, and the sale has not had a material impact on pretax income. We continued to manage approximately $10.5 billion of defined contribution assets under investment management only contracts, as of December 31, 2007. Launch of Ameriprise Bank, FSB and Acquisition of Bank Deposits and Loans In September 2006, we obtained our federal savings bank charter and launched Ameriprise Bank, FSB (“Ameriprise Bank”), a wholly owned subsidiary. In the second half of 2006, Ameriprise Bank acquired $493 million of customer loans and assumed $963 million of customer deposits from American Express Bank, FSB (“AEBFSB”), a subsidiary of American Express, and received cash of $470 million in connection with these transactions. Our consumer lending products include first mortgages, home equity loans, home equity lines of credit, investment secured loans and lines of credit and unsecured loans and lines of credit. We also offer stand-alone checking, savings and money market accounts and certificates of deposit. We believe these products play a key role in our Advice & Wealth Management business by offering our clients an FDICinsured alternative to other cash products. They also provide pricing flexibility generally not available through money market funds. Ameriprise Bank offers a suite of borrowing, cash management and personal trust products and services through branded advisor referrals and through our website. As we are currently building on our banking platform, we do not expect it to be a significant contributor to earnings in the near term. Significant Factors Affecting our Results of Operations and Financial Condition Share Repurchase In March 2007, our Board of Directors authorized the expenditure of up to $1.0 billion for the repurchase of shares of our common stock through March 15, 2009. This authorization was in addition to a Board authorization in March 2006 for the expenditure of up to $750 million for the repurchase of shares through the end of March 2008 and a Board authorization in January 2006 to repurchase up to 2 million shares by the end of 2006. During the years ended December 31, 2007 and 2006, we have purchased 15.9 million shares and 10.7 million shares, respectively, for an aggregate cost of $948 million and $470 million, respectively. As of December 31, 2007, we had purchased all shares under the January 2006 and March 2006 authorizations and have $418 million remaining under the March 2007 authorization. Equity Markets and Interest Rates Equity market and interest rate fluctuations can have a significant impact on our results of operations, primarily due to the effects they have on the asset management and other asset-based fees we earn, the “spread” income generated on our annuities, banking, and face amount certificate products and universal life (“UL”) insurance products, the value of deferred acquisition costs (“DAC”) and deferred sales inducement costs (“DSIC”), assets associated with variable annuity and variable UL products, the values of liabilities for guaranteed benefits associated with our variable annuities and the values of derivatives held to hedge these benefits. For additional information regarding our sensitivity to equity risk and interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk.” Financing Arrangements On May 26, 2006, we issued $500 million principal amount of junior subordinated notes due 2066 (“junior notes”). These junior notes carry a fixed interest rate of 7.518% for the first 10 years and a variable interest rate thereafter. These junior notes receive at least a 75% equity credit by the majority of our credit rating agencies for purposes of their calculation of our debt to total capital ratio. The net proceeds from the issuance were used for general corporate purposes. Separation from American Express On February 1, 2005, the American Express Board of Directors announced its intention to pursue the disposition of 100% of its shareholdings in our company (the “Separation”) through a tax-free Ameriprise Financial 2007 Annual Report 27
Slide 30: distribution to American Express shareholders. Effective as of the close of business on September 30, 2005, American Express completed the Separation of our company and the distribution of our common shares to American Express shareholders (the “Distribution”). Prior to the Distribution, we had been a wholly owned subsidiary of American Express. Our separation from American Express resulted in specifically identifiable impacts to our consolidated results of operations and financial condition. As of September 30, 2005, we entered into an agreement to sell the AMEX Assurance legal entity to American Express within two years after the Distribution for a fixed price equal to the net book value of AMEX Assurance as of the Distribution. The sale was completed on September 30, 2007 for a sale price of $115 million. We have incurred $890 million of non-recurring separation costs since our separation from American Express. These costs were primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing our technology platforms and advisor and employee retention programs. Our separation from American Express is complete. unrealized losses that related to $17.8 billion of Available-for-Sale securities, of which $14.1 billion have been in a continuous unrealized loss position for 12 months or more. These investment securities had an overall ratio of 97% of fair value to amortized cost at December 31, 2007. As part of our ongoing monitoring process, management determined that a majority of the gross unrealized losses on these securities were attributable to changes in interest rates and credit spreads across asset classes. Additionally, because we have the ability as well as the intent to hold these securities for a time sufficient to recover our amortized cost, we concluded that none of these securities were other-than-temporarily impaired at December 31, 2007. Deferred Acquisition Costs For our annuity and life, disability income and long term care insurance products, our DAC balances at any reporting date are supported by projections that show management expects there to be adequate premiums or estimated gross profits after that date to amortize the remaining DAC balances. These projections are inherently uncertain because they require management to make assumptions about financial markets, anticipated mortality and morbidity levels and policyholder behavior over periods extending well into the future. Projection periods used for our annuity products are typically 10 to 25 years, while projection periods for our life, disability income and long term care insurance products are often 50 years or longer. Management regularly monitors financial market conditions and actual policyholder behavior experience and compares them to its assumptions. For annuity and universal life insurance products, the assumptions made in projecting future results and calculating the DAC balance and DAC amortization expense are management’s best estimates. Management is required to update these assumptions whenever it appears that, based on actual experience or other evidence, earlier estimates should be revised. When assumptions are changed, the percentage of estimated gross profits used to amortize DAC might also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in a decrease in the DAC balance and an increase in DAC amortization expense, while a decrease in amortization percentage will result in an increase in the DAC balance and a decrease in DAC amortization expense. The impact on results of operations of changing assumptions can be either positive or negative in any particular period and is reflected in the period in which such changes are made. For other life, disability income and long term care insurance products, the assumptions made in calculating our DAC balance and DAC amortization expense are consistent with those used in determining the liabilities and, therefore, are intended to provide for adverse deviations in experience and are revised only if management concludes experience will be so adverse that DAC are not recoverable or if premium rates charged for the contract are changed. If management concludes that DAC are not recoverable, DAC are reduced to the amount that is recoverable based on best estimate assumptions and there is a corresponding expense recorded in our consolidated results of operations. For annuity and life, disability income and long term care insurance products, key assumptions underlying these long term projections Critical Accounting Policies The accounting and reporting policies that we use affect our Consolidated Financial Statements. Certain of our accounting and reporting policies are critical to an understanding of our results of operations and financial condition and, in some cases, the application of these policies can be significantly affected by the estimates, judgments and assumptions made by management during the preparation of our Consolidated Financial Statements. The accounting and reporting policies we have identified as fundamental to a full understanding of our results of operations and financial condition are described below. See Note 2 to our Consolidated Financial Statements for further information about our accounting policies. Valuation of Investments The most significant component of our investments is our Availablefor-Sale securities, which we generally carry at fair value within our Consolidated Balance Sheets. The fair value of our Available-for-Sale securities at December 31, 2007 was primarily obtained from thirdparty pricing sources. We record unrealized securities gains (losses) in accumulated other comprehensive income (loss), net of income tax provision (benefit) and net of adjustments in other asset and liability balances, such as DAC, to reflect the expected impact on their carrying values had the unrealized securities gains (losses) been realized as of the respective balance sheet dates. At December 31, 2007, we had net unrealized pretax losses on Available-for-Sale securities of $316 million. We recognize gains and losses in results of operations upon disposition of the securities. We also recognize losses in results of operations when management determines that a decline in value is other-than-temporary. This determination requires the exercise of judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include issuer downgrade, default or bankruptcy. We also consider the extent to which cost exceeds fair value and the duration of that difference and management’s judgment about the issuer’s current and prospective financial condition, as well as our ability and intent to hold until recovery. As of December 31, 2007, we had $509 million in gross 28 Ameriprise Financial 2007 Annual Report
Slide 31: include interest rates (both earning rates on invested assets and rates credited to policyholder accounts), equity market performance, mortality and morbidity rates and the rates at which policyholders are expected to surrender their contracts, make withdrawals from their contracts and make additional deposits to their contracts. Assumptions about interest rates are the primary factor used to project interest margins, while assumptions about rates credited to policyholder accounts and equity market performance are the primary factors used to project client asset value growth rates, and assumptions about surrenders, withdrawals and deposits comprise projected persistency rates. Management must also make assumptions to project maintenance expenses associated with servicing our annuity and insurance businesses during the DAC amortization period. The client asset value growth rate is the rate at which variable annuity and variable universal life insurance contract values are assumed to appreciate in the future. The rate is net of asset fees and anticipates a blend of equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions with respect to client asset value growth rates on a regular basis. We use a mean reversion method as a guideline in setting near-term client asset value growth rates based on a long term view of financial market performance as well as actual historical performance. In periods when market performance results in actual contract value growth at a rate that is different than that assumed, we reassess the near-term rate in order to continue to project our best estimate of long term growth. The nearterm growth rate is reviewed to ensure consistency with management’s assessment of anticipated equity market performance. DAC amortization expense recorded in a period when client asset value growth rates exceed our near-term estimate will typically be less than in a period when growth rates fall short of our near-term estimate. The long term client asset value growth rate is based on an equity return assumption of 8%, net of management fees, with adjustments made for fixed income allocations. If we increased or decreased our assumption related to this growth rate by 100 basis points, the impact on the DAC and DSIC balances would be an increase or decrease of approximately $37 million. We monitor other principal DAC amortization assumptions, such as persistency, mortality, morbidity, interest margin and maintenance expense levels each quarter and, when assessed independently, each could impact our DAC balances. For example, if we increased or decreased our interest margin on our universal life insurance and on the fixed portion of our variable universal life insurance products by 10 basis points, the impact on the DAC balance would be an increase or decrease of approximately $4 million. Additionally, if we extended or reduced the amortization periods by one year for variable annuities to reflect changes in premium paying persistency and/or surrender assumptions, the impact on the DAC and DSIC balances would be an increase or decrease of approximately $24 million. The amortization impact of extending or reducing the amortization period any additional years is not linear. The analysis of DAC balances and the corresponding amortization is a dynamic process that considers all relevant factors and assumptions described previously. Unless management identifies a significant deviation over the course of the quarterly monitoring, management reviews and updates these DAC amortization assumptions annually in the third quarter of each year. An assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results. We adopted American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”) on January 1, 2007. See Note 2 and Note 3 to our Consolidated Financial Statements for additional information about the effect of our adoption of SOP 05-1 and our accounting policies for the amortization and capitalization of DAC. In periods prior to 2007, our policy had been to treat certain internal replacement transactions as continuations and to continue amortization of DAC associated with the existing contract against revenues from the new contract. For details regarding the balances of and changes in DAC for the years ended December 31, 2007, 2006 and 2005 see Note 10 to our Consolidated Financial Statements. Derivative Financial Instruments and Hedging Activities We use derivative financial instruments to manage our exposure to various market risks. All derivatives are recorded at fair value. The fair value of our derivative financial instruments is determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market observable inputs to the extent available. In certain instances, the fair value includes structuring costs incurred at the inception of the transaction. The accounting for changes in the fair value of a derivative financial instrument depends on its intended use and the resulting hedge designation, if any. We primarily use derivatives as economic hedges that are not designated as accounting hedges or do not qualify for hedge accounting treatment. We occasionally designate derivatives as (1) hedges of changes in the fair value of assets, liabilities, or firm commitments (“fair value hedges”), (2) hedges of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedges”), or (3) hedges of foreign currency exposures of net investments in foreign operations (“net investment hedges in foreign operations”). For derivative financial instruments that do not qualify for hedge accounting or are not designated as hedges, changes in fair value are recognized in current period earnings, generally as a component of net investment income. These derivatives primarily provide economic hedges to equity market exposures. Examples include structured derivatives, options and futures that economically hedge the equity and interest rate components of derivatives embedded in certain annuity and certificate liabilities, equity swaps and futures that economically hedge exposure to price risk arising from proprietary mutual fund seed money investments and foreign currency forward contracts to economically hedge foreign currency transaction exposures. For derivative financial instruments that qualify as fair value hedges, changes in the fair value of the derivatives, as well as of the corresponding hedged assets, liabilities or firm commitments, are recognized in current earnings. If a fair value hedge designation is removed or the hedge is terminated prior to maturity, previous adjustments to the carrying value of the hedged item are recognized into earnings over the remaining life of the hedged item. Ameriprise Financial 2007 Annual Report 29
Slide 32: For derivative financial instruments that qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instruments are reported in accumulated other comprehensive income (loss) and reclassified into earnings when the hedged item or transaction impacts earnings. Any ineffective portion of the gain or loss is reported currently in earnings as a component of net investment income. If a hedge designation is removed or a hedge is terminated prior to maturity, the amount previously recorded in accumulated other comprehensive income (loss) may be recognized into earnings over the period that the hedged item impacts earnings. For any hedge relationships that are discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related amounts previously recorded in accumulated other comprehensive income (loss) are recognized in earnings immediately. For derivative financial instruments that qualify as net investment hedges in foreign operations, the effective portions of the change in fair value of the derivatives are recorded in accumulated other comprehensive income (loss) as part of the foreign currency translation adjustment. Any ineffective portions of net investment hedges in foreign operations are recognized in net investment income during the period of change. For further details on the types of derivatives we use and how we account for them, see Note 21 to our Consolidated Financial Statements. We are required to establish a valuation allowance for any portion of our deferred tax assets that management believes will not be realized. It is likely that management will need to identify and implement appropriate planning strategies to ensure our ability to realize our deferred tax asset and avoid the establishment of a valuation allowance with respect to such assets. In the opinion of management, it is currently more likely than not that we will realize the benefit of our deferred tax assets, including our capital loss deferred tax asset; therefore, no such valuation allowance has been established. Recent Accounting Pronouncements For information regarding recent accounting pronouncements and their expected impact on our future consolidated results of operations or financial condition, see Note 3 to our Consolidated Financial Statements. Sources of Revenues and Expenses We earn revenues from fees received in connection with mutual funds, wrap accounts, assets managed for institutions and separate accounts related to our variable annuity and variable life insurance products. Our protection and annuity products generate revenues through premiums and other charges collected from policyholders and contractholders. We also earn investment income on owned assets supporting these products. We incur various operating costs, primarily compensation and benefits expenses, the majority of which are related to compensating our distribution channel, interest credited to fixed annuities and provision for losses and benefits for annuities, banking and protection products. For information regarding the components of revenues and expenses, see Note 2 to our Consolidated Financial Statements. Income Tax Accounting Income taxes, as reported in our Consolidated Financial Statements, represent the net amount of income taxes that we expect to pay to or receive from various taxing jurisdictions in connection with our operations. We provide for income taxes based on amounts that we believe we will ultimately owe taking into account the recognition and measurement for uncertain tax positions. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain items. In the event that the ultimate tax treatment of items differs from our estimates, we may be required to significantly change the provision for income taxes recorded in our Consolidated Financial Statements. In connection with the provision for income taxes, our Consolidated Financial Statements reflect certain amounts related to deferred tax assets and liabilities, which result from temporary differences between the assets and liabilities measured for financial statement purposes versus the assets and liabilities measured for tax return purposes. Among our deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but 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 five years of the year in which the capital losses are recognized for tax purposes. Our life insurance subsidiaries will not be able to file a consolidated U.S. federal income tax return with the other members of our affiliated group until 2010, which will result in net operating and capital losses, credits and other tax attributes generated by one group not being available to offset income earned or taxes owed by the other group during the period of non-consolidation. This lack of consolidation could affect our ability to fully realize certain of our deferred tax assets, including the capital losses. 30 Ameriprise Financial 2007 Annual Report Our Segments On December 3, 2007, we announced a change in our reportable segments. The revised presentation of previously reported segment data has been applied retroactively to all periods presented in this Annual Report. During the fourth quarter of 2007 we completed the implementation of an enhanced transfer pricing methodology and expanded our segment presentation from three to five segments to better align with the way the Chief Operating Decision Maker views the business. This facilitates greater transparency of the relationships between the businesses and better comparison to other industry participants in the retail advisor distribution, asset management, insurance and annuity industries. In addition, we changed the format of our Consolidated Statements of Income and made reclassifications to enhance transparency. We also made reclassifications on our Consolidated Balance Sheets to better align the financial statement captions with the key drivers of the business. These reclassifications did not result in any changes to consolidated net income or shareholders’ equity. A narrative description of our enhanced transfer pricing methodology is presented in Note 26 to our Consolidated Financial Statements, and a summarization of the various reclassifications made to previously reported balances is presented in Note 1 to our Consolidated Financial Statements.
Slide 33: Our five segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. Prior to this change, we reported results for three segments; Asset Accumulation and Income, Protection and Corporate and Other. The change from three segments to five is primarily the division of the former Asset Accumulation and Income segment into the Advice & Wealth Management, Asset Management and Annuities segments. Our Advice & Wealth Management segment provides financial planning and advice as well as full service brokerage and banking services, primarily to retail clients, through our affiliated financial advisors. Our affiliated advisors utilize a diversified selection of both proprietary and non-proprietary products to help clients meet their financial needs. A significant portion of revenues in this segment is fee-based, driven by the level of client assets, which is impacted by both market movements and net asset flows. We also earn net investment income on owned assets primarily from certificate and banking products. This segment earns revenues (distribution fees) for distributing non-proprietary products and earns intersegment revenues (distribution fees) for distributing our proprietary products and services to our retail clients. Intersegment expenses for this segment include expenses for investment management services provided by our Asset Management segment. Our Asset Management segment provides investment advice and investment products to retail and institutional clients. RiverSource Investments predominantly provides U.S. domestic products and services and Threadneedle Investments predominantly provides international investment products and services. U.S. domestic retail products are primarily distributed through our Advice & Wealth Management segment, and also through unaffiliated advisors. International retail products are primarily distributed through third parties. Products accessed by consumers on a retail basis include mutual funds, variable product funds underlying insurance and annuity separate accounts, separately managed accounts and collective funds. Asset Management products are also distributed directly to institutions through an institutional sales force. Institutional asset management products include traditional asset classes separate accounts, collateralized loan obligations, hedge funds and property funds. Revenues in this segment are primarily earned as fees based on managed asset balances, which are impacted by both market movements and net asset flows. This segment earns intersegment revenue for investment management services. Intersegment expenses for this segment include distribution expenses for services provided by our Advice & Wealth Management, Annuities and Protection segments. Our Annuities segment provides RiverSource Life variable and fixed annuity products to retail clients, primarily distributed through our affiliated financial advisors, and to the retail clients of unaffiliated advisors through third-party distribution. Revenues for our variable annuity products are primarily earned as fees based on underlying account balances, which are impacted by both market movements and net asset flows. Revenues for our fixed annuity products are primarily earned as net investment income on assets supporting fixed account balances, with profitability significantly impacted by the spread between net investment income earned and interest credited on the fixed account balances. We also earn net investment income on owned assets supporting reserves for immediate annuities and for certain guaranteed benefits offered with variable annuities and on capital supporting the business. Intersegment revenues for this segment reflect fees paid by our Asset Management segment for marketing support and other services provided in connection with the availability of RiverSource Funds under the variable annuity contracts. Intersegment expenses for this segment include distribution expenses for services provided by our Advice & Wealth Management segment, as well as expenses for investment management services provided by our Asset Management segment. Our Protection segment provides a variety of protection products to address the identified protection and risk management needs of our retail clients including life, disability income and property-casualty insurance. Life and disability income products are primarily distributed through our branded advisors. Our property-casualty products are sold direct, primarily through affinity relationships. We issue insurance policies through our life insurance subsidiaries and IDS Property Casualty and its subsidiary, Ameriprise Insurance Company. The primary sources of revenues for this segment are premiums, fees, and charges that we receive to assume insurance-related risk. We earn net investment income on owned assets supporting insurance reserves and capital supporting the business. We also receive fees based on the level of assets supporting variable universal life separate account balances. This segment earns intersegment revenues from fees paid by our Asset Management segment for marketing support and other services provided in connection with the availability of RiverSource Funds under the variable universal life contracts. Intersegment expenses for this segment include distribution expenses for services provided by our Advice & Wealth Management segment, as well as expenses for investment management services provided by our Asset Management segment. Our Corporate & Other segment consists of net investment income on corporate level assets, including excess capital held in RiverSource Life and other unallocated equity and other revenues from various investments as well as unallocated corporate expenses. This segment also included non-recurring costs in 2007, 2006 and 2005 associated with our separation from American Express. Each segment records revenues and expenses as if they were each a stand-alone business using our enhanced transfer pricing methodology. Transfer pricing uses market-based arm’s length transfer pricing rates for specific services provided. Costs related to shared services are allocated to the segments based on their usage of the services provided based on a rate times volume or fixed bid basis. The largest source of intersegment revenues and expenses is retail distribution services, for which segments are charged an arm’s length market rate for distribution through our Advice & Wealth Management segment. The Advice & Wealth Management segment provides distribution services for proprietary and non-proprietary products and services. The Asset Management segment provides investment management services for our owned assets and client assets, and accordingly charges investment and advisory management fees to the other segments. Non-GAAP Financial Information We follow accounting principles generally accepted in the United States (“GAAP”). This report includes information on both a GAAP Ameriprise Financial 2007 Annual Report 31
Slide 34: and non-GAAP basis. The non-GAAP presentation in this report excludes items that are a direct result of the Separation and Distribution, which consist of discontinued operations, AMEX Assurance and non-recurring separation costs. Certain of our key non-GAAP financial measures include: • adjusted net revenues or net revenues excluding AMEX Assurance; • adjusted earnings or income from continuing operations excluding non-recurring separation costs and AMEX Assurance; • adjusted earnings per diluted share; and • return on equity excluding the impact of our separation from American Express, or adjusted return on equity, using as the numerator adjusted earnings for the last 12 months and as the denominator a five-point average of equity excluding equity allocated to expected non-recurring separation costs as of the last day of the preceding four quarters and the current quarter. Management believes that the presentation of these non-GAAP financial measures best reflects the underlying performance of our ongoing operations and facilitates a more meaningful trend analysis. These non-GAAP measures are also used for goal setting, certain compensation related to our annual incentive award program and evaluating our performance on a basis comparable to that used by securities analysts. A reconciliation of non-GAAP measures is as follows: Years Ended December 31, 2007 Years Ended December 31, 2007 2006 (in millions, except percentages) Return on Equity Return on equity Net income Add: Separation costs, after-tax(1) Adjusted earnings Equity Less: Equity allocated to expected separation costs Adjusted equity Adjusted return on equity (1) 10.5% $ 814 154 $ 968 $7,765 58 $7,707 12.6% 8.3% $ 631 235 $ 866 $7,588 273 $7,315 11.8% For this non-GAAP presentation of separation costs, after-tax is calculated using the statutory tax rate of 35%, adjusted for permanent differences, if any. Owned, Managed and Administered Assets Owned assets include certain assets on our Consolidated Balance Sheets for which we do not provide investment management services and do not recognize management fees, such as investments in nonproprietary funds held in the separate accounts of our life insurance subsidiaries, as well as restricted and segregated cash and receivables. Managed assets include managed external client assets and managed owned assets. Managed external client assets include client assets for which we provide investment management services, such as the assets of the RiverSource family of mutual funds, assets of institutional clients and client assets held in wrap accounts. Managed external client assets also include assets managed by sub-advisors selected by us. Managed external client assets are not reported on our Consolidated Balance Sheets. Managed owned assets include certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees, such as the assets of the general account and RiverSource Variable Product funds held in the separate accounts of our life insurance subsidiaries. Administered assets include assets for which we provide administrative services such as client assets invested in other companies’ products that we offer outside of our wrap accounts. These assets include those held in clients’ brokerage accounts. We do not exercise management discretion over these assets and do not earn a management fee. These assets are not reported on our Consolidated Balance Sheets. We earn management fees on our owned separate account assets based on the market value of assets held in the separate accounts. We record the income associated with our owned investments, including net realized gains and losses associated with these investments and other-than-temporary impairments on these investments, as net investment income. For managed assets, we receive management fees based on the value of these assets. We generally report these fees as management and financial advice fees. We may also receive distribution fees based on the value of these assets. We generally record fees received from administered assets as distribution fees. Fluctuations in our owned, managed and administered assets impact our revenues. Our owned, managed and administered assets are 2006 (in millions) 2005 Consolidated Income Data Net revenues Less: AMEX Assurance revenues Adjusted net revenues Net income Less: Income from discontinued operations, net of tax Add: Separation costs, after-tax(1) Less: AMEX Assurance net income Adjusted earnings Weighted average diluted shares Adjusted earnings per diluted share Separation costs Less: Tax benefit attributable to separation costs(1) Separation costs, after-tax(1) (1) $8,654 — $8,654 $ 814 $8,020 — $8,020 $ 631 $7,396 138 $7,258 $ 574 — 154 — $ 968 239.9 $ 4.03 $ 236 82 $ 154 — 235 — $ 866 248.5 $ 3.48 $ 361 126 $ 235 16 191 56 $ 693 247.2 $ 2.80 $ 293 102 $ 191 For this non-GAAP presentation of separation costs, after-tax is calculated using the statutory tax rate of 35%, adjusted for permanent differences, if any. 32 Ameriprise Financial 2007 Annual Report
Slide 35: impacted by net flows of client assets and market movements. Owned assets are also affected by changes in our capital structure. In 2007, RiverSource managed assets had $6.0 billion in net outflows compared to net outflows of $9.0 billion during 2006. Threadneedle Asset Management Holdings Limited (“Threadneedle”) managed assets had $21.1 billion in net outflows in 2007 compared to net outflows of $8.1 billion in 2006. Our wrap accounts had net inflows of $11.7 billion in 2007 compared to net inflows of $10.9 billion in 2006. Threadneedle acquired Convivo Capital Management Limited on October 1, 2007, improving our alternative investment capabilities. The following table presents detail regarding our owned, managed and administered assets: Years Ended December 31, 2007 Consolidated Results of Operations Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 The following table presents our consolidated results of operations for the years ended December 31, 2007 and 2006. Years Ended December 31, 2007 2006 Change (in millions, except percentages) 2006 $ 33.8 158.1 141.4 76.4 (12.4) 363.5 69.0 $466.3 Change 17% — (5) 23 (34) 2 3 3 (in billions, except percentages) Owned Assets Managed Assets(1): RiverSource Threadneedle Wrap account assets Eliminations(2) Total Managed Assets Administered Assets Total Owned, Managed and Administered Assets (1) (2) $ 39.6 157.9 134.4 93.9 (16.6) 369.6 71.0 $480.2 Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues $3,238 1,762 2,122 1,063 724 8,909 255 8,654 $2,700 1,569 2,247 1,070 707 8,293 273 8,020 1,728 968 1,113 472 101 361 2,480 7,223 797 166 $ 631 $ 538 193 (125) (7) 17 616 (18) 634 329 (118) 161 79 11 (125) 78 415 219 36 $ 183 20% 12 (6) (1) 2 7 (7) 8 19 (12) 14 17 11 (35) 3 6 27 22 29 Includes managed external client assets and managed owned assets. Includes eliminations for RiverSource mutual fund assets included in wrap account assets and RiverSource assets sub-advised by Threadneedle. Expenses Distribution expenses 2,057 Interest credited to fixed accounts 850 Benefits, claims, losses and settlement expenses 1,274 Amortization of deferred acquisition costs 551 Interest and debt expense 112 Separation costs 236 General and administrative expense 2,558 Total expenses 7,638 Pretax income 1,016 Income tax provision 202 Net income $ 814 Ameriprise Financial 2007 Annual Report 33
Slide 36: Overall Consolidated net income for 2007 was $814 million, up $183 million from $631 million for 2006. This income growth reflected strong growth in fee-based businesses driven by net inflows in wrap accounts and variable annuities, market appreciation and continued advisor productivity gains. Also contributing to our income growth was a decline of $125 million in our non-recurring separation costs. These positives were partially offset by higher distribution expenses which reflect the higher levels of assets under management and overall business growth, as well as increased benefits, claims, losses and settlement expenses which are due to market volatility on variable annuity living benefit reserves, which were partially offset by related hedges in net investment income. Income in both 2007 and 2006 was impacted by non-recurring separation costs of $236 million and $361 million, respectively ($154 million and $235 million, respectively, after-tax). The impact of our annual third quarter detailed review of DAC and the related valuation assumptions (“DAC unlocking”) was a net pretax expense of $30 million ($20 million after-tax) in 2007, compared to a net benefit of $25 million ($16 million after-tax) in 2006. Net revenues Our revenue growth in management and financial advice fees was primarily driven by the growth in our fee-based businesses. Management and financial advice fees increased in 2007 to $3.2 billion, up $538 million, or 20%, from $2.7 billion in 2006. Wrap account assets grew 23% and variable annuity account assets increased 16% over the prior year driven by strong net inflows and market appreciation. Overall, managed assets increased 2% over the prior year period. Distribution fees for 2007 were $1.8 billion, up $193 million, or 12%, from 2006 driven by strong advisor cash sales, up 3% from 2006, higher asset balances, an increase in the sale of direct investments, as clients had more products available to choose from and strong net inflows into wrap accounts. Distribution fees were also positively impacted by market appreciation. Net investment income for 2007 decreased $125 million from 2006, primarily driven by decreased volume in annuity fixed accounts and certificates, partially offset by an increase in net investment income attributable to hedges for variable annuity living benefits, net investment income related to Ameriprise Bank and a $22 million decrease in the allowance for loan losses on commercial mortgage loans. Included in net investment income are net realized investment gains on Available-for-Sale securities of $44 million and $51 million for 2007 and 2006, respectively. Net realized investment gains in 2006 included a gain of $23 million related to recoveries on WorldCom securities. Net investment income related to derivatives used to hedge certain expense line items increased $82 million, which included a $114 million increase related to derivatives used to hedge benefits, claims, losses and settlement expenses for variable annuity living benefits and a $32 million decrease related to derivatives used to hedge interest credited expenses for equity indexed annuities and banking and deposit interest expense for stock market certificates. Premiums in 2007 decreased $7 million, or 1%, to $1.1 billion. This decrease was attributable to a decline in premiums related to immediate annuities with life contingencies, partially offset by increases in auto and home insurance premiums resulting from increased policy counts. Other revenues in 2007 increased $17 million, or 2%, to $724 million. This increase was due to the deconsolidation of a variable interest entity, resulting in $68 million in other revenues, and higher fees from variable annuity rider charges and cost of insurance charges for variable universal life (“VUL”) and UL products. These increases were partially offset by decreases in other revenues related to certain consolidated limited partnerships and proceeds of $25 million in 2007, compared to $66 million in 2006, received from the sale of our defined contribution recordkeeping business. Banking and deposit interest expense in 2007 decreased $18 million, or 7%. This decrease was due primarily to a decrease in certificate sales and balances, offset partially by the full year impact of Ameriprise Bank and higher rates of interest paid on certificates. Expenses Total expenses reflect an increase in distribution expenses, benefits, claims, losses and settlement expenses, the amortization of DAC, the impact of DAC unlocking and general and administrative expense. These increases were partially offset by decreases in separation costs and interest credited to fixed accounts. In 2007, we recorded net expense from DAC unlocking of $30 million, primarily comprised of $16 million in DAC amortization expense and a $14 million increase in benefits, claims, losses and settlement expenses. In 2006, we recorded a net benefit from DAC unlocking of $25 million, primarily comprised of a $38 million benefit in DAC amortization expense, a $12 million increase in benefits, claims, losses and settlement expenses and a $1 million decrease in contract and policy charges and other fees. The DAC unlocking net expense of $30 million in 2007 consisted of a $35 million increase in expense from updating product persistency assumptions, a $13 million decrease in expense from updating assumptions related to separate account fee levels and net variable annuity rider charges and an $8 million increase in expense from updating all other assumptions. The DAC unlocking net benefit in 2006 primarily reflected a $25 million benefit from modeling increased product persistency and a $15 million benefit from modeling improvements in mortality, offset by negative impacts of $8 million from modeling lower variable product fund fee revenue and $8 million from model changes related to variable life second to die insurance. Distribution expenses increased $329 million, or 19%. The increase primarily reflected higher commissions paid driven by overall business growth and increases in advisor productivity, as reflected by 18% growth in net revenue per advisor and higher assets under management. Interest credited to fixed accounts reflected a decrease related to annuities of $114 million primarily attributable to the continued decline in balances in fixed annuities and the fixed portion of variable annuities. Benefits, claims, losses and settlement expenses increased $161 million, or 14%. The cost of providing for guaranteed benefits associated with our variable annuity living benefits increased by $213 million, primarily due to changes in financial market factors. The increase in variable annuity living benefit costs was partially offset by 34 Ameriprise Financial 2007 Annual Report
Slide 37: a $6 million related change in DSIC, $23 million in lower VUL/UL claims and a $41 million decrease in benefit provisions for life contingent immediate annuities. The impact of DAC unlocking was an increase of $14 million in benefits, claims, losses and settlement expenses in 2007, compared to $12 million in 2006. The increase in DAC amortization in 2007 reflected the impact of DAC unlocking related to amortization in each year. DAC unlocking resulted in an increase of $16 million in DAC amortization expense in 2007 compared to a decrease of $38 million in 2006. In addition, underlying increases to DAC amortization in 2007 were due to growth in business volumes and the recurring impact of adopting SOP 05-1, partially offset by a decrease in the amortization of DAC driven by the mark-to-market impact of variable annuity guaranteed living benefit riders. The increase in interest and debt expense in 2007 was due to the issuance of $500 million of junior notes in May 2006. Separation costs incurred in 2007 were primarily associated with separating and reestablishing our technology platforms. In 2006, these costs were primarily associated with separating and reestablishing our technology platforms and establishing the Ameriprise Financial brand. All separation costs have been incurred as of December 31, 2007. General and administrative expense in 2007 relative to 2006 increased 3%, or $78 million, to $2.6 billion as a result of increased expense related to professional and consultant fees representing increased spending on investment initiatives, expenses related to Ameriprise Bank, increased hedge fund performance compensation and an increase in technology related costs, partially offset by a decrease in expense in 2007 related to our defined contribution recordkeeping business which we sold in the second quarter of 2006. Income Taxes Our effective tax rate decreased to 19.9% in 2007 from 20.8% in 2006 primarily due to the impact of a $16 million tax benefit related to the finalization of certain income tax audits and a $19 million tax benefit relating to our plan to begin repatriating earnings of certain Threadneedle entities through dividends partially offset by lower levels of tax advantaged items relative to the level of pretax income. On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies and has added the project to the 2007-2008 Priority Guidance Plan. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that we receive. Management believes that it is likely that any such regulations would apply prospectively only. For the twelve months ended December 31, 2007, we recorded a benefit of approximately $46 million related to the current year’s separate account DRD. Results of Operations by Segment Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 26 to our Consolidated Financial Statements for the years ended December 31, 2007 and 2006: Years Ended December 31, Percent Share of Total 2007 2006 Percent Share of Total (in millions, except percentages) Total net revenues Advice & Wealth Management Asset Management Annuities Protection Corporate & Other Eliminations Total net revenues Total expenses Advice & Wealth Management Asset Management Annuities Protection Corporate & Other Eliminations Total expenses Pretax income (loss) Advice & Wealth Management Asset Management Annuities Protection Corporate & Other Pretax income $ 3,813 1,762 2,304 1,985 24 (1,234) $ 8,654 44% 20 27 23 — (14) 100% $ 3,335 1,751 2,196 1,891 28 (1,181) $ 8,020 42% 22 27 24 — (15) 100% $ 3,528 1,455 1,881 1,500 508 (1,234) $ 7,638 46% 19 25 19 7 (16) 100% $ 3,139 1,498 1,732 1,457 578 (1,181) $ 7,223 43% 21 24 20 8 (16) 100% $ 285 307 423 485 (484) 28% 30 42 48 (48) 100% $ $ 1,016 196 253 464 434 (550) $ 797 25% 32 58 54 (69) 100% Ameriprise Financial 2007 Annual Report 35
Slide 38: Advice & Wealth Management Our Advice & Wealth Management segment provides financial planning and advice, as well as full service brokerage and banking services, primarily to retail clients, through our financial advisors. Our affiliated advisors utilize a diversified selection of both proprietary and non-proprietary products to help clients meet their financial needs. The following table presents the results of operations of our Advice & Wealth Management segment for the years ended December 31, 2007 and 2006: Years Ended December 31, 2007 Asset Management Our Asset Management segment provides investment advice and investment products to retail and institutional clients. The following table presents the results of operations of our Asset Management segment for the years ended December 31, 2007 and 2006: Years Ended December 31, 2007 2006 Change (in millions, except percentages) 2006 Change (in millions, except percentages) Revenues Management and financial advice fees Distribution fees Net investment income Other revenues Total revenues Banking and deposit interest expense Total net revenues $1,350 2,218 405 76 4,049 236 3,813 $1,080 2,034 405 62 3,581 246 3,335 2,068 1,071 3,139 $ 196 $270 184 — 14 468 (10) 478 281 108 389 $ 89 25% 9 — 23 13 (4) 14 14 10 12 45 Revenues Management and financial advice fees Distribution fees Net investment income Other revenues Total revenues Banking and deposit interest expense Total net revenues $1,362 322 48 50 1,782 20 1,762 $1,221 336 63 157 1,777 26 1,751 415 52 1,031 1,498 $ 253 $141 (14) (15) (107) 5 (6) 11 49 (19) (73) (43) $ 54 12% (4) (24) (68) — (23) 1 12 (37) (7) (3) 21 Expenses Distribution expenses 2,349 General and administrative expense 1,179 Total expenses 3,528 Pretax income $ 285 Expenses Distribution expenses 464 Amortization of deferred acquisition costs 33 General and administrative expense 958 Total expenses 1,455 Pretax income $ 307 Our Advice & Wealth Management segment reported pretax income of $285 million in 2007, up from $196 million in 2006. Net revenues Net revenues were $3.8 billion, an increase of $478 million, or 14%. Management and financial advice fees increased $270 million, or 25%, in 2007 as compared to 2006. The increase was led by net increases in wrap account assets of 23% from December 31, 2006 to December 31, 2007 and an increase in planning fees due to accelerated financial plan delivery standards. The growth in distribution fees of $184 million, or 9% from 2006, reflected an increase in cash sales and market appreciation. Net investment income was flat compared to 2006 as an increase attributable to a full year of activity from Ameriprise Bank was offset by lower average account balances in certificate products and the impact of hedges for stock market certificates. Banking and deposit interest expense decreased $10 million as decreases in certificate sales and balances and the impact of options hedging the stock market certificates were offset in part by an increase related to a full year of activity of Ameriprise Bank and higher rates of interest paid on certificates. Expenses Total expenses increased $389 million, or 12%. The increase in distribution expenses reflects higher commissions paid driven by increased sales volumes and higher assets under management. General and administrative expense increased due to higher staffing and vendor costs related to a full year of activity of Ameriprise Bank and increases in professional, consulting and technology fees, partially offset by a decline in legal and regulatory costs. 36 Ameriprise Financial 2007 Annual Report Our Asset Management segment pretax income was $307 million in 2007, up $54 million, or 21%, from $253 million in 2006. Net revenues Net revenues increased $11 million, or 1%, in 2007 compared to 2006. Management and financial advice fees increased $141 million, or 12%, driven by market appreciation and positive flows in retail funds, the impact of market appreciation on Threadneedle assets, as well as an increase in Threadneedle hedge fund performance fees. Management and financial advice fees in 2006 included $27 million related to revenues from our defined contribution recordkeeping business that we sold in the second quarter of 2006. The expenses from the sale of our defined contribution recordkeeping business are primarily reflected in general and administrative expense in 2006. Distribution fees decreased slightly due to the continued trend of client movement into wrap accounts which have lower up-front fees. Net investment income declined due to a decrease in interest income and a decline in the value of seed money investments. Other revenues declined due to a decrease in revenue related to certain consolidated limited partnerships and a decrease of $41 million for proceeds received from the sale of our defined contribution recordkeeping business in 2006. Expenses Total expenses decreased $43 million, or 3%. The increase in distribution expenses reflects higher distribution fees and marketing support costs driven by higher assets under management in RiverSource Funds. The decline in the amortization of DAC was driven by decreased B share sales resulting in fewer deferred commissions to be amortized. General and administrative expense, which primarily
Slide 39: reflected allocated corporate and support function costs, increased as a result of Threadneedle hedge fund performance fee expense, professional fees and an increase in technology costs. These increases were more than offset by a decline in expense related to certain consolidated limited partnerships as well as a decrease in expense in 2007 related to our defined contribution recordkeeping business, which we sold in the second quarter of 2006. decline in premiums was attributable to lower volumes related to immediate annuities with life contingencies. The increase in other revenues was due to the deconsolidation of a variable interest entity, resulting in a gain of $49 million. Also contributing to the increase in other revenues was an increase in our guaranteed benefit rider fees on variable annuities, driven by volume increases. Expenses Total expenses increased $149 million, or 9%. The increase in distribution expenses reflected increased sales, and the increase in benefits, claims, losses and settlement expenses was due primarily to the unfavorable impact of markets on guaranteed benefits associated with our variable annuity business. The increase in amortization of DAC was due to growth in business volumes and the recurring impact of SOP 05-1, partially offset by a decrease in amortization driven by the mark-to-market impact of variable annuity guaranteed living benefit riders and the impact of DAC unlocking in 2007. General and administrative expense increased due to higher technology and overhead costs. The increases in expense were partially offset by a decrease in interest credited to fixed accounts, driven by declining accumulation values as well as decreases in life contingent immediate annuity benefit provisions. Annuities Our Annuities segment provides RiverSource Life variable and fixed annuity products to our retail clients primarily through our Advice & Wealth Management segment and to the retail clients of unaffiliated advisors through third-party distribution. The following table presents the results of operations of our Annuities segment for the years ended December 31, 2007 and 2006: Years Ended December 31, 2007 2006 Change (in millions, except percentages) Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues $ 510 267 1,294 95 138 2,304 — 2,304 $ 392 213 1,403 138 50 2,196 — 2,196 158 823 261 287 203 1,732 $ 464 $ 118 54 (109) (43) 88 108 — 108 36 (114) 163 31 33 149 $ (41) 30% 25 (8) (31) # 5 — 5 23 (14) 62 11 16 9 (9) Protection Our Protection segment offers a variety of protection products to address the identified protection and risk management needs of our retail clients including life, disability income and property-casualty insurance. The following table presents the results of operations of our Protection segment for the years ended December 31, 2007 and 2006. Years Ended December 31, 2007 Expenses Distribution expenses 194 Interest credited to fixed accounts 709 Benefits, claims, losses and settlement expenses 424 Amortization of deferred acquisition costs 318 General and administrative expense 236 Total expenses 1,881 Pretax income $ 423 # Variance of 100% or greater. 2006 Change (in millions, except percentages) Our Annuities segment pretax income was $423 million for 2007, down $41 million, or 9%, from $464 million for 2006. Net revenues Net revenues were $2.3 billion, an increase of $108 million, or 5%, in 2007 compared to 2006. Management and financial advice fees related to variable annuities increased in 2007, driven by positive flows and market appreciation. The increase in distribution fees was due primarily to an increase in marketing support payments driven by flows and market appreciation. These increases were partially offset by a decline in net investment income which was primarily attributable to declining average fixed account balances, partially offset by income related to guaranteed minimum withdrawal benefit (“GMWB”) and guaranteed minimum accumulation benefit (“GMAB”) hedges. The Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues $ 68 102 361 1,002 453 1,986 1 1,985 $ 56 96 355 954 431 1,892 1 1,891 94 145 852 133 $ 12 6 6 48 22 94 — 94 (32) (4) (2) 67 14 43 $ 51 21% 6 2 5 5 5 — 5 (34) (3) — 50 6 3 12 Expenses Distribution expenses 62 Interest credited to fixed accounts 141 Benefits, claims, losses and settlement expenses 850 Amortization of deferred acquisition costs 200 General and administrative expense 247 Total expenses 1,500 Pretax income $ 485 233 1,457 $ 434 Ameriprise Financial 2007 Annual Report 37
Slide 40: Our Protection segment pretax income was $485 million for 2007, up $51 million, or 12%, from $434 million in 2006. Net revenues Net revenues were $2.0 billion, an increase of $94 million, or 5%, from $1.9 billion in 2006. This increase was the result of an increase in auto and home premiums, driven by higher policy counts, an increase in management and financial advice fees, driven by an increase in fees from our VUL/UL products, and an increase in other revenues which was due primarily to the deconsolidation of a variable interest entity, resulting in a gain of $19 million. Expenses Total expenses were $1.5 billion, an increase of $43 million, or 3%, from 2006. The increase was due to an increase in the amortization of DAC, which was largely the result of DAC unlocking. DAC unlocking resulted in an increase of $20 million in amortization expense in 2007, compared to a decrease of $52 million in 2006. Additionally, in 2006, $28 million of additional DAC amortization was recognized as a result of a DAC adjustment related to auto and home insurance products. Also contributing to the increase in expense was an increase in general and administrative expense, which was due to increased technology and overhead costs. These increases were partially offset by a decrease in distribution expenses, which was due primarily to an increase in capitalized expense. Corporate & Other The following table presents the results of operations of our Corporate & Other segment for the years ended December 31, 2007 and 2006: Years Ended December 31, 2007 2006 Change (in millions, except percentages) Revenues Management and financial advice fees Net investment income Other revenues Total revenues Banking and deposit interest expense Total net revenues $ 1 22 7 30 6 24 $— 29 6 35 7 28 — 101 361 116 578 $(550) $ 1 (7) 1 (5) (1) (4) #% (24) 17 (14) (14) (14) # 11 (35) 37 (12) 12 Expenses Distribution expenses 1 Interest and debt expense 112 Separation costs 236 General and administrative expense 159 Total expenses 508 Pretax loss $(484) # Variance of 100% or greater. 1 11 (125) 43 (70) $ 66 Our Corporate & Other pretax segment loss in 2007 was $484 million, an improvement of $66 million compared to a pretax segment loss of $550 million in 2006. The improvement was primarily due to a decrease in separation costs of $125 million, as the separation from American Express was completed in 2007. This improvement was offset partially by an increase in general and administrative expense which was the result of increased technology and overhead costs. 38 Ameriprise Financial 2007 Annual Report
Slide 41: Year Ended December 31, 2006 Compared to Year Ended December 31, 2005 The following table presents our consolidated results of operations for the years ended December 31, 2006 and 2005. The travel insurance and card related business of our AMEX Assurance subsidiary was ceded to American Express effective July 1, 2005. AMEX Assurance was deconsolidated on a GAAP basis effective September 30, 2005. The results of operations of AMEX Assurance that were consolidated during the year ended December 31, 2005 are also presented in the table below. Years Ended December 31, 2006 Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues Expenses Distribution expenses Interest credited to fixed accounts Benefits, claims, losses and settlement expenses Amortization of deferred acquisition costs Interest and debt expense Separation costs General and administrative expense Total expenses Pretax income from continuing operations Income tax provision Income from continuing operations Income from discontinued operations, net of tax Net income 2005 Change (in millions, except percentages) AMEX Assurance 2005(1)(2) $2,700 1,569 2,247 1,070 707 8,293 273 8,020 1,728 968 1,113 472 101 361 2,480 7,223 797 166 631 — $ 631 $2,334 1,401 2,272 1,129 500 7,636 240 7,396 1,465 1,019 1,083 431 67 293 2,293 6,651 745 187 558 16 $ 574 $366 168 (25) (59) 207 657 33 624 263 (51) 30 41 34 68 187 572 52 (21) 73 (16) $ 57 16% 12 (1) (5) 41 9 14 8 18 (5) 3 10 51 23 8 9 7 (11) 13 # 10 $ 3 — 9 127 (1) 138 — 138 34 — (12) 17 — — 17 56 82 26 56 — $ 56 # Variance of 100% or greater. (1) AMEX Assurance results of operations were consolidated in 2005 through September 30, 2005. (2) AMEX Assurance premiums in 2005 included $10 million in intercompany revenues related to errors and omissions coverage. Overall Consolidated net income for the year ended December 31, 2006 was $631 million, up $73 million from income from continuing operations of $558 million for the year ended December 31, 2005. This income growth was positively impacted by strong net inflows in wrap accounts and variable annuities, as well as market appreciation. These positives were partially offset by lower net investment income due to declining annuity fixed account and certificate balances, higher performance related management incentive compensation and increased interest expense from establishing an independent capital structure. Income in both 2006 and 2005 was impacted by non-recurring separation costs of $361 million and $293 million, respectively ($235 million and $191 million, respectively, after-tax). Other significant items included in income for the years ended December 31, 2006 and 2005 were the impact of our annual third quarter DAC unlocking and the impact of certain legal and regulatory costs. The pretax benefit from DAC unlocking in 2006 was $25 million ($16 million after-tax), compared to a benefit of $67 million ($44 million after-tax) in 2005. Certain legal and regulatory costs were $74 million ($48 million after-tax) in 2006 compared to $140 million ($91 million after-tax) in 2005. Income in 2006 was also impacted by the deconsolidation of AMEX Assurance, which had $56 million in after-tax income in 2005. Net revenues Our revenue growth in management and financial advice fees was driven by the growth in our fee-based businesses, specifically, fees related to brokerage accounts increased $243 million in 2006, and fees related to annuities increased $94 million. Additionally, we had an increase of $17 million in management and financial advice fees due in part to increased Threadneedle revenues in 2006 as a result of higher market levels. These increases were partially offset by a decline in fees relative to 2005 of $37 million due to the sale of our defined contribution recordkeeping business in the second quarter of 2006. Increased broker-dealer activity and advisor productivity continued to drive up distribution fees. Distribution fees in our brokerage Ameriprise Financial 2007 Annual Report 39
Slide 42: business in 2006 increased $168 million over 2005, reflecting strong net inflows in wrap accounts and strong growth in sales of direct investments as well as market appreciation. The growth in brokerage revenues was partially offset by a decline in distribution fees related to RiverSource mutual funds of $15 million largely due to lower mutual fund asset balances. This shift is driven by clients migrating from transaction-based fee arrangements to asset-based fee arrangements, where the asset-based fees are paid over time and are included in management and financial advice fees. Distribution fees also increased due to an increase in 12b-1 fees which reflected higher levels of mutual fund assets. Net investment income for the year ended December 31, 2006 decreased $25 million from the year ended December 31, 2005, primarily driven by lower average account balances in fixed annuities, the fixed portion of variable annuities and certificates. Included in net investment income were net realized investment gains of $51 million in 2006 compared to $66 million in 2005. Net realized investment gains in 2006 included a gain of $23 million related to recoveries on WorldCom securities. Net realized investment gains in 2005 included a $36 million net gain on the sale of our retained interests in a collateralized debt obligation (“CDO”) securitization trust. Net gains on trading securities and equity method investments in hedge funds were $20 million higher in 2006. Premiums in 2006 were impacted by the deconsolidation of AMEX Assurance, which had premiums of $127 million in 2005. This impact was offset by premium increases of $45 million in auto and home and $27 million in disability income and long term care insurance. Disability income and long term care premiums in 2006 included an increase in premiums of $15 million as a result of a review of our long term care reinsurance arrangement during the third quarter of 2006. Other revenues in 2006 included $77 million related to the consolidation of certain limited partnerships holding client assets we manage and $66 million from the sale of our defined contribution recordkeeping business. The expenses related to the consolidated limited partnerships and the sale of our defined contribution recordkeeping business are primarily reflected in general and administrative expense. Other revenues in 2006 also reflect $18 million from recognizing previously deferred cost of insurance revenues. The balance of the increase in other revenues was primarily driven by increases in cost of insurance revenues for VUL and UL products and in variable annuity living benefit rider fees. The increase in banking and deposit interest expense was driven by increases in interest expense related to the debt of a variable interest entity and bank deposits acquired in the second half of 2006. Interest credited for certificates increased as a result of higher short-term interest rates and, to a lesser extent, stock market appreciation, but were partially offset by a decrease in interest credited due to lower average certificate balances. The related benefit from economically hedging stock market certificates and equity indexed annuities is reflected in net investment income. Expenses Total expenses reflect the impact of DAC unlocking. In 2006, we recorded a net benefit from DAC unlocking of $25 million, primarily comprised of a $38 million benefit in DAC amortization expense and 40 Ameriprise Financial 2007 Annual Report a $12 million increase in benefits, claims, losses and settlement expenses. DAC unlocking in 2005 resulted in a $67 million reduction to DAC amortization. The DAC unlocking net benefit in 2006 primarily reflected a $25 million benefit from modeling increased product persistency and a $15 million benefit from modeling improvements in mortality, offset by negative impacts of $8 million from modeling lower variable product fund fee revenue and $8 million from model changes related to variable life second to die insurance. The DAC unlocking net benefit in 2005 primarily reflected a $32 million benefit from modeling improvements in mortality, a $33 million benefit from lower surrender rates than previously assumed and higher associated surrender charges and a $2 million net benefit from other changes in DAC valuation assumptions. The increase in distribution expenses primarily reflects higher commissions paid driven by overall business growth as reflected by the 18% growth in gross dealer concession (“GDC”) and higher assets under management. Distribution expenses in 2005 included $34 million related to AMEX Assurance as well as the favorable impact of a $9 million ceding commission related to the assumption of errors and omissions (“E&O”) reserves from AMEX Assurance. Interest credited to fixed accounts reflects a decrease of $64 million related to a continued decline in fixed annuity account balances. Benefits, claims, losses and settlement expenses increased in 2006 primarily as a result of higher life and health related expenses as well as a net increase in expenses related to auto and home. These increases were partially offset by a decrease in expenses related to our variable annuity products of $11 million. VUL/UL expenses increased $37 million in 2006, of which $12 million was related to the DAC unlocking reserve increase, $7 million was related to additional claims expense in connection with the recognition of previously deferred cost of insurance revenues and the balance was primarily volume-related. Health related expenses increased $21 million in 2006 and were primarily due to higher claims and reserves related to long term care and disability income. In 2005, these expenses reflected the addition of $13 million to long term care maintenance expense reserves. Auto and home had a net increase in expenses of $11 million. Volumedriven loss reserves attributable to higher average auto and home policy counts were partially offset by a $21 million net reduction in reserves primarily reflecting improvement in 2004 and 2005 accident year results. Expenses in 2005 included the assumption of $9 million in E&O reserves from AMEX Assurance and a net reduction to AMEX Assurance expenses of $12 million. The increase in DAC amortization in 2006 reflects the impact of DAC unlocking related to amortization in each year. In addition, we had higher DAC amortization related to auto and home insurance and variable annuities, partially offset by lower DAC amortization related to our proprietary mutual funds. DAC unlocking resulted in a net reduction in amortization of $38 million in 2006 compared to a reduction of $67 million in 2005. DAC amortization related to auto and home insurance products in 2006 included an adjustment to decrease DAC balances by $28 million as well as $17 million of higher DAC amortization primarily as a result of increased business and shorter amortization periods compared to 2005. Continued
Slide 43: growth in our variable annuity business contributed to higher DAC balances and a net increase in DAC amortization on variable annuities of $16 million. DAC amortization related to proprietary mutual funds declined $26 million as a result of a lower proprietary mutual fund DAC balance and lower redemption write-offs. AMEX Assurance had DAC amortization of $17 million in 2005. The increase in interest and debt expense in 2006 reflects the higher cost of debt associated with establishing our long term capital structure after the Distribution. Our $1.6 billion of intercompany debt with American Express prior to the Distribution was replaced with $1.5 billion of senior notes. In addition, we issued $500 million of junior notes in May 2006. The senior and junior notes have higher interest costs than the intercompany debt. Interest expense in 2006 on the senior and junior notes was $75 million and $23 million, respectively, compared to interest expense in 2005 of $53 million on the intercompany debt and $8 million on the senior notes. Separation costs incurred in 2006 were primarily associated with separating and reestablishing our technology platforms and establishing the Ameriprise Financial brand. Separation costs incurred in 2005 were primarily associated with advisor and employee retention programs, rebranding and technology. General and administrative expense in 2006 included $70 million of expense of certain consolidated limited partnerships and $14 million of expense, primarily related to the write-down of capitalized software, associated with the sale of our defined contribution recordkeeping business in the second quarter of 2006. Certain legal and regulatory costs were $74 million in 2006 compared to $140 million in 2005, of which $100 million was related to the settlement of a consolidated securities class action lawsuit. We recorded $15 million of severance and other costs related to the sale of our defined contribution recordkeeping business and $25 million of other severance costs primarily related to our technology functions and ongoing reengineering initiatives to improve efficiencies in our business. Also contributing to the increase in general and administrative expense were higher costs associated with being an independent company, including higher management and administration costs, increased investment in the business, as well as higher performance-based compensation as a result of strong overall results and investment management performance. Offsetting these increases is a decline of $17 million of expense in 2005 related to the deconsolidation of AMEX Assurance. Income taxes Our effective tax rate was 20.8% for 2006 compared to 25.1% for 2005. The lower effective tax rate in 2006 was primarily due to the impact of a $16 million tax benefit as a result of a change in the effective state income tax rate applied to deferred tax assets as a result of the Distribution, and a $13 million tax benefit related to the true-up of the tax return for the year 2005 partially offset by lower levels of tax advantaged items in 2006. Additionally, the effective tax rate in 2005 was impacted by a $20 million tax expense applicable to prior years. Results of Operations by Segment Year Ended December 31, 2006 Compared to Year Ended December 31, 2005 The following tables present summary financial information by segment and reconciliation to consolidated totals derived from Note 26 to our Consolidated Financial Statements for the years ended December 31, 2006 and 2005: Years Ended December 31, Percent Share of Total Percent Share of Total 2006 Total net revenues Advice & Wealth Management Asset Management Annuities Protection Corporate & Other Eliminations Total net revenues Total expenses Advice & Wealth Management Asset Management Annuities Protection Corporate & Other Eliminations Total expenses 2005 (in millions, except percentages) $ 3,335 1,751 2,196 1,891 28 (1,181) $ 8,020 42% 22 27 24 — (15) 100% $ 2,834 1,609 2,193 1,864 (30) (1,074) $ 7,396 38% 22 30 25 — (15) 100% $ 3,139 1,498 1,732 1,457 578 (1,181) $ 7,223 43% 21 24 20 8 (16) 100% $ 2,816 1,432 1,703 1,370 404 (1,074) $ 6,651 42% 21 26 21 6 (16) 100% Pretax income (loss) Advice & Wealth Management $ 196 Asset Management 253 Annuities 464 Protection 434 Corporate & Other (550) Pretax income from continuing operations $ 797 25% 32 58 54 (69) 100% $ 18 177 490 494 (434) 745 2% 24 66 66 (58) 100% $ Ameriprise Financial 2007 Annual Report 41
Slide 44: Advice & Wealth Management The following table presents the results of operations of our Advice & Wealth Management segment for the years ended December 31, 2006 and 2005: Years Ended December 31, 2006 Revenues Management and financial advice fees Distribution fees Net investment income Other revenues Total revenues Banking and deposit interest expense Total net revenues 2005 Change (in millions, except percentages) Asset Management The following table presents the results of operations of our Asset Management segment for the years ended December 31, 2006 and 2005: Years Ended December 31, 2006 Revenues Management and financial advice fees Distribution fees Net investment income Other revenues Total revenues Banking and deposit interest expense Total net revenues 2005 Change (in millions, except percentages) $1,080 2,034 405 62 3,581 246 3,335 $ 837 1,781 371 60 3,049 215 2,834 1,756 1,060 2,816 $ 18 $243 253 34 2 532 31 501 312 11 323 $178 29% 14 9 3 17 14 18 18 1 11 # $1,221 336 63 157 1,777 26 1,751 $ 1,204 365 50 10 1,629 20 1,609 414 79 939 1,432 $ 177 $ 17 (29) 13 147 148 6 142 1 (27) 92 66 $ 76 1% (8) 26 # 9 30 9 — (34) 10 5 43 Expenses Distribution expenses 2,068 General and administrative expense 1,071 Total expenses 3,139 Pretax income $ 196 # Variance of 100% or greater. Our Advice & Wealth Management segment reported pretax segment income of $196 million in 2006, up from $18 million in 2005. Net revenues Management and financial advice fees increased $243 million, or 29%, in 2006 as compared to 2005. The increase was primarily the result of net increases in wrap account assets of 32% from December 31, 2005 to December 31, 2006. The growth in distribution fees of $253 million, or 14% from 2005, reflects the strong net inflows in wrap accounts and strong growth in sales of direct investments as well as market appreciation. Net investment income growth is primarily due to higher on-balance sheet deposit balances, in part due to the launch of Ameriprise Bank in the third quarter of 2006. This increase was partially offset by declining average account balances in certificate products. Banking and deposit interest expense increased $31 million of which $12 million relates to face-amount certificates. Expenses The increase in distribution expenses reflects higher commissions paid driven by strong sales activity and higher assets under management. General and administrative expense increased in 2006 due to increases in compensation expense, professional and other services and legal and regulatory costs. Offsetting these increases was expense of $100 million related to the settlement of a consolidated securities class action lawsuit in 2005. Expenses Distribution expenses 415 Amortization of deferred acquisition costs 52 General and administrative expense 1,031 Total expenses 1,498 Pretax income $ 253 # Variance of 100% or greater. Overall Our Asset Management pretax segment income was $253 million in 2006, up $76 million, or 43%, from $177 million in 2005. Net revenues Net revenues increased $142 million, or 9%, in 2006 compared to 2005. Contributing to the increase was $77 million related to certain consolidated limited partnerships and $66 million of proceeds from the sale of our defined contribution recordkeeping business. The expenses from the sale of our defined contribution recordkeeping business are primarily reflected in general and administrative expense. Additionally, a slight increase in management and financial advice fees, resulting from higher average assets under management, as well as an increase in net investment income due to higher interest income associated with the consolidation of certain variable interest entities (“VIEs”), partially offset by an increase in banking and deposit interest expense, were offset by a decline in distribution fees related to RiverSource mutual funds which was largely due to lower mutual fund asset balances. This shift reflects an emerging preference of clients to migrate from transaction-based fee arrangements to assetbased fee arrangements, where the asset-based fees are paid over time and are included in management and financial advice fees. Expenses Total expenses increased $66 million, or 5%. In 2006, general and administrative expense, which primarily reflects allocated corporate and support function costs, included $70 million of expense related to the consolidation of certain limited partnerships and $30 million of costs associated with the sale of our defined contribution recordkeeping business in the second quarter of 2006. The sale related costs were offset by expense savings related to the defined contribution 42 Ameriprise Financial 2007 Annual Report
Slide 45: recordkeeping business following the sale. These expenses were partially offset by a decrease in the amortization of DAC due to decreased B share sales resulting in fewer deferred commissions to be amortized. Overall Our Annuities pretax segment income was $464 million for 2006, down $26 million, or 5%, from $490 million for 2005. Net revenues Net revenues increased slightly in 2006 compared to 2005. Management and financial advice fees related to variable annuities increased driven by higher levels of variable annuity account values, which increased 31% to $43.5 billion at December 31, 2006. The increase in distribution fees was due primarily to higher asset balances driven by flows and market appreciation. These increases were largely offset by a decline in net investment income which was primarily attributable to declining average fixed account balances, as well as a decrease in premiums related to immediate annuities with life contingencies. Expenses Total expenses increased $29 million, or 2%. The increase in distribution expenses reflects increased sales, and the increase in amortization of DAC is due to the impact of DAC unlocking in 2006, a net increase of $14 million, versus a net decrease to expense related to DAC unlocking in 2005 of $14 million. These increases were partially offset by a decrease in interest credited to fixed accounts, primarily attributable to lower average account balances in fixed annuities and the fixed portion of variable annuities, as well as a decline in benefits, claims, losses and settlement expenses primarily due to our variable annuity business which had a decrease of $29 million in GMWB rider costs, partially offset by an increase of $17 million in guaranteed minimum death benefit (“GMDB”) costs. Annuities The following table presents the results of operations of our Annuities segment for the years ended December 31, 2006 and 2005: Years Ended December 31, 2006 Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues 2005 Change (in millions, except percentages) $ 392 213 1,403 138 50 2,196 — 2,196 $ 298 171 1,544 151 30 2,194 1 2,193 93 875 295 244 196 1,703 $ 490 $ 94 42 (141) (13) 20 2 (1) 3 65 (52) (34) 43 7 29 $ (26) 32% 25 (9) (9) 67 — — — 70 (6) (12) 18 4 2 (5) Expenses Distribution expenses 158 Interest credited to fixed accounts 823 Benefits, claims, losses and settlement expenses 261 Amortization of deferred acquisition costs 287 General and administrative expense 203 Total expenses 1,732 Pretax income $ 464 Protection The following table presents the results of operations of our Protection segment for the years ended December 31, 2006 and 2005. The travel insurance and card related business of our AMEX Assurance subsidiary was ceded to American Express effective July 1, 2005. AMEX Assurance was deconsolidated on a GAAP basis effective September 30, 2005. The results of operations of AMEX Assurance for periods ended prior to the deconsolidation were reported in our Protection segment and are also included in the table below. Years Ended December 31, 2006 2005 $ 42 89 342 999 394 1,866 2 1,864 Change $ 14 7 13 (45) 37 26 (1) 27 (3) 1 64 25 — 87 $(60) 33% 8 4 (5) 9 1 (50) 1 (3) 1 8 23 — 6 (12) (in millions, except percentages) AMEX Assurance 2005(1)(2) $ 3 — 9 127 (1) 138 — 138 Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues Expenses Distribution expenses Interest credited to fixed accounts Benefits, claims, losses and settlement expenses Amortization of deferred acquisition costs General and administrative expense Total expenses Pretax income (1) (2) $ 56 96 355 954 431 1,892 1 1,891 94 145 852 133 233 1,457 $ 434 97 144 788 108 233 1,370 $ 494 34 — (12) 17 17 56 $ 82 AMEX Assurance results of operations were consolidated in 2005 through September 30, 2005. AMEX Assurance premiums in 2005 included $10 million in intercompany revenues related to errors and omissions coverage. Ameriprise Financial 2007 Annual Report 43
Slide 46: Overall Our Protection segment results for 2006 were driven by growth in our life insurance products and, to a lesser extent, auto and home insurance products. Protection segment results for 2005 include pretax income related to AMEX Assurance of $82 million. Net revenues Net revenues increased $27 million, or 1%, in 2006 as compared to 2005. The increase in management and financial advice fees was primarily driven by fees generated from higher levels of VUL variable account values in 2006. Total life insurance inforce increased 9% in 2006 compared to 2005. Additionally, the increase in net investment income is a result of the positive impact of higher reserves associated with the growth in our auto and home products and, to a lesser extent, our disability income products. This growth was partially offset by the impact of the deconsolidation of AMEX Assurance, which had net investment income of $9 million in 2005. Net realized investment gains were $9 million in 2006 and $13 million in 2005. Premiums in 2006 were impacted by the deconsolidation of AMEX Assurance, which had premiums of $127 million in 2005. This impact was offset by premium increases of $45 million in auto and home and $27 million in disability income and long term care. The growth in auto and home premiums was driven by higher average policy counts in 2006. Disability income and long term care premiums in 2006 included an adjustment to increase premiums by $15 million as a result of a review of our long term care reinsurance arrangement during the third quarter of 2006. The increase in other revenues was primarily related to VUL/UL products. The recognition of previously deferred cost of insurance revenues related to VUL/UL insurance added $18 million in revenues in 2006. The balance of the revenue growth was primarily volume-related. Expenses Distribution expenses decreased $3 million in 2006 compared to 2005 primarily as a result of the deconsolidation of AMEX Assurance which had expenses of $34 million in 2005. Distribution expenses in 2005 also include the favorable impact of a $9 million ceding commission related to the assumption of E&O reserves from AMEX Assurance. Benefits, claims, losses and settlement expenses increased $64 million in 2006 primarily as a result of higher life and health related expenses as well as a net increase in expenses related to the growth in our auto and home products. VUL/UL expenses increased $34 million in 2006, of which $12 million was related to the DAC unlocking reserve increase discussed previously, $7 million was related to additional claims expense in connection with the recognition of previously deferred cost of insurance revenues and the balance was primarily volume-related. Health related expenses increased $21 million in 2006 and were primarily due to higher claims and reserves related to long term care and disability income. In 2005, these expenses reflected the addition of $13 million to long term care maintenance expense reserves. Auto and home had a net increase in expenses of $11 million. Volume-driven loss reserves attributable to higher average auto and home policy counts were partially offset by a $21 million net reduction in reserves primarily reflecting improvement in 2004 and 2005 accident year results. Expenses in 2005 included the assumption of $9 million in E&O reserves from AMEX Assurance and a net reduction to AMEX Assurance expenses of $12 million. 44 Ameriprise Financial 2007 Annual Report Amortization of DAC in 2006 primarily reflects higher DAC amortization related to our auto and home products, partially offset by the impact of the deconsolidation of AMEX Assurance, which had $17 million of DAC amortization in 2005. We recognized $28 million of additional DAC amortization in 2006 as a result of an adjustment to DAC balances related to auto and home insurance products. DAC amortization related to auto and home insurance is also higher by $17 million in 2006 primarily as a result of the effect of increased business and shorter amortization periods compared to 2005. The total DAC unlocking benefit in both 2006 and 2005 primarily related to our VUL/UL products, which reduced DAC amortization by $52 million and $53 million, respectively. Corporate & Other The following table presents the results of operations of our Corporate & Other segment for the years ended December 31, 2006 and 2005: Years Ended December 31, 2006 Revenues Net investment income (loss) Other revenues Total revenues Banking and deposit interest expense Total net revenues Expenses Distribution expenses Interest and debt expense Separation costs General and administrative expense Total expenses Pretax loss # Variance of 100% or greater. 2005 Change (in millions, except percentages) $ 29 6 35 7 28 — 101 361 116 578 $(550) $ (31) 7 (24) 6 (30) 1 67 293 43 404 $(434) $ 60 (1) 59 1 58 (1) 34 68 73 174 $(116) #% (14) # 17 # # 51 23 # 43 (27) Overall Our Corporate & Other pretax segment loss was $550 million for 2006 compared to $434 million in 2005. The higher pretax segment loss in 2006 was primarily due to the $68 million increase in separation costs, the $73 million increase in general and administrative expense and higher interest and debt expense, partially offset by a $60 million increase in net investment income. Net revenues Net investment income increased $60 million to income of $29 million compared to a loss of $31 million in 2005. The improvement in 2006 was primarily attributable to higher invested assets, partially offset by a decrease in net realized investment gains of $26 million. The net investment loss in 2005 was primarily the result of amortization of affordable housing investments. Expenses The increase in interest and debt expense in 2006 primarily reflects the higher cost of debt associated with the senior notes as compared to our intercompany debt with American Express prior to the Distribution, as
Slide 47: well as interest on the unsecured junior subordinated notes issued in May 2006. Interest expense in 2006 on the senior and junior notes was $75 million and $23 million, respectively, compared to interest expense in 2005 of $53 million on the intercompany debt and $8 million on the senior notes. Separation costs incurred in 2006 were primarily associated with technology and rebranding. Separation costs incurred in 2005 were primarily associated with advisor and employee retention programs, technology and rebranding. General and administrative expense in 2006 reflects higher costs associated with being an independent entity, as well as higher expenses related to corporate projects and other corporate activities. In addition, we incurred $25 million of severance costs in 2006, primarily related to our technology functions and ongoing reengineering initiatives to improve efficiencies in our business. Our capital transactions in 2007 and 2006 primarily related to the repurchase of our common stock and dividends paid to our shareholders. Dividends from Subsidiaries Ameriprise Financial, Inc. is primarily a parent holding company for the operations carried out by our wholly owned subsidiaries. Because of our holding company structure, our ability to meet our cash requirements, including the payment of dividends on our common stock, substantially depends upon the receipt of dividends or return of capital from our subsidiaries, particularly our life insurance subsidiary, RiverSource Life Insurance Company (“RiverSource Life”), our face-amount certificate subsidiary, Ameriprise Certificate Company (“ACC”), our retail introducing broker-dealer subsidiary, Ameriprise Financial Services, Inc. (“AFSI”), our clearing brokerdealer subsidiary, American Enterprise Investment Services, Inc. (“AEIS”), our auto and home insurance subsidiary, IDS Property Casualty Insurance Company (“IDS Property Casualty”), doing business as Ameriprise Auto & Home Insurance, Threadneedle, RiverSource Service Corporation and our investment advisory company, RiverSource Investments, LLC. The payment of dividends by many of our subsidiaries is restricted and certain of our subsidiaries are subject to regulatory capital requirements. Actual capital and regulatory capital requirements for our wholly owned subsidiaries subject to regulatory capital requirements were as follows: Actual Capital Regulatory December 31, Capital 2007 2006 Requirement (in millions) Liquidity and Capital Resources Overview We maintained substantial liquidity during 2007. At December 31, 2007, we had $3.8 billion in cash and cash equivalents, up from the balance at December 31, 2006 of $2.8 billion. We have additional liquidity available through an unsecured revolving credit facility for $750 million that expires in September 2010. Under the terms of the underlying credit agreement, we can increase this facility to $1.0 billion. Available borrowings under this facility are reduced by any outstanding letters of credit. We have had no borrowings under this credit facility and had $6 million of outstanding letters of credit at December 31, 2007. We believe cash flows from operating activities, available cash balances and our availability of revolver borrowings will be sufficient to fund our operating liquidity needs. Investments are principally funded by sales of insurance, annuities, banking deposits and investment certificates and by reinvested income. As expected, annuity fixed accounts and certificate balances are declining as clients choose other products in the current interest rate environment and as we focus on fee-based products. Our total investments at December 31, 2007 and 2006 included investments held by our insurance subsidiaries of $25.4 billion and $29.6 billion, respectively. Our Available-for-Sale investments primarily include corporate debt securities and mortgage and other asset-backed securities, which had fair values of $13.9 billion and $10.4 billion, respectively, at December 31, 2007 compared to $16.8 billion and $12.3 billion, respectively, at December 31, 2006. Our Available-for-Sale corporate debt securities comprise a diverse portfolio, with the largest concentrations of the portfolio in the following industries: 21% in utilities, 19% in banking and 13% in media. Investments also included $3.1 billion of commercial mortgage loans as of both December 31, 2007 and 2006. At December 31, 2007 and 2006, 70% and 69%, respectively, of our Available-for-Sale investment portfolio was rated A or better, while 6% and 7% of our Available-for-Sale investment portfolio was below investment grade at December 31, 2007 and 2006, respectively. RiverSource Life $3,017 Insurance Company(1)(2) RiverSource Life Insurance Co. 288 of New York(1)(2) IDS Property Casualty 424 Insurance Company(1)(3) Ameriprise Insurance 49 Company(1)(3) Ameriprise Certificate 210 Company(4) Threadneedle Asset Management Holdings 232 Limited(5) 143 Ameriprise Bank, FSB(6) Ameriprise Financial 102 Services, Inc.(3)(4) Ameriprise Captive 16 Insurance Company 60 Ameriprise Trust Company(3) American Enterprise 56 Investment Services, Inc.(3)(4) 13 Securities America, Inc.(3)(4) RiverSource Distributors, Inc.(3)(4) 30 $3,511 348 523 47 279 246 169 85 — 49 38 2 # $442 34 117 2 201 149 143 # 7 36 5 # # # Amounts are less than $1 million. (1) Actual capital is determined on a statutory basis. (2) Regulatory capital requirement as of December 31, 2007 is based on the most recent statutory risk-based capital filing. (3) Regulatory capital requirement is based on the applicable regulatory requirement, calculated as of December 31, 2007. (4) Actual capital is determined on an adjusted GAAP basis. Ameriprise Financial 2007 Annual Report 45
Slide 48: (5) (6) Actual capital and regulatory capital requirements are determined in accordance with U.K. regulatory legislation. Both actual capital and regulatory capital requirements are as of June 30, 2007, based on the most recent required U.K. filing. Ameriprise Bank holds capital in compliance with the Federal Deposit Insurance Corporation policy regarding de novo depository institutions. In addition to the particular regulations restricting dividend payments and establishing subsidiary capitalization requirements, we take into account the overall health of the business, capital levels and risk management considerations in determining a dividend strategy for payments to our company from our subsidiaries, and in deciding to use cash to make capital contributions to our subsidiaries. The following table sets out the cash dividends paid to our company (including extraordinary dividends paid with necessary advance notifications to regulatory authorities), net of cash capital contributions made by our company, and the dividend capacity (amount within the limitations of the applicable regulatory authorities as further described below) for the following subsidiaries: Years Ended December 31, 2007 (2) (3) 2006 (in millions) 2005 Cash dividends paid/ (contributions made), net RiverSource Life Ameriprise Bank AEIS ACC RiverSource Investments, LLC RiverSource Service Corporation Threadneedle Ameriprise Trust Company Securities America Financial Corporation AFSI IDS Property Casualty Other Total Dividend capacity RiverSource Life(1) Ameriprise Bank AEIS ACC(2) RiverSource Investments, LLC RiverSource Service Corporation Threadneedle Ameriprise Trust Company Securities America Financial Corporation AFSI IDS Property Casualty(3) Other Total dividend capacity (1) $ 900 — 108 70 100 22 50 12 (17) 100 185 (12) $1,518 $ 469 — 159 79 279 26 83 22 — 201 52 9 $1,379 $ 300 (172) 82 70 60 60 43 42 (25) (20) 6 4 $ 450 $ 328 — 114 93 173 68 89 4 — 84 46 8 $1,007 $(270) N/A 15 25 — 61 — 5 — (100) 52 — $(212) $ 380 N/A 105 54 37 88 18 5 14 — 35 9 $ 745 statutory limitation are referred to as “extraordinary dividends” and require advance notice to the Minnesota Department of Commerce, RiverSource Life’s primary state regulator, and are subject to potential disapproval. RiverSource Life paid extraordinary dividends in each of 2007 and 2006. Prior to the payment of each of these extraordinary dividends, RiverSource Life made the required advance notice to the Minnesota Department of Commerce and received a response from it stating that it did not object to the payment of these dividends. In the second quarter of 2007 and 2006, RiverSource Life of New York paid cash dividends of $83 million and $25 million, respectively, to RiverSource Life. A portion of the 2007 dividend from RiverSource Life of New York was considered extraordinary and was paid only after making the required advance notice to the New York State Insurance Department. The dividend capacity for ACC is based on capital held in excess of regulatory requirements. For AFSI and AEIS, the dividend capacity is based on an internal model used to determine the availability of dividends, while maintaining net capital at a level sufficiently in excess of minimum levels defined by Securities and Exchange Commission rules. The dividend capacity for IDS Property Casualty is based on the lesser of (1) 10% of the previous year-end capital and surplus or (2) the greater of (a) net income (excluding realized gains) of the previous year or (b) the aggregate net income of the previous three years excluding realized gains less any dividends paid within the first two years of the three-year period. Dividends that, together with the amount of other distributions made within the preceding 12 months, exceed this statutory limitation are referred to as “extraordinary dividends” and require advance notice to the Office of the Commissioner of Insurance of the State of Wisconsin, the primary state regulator of IDS Property Casualty, and are subject to potential disapproval. The portion of dividends paid by IDS Property Casualty in 2007 and 2005 in excess of the dividend capacity set forth in the table above were extraordinary dividends and received approval from the Office of the Commissioner of Insurance of the State of Wisconsin. Share Repurchases and Dividends Paid to Shareholders In 2007, we repurchased 15.9 million shares at an average price of $59.59 under our share repurchase program. Since inception of the share repurchase program in January 2006, we have purchased 26.6 million shares at an average price of $53.38. At December 31, 2007, there was approximately $418 million remaining to repurchase shares under authorizations approved by our Board of Directors. The share repurchase programs do not require the purchase of any minimum number of shares, and depending on market conditions and factors, these purchases may be commenced or suspended at any time without prior notice. We used our existing working capital to fund these share repurchases, and we currently intend to fund additional share repurchases through existing working capital, future earnings, debt capacity and other customary financing methods. Pursuant to the amended and revised Ameriprise Financial 2005 Incentive Compensation Plan, we reacquired 0.5 million shares of our common stock in 2007 through the surrender of restricted shares upon vesting and paid in the aggregate $29 million related to the holders’ income tax obligations on the vesting date. We paid regular quarterly cash dividends to our shareholders totaling $133 million and $108 million in 2007 and 2006, respectively. In 2005, we paid $27 million of cash dividends to our shareholders during the quarterly period ended December 31, 2005. On January 24, 2008, our Board of Directors declared a regular quarterly cash dividend of $0.15 per common share. The dividend was paid on February 18, 2008 to our shareholders of record at the close of business on February 4, 2008. The dividend capacity for RiverSource Life is based on the greater of (1) the previous year’s statutory net gain from operations or (2) 10% of the previous year-end statutory capital and surplus. Dividends that, together with the amount of other distributions made within the preceding 12 months, exceed this Operating Activities Net cash provided by operating activities for the year ended December 31, 2007 was $845 million compared to $817 million for 46 Ameriprise Financial 2007 Annual Report
Slide 49: the year ended December 31, 2006, an increase of $28 million. For the year ended December 31, 2006, net cash provided by operating activities was $817 million compared to $856 million for the year ended December 31, 2005, a decrease of $39 million. Included in net cash from operating activities for the year ended December 31, 2005 was a $58 million gain related to the termination of interest rate swaps. by an increase in cash related to lower maturities, withdrawals and cash surrenders in investment certificates. Net cash used in financing activities was $4.1 billion for the year ended December 31, 2006 compared to net cash provided by financing activities of $323 million for the year ended December 31, 2005, a decrease of $4.4 billion. This decline in cash was primarily due to higher surrenders and other benefits related to fixed annuities, lower sales of certificate products and a net decrease related to debt and capital transactions. Cash used for surrenders and other benefits on policyholder and contractholder account values, most of which related to fixed annuities, increased $1.6 billion in 2006 compared to 2005. Cash flows related to payments we receive from certificate owners declined $1.3 billion in 2006 compared to 2005, while cash used for certificate maturities and cash surrenders decreased $515 million. The reduction in sales and increase in maturities was the result of the American Express Bank Limited and American Express Bank International business wind-down and a sales promotion that was in effect during a portion of the 2005 period, offset somewhat by a sales promotion that began in late 2006 and ended in early 2007. On May 26, 2006, we issued $500 million of junior notes and incurred debt issuance costs of $6 million. These junior notes are due in 2066 and carry a fixed interest rate of 7.518% for the first 10 years, converting to a variable interest rate thereafter. The proceeds from the issuance were for general corporate purposes. On November 23, 2005, we issued $800 million principal amount of 5.35% unsecured senior notes due November 15, 2010 and $700 million principal amount of 5.65% senior notes due November 15, 2015. Considering the impact of hedge credits, the effective interest rates on the senior notes due 2010 and 2015 are 4.8% and 5.2%, respectively. The proceeds from the issues were used to replace the $1.4 billion bridge loan and for other general corporate purposes. We repaid our $50 million medium-term notes in February 2006. In addition, $168 million of nonrecourse debt related to the consolidated property fund limited partnerships was repaid in September 2006 following a restructuring of the partnership capital. In 2005, we entered into an unsecured bridge loan facility in the amount of $1.4 billion and repaid $1.3 billion of American Express intercompany debt. Investing Activities Our investing activities primarily relate to our Available-for-Sale investment portfolio. Further, this activity is significantly affected by the net outflows of our investment certificate, fixed annuity and universal life products reflected in financing activities. Net cash provided by investing activities for the year ended December 31, 2007 was $4.5 billion compared to $3.5 billion for the year ended December 31, 2006, a cash flow improvement of $1.0 billion. Purchases of Available-for-Sale securities decreased $1.1 billion and proceeds from sales of Available-for-Sale securities increased $1.2 billion compared to the prior year period. This increase in cash was partially offset by a $547 million decrease in maturities, sinking fund payments and calls of Available-for-Sale securities compared to the prior year period. Net cash provided by investing activities for the year ended December 31, 2006 was $3.5 billion compared to net cash used in investing activities of $273 million for the year ended December 31, 2005, a cash flow improvement of $3.8 billion. Purchases of Available-for-Sale securities decreased $5.9 billion to $2.8 billion in 2006 compared to $8.7 billion in 2005. This increase in cash was partially offset by lower proceeds from sales and lower maturities, sinking fund payments and calls of Available-for-Sale securities in 2006. Financing Activities Net cash used in financing activities for the year ended December 31, 2007 was $4.3 billion compared to $4.1 billion for the year ended December 31, 2006, an increase of $204 million. Cash used for the repurchase of our common stock increased $487 million to $977 million in 2007 compared to $490 million in 2006. The change in other banking deposits resulted in an increase to cash of $614 million, as a result of Ameriprise Bank activity, which was offset by a reduction of $516 million in cash proceeds from the issuance of debt compared to the prior year period. The decrease in cash related to payments we receive from certificate owners was offset Ameriprise Financial 2007 Annual Report 47
Slide 50: Contractual Commitments The contractual obligations identified in the table below include both our on and off-balance sheet transactions that represent material expected or contractually committed future obligations. Payments due by period as of December 31, 2007 are as follows: Payments due in year ending Contractual Obligations Balance Sheet: Debt(1) Insurance and annuities(2) Investment certificates(3) Off-Balance Sheet: Lease obligations Purchase obligations(4) Interest on debt(5) Total (1) (2) Total 2008 20092010 20112012 2013 and Thereafter (in millions) $ 2,018 40,031 3,734 618 71 2,641 $49,113 $ — 3,442 3,353 79 46 121 $ 800 5,638 381 135 24 236 $7,214 $— 4,610 — 111 1 156 $4,878 $ 1,218 26,341 — 293 — 2,128 $29,980 $7,041 (3) (4) (5) See Note 15 to our Consolidated Financial Statements for more information about our debt. These scheduled payments are represented by reserves of approximately $27.0 billion at December 31, 2007 and are based on interest credited, mortality, morbidity, lapse, surrender and premium payment assumptions. Actual payment obligations may differ if experience varies from these assumptions. Separate account liabilities have been excluded as associated contractual obligations would be met by separate account assets. The payments due by year are based on contractual term maturities. However, contractholders have the right to redeem the investment certificates earlier and at their discretion subject to surrender charges, if any. Redemptions are most likely to occur in periods of substantial increases in interest rates. The purchase obligation amounts include expected spending by period under contracts that were in effect at December 31, 2007. Minimum contractual payments associated with purchase obligations, including termination payments, were $20 million. Interest on debt was estimated based on rates in effect as of December 31, 2007. Total loan funding commitments were $493 million at December 31, 2007. For additional information relating to these contractual commitments, see Note 23 to our Consolidated Financial Statements. Off-Balance Sheet Arrangements During 2007, we closed on two traditional cash flow structured investments that we manage. The structures have approximately $1.1 billion issued and are fully subscribed. Also during 2007, an additional $188 million was issued by a structured investment we manage. As a condition to managing these structures, we were required to invest a total of $7 million in the residual or “equity” tranches of the facilities closed on in 2007, which are the most subordinated tranches of securities issued by the structured investment entities. As an investor in the residual tranches, our return correlates to the performance of the portfolio of high-yield investments, primarily bank loans, comprising the structured investments. Our exposure as an investor is limited solely to our aggregate investment in these facilities, and we have no obligation, contingent or otherwise, that could require any further funding of the investments. The structured investments are considered variable interest entities but are not consolidated as we are not considered the primary beneficiary. 48 Ameriprise Financial 2007 Annual Report
Slide 51: Quantitative and Qualitative Disclosures About Market Risk Interest rate, equity price, foreign currency risk and credit risk are the market risks to which we have material exposure. To evaluate interest rate and equity price risk we perform sensitivity testing which measures the impact on pretax income from the sources listed below for a 12 month period following a hypothetical 100 basis point increase in interest rates and a hypothetical 10% decline in equity markets. At December 31, 2007, aggregating our exposure from all sources of interest rate risk net of financial derivatives hedging that exposure detailed below, we estimate a negative impact of $9 million on pretax income for the 12 month period if, hypothetically, interest rates had increased by 100 basis points and remain at that level for 12 months. This compares with an estimate of a negative impact of $34 million made at December 31, 2006 for 12 months following a hypothetical 100 basis point increase in interest rates at December 31, 2006. Equity price risk includes absolute market level and implied market volatility changes. The estimates of net equity price risk exposure presented below assume no changes in implied market volatility. At December 31, 2007, aggregating our exposure from equity price risk net of financial derivatives hedging that exposure detailed below, we estimate a negative impact of $141 million on pretax income for the 12 month period if, hypothetically, equity markets had declined by 10% and remain at that level for 12 months. This compares with an estimate of a negative impact of $127 million made at December 31, 2006 for 12 months following a hypothetical 10% drop in equity markets at December 31, 2006. The numbers below show our estimate of the pretax impact of these hypothetical market moves, net of hedging and DAC, as of December 31, 2007. Following the table is a discussion by source of risk and the portfolio management techniques and derivative financial instruments we use to mitigate these risks. Net Risk Exposure to Pretax Income Actual results could differ materially from those illustrated above as they are based on a number of estimates and assumptions. These include assuming the composition of invested assets and liabilities does not change in the 12 month period following the hypothetical market decline, that there are no changes in implied market volatility and the increase in interest rates produces a parallel shift in the yield curve. The selection of a 100 basis point interest rate increase and a 10% equity market decline should not be construed as a prediction of future market events. For annuity and universal life products, DAC are amortized on the basis of estimated gross profits. Estimated gross profits are a proxy for pretax income prior to the recognition of DAC amortization expense. When events occur that reduce or increase current period estimated gross profits, DAC amortization expense is typically reduced or increased as well, somewhat mitigating the impact of the event on pretax income. Asset-Based Management and Distribution Fees We earn asset-based management fees on our owned separate account assets and certain of our managed assets. At December 31, 2007, the value of these assets was $62.0 billion and $286.6 billion, respectively. We also earn distribution fees on our managed assets. These sources of revenue are subject to both interest rate and equity price risk since the value of these assets and the fees they earn fluctuate inversely with interest rates and directly with equity prices. We do not hedge the interest rate risk of this exposure. During 2007, 2006 and 2005, we hedged a portion of the equity price risk of the exposure with purchased equity index puts. There were no puts outstanding at December 31, 2007, but as of December 31, 2006, they had a notional value of $721 million and a fair value of $16 million. Sources of Market Risk Asset-based management and distribution fees Variable annuity riders Fixed annuities, fixed portion of variable annuities and fixed insurance products Flexible savings and other fixed rate certificates Total Interest Rate Equity Price (in millions) Interest Rate Risk—Asset-Based Management and Distribution Fees At December 31, 2007, we estimate the interest rate risk from this exposure on pretax income if, hypothetically, interest rates had increased by 100 basis points and remain at that level for 12 months to be a negative $18 million for the 12 month period. $ (18) 14 $(132) (9) (6) 1 $ (9) — — $(141) Equity Price Risk—Asset-Based Management and Distribution Fees At December 31, 2007, we estimate the equity price risk from this exposure on pretax income if, hypothetically, equity markets decreased by 10% and remain at that level for 12 months to be a negative impact of $132 million for the 12 month period. Ameriprise Financial 2007 Annual Report 49
Slide 52: Variable Annuity Riders The guaranteed benefits associated with our variable annuities are guaranteed minimum withdrawal benefit (“GMWB”), guaranteed minimum accumulation benefit (“GMAB”), guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) options. Each of the guaranteed benefits mentioned above guarantees payouts to the annuity holder under certain specific conditions regardless of the performance of the underlying investment assets. The total value of all variable annuity contracts has grown from $49.5 billion at December 31, 2006 to $57.2 billion at December 31, 2007. These contract values include GMWB and GMAB contracts which have grown from $7.2 billion and $1.4 billion at December 31, 2006 to $13.1 billion and $2.3 billion at December 31, 2007, respectively. At December 31, 2007, the reserves for the GMWB and GMAB were a positive $136 million and $33 million compared to reserves of negative $12 million and $5 million at December 31, 2006, respectively. The large increases in the reserves for the GMWB and GMAB reflect the effects of a substantial increase in long term volatility on the mark-to-market value of the guarantees. At December 31, 2007, the reserve for the other variable annuity guaranteed benefits, GMDB and GMIB, was $27 million compared to $31 million at December 31, 2006. We manage the market risk on the guaranteed benefits by product design and by the use of financial derivatives which hedge the GMWB and GMAB. The design of the GMWB is an example of how we use product design to manage risk. The GMWB provision requires that policyholders invest their funds in one of five asset allocation models, thus ensuring diversification across asset classes and underlying funds, reducing the likelihood that payouts from the guaranteed benefits will be required to compensate policyholders for investment losses. As a means of economically hedging our obligations under GMWB and GMAB provisions, we purchase equity put and call options, enter into interest rate swaps and trade equity futures contracts. The notional amounts and the fair value of assets (liabilities) of derivatives hedging our GMWB and GMAB were as follows: December 31, 2007 Notional Amount Fair Value At December 31, 2007, if interest rates had increased by, hypothetically, 100 basis points and remain at that level for 12 months, we estimate that the fair values of our GMWB and GMAB liabilities would decrease by $127 million and $23 million, respectively, with a favorable impact to pretax income. The GMWB and GMAB interest rate exposure is hedged with a portfolio of longer dated put and call derivatives and interest rate swaps. We began utilizing the puts and calls as a way to improve effectiveness and reduce hedging costs. These derivatives are an alternative to the more customized equity puts we previously used. At December 31, 2007, we had equity puts and calls with notional amounts of $5.3 billion and $954 million related to GMWB and GMAB, respectively. The interest rate swaps had notional amounts of $193 million and $9 million related to GMWB and GMAB, respectively. We have entered into interest rate swaps according to risk exposures along maturities, thus creating both fixed rate payor and variable rate payor terms. If interest rates were to increase, we would have to pay more to the swap counterparty, and the fair value of our equity puts would decrease, resulting in a negative impact to our pretax income. For a hypothetical 100 basis point increase in interest rates sustained for a 12 month period, we estimate that the negative impact of the derivatives on pretax income would be $114 million. Of the $114 million, $95 million is attributable to our GMWB and $19 million is attributable to our GMAB. The net impact on pretax income after hedging would be a favorable $14 million, which consists of a $32 million and $4 million favorable impact attributable to our GMWB and GMAB, respectively, and a $22 million negative impact related to DAC amortization. Equity Price Risk—Variable Annuity Riders The variable annuity guaranteed benefits guarantee payouts to the annuity holder under certain specific conditions regardless of the performance of the investment assets. For this reason, when equity markets decline, the returns from the separate account assets coupled with guaranteed benefit fees from annuity holders may not be sufficient to fund expected payouts. In that case, reserves must be increased with a negative impact to earnings. If, hypothetically, equity markets had declined by 10% at December 31, 2007 and remain at that level for 12 months, we estimate the negative impact on pretax income before hedging to be $23 million attributable to GMWB, $13 million attributable to GMAB and $11 million attributable to GMDB and GMIB. The core derivative instruments with which we hedge the equity price risk of our GMWB and GMAB are longer dated put and call derivatives; these core instruments are supplemented with equity futures. The put and call contracts had notional amounts of $5.3 billion and $954 million at December 31, 2007 for GMWB and GMAB, respectively. The equity futures had notional amounts of $174 million and $69 million at December 31, 2007 for GMWB and GMAB, respectively. If, hypothetically, equity markets had declined by 10% at December 31, 2007 and remain at that level for 12 months we estimate a positive impact to pretax income of $27 million and $13 million from the options and futures for GMWB and GMAB, respectively. The net equity price exposure to pretax income from all of our variable annuity guaranteed benefits after hedging would be a negative $9 million, which includes a $4 million favorable impact attributable to GMWB, an $11 million negative impact attributable to GMDB and GMIB and a $2 million 2006 Notional Amount Fair Value (in millions) Purchased options and futures Interest rate swaps Written S&P 500 futures(1) (1) $6,318 202 (202) $338 2 — $1,410 359 (111) $171 (1) — These Standard & Poor’s (“S&P”) 500 futures are cash settled daily and, therefore, have no fair value. Interest Rate Risk—Variable Annuity Riders The GMAB and the non-life contingent benefits associated with the GMWB provisions create embedded derivatives which are carried at fair value separately from the underlying host variable annuity contract. Changes in fair value of the GMWB and GMAB are recorded through earnings with fair value calculated based on projected, discounted cash flows over the life of the contract, including projected, discounted benefits and fees. Increases in interest rates reduce the fair value of the GMWB and GMAB liabilities. 50 Ameriprise Financial 2007 Annual Report
Slide 53: negative impact related to DAC amortization. The positive impact of our hedging strategy offsets the negative impact attributable to GMAB for an immaterial net exposure. Fixed Annuities, Fixed Portion of Variable Annuities and Fixed Insurance Products Interest rate exposures arise primarily with respect to the fixed account portion of RiverSource Life’s annuity and insurance products and its investment portfolio. We guarantee an interest rate to the holders of these products. Premiums and deposits collected from clients are primarily invested in fixed rate securities to fund the client credited rate with the spread between the rate earned from investments and the rate credited to clients recorded as earned income. Client liabilities and investment assets generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients’ accounts generally reset at shorter intervals than the yield on the underlying investments. Therefore, in an increasing rate environment, higher interest rates are reflected in crediting rates to clients sooner than in rates earned on invested assets resulting in a reduced spread between the two rates, reduced earned income and a negative impact on pretax income. We have $26.8 billion in reserves in future policy benefits and claims on our Consolidated Balance Sheet at December 31, 2007 to recognize liabilities created by these products. To hedge against the risk of higher interest rates, we have purchased swaption contracts which had the following notional amounts and fair value assets: December 31, 2007 Notional Amount Fair Value $1 associated with these fixed rate certificate products. At December 31, 2007, we estimate the interest rate risk from this exposure on pretax income for the 12 month period following a hypothetical increase of 100 basis points in interest rates to be $1 million. Equity Indexed Annuities Our equity indexed annuity product is a single premium annuity issued with an initial term of seven years. The annuity guarantees the contractholder a minimum return of 3% on 90% of the initial premium or end of prior term accumulation value upon renewal plus a return that is linked to the performance of the S&P 500 Index. The equity-linked return is based on a participation rate initially set at between 50% and 90% of the S&P 500 Index which is guaranteed for the initial seven-year term when the contract is held to full term. Of the $27.4 billion in future policy benefits and claims at December 31, 2007, $306 million relates to the liabilities created by this product. In 2007, we discontinued new sales of equity indexed annuities. The notional amounts and fair value assets (liabilities) of derivatives hedging this product were as follows: December 31, 2007 Notional Amount Fair Value 2006 Notional Amount Fair Value (in millions) 2006 Notional Amount $1,200 Fair Value $2 (in millions) Purchased options and futures Purchased Knock-in-Puts Written Knock-in-Puts Written S&P 500 futures(1) (1) $164 73 (57) (1) $39 4 (1) — $185 86 (67) — $37 3 (1) — Purchased swaptions $800 These S&P 500 futures are cash settled daily and, therefore, have no fair value. If interest rates had increased by, hypothetically, 100 basis points at December 31, 2007 and remain at that level for 12 months we estimate the impact on pretax income for the 12 month period to be a negative $6 million. Interest Rate Risk—Equity Indexed Annuities Most of the proceeds from the sale of equity indexed annuities are invested in fixed income securities with the return on those investments intended to fund the 3% guarantee. We earn income from the difference between the return earned on invested assets and the 3% guarantee rate credited to customer accounts. The spread between return earned and amount credited is affected by changes in interest rates. We estimate that if, hypothetically, interest rates had increased by 100 basis points at December 31, 2007 and remain at that level for 12 months our unhedged exposure would be a negative impact of $1 million on pretax income for the 12 month period offset by a positive impact of $1 million from our hedging strategy for an immaterial net exposure. Flexible Savings and Other Fixed Rate Certificates We have interest rate risk from our flexible savings and other fixed rate certificates. These are investment certificates generally ranging in amounts from $1,000 to $1 million with terms ranging from three to 36 months. We guarantee an interest rate to the holders of these products. Payments collected from clients are primarily invested in fixed rate securities to fund the client credited rate with the spread between the rate earned from investments and the rate credited to clients recorded as earned income. Client liabilities and investment assets generally differ as it relates to basis, repricing or maturity characteristics. Rates credited to clients generally reset at shorter intervals than the yield on underlying investments. This exposure is not currently hedged although we monitor our investment strategy and make modifications based on our changing liabilities and the expected rate environment. We have $2.6 billion in reserves included in customer deposits at December 31, 2007 to cover the liabilities Equity Price Risk—Equity Indexed Annuities The equity-linked return to investors creates equity price risk as the amount credited depends on changes in equity markets. To hedge this exposure, a portion of the proceeds from the sale of equity indexed annuities is used to purchase futures, calls and puts which generate returns to replicate what we must credit to client accounts. In conjunction with purchasing puts we also write puts. Pairing purchased puts with written puts allows us to better match the characteristics of the liability. For this product we estimate that if, hypothetically, the equity markets had declined by 10% at Ameriprise Financial 2007 Annual Report 51
Slide 54: December 31, 2007 and remain at that level for 12 months, the impact to pretax income for the 12 month period without hedging would be a positive $15 million. The impact of our hedging strategy offsets that gain for an immaterial net exposure. Stock Market Certificates Stock market certificates are purchased for amounts generally from $1,000 to $1 million for terms of 52 weeks which can be extended to a maximum of 14 terms. For each term the certificate holder can choose to participate 100% in any percentage increase in the S&P 500 Index up to a maximum return or choose partial participation in any increase in the S&P 500 Index plus a fixed rate of interest guaranteed in advance. If partial participation is selected, the total of equity-linked return and guaranteed rate of interest cannot exceed the maximum return. Reserves for our stock market certificates are included in customer deposits on our Consolidated Balance Sheets. Of the $6.2 billion in customer deposits at December 31, 2007, $1.1 billion pertain to stock market certificates. The notional amounts and fair value assets (liabilities) of derivatives hedging this product were as follows: December 31, 2007 Notional Amount Fair Value $59 (27) — exposure with purchased futures and call spreads that replicate what we must credit to client accounts. We estimate that if, hypothetically, equity markets had declined by 10% at December 31, 2007 and remain at that level for 12 months the impact to pretax income for the 12 month period without hedging would be a positive $22 million. The impact of our hedging strategy offsets that gain for an immaterial net exposure. Foreign Currency Risk We have foreign currency risk because of our net investment in Threadneedle Asset Management Holdings Limited (“Threadneedle”). We hedge this risk by entering into foreign currency forward contracts which are adjusted monthly. At December 31, 2007, we had forward currency contracts with a notional value of 442 million British pounds (“GBP”) hedging 458 million GBP of exposure. Additionally, we also enter into separate foreign currency forward contracts to economically hedge our foreign currency risk related to net income from Threadneedle’s operations. At December 31, 2007 we had forward currency contracts with a notional value of 4 million GBP. Our foreign currency risk is immaterial after hedging. 2006 Notional Amount $900 (962) 1 Fair Value $104 (56) — Interest Rate Risk on External Debt Interest rate risk on our external debt is not material. The interest rate on the $1.5 billion of senior unsecured notes is fixed and the interest rate on the $500 million of junior subordinated notes is fixed until June 1, 2016. We have floating rate debt of $18 million related to our municipal bond inverse floater certificates which is not hedged but on which the interest rate risk to pretax income is not material. (in millions) Purchased calls Written calls Purchased S&P 500 futures(1) (1) $900 (965) 3 These S&P 500 futures are cash settled daily and, therefore, have no fair value. Interest Rate Risk—Stock Market Certificates Stock market certificates have some interest rate risk as changes in interest rates affect the fair value of the payout to be made to the certificate holder. This exposure to interest rate changes is hedged by the derivatives listed above. We estimate that if, hypothetically, interest rates had increased by 100 basis points at December 31, 2007 and remain at that level for 12 months our unhedged exposure would be a negative impact of $1 million on pretax income for the 12 month period offset by a positive impact of the same amount from our hedging strategy for an immaterial net exposure. Credit Risk Our potential derivative credit exposure to each counterparty is aggregated with all of our other exposures to the counterparty to determine compliance with established credit and market risk limits at the time we enter into a derivative transaction. Credit exposures may take into account enforceable netting arrangements. Before executing a new type or structure of derivative contract, we determine the variability of the contract’s potential market and credit exposures and whether such variability might reasonably be expected to create exposure to a counterparty in excess of established limits. Equity Price Risk—Stock Market Certificates As with the equity indexed annuities, the equity-linked return to investors creates equity price risk exposure. We seek to minimize this 52 Ameriprise Financial 2007 Annual Report
Slide 55: Forward-Looking Statements This report contains forward-looking statements that reflect our plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. We have made various forward-looking statements in this report. Examples of such forwardlooking statements include: • statements of our plans, intentions, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy and consolidated tax rate; • statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and • statements of assumptions underlying such statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements. Such factors include, but are not limited to: • changes in the valuations, liquidity and volatility in the interest rate, equity market, and foreign exchange environments; • changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation; • our investment management performance and consumer acceptance of our products; • effects of competition in the financial services industry and changes in product distribution mix and distribution channels; • our capital structure including ratings and indebtedness, and limitations on subsidiaries to pay dividends; • risks of default by issuers or guarantors of investments we own or by counterparties to hedge, derivative, insurance or reinsurance arrangements; • experience deviations from our assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products, or from assumptions regarding market volatility underlying our hedges on guaranteed benefit annuity riders; • the impacts of our efforts to improve distribution economics and to grow third-party distribution of our products; • our ability to realize benefits from tax planning; and • general economic and political factors, including consumer confidence in the economy as well as the ability and inclination of consumers generally to invest, the costs of products and services we consume in the conduct of our business, and applicable legislation and regulation, including tax laws, tax treaties, fiscal and central government treasury policy, and regulatory rulings and pronouncements. We caution you that the foregoing list of factors is not exhaustive. There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statements. Ameriprise Financial 2007 Annual Report 53
Slide 56: Management’s Report on Internal Control Over Financial Reporting The management of Ameriprise Financial, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America, and includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on management’s assessment and those criteria, we believe that, as of December 31, 2007, the Company’s internal control over financial reporting is effective. Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an audit report appearing on the following page on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. 54 Ameriprise Financial 2007 Annual Report
Slide 57: Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting The Board of Directors and Shareholders of Ameriprise Financial, Inc. We have audited Ameriprise Financial, Inc.’s (the Company’s) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Ameriprise Financial, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2007 consolidated financial statements of Ameriprise Financial, Inc., and our report dated February 26, 2008, expressed an unqualified opinion thereon. Minneapolis, Minnesota February 26, 2008 Ameriprise Financial 2007 Annual Report 55
Slide 58: Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Ameriprise Financial, Inc. We have audited the accompanying consolidated balance sheets of Ameriprise Financial, Inc. (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ameriprise Financial, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Ameriprise Financial, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2008 expressed an unqualified opinion thereon. As discussed in Note 3 to the consolidated financial statements, in 2007 the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, and American Institute of Certified Public Accountants Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modification or Exchanges of Insurance Contracts. Minneapolis, Minnesota February 26, 2008 56 Ameriprise Financial 2007 Annual Report
Slide 59: Consolidated Statements of Income Ameriprise Financial, Inc. 2007 Years Ended December 31, 2006 2005 (in millions, except per share amounts) Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues Expenses Distribution expenses Interest credited to fixed accounts Benefits, claims, losses and settlement expenses Amortization of deferred acquisition costs Interest and debt expense Separation costs General and administrative expense Total expenses Pretax income from continuing operations Income tax provision Income from continuing operations Income from discontinued operations, net of tax Net income Earnings per Basic Common Share Income from continuing operations Income from discontinued operations, net of tax Net income Earnings per Diluted Common Share Income from continuing operations Income from discontinued operations, net of tax Net income Weighted average common shares outstanding: Basic Diluted Cash dividends paid per common share See Notes to Consolidated Financial Statements. $3,238 1,762 2,122 1,063 724 8,909 255 8,654 $2,700 1,569 2,247 1,070 707 8,293 273 8,020 1,728 968 1,113 472 101 361 2,480 7,223 797 166 631 — $ 631 $ 2.56 — $ 2.56 $ 2.54 — $ 2.54 246.5 248.5 $ 0.44 $2,334 1,401 2,272 1,129 500 7,636 240 7,396 1,465 1,019 1,083 431 67 293 2,293 6,651 745 187 558 16 $ 574 $ 2.26 0.06 $ 2.32 $ 2.26 0.06 $ 2.32 247.1 247.2 $ 0.11 2,057 850 1,274 551 112 236 2,558 7,638 1,016 202 814 — $ 814 $ 3.45 — $ 3.45 $ 3.39 — $ 3.39 236.2 239.9 $ 0.56 Ameriprise Financial 2007 Annual Report 57
Slide 60: Consolidated Balance Sheets Ameriprise Financial, Inc. December 31, 2007 2006 (in millions, except share data) Assets Cash and cash equivalents Investments Separate account assets Receivables Deferred acquisition costs Restricted and segregated cash Other assets Total assets Liabilities and Shareholders’ Equity Liabilities: Future policy benefits and claims Separate account liabilities Customer deposits Debt Accounts payable and accrued expenses Other liabilities Total liabilities Shareholders’ Equity: Common shares ($.01 par value; shares authorized,1,250,000,000; shares issued, 255,925,436 and 252,909,389, respectively) Additional paid-in capital Retained earnings Treasury shares, at cost (28,177,593 and 11,517,958 shares, respectively) Accumulated other comprehensive loss, net of tax: Net unrealized securities losses Net unrealized derivatives losses Foreign currency translation adjustments Defined benefit plans Total accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity See Notes to Consolidated Financial Statements. $ 3,836 30,625 61,974 3,441 4,503 1,332 3,519 $ $109,230 2,760 35,504 53,848 3,161 4,499 1,254 3,455 $104,481 $ 27,446 61,974 6,201 2,018 1,187 2,594 101,420 $ 30,031 53,848 6,707 2,244 1,209 2,517 96,556 3 4,630 4,811 (1,467) (168) (6) (19) 26 (167) 7,810 $109,230 3 4,353 4,268 (490) (187) (1) (18) (3) (209) 7,925 $104,481 58 Ameriprise Financial 2007 Annual Report
Slide 61: Consolidated Statements of Cash Flows Ameriprise Financial, Inc. 2007 Years Ended December 31, 2006 2005 (in millions) Cash Flows from Operating Activities Net income Less: Income from discontinued operations, net of tax Income from continuing operations Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Capitalization of deferred acquisition and sales inducement costs Amortization of deferred acquisition and sales inducement costs Depreciation and amortization Deferred income taxes Share-based compensation Net realized investment gains Other-than-temporary impairments and provision for loan losses Premium and discount amortization on Available-for-Sale and other securities Changes in operating assets and liabilities: Segregated cash Trading securities and equity method investments in hedge funds, net Future policy benefits and claims, net Receivables Brokerage deposits Accounts payable and accrued expenses Other, net Net cash provided by operating activities Cash Flows from Investing Activities Available-for-Sale securities: Proceeds from sales Maturities, sinking fund payments and calls Purchases Open securities transactions payable and receivable, net Proceeds from sales and maturities of commercial mortgage loans Funding of commercial mortgage loans Proceeds from sale of AMEX Assurance Proceeds from sales of other investments Purchase of other investments Purchase of land, buildings, equipment and software Proceeds from sale of land, buildings, equipment and other Proceeds from transfer of AMEX Assurance deferred acquisition costs Deconsolidation of AMEX Assurance Change in policy loans, net Change in restricted cash Acquisition of bank deposits and loans, net Cash transferred to American Express related to AEIDC Other, net Net cash provided by (used in) investing activities See Notes to Consolidated Financial Statements. $ 814 $ — 814 631 — 631 $ 574 (16) 558 (895) 604 176 25 143 (49) (17) 109 63 19 246 (183) (76) (12) (122) 845 (870) 520 148 24 113 (52) 2 124 (54) 150 96 (246) (14) 112 133 817 (787) 471 169 34 55 (74) 22 156 (73) 179 68 (83) (9) 21 149 856 3,652 2,887 (1,704) 84 492 (510) 115 123 (157) (306) 35 — — (47) (153) — — (16) 4,495 2,454 3,434 (2,782) 15 512 (422) — 149 (135) (187) 66 — — (36) (17) 437 — (4) 3,484 4,336 4,060 (8,685) (26) 590 (486) — 206 (168) (141) — 117 (29) (17) 543 — (572) (1) (273) Ameriprise Financial 2007 Annual Report 59
Slide 62: Consolidated Statements of Cash Flows (continued) Ameriprise Financial, Inc. 2007 Years Ended December 31, 2006 2005 (in millions) Cash Flows from Financing Activities Investment certificates and banking time deposits: Proceeds from additions Maturities, withdrawals and cash surrenders Change in other banking deposits Policyholder and contractholder account values: Consideration received Net transfers to separate accounts Surrenders and other benefits Proceeds from issuances of debt, net of issuance costs Principal repayments of debt Payable to American Express, net Capital transactions with American Express, net Dividends paid to American Express Dividends paid to shareholders Repurchase of common shares Exercise of stock options Excess tax benefits from share-based compensation Dividends received from discontinued operations Other, net Net cash provided by (used in) financing activities Cash Flows from Discontinued Operations Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Net cash provided by discontinued operations Effect of exchange rate changes on cash Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents of discontinued operations included above: At beginning of year At end of year Supplemental Disclosures: Interest paid on debt Income taxes paid, net Non-cash dividend of AEIDC to American Express See Notes to Consolidated Financial Statements. $ 831 519 1,093 (50) (1,777) $ 1,947 (2,897) (95) 1,267 (307) (3,688) 516 (284) — — — (108) (490) 20 52 — 2 (4,065) — — — — 41 277 2,483 $ 2,760 $ — — 131 219 — $ 3,244 (3,412) — 1,532 (13) (2,126) 2,843 (1,391) (1,578) 1,256 (53) (27) — — — 48 — 323 46 (10) 482 518 (32) 1,392 1,091 $ 2,483 $ 54 — 99 146 164 (3,838) — (54) — — — (133) (977) 37 37 — 43 (4,269) — — — — 5 1,076 2,760 $ 3,836 $ — — $ 140 55 — $ $ 60 Ameriprise Financial 2007 Annual Report
Slide 63: Consolidated Statements of Shareholders’ Equity Ameriprise Financial, Inc. Number of Outstanding Shares Balances at January 1, 2005 Comprehensive income: Net income Change in net unrealized securities losses Change in net unrealized derivatives gains Minimum pension liability adjustment Foreign currency translation adjustment Total comprehensive income Dividends paid to shareholders Cash dividends paid to American Express Non-cash dividends paid to American Express Transfer of pension obligations and assets from American Express Retirement Plan Treasury shares Share-based compensation plans Stock split of common shares issued and outstanding Capital transactions with American Express, net Balances at December 31, 2005 Comprehensive income: Net income Change in net unrealized securities losses Change in net unrealized derivatives losses Adjustment to initially apply FASB Statement No. 158, net of tax Minimum pension liability adjustment Foreign currency translation adjustment Total comprehensive income Dividends paid to shareholders Transfer of pension obligations and assets from American Express Retirement Plan Treasury shares Share-based compensation plans Balances at December 31, 2006 Change in accounting principles Comprehensive income: Net income Change in net unrealized securities losses Change in net unrealized derivatives losses Change in defined benefit plans Foreign currency translation adjustment Total comprehensive income Dividends paid to shareholders Treasury shares Share-based compensation plans Other, net Balances at December 31, 2007 See Notes to Consolidated Financial Statements. Common Shares $ — — — — — — — — — — — — — 2 — 2 — — — — — — — — — — 1 3 — — — — — — — — — — — 3 Additional Paid-In Capital $2,907 — — — — — — — — — (18) — (52) (2) 1,256 4,091 — — — — — — — — (5) — 267 4,353 — — — — — — — — — 223 54 $4,630 Retained Earnings $3,415 574 — — — — — (27) (53) (164) — — — — — 3,745 631 — — — — — — (108) — — — 4,268 (138) Treasury Shares $ — — — — — — — — — — — — — — — — — — — — — — — — — (490) — (490) — Accumulated Other Comprehensive Income (Loss) $ 380 — (554) 34 (2) (9) — — — — — — — — — (151) — (58) (7) (3) 3 7 — — — — — (209) — Total $6,702 574 (554) 34 (2) (9) 43 (27) (53) (164) (18) — (52) — 1,256 7,687 631 (58) (7) (3) 3 7 573 (108) (5) (490) 268 7,925 (138) (in millions, except share data) 100 — — — — — — — — — — (122,652) 3,834,058 246,164,048 — 249,875,554 — — — — — — — — — (11,395,306) 2,911,183 241,391,431 — — — — — — — — (16,659,635) 3,016,047 — 227,747,843 $ 814 — — — — — — — — — — — (133) — — (977) — — — — $4,811 $(1,467) — 814 19 19 (5) (5) 29 29 (1) (1) — 856 — (133) — (977) — 223 — 54 $(167) $7,810 Ameriprise Financial 2007 Annual Report 61
Slide 64: Notes to Consolidated Financial Statements 1. Basis of Presentation The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc. (“Ameriprise Financial”), companies in which it directly or indirectly has a controlling financial interest, variable interest entities (“VIEs”) in which it is the primary beneficiary and certain limited partnerships for which it is the general partner (collectively, the “Company”). Ameriprise Financial is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for our clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The Company’s foreign operations in the United Kingdom are conducted through its subsidiary, Threadneedle Asset Management Holdings Limited (“Threadneedle”). Reclassifications The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Changes to the Company’s reportable operating segments have been made as further discussed in Note 26. Additionally, certain reclassifications of prior year amounts have been made to conform to the current presentation, including new income statement captions which are described in Note 2. These reclassifications were made to enhance transparency and to better align the financial statement captions with the key drivers of the business. The Company did not change its revenue and expense recognition policies and the reclassifications did not result in any changes to consolidated net income or shareholders’ equity. The following is a summary of the reclassifications made: Income Statement Reclassifications • The Company reclassified the portion of 12b-1 fees identified as service fees on proprietary funds and marketing support type payments received from non-proprietary fund families for variable annuity and variable universal life products from management and financial advice fees to distribution fees to better align with industry standards. This reclassification impacted the Asset Management, Annuities and Protection segments. • The Company reclassified variable interest entity and banking interest expense from net investment income to banking and deposit interest expense, a new caption on our Consolidated Statement of Income, to align with the presentation used by the banking industry. This reclassification primarily impacted the Advice & Wealth Management and Asset Management segments. • The Company reclassified premiums related to immediate annuities with life contingencies from interest credited to fixed accounts to premiums. The reclassification impacted the Annuities segment. • The Company reclassified reinsurance premiums paid for universal life and variable universal life products from benefits, claims, losses and settlement expenses to other revenues, where cost of insurance fees are reported. This reclassification impacted the Protection segment. • In addition to the variable interest entity and banking deposit interest expense that the Company reclassified from net investment income, the Company reclassified interest credited to certificate deposit products from interest credited to fixed accounts and interest expense primarily related to the limited partnerships and interest expense related to stock loans from interest and debt expense to banking and deposit interest expense. These reclassifications impacted the Advice & Wealth Management and Asset Management segments. • The Company reclassified non-field compensation to general and administrative expense, which impacts all segments. The Company reclassified wholesaling costs, net of capitalization from general and administrative expense to distribution expenses. The Company also reclassified capitalization related to distribution expenses from general and administrative expense to distribution expenses. These reclassifications impacted the Annuities and Protection segments. • The Company reclassified benefit expenses related to immediate annuities with life contingencies from interest credited to fixed accounts to benefits, claims, losses and settlement expenses. This reclassification impacted the Annuities segment. 62 Ameriprise Financial 2007 Annual Report
Slide 65: The following tables show the impact of the new captions and the reclassifications made to the Company’s previously reported Consolidated Statements of Income. Year Ended December 31, 2006 Year Ended December 31, 2005 Previously Reported Revenues Management and financial advice fees Distribution fees Net investment income Premiums Other revenues Total revenues Banking and deposit interest expense Total net revenues Expenses Compensation and benefits Distribution expenses Interest credited to fixed accounts Benefits, claims, losses and settlement expenses Amortization of deferred acquisition costs Interest and debt expense Separation costs Other expenses General and administrative expense Total expenses Pretax income from continuing operations Income tax provision Income from continuing operations Income from discontinued operations, net of tax Net income Reclassified $2,700 1,569 2,247 1,070 707 8,293 273 8,020 — 1,728 968 1,113 472 101 361 — 2,480 7,223 797 166 631 — $ 631 Previously Reported $2,578 1,150 2,241 979 536 7,484 — 7,484 2,650 — 1,310 880 431 73 293 1,102 — 6,739 745 187 558 16 $ 574 Reclassified $2,334 1,401 2,272 1,129 500 7,636 240 7,396 — 1,465 1,019 1,083 431 67 293 — 2,293 6,651 745 187 558 16 $ 574 (in millions) (in millions) $2,965 1,300 2,204 932 739 8,140 — 8,140 3,113 — 1,264 930 472 116 361 1,087 — 7,343 797 166 631 — $ 631 Balance Sheet Reclassifications The Company reclassified Threadneedle’s short-term investments in money market funds from investments to cash and cash equivalents and to restricted and segregated cash. The Company also reclassified securities loaned from receivables to other liabilities. The Company reclassified a debit balance in other liabilities related to federal income taxes to other assets and reclassified various liabilities from accounts payable and accrued expenses to other liabilities based on the nature of the liability and the timing of its settlement. The following table shows the impact of the reclassifications made to the Company’s previously reported Consolidated Balance Sheet. December 31, 2006 Previously Reported Reclassified (in millions) Assets Cash and cash equivalents Investments Separate account assets Receivables Deferred acquisition costs Restricted and segregated cash Other assets Total assets Liabilities and Shareholders’ Equity Liabilities: Future policy benefits and claims Separate account liabilities Customer deposits Debt Accounts payable and accrued expenses Other liabilities Total liabilities Shareholders’ Equity: Total shareholders’ equity Total liabilities and shareholders’ equity 2,717 35,553 53,848 2,960 4,499 1,236 3,359 $104,172 $ 2,760 35,504 53,848 3,161 4,499 1,254 3,455 $104,481 $ $ 30,033 53,848 6,707 2,225 1,788 1,646 96,247 7,925 $104,172 $ 30,031 53,848 6,707 2,244 1,209 2,517 96,556 7,925 $104,481 63 Ameriprise Financial 2007 Annual Report
Slide 66: Statement of Cash Flows Reclassifications The Company has reclassified certain prior year balances in the Consolidated Statements of Cash Flows. • The Company previously classified transfers to and from the fixed account option within our variable annuity product as an operating activity in its Consolidated Statements of Cash Flows. The Company has reclassified these transfers as a financing activity in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments.” • The Company previously classified certain customer transfers to and from cash investment products as a financing activity. The Company has reclassified the change in brokerage accounts as an operating activity in accordance with the AICPA Audit and Accounting Guide: Brokers and Dealers in Securities. • The Company previously classified the net change in annuity policy loans as an operating activity and the net change in universal life policy loans as a financing activity. The Company has reclassified the net change in policy loans as an investing activity in accordance with the AICPA Audit and Accounting Guide: Life and Health Insurance Entities. The Company has also made certain other reclassifications to the Consolidated Statements of Cash Flows to conform with the reclassifications made to the Consolidated Balance Sheets. The effect of these reclassifications on prior year net cash flows related to operating, investing and financing activities is summarized below. The effect of these reclassifications on prior quarters’ net cash flows relating to operating, investing and financing activities is summarized in Note 27. Years Ended December 31, 2006 (in millions) 2005 $ 975 (68) (39) 3 (4) (11) — $ 856 $(255) (17) (1) $(273) $ 177 68 39 14 11 14 $ 323 $ (19) (13) $ (32) Net cash provided by operating activities, previous presentation Reclassification for annuity transfers Reclassification for brokerage accounts Reclassification for policy loans Reclassification of certain trading securities to cash Reclassification for investment certificates accrued interest Other reclassifications Net cash provided by operating activities, as reported Net cash provided by (used in) investing activities, previous presentation Reclassification for policy loans Other reclassifications Net cash provided by (used in) investing activities, as reported Net cash provided by (used in) financing activities, previous presentation Reclassification for annuity transfers Reclassification for brokerage accounts Reclassification for policy loans Reclassification for investment certificates accrued interest Other reclassifications Net cash provided by (used in) financing activities, as reported Effect of exchange rate changes on cash, previous presentation Other reclassifications Effect of exchange rate changes on cash, as reported 619 184 (28) 4 34 11 (7) $ 817 $ 3,523 (36) (3) $ 3,484 $(3,937) (184) 28 32 (11) 7 $(4,065) $ 38 3 $ 41 $ 64 Ameriprise Financial 2007 Annual Report
Slide 67: 2. Summary of Significant Accounting Policies Principles of Consolidation The Company consolidates all entities in which it holds a greater than 50% voting interest, or when certain conditions are met for VIEs and limited partnerships, except for immaterial seed money investments in mutual and hedge funds, which are accounted for as trading securities. Entities in which the Company holds a greater than 20% but less than 50% voting interest are accounted for under the equity method. Additionally, other investments in hedge funds in which the Company holds an interest that is less than 50% are accounted for under the equity method. All other investments are accounted for under the cost method where the Company owns less than a 20% voting interest and does not exercise significant influence, or as Available-for-Sale or trading securities, as applicable. The Company also consolidates all VIEs for which it is considered to be the primary beneficiary. The determination as to whether an entity is a VIE is based on the amount and characteristics of the entity’s equity. The determination as to whether the Company is considered to be the primary beneficiary is based on whether the Company will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual return, or both. Beginning January 1, 2006, the Company consolidates certain limited partnerships that are not VIEs, for which the Company is the general partner and is determined to control the limited partnership. As a general partner, the Company is presumed to control the limited partnership unless the limited partners have the ability to dissolve the partnership or have substantive participating rights. All material intercompany transactions and balances between or among Ameriprise Financial and its subsidiaries and affiliates have been eliminated in consolidation. same as those of the Company, except for the method of capital allocation and the accounting for gains (losses) from intercompany revenues and expenses, which are eliminated in consolidation. Foreign Currency Translation Net assets of foreign subsidiaries, whose functional currency is other than the U.S. dollar, are translated into U.S. dollars based upon exchange rates prevailing at the end of each year. The resulting translation adjustment, along with any related hedge and tax effects, are included in accumulated other comprehensive income (loss). Revenues and expenses are translated at average exchange rates during the year. Amounts Based on Estimates and Assumptions Accounting estimates are an integral part of the Consolidated Financial Statements. In part, they are based upon assumptions concerning future events. Among the more significant are those that relate to investment securities valuation and recognition of other-than-temporary impairments, valuation of deferred acquisition costs (“DAC”) and the corresponding recognition of DAC amortization, derivative financial instruments and hedging activities, litigation and claims reserves and income taxes and the recognition of deferred tax assets and liabilities. These accounting estimates reflect the best judgment of management and actual results could differ. Revenues The Company generates revenue from a wide range of investment and insurance products. Principal sources of revenue include management and financial advice fees, distribution fees, net investment income and premiums. Management and Financial Advice Fees Management and financial advice fees relate primarily to fees earned from managing mutual funds, separate account and wrap account assets, institutional investments including structured investments, as well as fees earned from providing financial advice and administrative services (including transfer agent, administration and custodial fees earned from providing services to retail mutual funds). Management and financial advice fees also include mortality and expense risk fees earned on separate account assets. Prior to the sale of the Company’s defined recordkeeping business in the second quarter of 2006, management and financial advice fees included 401(k) administration fees. The Company’s management and risk fees are generally computed as a contractual rate applied to the underlying asset values and are generally accrued daily and collected monthly. Many of the Company’s mutual funds have a performance incentive adjustment (“PIA”). The PIA increases or decreases the level of management fees received based on the specific fund’s relative performance as measured against a designated external index. The Company recognizes PIA fee revenue on a 12 month rolling performance basis. Employee benefit plan and institutional investment management and administration services fees are negotiated and are also generally based on underlying asset values. The Company may receive performance-based incentive fees from structured investments and hedge funds that it manages, which are recognized as revenue at the end of the performance period. Fees from financial planning and advice services are recognized when the financial plan is delivered. Segment Reporting On December 3, 2007, the Company announced a change in its reportable segments. The revised presentation of previously reported segment data has been applied retroactively to all periods presented in these financial statements. During the fourth quarter of 2007, the Company completed the implementation of an enhanced transfer pricing methodology and expanded its segment presentation from three to five segments to better align with the way the Chief Operating Decision Maker views the business. This facilitates greater transparency of the relationships between the businesses and better comparison to other industry participants in the retail advisor distribution, asset management, insurance and annuity industries. A narrative description of our enhanced transfer pricing methodology is presented in Note 26. The Company’s five segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. Prior to this change, the Company reported results for three segments: Asset Accumulation and Income, Protection and Corporate & Other. The change from three segments to five was primarily the division of the former Asset Accumulation and Income segment into the Advice & Wealth Management, Asset Management and Annuities segments. The accounting policies of the segments are the Ameriprise Financial 2007 Annual Report 65
Slide 68: Distribution Fees Distribution fees primarily include point-of-sale fees (such as mutual fund front-end sales loads) and asset-based fees (such as 12b-1 distribution and shareholder service fees) that are generally based on a contractual percentage of assets and recognized when earned. Distribution fees also include amounts received under marketing support arrangements for sales of mutual funds and other companies’ products, such as through the Company’s wrap accounts, as well as surrender charges on fixed and variable universal life insurance and annuities. Net Investment Income Net investment income primarily includes interest income on fixed maturity securities classified as Available-for-Sale, commercial mortgage loans, policy loans, consumer loans, other investments and cash and cash equivalents; the mark-to-market adjustment on trading securities, including seed money, and certain derivatives, including derivatives hedging variable annuity living benefits; the pro rata share of net income or loss on equity method investments in hedge funds; and realized gains and losses on the sale of securities and charges for securities determined to be other-than-temporarily impaired. Interest income is accrued as earned using the effective interest method, which makes an adjustment of the yield for security premiums and discounts on all performing fixed maturity securities classified as Available-for-Sale, excluding structured securities, and commercial mortgage loans so that the related security or loan recognizes a constant rate of return on the outstanding balance throughout its term. For beneficial interests in structured securities, the excess cash flows attributable to a beneficial interest over the initial investment are recognized as interest income over the life of the beneficial interest using the effective yield method. Realized gains and losses on securities, other than trading securities and equity method investments in hedge funds, are recognized using the specific identification method on a trade date basis and charges are recorded when securities are determined to be other-than-temporarily impaired. Premiums Premiums include premiums, net of reinsurance on property-casualty insurance, traditional life and health (disability income and long term care) insurance and immediate annuities with a life contingent feature. Premiums on auto and home insurance are net of reinsurance premiums and are recognized ratably over the coverage period. Premiums on traditional life and health insurance are net of reinsurance ceded and are recognized as revenue when due. Other Revenues Other revenues include certain charges assessed on fixed and variable universal life insurance and annuities, which consist of cost of insurance charges, net of reinsurance premiums for universal life insurance products, variable annuity guaranteed benefit rider charges and administration charges against contractholder accounts or balances. Premiums paid by fixed and variable universal life and annuity contractholders are considered deposits and are not included in revenue. Cost of insurance and administrative charges on universal and variable universal life insurance, net of reinsurance premiums, were $519 million, $477 million and $421 million for the years ended December 31, 2007, 2006 and 2005, respectively. Other revenues also include revenues related to certain limited partnerships that were consolidated beginning in 2006. 66 Ameriprise Financial 2007 Annual Report Banking and Deposit Interest Expense Banking and deposit interest expense primarily includes interest expense related to banking deposits and investment certificates. Additionally, banking and deposit interest expense includes interest on non-recourse debt of a structured entity while it was consolidated, as well as interest expense related to debt of certain limited partnerships that were consolidated beginning in 2006. Expenses Distribution Expenses Distribution expenses primarily include compensation paid to the Company’s financial advisors, registered representatives, third-party distributors and wholesalers, net of amounts capitalized and amortized as part of DAC. The amounts capitalized and amortized are based on actual distribution costs. The majority of these costs, such as advisor and wholesaler compensation, vary directly with the level of sales. Distribution expenses also include marketing support and other distribution and administration related payments made to affiliated and unaffiliated distributors of products provided by the Company’s affiliates. The majority of these expenses vary with the level of sales, or assets held, by these distributors or are fixed costs. Distribution expenses also include wholesaling costs. Interest Credited to Fixed Accounts Interest credited to fixed accounts represents amounts earned by contractholders and policyholders on fixed account values associated with fixed and variable universal life and annuity contracts. Benefits, Claims, Losses and Settlement Expenses Benefits, claims, losses and settlement expenses consist of amounts paid and changes in liabilities held for anticipated future benefit payments under insurance policies and annuity contracts, including benefits paid under optional variable annuity guaranteed benefit riders, along with costs to process and pay such amounts. Amounts are net of benefit payments recovered or expected to be recovered under reinsurance contracts. Benefits, claims, losses and settlement expenses also include amortization of deferred sales inducement costs (“DSIC”). Amortization of Deferred Acquisition Costs Direct sales commissions and other costs deferred as DAC, which are associated with the sale of annuity, insurance and certain mutual fund products, are amortized over time. For annuity and universal life contracts, DAC are amortized based on projections of estimated gross profits over amortization periods equal to the approximate life of the business. For other insurance products, DAC are generally amortized as a percentage of premiums over amortization periods equal to the premium-paying period. For certain mutual fund products, DAC are generally amortized over fixed periods on a straight-line basis adjusted for redemptions. For annuity and universal life insurance products, the assumptions made in projecting future results and calculating the DAC balance and DAC amortization expense are management’s best estimates. Management is required to update these assumptions whenever it appears that, based on actual experience or other evidence, earlier estimates should be revised. When assumptions are changed, the percentage of estimated gross profits used to amortize DAC might also change. A change in the required amortization percentage is
Slide 69: applied retrospectively; an increase in amortization percentage will result in a decrease in the DAC balance and an increase in DAC amortization expense, while a decrease in amortization percentage will result in an increase in the DAC balance and a decrease in DAC amortization expense. The impact on results of operations of changing assumptions can be either positive or negative in any particular period and is reflected in the period in which such changes are made. For other life and health insurance products, the assumptions made in calculating the DAC balance and DAC amortization expense are consistent with those used in determining the liabilities and, therefore, are intended to provide for adverse deviations in experience and are revised only if management concludes experience will be so adverse that DAC is not recoverable or if premium rates charged for the contract are changed. If management concludes that DAC is not recoverable, DAC is reduced to the amount that is recoverable based on best estimate assumptions and there is a corresponding expense recorded in consolidated results of operations. For annuity, life and health insurance products, key assumptions underlying those long term projections include interest rates (both earning rates on invested assets and rates credited to policyholder accounts), equity market performance, mortality and morbidity rates and the rates at which policyholders are expected to surrender their contracts, make withdrawals from their contracts and make additional deposits to their contracts. Assumptions about interest rates are the primary factor used to project interest margins, while assumptions about rates credited to policyholder accounts and equity market performance are the primary factors used to project client asset value growth rates, and assumptions about surrenders, withdrawals and deposits comprise projected persistency rates. Management must also make assumptions to project maintenance expenses associated with servicing the Company’s annuity and insurance businesses during the DAC amortization period. The client asset value growth rate is the rate at which variable annuity and variable universal life insurance contract values are assumed to appreciate in the future. The rate is net of asset fees and anticipates a blend of equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions with respect to client asset value growth rates on a regular basis. The Company uses a mean reversion method as a guideline in setting near-term client asset value growth rates based on a long term view of financial market performance as well as actual historical performance. In periods when market performance results in actual contract value growth at a rate that is different than that assumed, management reassesses the near-term rate in order to continue to project management’s best estimate of long term growth. The near-term growth rate is reviewed to ensure consistency with management’s assessment of anticipated equity market performance. DAC amortization expense recorded in a period when client asset value growth rates exceed management’s near-term estimate will typically be less than in a period when growth rates fall short of management’s near-term estimate. The analysis of DAC balances and the corresponding amortization is a dynamic process that considers all relevant factors and assumptions described previously. Unless the Company’s management identifies a significant deviation over the course of the quarterly monitoring, management reviews and updates these DAC amortization assumptions annually in the third quarter of each year. Interest and Debt Expense Interest and debt expense primarily includes interest on corporate debt, the impact of interest rate hedging activities and amortization of debt issuance costs. Separation Costs Separation costs include expenses related to the Company’s separation from American Express. These costs were primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing the Company’s technology platforms and advisor and employee retention programs. The Company’s separation from American Express is complete. General and Administrative Expense General and administrative expense includes compensation, sharebased awards and other benefits for employees (other than employees directly related to distribution, including financial advisors), professional and consultant fees, information technology, facilities and equipment, advertising and promotion, legal and regulatory, minority interest and corporate related expenses. Minority interest is related to certain limited partnerships that were consolidated beginning in 2006, which primarily consist of the portion of net income (loss) of these partnerships not owned by the Company. Advertising costs are charged to expense in the year in which the advertisement first takes place, except for certain direct-response advertising costs primarily associated with the solicitation of auto and home insurance products. Direct-response advertising expenses directly attributable to the sale of auto and home insurance products are capitalized and generally amortized over the life of the policy. The Company measures and recognizes the cost of share-based awards granted to employees and directors based on the grant-date fair value of the award. The fair value of each option is estimated on the grant date using a Black-Scholes option-pricing model and is charged to expense on a straight-line basis over the vesting period. The Company recognizes the cost of share-based awards granted to independent contractors on a fair value basis until the award is fully vested. Income Taxes The Company’s provision for income taxes represents the net amount of income taxes that the Company expects to pay or to receive from various taxing jurisdictions in connection with its operations. The Company provides for income taxes based on amounts that the Company believes it will ultimately owe taking into account the recognition and measurement for uncertain tax positions. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain items. Balance Sheet Cash and Cash Equivalents Cash equivalents include time deposits and other highly liquid investments with original maturities of 90 days or less. Investments Investments consist of the following: Ameriprise Financial 2007 Annual Report 67
Slide 70: Available-for-Sale Securities Available-for-Sale securities are carried at fair value with unrealized gains (losses) recorded in accumulated other comprehensive income (loss), net of income tax provision (benefit) and net of adjustments in other asset and liability balances, such as DAC, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet date. Gains and losses are recognized in consolidated results of operations upon disposition of the securities. In addition, losses are also recognized when management determines that a decline in value is other-than-temporary, which requires judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include issuer downgrade, default or bankruptcy. The Company also considers the extent to which cost exceeds fair value, the duration of that difference and management’s judgment about the issuer’s current and prospective financial condition, as well as the Company’s ability and intent to hold until recovery. Fair value is generally obtained from third party pricing sources. However, the Company’s Available-for-Sale securities portfolio also contains structured investments of various asset quality, including collateralized debt obligations (“CDOs”) (backed by high-yield bonds and bank loans), which are not readily marketable. As a result, the carrying values of these structured investments are based on future cash flow projections that require a significant degree of management judgment as to the amount and timing of cash payments, defaults and recovery rates of the underlying investments and, as such, are subject to change. Commercial Mortgage Loans, Net Commercial mortgage loans, net reflect principal amounts outstanding less the allowance for loan losses. The allowance for loan losses is measured as the excess of the loan’s recorded investment over the present value of its expected principal and interest payments discounted at the loan’s effective interest rate, or the fair value of collateral. Additionally, the level of the allowance for loan losses considers other factors, including historical experience, economic conditions and geographic concentrations. Management regularly evaluates the adequacy of the allowance for loan losses and believes it is adequate to absorb estimated losses in the portfolio. The Company generally stops accruing interest on commercial mortgage loans for which interest payments are delinquent more than three months. Based on management’s judgment as to the ultimate collectibility of principal, interest payments received are either recognized as income or applied to the recorded investment in the loan. Policy Loans Policy loans include life insurance policy, annuity and investment certificate loans. These loans are carried at the aggregate of the unpaid loan balances, which do not exceed the cash surrender values of underlying products, plus accrued interest. Other Investments Other investments reflect the Company’s interest in affordable housing partnerships and syndicated loans. Affordable housing partnerships are carried at amortized cost, as the Company has no influence over the operating or financial policies of the general partner. Syndicated loans reflect amortized cost less allowance for losses. Separate Account Assets and Liabilities Separate account assets and liabilities are primarily funds held for the exclusive benefit of variable annuity and variable life insurance contractholders. The Company receives investment management fees, mortality and expense risk fees, guarantee fees and cost of insurance charges from the related accounts. Included in separate account liabilities are investment liabilities of Threadneedle which represent the value of the units in issue of the pooled pension funds that are offered by Threadneedle’s subsidiary, Threadneedle Pensions Limited. Receivables Receivables include reinsurance recoverable, consumer banking loans, accrued investment income, brokerage customer receivables, premiums due, securities borrowed and other receivables. Reinsurance The Company reinsures a portion of the insurance risks associated with its life, disability income and long term care insurance products through reinsurance agreements with unaffiliated reinsurance companies. Reinsurance is used in order to limit losses, reduce exposure to large risks and provide additional capacity for future growth. To manage exposure to losses from reinsurer insolvencies, the financial condition of reinsurers is evaluated prior to entering into new reinsurance treaties and on a periodic basis during the terms of the treaties. The Company’s insurance companies remain primarily liable as the direct insurers on all risks reinsured. Generally, the Company reinsures 90% of the death benefit liability related to individual fixed and variable universal life and term life insurance products. The Company began reinsuring risks at this level beginning in 2001 for term life insurance and 2002 for variable and universal life insurance. Policies issued prior to these dates are not subject to the same reinsurance levels. Generally, the maximum amount of life insurance risk retained by the Company is $750,000 on any policy insuring a single life and $1.5 million on any flexible premium survivorship variable life policy. For existing long term care policies the Company retained 50% of the risk and the remaining 50% of the risk was ceded on a coinsurance basis to affiliates of Genworth Financial, Inc. (“Genworth”). Reinsurance recoverable from Genworth related to the Company’s long term care liabilities was $1.0 billion at December 31, 2007, while amounts recoverable from each other reinsurer were much smaller. Risk on variable life and universal life policies is reinsured on a yearly renewable term Trading Securities and Equity Method Investments in Hedge Funds Trading securities and equity method investments in hedge funds include common stocks, underlying investments of consolidated hedge funds, hedge fund investments managed by third parties and seed money investments. Trading securities are carried at fair value with unrealized and realized gains (losses) recorded within net investment income. The carrying value of equity method investments in hedge funds reflects the Company’s original investment and its share of earnings or losses of the hedge funds subsequent to the date of investment, and approximates fair value. 68 Ameriprise Financial 2007 Annual Report
Slide 71: basis. Risk on most term life policies starting in 2001 is reinsured on a coinsurance basis. Generally, the Company retains at most $5,000 per month of risk per life on disability income insurance policy forms introduced in October 2007 in most states and reinsures the remainder of the risk on a coinsurance basis with unaffiliated reinsurance companies. The Company retains all risk on disability income contracts sold on other policy forms. The Company also retains all risk of accidental death benefit claims and substantially all risk associated with waiver of premium provisions. For the years ended December 31, 2007, 2006 and 2005, net premiums earned on traditional life and health insurance and life contingent immediate annuity products were $485 million, $533 million and $521 million, respectively, which included reinsurance assumed of $2 million, $3 million and $2 million, respectively, and were net of amounts ceded under related reinsurance agreements of $139 million, $115 million and $124 million, respectively. Cost of insurance and administrative charges on universal and variable universal life insurance are reported net of reinsurance ceded of $57 million, $55 million and $52 million for the years ended December 31, 2007, 2006 and 2005, respectively. Reinsurance recovered from reinsurers was $126 million, $115 million and $106 million for the years ended December 31, 2007, 2006 and 2005, respectively. The Company also reinsures a portion of the risks associated with its personal auto and home insurance products through two types of reinsurance agreements with unaffiliated reinsurance companies. The Company purchases reinsurance with a limit of $5 million per loss and the Company retains $350,000 per loss. The Company purchases catastrophe reinsurance and retains $10 million of loss per event with loss recovery up to $80 million per event. are anticipated in establishing amortization periods and other valuation assumptions. Restricted and Segregated Cash Total restricted cash at December 31, 2007 and 2006 was $279 million and $138 million, respectively, which cannot be utilized for operations. The Company’s restricted cash at December 31, 2007 and 2006 primarily related to certain consolidated limited partnerships. At both December 31, 2007 and 2006, amounts segregated under federal and other regulations reflect resale agreements of $1.1 billion segregated in special bank accounts for the benefit of the Company’s brokerage customers. The Company’s policy is to take possession of securities purchased under agreements to resell. Such securities are valued daily and additional collateral is obtained when appropriate. Other Assets Other assets include land, buildings, equipment and software, goodwill and other intangible assets, DSIC, derivatives, deferred income taxes and other miscellaneous assets. Other assets also include assets related to consolidated limited partnerships. Land, Buildings, Equipment and Software Land, buildings, equipment and internally developed or purchased software are carried at cost less accumulated depreciation or amortization. The Company generally uses the straight-line method of depreciation and amortization over periods ranging from three to 30 years. At December 31, 2007 and 2006, land, buildings, equipment and software were $849 million and $705 million, respectively, net of accumulated depreciation of $757 million and $781 million, respectively. Depreciation and amortization expense for the years ended December 31, 2007, 2006 and 2005 was $146 million, $126 million and $141 million, respectively. Goodwill and Other Intangible Assets Goodwill represents the amount of an acquired company’s acquisition cost in excess of the fair value of assets acquired and liabilities assumed. The Company evaluates goodwill for impairment annually and whenever events and circumstances indicate that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of a reporting unit. In determining whether impairment has occurred, the Company uses a combination of the market approach and the discounted cash flow method, a variation of the income approach. Intangible assets are amortized over their estimated useful lives unless they are deemed to have indefinite useful lives. The Company evaluates the definite lived intangible assets remaining useful lives annually and tests for impairment whenever events and circumstances indicate that an impairment may have occurred, such as a significant adverse change in the business climate. For intangible assets subject to amortization, impairment is recognized if the carrying amount is not recoverable or the carrying amount exceeds the fair value of the intangible asset. Consumer Banking Loans Included in receivables at December 31, 2007 and 2006 were consumer banking loans, net of allowance for loan losses, of $408 million and $506 million, respectively. The lending portfolio primarily consists of home equity lines of credit and secured and unsecured lines of credit. Brokerage Customer Receivables At December 31, 2007 and 2006, brokerage customer receivables included receivables that represent credit extended to brokerage customers to finance their purchases of securities on margin of $196 million for both periods and other customer receivables of $63 million and $39 million, respectively. Brokerage margin loans are generally collateralized by securities with market values in excess of the amounts due. Deferred Acquisition Costs DAC represent the costs of acquiring new business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity and insurance products and, to a lesser extent, certain mutual fund products. These costs are deferred to the extent they are recoverable from future profits or premiums. The DAC associated with insurance or annuity contracts that are significantly modified or internally replaced with another contract are accounted for as contract terminations. These transactions Deferred Sales Inducement Costs DSIC consist of bonus interest credits and premium credits added to certain annuity contract and insurance policy values. These benefits are capitalized to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. Ameriprise Financial 2007 Annual Report 69
Slide 72: The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. Derivative Financial Instruments and Hedging Activities Derivative financial instruments are recorded at fair value. The fair value of the Company’s derivative financial instruments is determined using either market quotes or valuation models that are based upon the net present value of estimated future cash flows and incorporate current market observable inputs to the extent available. In certain instances, the fair value includes structuring costs incurred at the inception of the transaction. The accounting for changes in the fair value of a derivative financial instrument depends on its intended use and the resulting hedge designation, if any. The Company primarily uses derivatives as economic hedges that are not designated as accounting hedges or do not qualify for hedge accounting treatment. The Company occasionally designates derivatives as (1) hedges of changes in the fair value of assets, liabilities, or firm commitments (“fair value hedges”), (2) hedges of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedges”), or (3) hedges of foreign currency exposures of net investments in foreign operations (“net investment hedges in foreign operations”). For derivative financial instruments that do not qualify for hedge accounting or are not designated as hedges, changes in fair value are recognized in current period earnings, generally as a component of net investment income. For derivative financial instruments that qualify as fair value hedges, changes in the fair value of the derivatives, as well as of the corresponding hedged assets, liabilities or firm commitments, are recognized in current earnings. If a fair value hedge designation is removed or the hedge is terminated prior to maturity, previous adjustments to the carrying value of the hedged item are recognized into earnings over the remaining life of the hedged item. For derivative financial instruments that qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instruments are reported in accumulated other comprehensive income (loss) and reclassified into earnings when the hedged item or transaction impacts earnings. The amount that is reclassified into earnings is presented in the Consolidated Statements of Income with the hedged instrument or transaction impact. Any ineffective portion of the gain or loss is reported currently in earnings as a component of net investment income. If a hedge designation is removed or a hedge is terminated prior to maturity, the amount previously recorded in accumulated other comprehensive income (loss) may be recognized into earnings over the period that the hedged item impacts earnings. For any hedge relationships that are discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related amounts previously recorded in accumulated other comprehensive income (loss) are recognized in earnings immediately. For derivative financial instruments that qualify as net investment hedges in foreign operations, the effective portions of the change in fair value of the derivatives are recorded in accumulated other comprehensive income (loss) as part of the foreign currency translation adjustment. Any ineffective portions of net investment hedges are recognized in net investment income during the period of change. Derivative financial instruments that are entered into for hedging purposes are designated as such at the time the Company enters into the contract. For all derivative financial instruments that are designated for hedging activities, the Company formally documents all of the hedging relationships between the hedge instruments and the hedged items at the inception of the relationships. Management also formally documents its risk management objectives and strategies for entering into the hedge transactions. The Company formally assesses, at inception and on a quarterly basis, whether derivatives designated as hedges are highly effective in offsetting the fair value or cash flows of hedged items. If it is determined that a derivative is no longer highly effective as a hedge, the Company will discontinue the application of hedge accounting. The equity component of equity indexed annuity and stock market investment certificate obligations are considered embedded derivatives. Additionally, certain annuities contain guaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimum withdrawal benefit (“GMWB”) provisions. The GMAB and the nonlife contingent benefits associated with GMWB provisions are also considered embedded derivatives. The fair value of embedded derivatives associated with annuities is included in future policy benefits and claims, whereas the fair value of stock market investment certificate embedded derivatives is included in customer deposits. The changes in fair value of the equity indexed annuity and investment certificate embedded derivatives are reflected in interest credited to fixed accounts and in banking and deposit interest expense, respectively. The changes in the fair value of the GMWB and GMAB embedded derivatives are reflected in benefits, claims, losses and settlement expenses. Future Policy Benefits and Claims Fixed Annuities and Variable Annuity Guarantees Future policy benefits and claims related to fixed annuities and variable annuity guarantees include liabilities for fixed account values on fixed and variable deferred annuities, guaranteed benefits associated with variable annuities, equity indexed annuities and fixed annuities in a payout status. Liabilities for fixed account values on fixed and variable deferred annuities are equal to accumulation values, which are the cumulative gross deposits and credited interest less withdrawals and various charges. The majority of the variable annuity contracts offered by the Company contain guaranteed minimum death benefit (“GMDB”) provisions. When market values of the customer’s accounts decline, the death benefit payable on a contract with a GMDB may exceed the contract accumulation value. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as gain gross-up (“GGU”) benefits. In addition, the Company offers contracts containing GMWB and GMAB provisions and, until May 2007, the Company offered contracts containing guaranteed minimum income benefit (“GMIB”) provisions. In determining the liabilities for variable annuity death benefits, GMIB and the life contingent benefits associated with GMWB, the Company projects these benefits and contract assessments using actuarial models to simulate various equity market scenarios. 70 Ameriprise Financial 2007 Annual Report
Slide 73: Significant assumptions made in projecting future benefits and assessments relate to customer asset value growth rates, mortality, persistency and investment margins and are consistent with those used for DAC asset valuation for the same contracts. As with DAC, management will review and, where appropriate, adjust its assumptions each quarter. Unless management identifies a material deviation over the course of quarterly monitoring, management will review and update these assumptions annually in the third quarter of each year. The variable annuity death benefit liability is determined by estimating the expected value of death benefits in excess of the projected contract accumulation value and recognizing the excess over the estimated meaningful life based on expected assessments (e.g., mortality and expense fees, contractual administrative charges and similar fees). If elected by the contract owner and after a stipulated waiting period from contract issuance, a GMIB guarantees a minimum lifetime annuity based on a specified rate of contract accumulation value growth and predetermined annuity purchase rates. The GMIB liability is determined each period by estimating the expected value of annuitization benefits in excess of the projected contract accumulation value at the date of annuitization and recognizing the excess over the estimated meaningful life based on expected assessments. GMAB and the non-life contingent benefits associated with GMWB provisions are considered embedded derivatives and are recorded at fair value. The fair value of these embedded derivatives is based on the present value of future benefits less applicable fees charged for the provision. The liability for the life contingent benefits associated with GMWB provisions is determined in the same way as the liability for variable annuity death benefits. The changes in both the fair values of the GMWB and GMAB embedded derivatives and the liability for life contingent benefits are reflected in benefits, claims, losses and settlement expenses. Liabilities for equity indexed annuities are equal to the accumulation of host contract values covering guaranteed benefits and the market value of embedded equity options. Liabilities for fixed annuities in a benefit or payout status are based on future estimated payments using established industry mortality tables and interest rates, ranging from 4.6% to 9.5% at December 31, 2007, depending on year of issue, with an average rate of approximately 5.8%. Liabilities for unpaid amounts on reported life insurance claims are equal to the death benefits payable under the policies. Liabilities for unpaid amounts on reported health insurance claims include any periodic or other benefit amounts due and accrued, along with estimates of the present value of obligations for continuing benefit payments. These amounts are calculated based on claim continuance tables which estimate the likelihood an individual will continue to be eligible for benefits. Present values are calculated at interest rates established when claims are incurred. Anticipated claim continuance rates are based on established industry tables, adjusted as appropriate for the Company’s experience. Interest rates used with disability income claims ranged from 3.0% to 8.0% at December 31, 2007, with an average rate of 4.9%. Interest rates used with long term care claims ranged from 4.0% to 7.0% at December 31, 2007, with an average rate of 4.2%. Liabilities for estimated benefits payable on claims that have been incurred but not yet reported are based on periodic analysis of the actual time lag between when a claim occurs and when it is reported. Liabilities for estimates of benefits that will become payable on future claims on term life, whole life and health insurance policies are based on the net level premium method, using anticipated premium payments, mortality and morbidity rates, policy persistency and interest rates earned on assets supporting the liability. Anticipated mortality and morbidity rates are based on established industry mortality and morbidity tables, with modifications based on the Company’s experience. Anticipated premium payments and persistency rates vary by policy form, issue age, policy duration and certain other pricing factors. Anticipated interest rates for term and whole life ranged from 4.0% to 10.0% at December 31, 2007, depending on policy form, issue year and policy duration. Anticipated interest rates for disability income are 7.5% at policy issue grading to 5.0% over five years. Anticipated discount rates for long term care vary by plan and were 5.4% at December 31, 2007 grading up to 6.8% or 9.4% over 40 years. Where applicable, benefit amounts expected to be recoverable from other insurers who share in the risk are separately recorded as reinsurance recoverable within receivables. The Company issues only non-participating life and health insurance policies, which do not pay dividends to policyholders from realized policy margins. Life and Health Insurance Future policy benefits and claims related to life and health insurance include liabilities for fixed account values on fixed and variable universal life policies, liabilities for unpaid amounts on reported claims, estimates of benefits payable on claims incurred but not yet reported and estimates of benefits that will become payable on term life, whole life and health insurance policies as claims are incurred in the future. Liabilities for fixed account values on fixed and variable universal life insurance are equal to accumulation values. Accumulation values are the cumulative gross deposits and credited interest less various contractual expense and mortality charges and less amounts withdrawn by policyholders. Auto and Home Reserves Auto and home reserves include amounts determined from loss reports on individual claims, as well as amounts, based on historical loss experience, for losses incurred but not reported. Such liabilities are necessarily based on estimates and, while management believes that the reserve amounts are adequate at December 31, 2007 and 2006, the ultimate liability may be in excess of or less than the amounts provided. The Company’s methods for making such estimates and for establishing the resulting liability are continually reviewed, and any adjustments are reflected in consolidated results of operations in the period such adjustments are made. Customer Deposits Customer deposits primarily include investment certificate reserves and banking and brokerage customer deposits. Ameriprise Financial 2007 Annual Report 71
Slide 74: Investment certificates may be purchased either with a lump sum payment or installment payments. Certificate product owners are entitled to receive, at maturity, a definite sum of money. Payments from certificate owners are credited to investment certificate reserves. Investment certificate reserves generally accumulate interest at specified percentage rates. Reserves are maintained for advance payments made by certificate owners, accrued interest thereon and for additional credits in excess of minimum guaranteed rates and accrued interest thereon. On certificates allowing for the deduction of a surrender charge, the cash surrender values may be less than accumulated investment certificate reserves prior to maturity dates. Cash surrender values on certificates allowing for no surrender charge are equal to certificate reserves. Certain certificates offer a return based on the relative change in a stock market index. The certificates with an equity-based return contain embedded derivatives, which are carried at fair value within other liabilities. The fair value of these embedded derivatives incorporates current market observable inputs. Changes in fair value are reflected in banking and deposit interest expense. Banking customer deposits are amounts payable to banking customers who hold money market, savings, checking accounts and certificates of deposit with Ameriprise Bank, FSB. Brokerage customer deposits are amounts payable to brokerage customers related to credit balances and other customer funds pending completion of securities transactions. The Company pays interest on certain customer credit balances. Other Liabilities Other liabilities include derivatives, deferred compensation liabilities, securities loaned, accrued interest payable and miscellaneous liabilities. Other liabilities also include minority interests of consolidated limited partnerships. disclosed on the face of the consolidated statement of income. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years with early adoption prohibited. The provisions of SFAS 160 are to be applied prospectively, except for the presentation and disclosure requirements which are to be applied retrospectively to all periods presented. The Company is currently evaluating the impact of SFAS 160 on its consolidated results of operations and financial condition. In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of the Audit and Accounting Guide ‘Investment Companies’ and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provided clarification on the definition of an investment company. In February 2008, the FASB decided to indefinitely defer the effective date of SOP 07-1. In May 2007, the FASB issued FASB Staff Position (“FSP”) FASB Interpretation No. (“FIN”) 46(R)-7, “Application of FIN 46(R) to Investment Companies” (“FSP 46(R)-7”). FSP 46(R)-7 is dependent upon clarification of the definition of an investment company as provided in SOP 07-1 and is effective upon the adoption of that SOP. With the deferral of SOP 07-1, the Company will defer the adoption of both SOP 07-1 and FSP 46(R)-7. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 gives entities the option to measure certain financial instruments and other items at fair value that are not currently permitted to be measured at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 requires entities to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company did not adopt SFAS 159 for any of its existing eligible assets or liabilities and has no current plans to adopt SFAS 159 for any new financial instruments. In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). As of December 31, 2006, the Company adopted the recognition provisions of SFAS 158 which require an entity to recognize the overfunded or underfunded status of an employer’s defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company’s adoption of this provision did not have a material effect on the consolidated results of operations and financial condition. Effective for fiscal years ending after December 15, 2008, SFAS 158 also requires an employer to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position. As of December 31, 2008, the Company will adopt the measurement provisions of SFAS 158 3. Recent Accounting Pronouncements In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in an acquiree, and goodwill acquired. SFAS 141(R) also requires an acquirer to disclose information about the financial effects of a business combination. SFAS 141(R) is effective prospectively for business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with early adoption prohibited. The Company will apply the standard to any business combinations within the scope of SFAS 141(R) occurring after December 31, 2008. In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes the accounting and reporting for ownership interest in subsidiaries not attributable, directly or indirectly, to a parent. SFAS 160 requires that noncontrolling (minority) interests be classified as equity (instead of as a liability) within the consolidated balance sheet, and net income attributable to both the parent and the noncontrolling interest be 72 Ameriprise Financial 2007 Annual Report
Slide 75: which the Company does not believe will have a material effect on consolidated results of operations and financial condition. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted provided the entity has not issued financial statements for any period within the year of adoption. The provisions of SFAS 157 are required to be applied prospectively as of the beginning of the fiscal year in which SFAS 157 is initially applied, except for certain financial instruments as defined in SFAS 157 which will require retrospective application of SFAS 157. Any retrospective application will be recognized as a cumulative effect adjustment to the opening balance of retained earnings for the fiscal year of adoption. The Company adopted SFAS 157 effective January 1, 2008. As a result of adopting SFAS 157, the Company will record a cumulative effect after-DAC, DSIC and tax reduction to retained earnings of approximately $35 million related to adjusting the fair value of structured derivatives the Company uses to hedge its exposure to GMWB provisions. The Company initially recorded these derivatives in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-3,“Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” SFAS 157 requires these derivatives to be marked to the price the Company would receive to sell the derivatives to a market participant (an exit price). On January 18, 2008, the FASB published for comment Proposed FSP FAS 157-c “Measuring Liabilities under FASB Statement No. 157” (“FSP 157-c”). FSP 157-c states that in the absence of a quoted price for the identical liability in an active market, a reporting entity may measure the fair value of its liability at the amount it would receive as proceeds if it were to issue that liability at the measurement date. FSP 157-c shall be applied on a prospective basis effective on the later of (a) the beginning of the period that includes the issuance date of the FSP or (b) the beginning of the period in which an entity initially applies SFAS 157. The Company is evaluating the impact that this proposed FSP will have on the valuation of its embedded derivatives. Any change to the valuation of the Company’s embedded derivatives as a result of adopting SFAS 157 and FSP 157-c will be recorded in earnings as of the date of adoption. In accordance with FSP FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), the Company will defer the adoption of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007 and recorded a cumulative change in accounting principle resulting in an increase in the liability for unrecognized tax benefits and a decrease in beginning retained earnings of $4 million. In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155: (i) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; (ii) clarifies which interest-only and principal-only strips are not subject to the requirements of SFAS 133; (iii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iv) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (v) amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The Company adopted SFAS 155 as of January 1, 2007. The effect of adopting SFAS 155 on the Company’s consolidated results of operations and financial condition was not material. Effective January 1, 2006, the Company adopted EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners Have Certain Rights” (“EITF 04-5”). EITF 04-5 provides guidance on whether a limited partnership or similar entity that is not a VIE should be consolidated by one of its partners. EITF 04-5 was effective for general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreements were modified after June 29, 2005. For general partners in all other limited partnerships, this guidance was effective no later than January 1, 2006. The adoption of EITF 04-5 resulted in the consolidation of certain limited partnerships for which the Company is the general partner. The effect of this consolidation as of January 1, 2006 was a net increase in total assets and total liabilities of $427 million, consisting of $14 million of investments (net of $153 million of investments as of December 31, 2005 previously accounted for under the equity method), $89 million of restricted cash, $324 million of other assets, $291 million of other liabilities and $136 million of non-recourse debt. The adoption of EITF 04-5 had no net effect on consolidated net income. In September 2005, the AICPA issued SOP 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”). SOP 05-1 provides clarifying guidance on accounting for DAC associated with an insurance or annuity contract that is significantly modified or is internally replaced with another contract. Prior to adoption, the Company accounted for many of these transactions as contract continuations and continued amortizing existing Ameriprise Financial 2007 Annual Report 73
Slide 76: DAC against revenue for the new or modified contract. Effective January 1, 2007, the Company adopted SOP 05-1 resulting in these transactions being prospectively accounted for as contract terminations. Consistent with this, the Company now anticipates these transactions in establishing amortization periods and other valuation assumptions. As a result of adopting SOP 05-1, the Company recorded as a cumulative change in accounting principle $206 million, reducing DAC by $204 million, DSIC by $11 million and liabilities for future policy benefits by $9 million. The after-tax decrease to retained earnings for these changes was $134 million. The adoption of SOP 05-1, among other things, resulted in an increase to DAC and DSIC amortization in 2007. 4. Separation and Distribution from American Express Ameriprise Financial was formerly a wholly owned subsidiary of American Express Company (“American Express”). On February 1, 2005, the American Express Board of Directors announced its intention to pursue the disposition of 100% of its shareholdings in Ameriprise Financial (the “Separation”) through a tax-free distribution to American Express shareholders. In preparation for the disposition, Ameriprise Financial approved a stock split of its 100 common shares entirely held by American Express into 246 million common shares. Effective as of the close of business on September 30, 2005, American Express completed the separation of Ameriprise Financial and the distribution of the Ameriprise Financial common shares to American Express shareholders (the “Distribution”). The Distribution was effectuated through a pro-rata dividend to American Express shareholders consisting of one share of Ameriprise Financial common stock for every five shares of American Express common stock owned by its shareholders on September 19, 2005, the record date. Prior to August 1, 2005, Ameriprise Financial was named American Express Financial Corporation. In connection with the Separation and Distribution, Ameriprise Financial entered into the following transactions with American Express: • Effective August 1, 2005, the Company transferred its 50% ownership interest and the related assets and liabilities of its subsidiary, American Express International Deposit Company (“AEIDC”), to American Express for $164 million through a noncash dividend equal to the net book value excluding $26 million of net unrealized investment losses of AEIDC. In connection with the AEIDC transfer, American Express paid the Company a $164 million capital contribution. The results of operations and cash flows of AEIDC are shown as discontinued operations in the accompanying Consolidated Financial Statements. • Effective July 1, 2005, the Company’s subsidiary, AMEX Assurance Company (“AMEX Assurance”), ceded 100% of its travel insurance and card related business offered to American Express customers to an American Express subsidiary in return for an arm’s length ceding fee. As of September 30, 2005, the Company entered into an agreement to sell the AMEX Assurance legal entity to American Express on or before September 30, 2007 for a fixed price equal to the net book value of AMEX Assurance as of the Distribution, which was approximately $115 million. These transactions created a variable interest entity, for GAAP purposes, for which the Company was not the primary beneficiary. Accordingly, the Company deconsolidated AMEX Assurance for GAAP purposes as of September 30, 2005. The sale of AMEX Assurance was completed on September 30, 2007 for a sale price of $115 million. • A tax allocation agreement with American Express was signed effective September 30, 2005. • American Express provided the Company a capital contribution of approximately $1.1 billion, which is in addition to the $164 million capital contribution noted above. • Ameriprise Financial and American Express completed the split of the American Express Retirement Plan, which resulted in additional pension liability in 2006 and 2005 of $5 million and $32 million, respectively, and adjustments to additional paid in capital in 2006 and 2005 of $5 million and $18 million (net of tax), respectively. As a result of the Distribution, Ameriprise Financial entered into an unsecured bridge loan in the amount of $1.4 billion. That loan was drawn down in September 2005 and was repaid using proceeds from a $1.5 billion senior note issuance in November 2005. The Company incurred significant non-recurring separation costs as a result of the Separation. These costs were primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing the Company’s technology platforms and advisor and employee retention programs. During the years ended December 31, 2007, 2006 and 2005, $236 million ($154 million after-tax), $361 million ($235 million after-tax) and $293 million ($191 million after-tax), respectively, of such costs were incurred. American Express had historically provided a variety of corporate and other support services for the Company, including information technology, treasury, accounting, financial reporting, tax administration, human resources, marketing, legal and other services. Following the Distribution, American Express provided the Company with many of these services pursuant to transition services agreements for transition periods of up to two years or more, if extended by mutual agreement of the Company and American Express. The Company has terminated all of these service agreements and has completed its separation from American Express. 5. Acquisition of Bank Deposits and Loans On September 29, 2005, the Company and American Express Bank, FSB (“AEBFSB”), a subsidiary of American Express, entered into a Purchase and Assumption Agreement (the “Agreement”) pursuant to which the Company agreed to purchase assets and assume liabilities, primarily consumer loans and deposits of AEBFSB, upon obtaining a federal savings bank charter. In September 2006, the Company and AEBFSB entered into amendments to the Agreement, pursuant to which the Company agreed to acquire the assets and liabilities from AEBFSB in three phases. Ameriprise Bank, FSB (“Ameriprise Bank”), a wholly owned subsidiary of the Company, commenced operations in September 2006 subsequent to obtaining the charter and performed the agreement with AEBFSB. In the three phases completed from September to November 2006, Ameriprise Bank 74 Ameriprise Financial 2007 Annual Report
Slide 77: acquired $493 million of customer loans, assumed $963 million of customer deposits and received net cash of $470 million. The assets acquired and liabilities assumed were recorded at fair value. Separately, on October 23, 2006, the Company purchased $33 million of secured loans from American Express Credit Corporation for cash consideration. These loans were made to the Company’s customers and are secured by the customers’ investment assets and/or insurance policies and will be serviced by Ameriprise Bank. The Company recorded the loans purchased at fair value. recorded investment income of $14 million in 2005 related to two liquidated secured loan trusts that had previously been consolidated. The Company has other significant variable interests for which it is not the primary beneficiary and, therefore, does not consolidate. These interests are represented by carrying values of $46 million of CDOs managed by the Company and $96 million of affordable housing partnerships. For the CDOs managed by the Company, the Company has evaluated its variability in losses and returns considering its investment levels, which are less than 50% of the residual tranches, and the fee received from managing the structures and has determined that consolidation is not required. The Company manages approximately $7.5 billion of underlying collateral within the CDOs. The Company’s maximum exposure to loss as a result of its investment in these entities is represented by the carrying values. The Company is a limited partner in affordable housing partnerships in which the Company has a less than 50% interest in the partnerships and receives the benefits and accepts the risks consistent with other limited partners. In the limited cases in which the Company has a greater than 50% interest in affordable housing partnerships, it was determined that the relationship with the general partner is an agent relationship and the general partner was most closely related to the partnership as it is the key decision maker and controls the operations. The Company’s maximum exposure to loss as a result of its investment in these entities is represented by the carrying values. 6. Discontinued Operations The components of earnings from the discontinued operations of AEIDC for December 31, 2005 were as follows: 2005 (in millions) Net investment income Banking and deposit interest expense General and administrative expense Pretax income from discontinued operations Income tax provision Income from discontinued operations, net of tax $165 104 36 25 9 $ 16 7. Sale of Defined Contribution Recordkeeping Business On June 1, 2006, the Company completed the sale of its defined contribution recordkeeping business for $66 million. For the year ended December 31, 2006, the Company incurred $30 million of expenses related to the sale and realized a pretax gain of $36 million. The expenses included a write-down of capitalized software development costs of $17 million and severance costs of $11 million. The administered assets transferred in connection with this sale were approximately $16.7 billion. The Company continues to manage approximately $10.5 billion of defined contribution assets. The Company received $25 million for a contingent payment settled and paid in the fourth quarter of 2007, resulting in a combined 2006 and 2007 pretax gain of $61 million. 9. Investments The following is a summary of investments: December 31, 2007 (in millions) 2006 $30,880 3,056 522 660 386 $35,504 Available-for-Sale securities, at fair value $25,931 Commercial mortgage loans, net 3,097 Trading securities, at fair value, and equity method investments in hedge funds 504 Policy loans 706 Other investments 387 Total $30,625 8. Variable Interest Entities The consolidated variable interest entity for which the Company was considered the primary beneficiary at December 31, 2007 relates to a structured entity, both managed and partially-owned by the Company. The structured entity contains debt obligations of $18 million issued to investors that is non-recourse to the Company and supported by a $30 million portfolio of municipal bonds. The fair value of the municipal bonds was $31 million at December 31, 2007. In the fourth quarter of 2007, the Company deconsolidated a CDO after determining it was no longer the primary beneficiary of the structure as a result of the sale of a portion of its interest in the residual and rated debt tranches of the CDO structure and recorded a gain of $68 million ($44 million after-tax) related to the deconsolidation. The $68 million gain represents the reversal of net operating expenses related to the CDO in prior periods. The Company Ameriprise Financial 2007 Annual Report 75
Slide 78: Available-for-Sale Securities Available-for-Sale securities distributed by type were as follows: Amortized Cost $14,158 10,517 1,038 322 97 53 46 16 $26,247 December 31, 2007 Gross Unrealized Gains $113 38 14 7 15 6 — — $193 Gross Unrealized Gains $169 30 32 14 18 7 — — $270 Gross Unrealized Losses $(328) (162) (17) (1) — (1) — — $(509) Gross Unrealized Losses $(364) (224) (4) (6) — — — — $(598) Fair Value $13,943 10,393 1,035 328 112 58 46 16 $25,931 Description of Securities Corporate debt securities Mortgage and other asset-backed securities State and municipal obligations U.S. government and agencies obligations Foreign government bonds and obligations Common and preferred stocks Structured investments Other debt Total (in millions) December 31, 2006 Description of Securities Corporate debt securities Mortgage and other asset-backed securities State and municipal obligations U.S. government and agencies obligations Foreign government bonds and obligations Common and preferred stocks Structured investments Other debt Total Amortized Cost $17,026 12,524 1,042 370 117 53 46 30 $31,208 Fair Value $16,831 12,330 1,070 378 135 60 46 30 $30,880 (in millions) The deconsolidated CDO included corporate debt securities with a fair value of $160 million at December 31, 2006. 76 Ameriprise Financial 2007 Annual Report
Slide 79: At December 31, 2007 and 2006, fixed maturity securities comprised approximately 85% and 87%, respectively, of the Company’s total investments. These securities were rated by Moody’s and Standard & Poor’s (“S&P”), except for approximately $1.4 billion of securities at both December 31, 2007 and 2006, which were rated by the Company’s internal analysts using criteria similar to Moody’s and S&P. Ratings on investment grade securities are presented using S&P’s convention and, if the two agencies’ ratings differ, the lower rating was used. A summary of fixed maturity securities by rating was as follows: December 31, 2007 Amortized Cost $11,381 2,637 4,292 6,150 1,734 $26,194 Fair Value $ 11,277 2,613 4,253 6,069 1,661 $ 25,873 Percent of Total Fair Value 44% 10 16 24 6 100% December 31, 2006 Amortized Cost $13,428 2,827 5,414 7,474 2,012 $31,155 Fair Value $13,261 2,794 5,344 7,415 2,006 $30,820 Percent of Total Fair Value 43% 9 17 24 7 100% Rating AAA AA A BBB Below investment grade Total fixed maturities At December 31, 2007 and 2006, approximately 39% and 42%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any other issuer were greater than 10% of shareholders’ equity. The following table provides information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position: December 31, 2007 Less than 12 months Description of Securities Corporate debt securities Mortgage and other asset-backed securities State and municipal obligations U.S. government and agencies obligations Foreign government bonds and obligations Common and preferred stocks Total Fair Unrealized Value Losses $1,514 1,754 414 — — 49 $3,731 $ (45) (73) (15) — — (1) $(134) 12 months or more Fair Unrealized Value Losses (in millions) Total Fair Unrealized Value Losses $ 9,673 7,469 487 169 2 49 $17,849 $(328) (162) (17) (1) — (1) $(509) $ 8,159 5,715 73 169 2 — $14,118 $(283) (89) (2) (1) — — $(375) December 31, 2006 Less than 12 months Description of Securities Corporate debt securities Mortgage and other asset-backed securities State and municipal obligations U.S. government and agencies obligations Foreign government bonds and obligations Common and preferred stocks Total Fair Unrealized Value Losses $1,416 1,134 12 11 — — $2,573 $(19) (7) — — — — $(26) 12 months or more Fair Unrealized Value Losses (in millions) Total Fair Unrealized Value Losses $12,297 9,751 102 257 3 4 $22,414 $(364) (224) (4) (6) — — $(598) $10,881 8,617 90 246 3 4 $19,841 $(345) (217) (4) (6) — — $(572) Ameriprise Financial 2007 Annual Report 77
Slide 80: In evaluating potential other-than-temporary impairments, the Company considers the extent to which amortized cost exceeds fair value and the duration of that difference. A key metric in performing this evaluation is the ratio of fair value to amortized cost. The following table summarizes the unrealized losses by ratio of fair value to amortized cost as of December 31, 2007: Less than 12 months Ratio of Fair Value to Amortized Cost 95%–100% 90%–95% 80%–90% Less than 80% Total Number of Securities 316 89 11 2 418 Fair Value $2,774 732 216 9 $3,731 Gross Unrealized Losses $ (39) (57) (32) (6) $(134) 12 months or more Number of Securities 719 54 33 12 818 Fair Value $12,682 849 490 97 $14,118 Gross Unrealized Losses $(208) (60) (70) (37) $(375) Number of Securities 1,035 143 44 14 1,236 Total Fair Value $15,456 1,581 706 106 $17,849 Gross Unrealized Losses $(247) (117) (102) (43) $(509) (in millions, except number of securities) As part of the Company’s ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to changes in interest rates and credit spreads across asset classes. As noted in the table above, a significant portion of the gross unrealized losses relates to securities that have a fair value to amortized cost ratio of 95% or above, resulting in an overall 97% ratio of fair value to amortized cost for all securities with an unrealized loss. From an overall perspective, the gross unrealized losses were not concentrated in any individual industries or with any individual securities. The securities with a fair value to amortized cost ratio of 80-90% primarily relate to the consumer products, financial, and home building industries. The total gross unrealized loss related to the home building industry was $31 million. The securities with a fair value to cost of less than 80% primarily relate to the financial and home building industries. The largest unrealized loss associated with an individual issuer, excluding GNMA, FNMA and FHLMC mortgage-backed securities, was $14 million. The securities related to this issuer have a fair value to amortized cost ratio of 88% and have been in an unrealized loss position for more than 12 months. The Company believes that it will collect all principal and interest due on all investments that have amortized cost in excess of fair value. In addition, the Company has the ability and intent to hold these securities until anticipated recovery which may not be until maturity. The Company monitors the investments and metrics described previously on a quarterly basis to identify and evaluate investments that have indications of possible other-than-temporary impairments. Additionally, the Company has the ability and intent to hold these securities for a time sufficient to recover its amortized cost and has, therefore, concluded that none had other-than-temporary impairment at December 31, 2007. The Company’s total mortgage and asset backed exposure at December 31, 2007 was $10.4 billion which included $6.3 billion of residential mortgage backed securities and $3.0 billion of commercial mortgage backed securities. At December 31, 2007, residential mortgage backed securities included $4.5 billion of agency-backed securities, $1.2 billion of Alt-A securities, and $0.6 billion of prime, non-agency securities. With respect to the Alt-A securities, the vast majority are rated AAA. None of the structures are levered, and the majority of the AAA-rated holdings are “super senior” bonds, meaning they have more collateral support or credit enhancement than required to receive a AAA rating. While overall delinquencies in the market continue to deteriorate, most of these positions are performing in-line or better than their vintage. With regard to asset backed securities, the Company’s exposure at December 31, 2007 was $1.1 billion, which included $241 million of securities backed by subprime collateral. These securities are predominantly AAA-rated bonds backed by seasoned, traditional, first lien collateral. Holdings include both floating rate and short-duration, fixed securities. The Company has no other structured or hedge fund investments with exposure to subprime residential mortgages. The change in net unrealized securities gains (losses) in other comprehensive income includes three components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period (holding gains (losses)); (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales and otherthan-temporary impairments of Available-for-Sale securities (reclassification of realized gains (losses)); and (iii) other items primarily consisting of adjustments in asset and liability balances, such as DAC, DSIC and annuity liabilities to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized as of the respective balance sheet dates. The following table presents the components of the net unrealized securities gains (losses), net of tax, included in accumulated other comprehensive loss: Years Ended December 31, 2007 2006 (in millions) 2005 $ 425 (562) (34) 55 (13) $(129) Net unrealized securities gains (losses) at January 1 Holding gains (losses), net of tax of $20, $54, and $303, respectively Reclassification of realized gains, net of tax of $16, $17, and $18, respectively DAC, DSIC and annuity liabilities, net of tax of $6, $41, and $30, respectively Net realized securities losses related to discontinued operations, net of tax of nil, nil and $7, respectively Net unrealized securities losses at December 31 78 Ameriprise Financial 2007 Annual Report $(187) 38 (29) 10 — $(168) $(129) (101) (33) 76 — $(187)
Slide 81: Available-for-Sale securities by maturity at December 31, 2007 were as follows: Amortized Cost (in millions) Commercial Mortgage Loans, Net The following is a summary of commercial mortgage loans: December 31, 2007 (in millions) Fair Value $ 1,869 6,240 5,275 2,050 15,434 10,393 46 58 $25,931 Commercial mortgage loans Less: allowance for loan losses Commercial mortgage loans, net 2006 $3,096 (40) $3,056 Due within one year Due after one year through five years Due after five years through 10 years Due after 10 years Mortgage and other asset-backed securities Structured investments Common and preferred stocks Total $ 1,867 6,283 5,431 2,050 15,631 10,517 46 53 $26,247 $3,115 (18) $3,097 Commercial mortgage loans are first mortgages on real estate. The Company holds the mortgage documents, which gives it the right to take possession of the property if the borrower fails to perform according to the terms of the agreements. At December 31, 2007 and 2006, the Company held no investments in impaired commercial mortgage loans. During 2007 and 2006, the average recorded investment in impaired commercial mortgage loans was nil and $3 million, respectively. For the years ended December 31, 2007, 2006 and 2005, the Company did not recognize any interest income related to impaired commercial mortgage loans. The balances of and changes in the allowance for loan losses were as follows: Years Ended December 31, 2007 The expected payments on mortgage and other asset-backed securities and structured investments may not coincide with their contractual maturities. As such, these securities, as well as common and preferred stocks, were not included in the maturities distribution. Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, were as follows: Years Ended December 31, 2007 2006 (in millions) 2005 $137 (64) (21) Gross realized gains from sales Gross realized losses from sales Other-than-temporary impairments $ 73 (24) (5) $ 66 (14) (2) 2006 (in millions) 2005 $49 — (5) $44 The $5 million of other-than-temporary impairments in 2007 related to corporate debt securities in the publishing and home building industries which were downgraded in 2007. The $2 million of otherthan-temporary impairments in 2006 related to a corporate bond held in the consolidated CDO which was deconsolidated in 2007. The $21 million of other-than-temporary impairments in 2005 primarily related to corporate debt securities within the auto industry which were downgraded in 2005 and subsequently deteriorated throughout the year in terms of their fair value to amortized cost ratio. Balance at January 1 Provision for loan losses Foreclosures, write-offs and loan sales Balance at December 31 $ 40 (22) — $ 18 $44 — (4) $40 In 2007 the Company recorded a $22 million decrease to the allowance for loan losses on commercial mortgage loans. Concentrations of credit risk of commercial mortgage loans by region were as follows: December 31, 2007 On-Balance Sheet Funding Commitments 2006 On-Balance Sheet Funding Commitments (in millions) Commercial mortgage loans by U.S. region: Atlantic North Central Mountain Pacific South Central New England Less: allowance for loan losses Total $ 984 736 369 492 323 211 3,115 (18) $3,097 $ 22 33 9 21 8 8 101 — $ 101 $ 921 813 332 446 374 210 3,096 (40) $3,056 $40 22 13 15 2 2 94 — $94 Ameriprise Financial 2007 Annual Report 79
Slide 82: Concentrations of credit risk of commercial mortgage loans by property type were as follows: December 31, 2007 On-Balance Sheet Funding Commitments 2006 On-Balance Sheet Funding Commitments (in millions) Commercial mortgage loans by U.S. property type: Office buildings Shopping centers and retail Apartments Industrial buildings Hotels and motels Medical buildings Other Less: allowance for loan losses Total $ 932 897 461 549 81 54 141 3,115 (18) $3,097 $ 12 66 8 9 — — 6 101 — $ 101 $1,064 763 519 495 95 58 102 3,096 (40) $3,056 $4 71 2 12 4 — 1 94 — $94 Commitments to fund commercial mortgages were made in the ordinary course of business. The funding commitments at December 31, 2007 and 2006 approximate fair value. Trading Securities and Equity Method Investments in Hedge Funds Net recognized gains related to trading securities and equity method investments in hedge funds for the years ended December 31, 2007, 2006 and 2005 were $3 million, $41 million and $27 million, respectively. 10. Deferred Acquisition Costs and Deferred Sales Inducement Costs The balances of and changes in DAC were as follows: Years Ended December 31, 2007 2006 (in millions) 2005 $3,956 — 693 (117) (498) 67 81 $4,182 Balance at January 1 Impact of SOP 05-1 at adoption Capitalization of acquisition costs DAC transfer related to AMEX Assurance ceding arrangement Amortization, excluding impact of annual third quarter changes in DAC-related assumptions Amortization, impact of annual third quarter changes in DAC-related assumptions Impact of change in net unrealized securities losses (gains) Balance at December 31 The balances of and changes in DSIC were as follows: $4,499 (204) 771 — (535) (16) (12) $4,503 $4,182 — 744 — (510) 38 45 $4,499 Years Ended December 31, 2007 2006 (in millions) 2005 $303 — 94 (40) 13 $370 Balance at January 1 Impact of SOP 05-1 at adoption Capitalization of sales inducements Amortization Impact of change in net unrealized securities losses (gains) Balance at December 31 $452 (11) 124 (53) (1) $511 $370 — 126 (48) 4 $452 80 Ameriprise Financial 2007 Annual Report
Slide 83: 11. Goodwill and Other Intangibles Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are instead subject to impairment tests. The Company tests goodwill for impairment on an annual basis. For the years ended December 31, 2007, 2006 and 2005 the tests did not indicate impairment. Intangible assets with definite lives are amortized over their estimated useful lives. The Company evaluates the definite lived intangible assets remaining useful lives annually and tests for impairment whenever events and circumstances indicate that an impairment may have occurred. In 2007, the Company had an impairment charge of approximately $1 million related to an asset management contract. The changes in the carrying amount of goodwill reported in the Company’s four main operating segments were as follows: Advice & Wealth Management Balance at January 1, 2006(1) Acquisitions Foreign currency translation and other adjustments Balance at December 31, 2006(1) Acquisitions Foreign currency translation and other adjustments Balance at December 31, 2007 (1) Asset Management $387 4 57 448 4 1 $453 Annuities $44 — — 44 — — $44 Protection $50 — — 50 — — $50 Consolidated $577 4 57 638 4 1 $643 (in millions) $96 — — 96 — — $96 Balances have been retroactively adjusted to reflect changes in segments effective in the fourth quarter of 2007. Definite-lived intangible assets consisted of the following: December 31, 2007 Gross Carrying Amount Accumulated Amortization $ (17) (61) (41) $(119) Net Carrying Amount $ 23 92 105 $220 2006 Gross Carrying Amount $ 39 140 144 $323 Accumulated Amortization $(13) (44) (33) $(90) Net Carrying Amount $ 26 96 111 $233 (in millions) Customer relationships Contracts Other Total $ 40 153 146 $339 The aggregate amortization expense for these intangible assets during the years ended December 31, 2007, 2006 and 2005 was $27 million, $20 million and $28 million, respectively. These assets have a weighted-average useful life of 12 years. Estimated intangible amortization expense as of December 31, 2007, for the next five years was as follows: (in millions) 2008 2009 2010 2011 2012 $26 25 24 19 19 As of December 31, 2007 and 2006, the Company did not have identifiable intangible assets with indefinite useful lives. Ameriprise Financial 2007 Annual Report 81
Slide 84: 12. Future Policy Benefits and Claims and Separate Account Liabilities Future policy benefits and claims consisted of the following: December 31, 2007 (in millions) 2006 $16,841 267 50 5,975 (12) (5) 31 23,147 2,562 3,852 381 89 $30,031 Fixed annuities Equity indexed annuities accumulated host values Equity indexed annuities embedded derivative Variable annuities fixed sub-accounts Guaranteed minimum withdrawal benefits variable annuity guarantees Guaranteed minimum accumulation benefits variable annuity guarantees Other variable annuity guarantees Total annuities Variable universal life (“VUL”)/universal life (“UL”) insurance Other life, disability income and long term care insurance Auto, home and other insurance Policy claims and other policyholders’ funds Total Separate account liabilities consisted of the following: $14,382 253 53 5,419 136 33 27 20,303 2,568 4,106 378 91 $27,446 December 31, 2007 (in millions) 2006 $43,515 5,709 63 4,561 $53,848 Variable annuity variable sub-accounts VUL insurance variable sub-accounts Other insurance variable sub-accounts Threadneedle investment liabilities Total Fixed Annuities Fixed annuities include both deferred and payout contracts. Deferred contracts offer a guaranteed minimum rate of interest and security of the principal invested. Payout contracts guarantee a fixed income payment for life or the term of the contract. The Company generally invests the proceeds from the annuity payments in fixed rate securities. The interest rate risks under these obligations are partially hedged with derivative instruments. These derivatives were intended to be cash flow hedges of interest credited on forecasted sales rather than a hedge of inforce risk. These derivatives consisted of interest rate swaptions with a notional value of $0.8 billion and $1.2 billion at December 31, 2007 and 2006, respectively. Effective January 1, 2007, the Company removed the cash flow hedge designation from its swaptions because they were no longer highly effective. The fair value of these swaptions was $1 million and $2 million at December 31, 2007 and 2006, respectively. Equity Indexed Annuities The Index 500 Annuity, the Company’s equity indexed annuity product, is a single premium deferred fixed annuity. The contract is issued with an initial term of seven years and interest earnings are linked to the S&P 500 Index. This annuity has a minimum interest rate guarantee of 3% on 90% of the initial premium, adjusted for any surrenders. The Company generally invests the proceeds from the annuity deposits in fixed rate securities and hedges the equity risk with derivative instruments. The equity component of these annuities $51,764 6,244 62 3,904 $61,974 is considered an embedded derivative and is accounted for separately. The change in fair value of the embedded derivative reserve is reflected in interest credited to fixed accounts. As a means of economically hedging its obligation under the stock market return provision, the Company purchases and writes index options and enters into futures contracts. The changes in the fair value of these hedge derivatives are included in net investment income. The notional amounts and fair value assets (liabilities) of these options and futures were as follows: December 31, 2007 Notional Amount Fair Value 2006 Notional Amount Fair Value (in millions) Purchased options and futures Written options and futures $237 (58) $43 (1) $271 (67) $40 (1) Variable Annuities Purchasers of variable annuities can select from a variety of investment options and can elect to allocate a portion to a fixed account. A vast majority of the premiums received for variable annuity contracts are held in separate accounts where the assets are held for the exclusive benefit of those contractholders. 82 Ameriprise Financial 2007 Annual Report
Slide 85: Most of the variable annuity contracts issued by the Company contain one or more guaranteed benefits, including GMWB, GMAB, GMDB and GGU provisions. GMAB and the non-life contingent benefits associated with GMWB provisions are considered embedded derivatives and are recorded at fair value. The changes in fair values of these embedded derivatives are reflected in benefits, claims, losses and settlement expenses. The negative fair values for GMWB and GMAB at December 31, 2006 reflected that under conditions and expectations at that time, the Company believed the applicable fees charged for the rider would more than offset the future benefits paid to policyholders under the rider provisions. The Company does not currently hedge its risk under the GMDB, GGU and GMIB provisions. The total value of variable annuity contracts with GMWB riders increased from $7.2 billion at December 31, 2006 to $13.1 billion at December 31, 2007. The total value of variable annuity contracts with GMAB riders increased from $1.4 billion at December 31, 2006 to $2.3 billion at December 31, 2007. As a means of economically hedging its obligations under GMWB and GMAB provisions, the Company purchases equity put and call options, enters into interest rate swaps and trades equity futures contracts. The changes in the fair value of these hedge derivatives are included in net investment income. The notional amounts and fair value assets (liabilities) of these options, swaps and futures were as follows: December 31, 2007 Notional Amount Fair Value 13. Variable Annuity Guarantees The majority of the variable annuity contracts offered by the Company contain GMDB provisions. The Company also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings, which are referred to as GGU benefits. In addition, the Company offers contracts with GMWB and GMAB provisions. The Company previously offered contracts containing GMIB provisions. The Company has established additional liabilities for the variable annuity death benefits and GMIB provisions and for life contingent benefits associated with GMWB provisions. GMAB and non-life contingent benefits associated with GMWB provisions are considered embedded derivatives and are recorded at fair value. The variable annuity contracts with GMWB riders typically have account values that are based on an underlying portfolio of mutual funds, the values of which fluctuate based on equity market performance. At issue, the guaranteed amount is equal to the amount deposited, but the guarantee may be increased annually to the account value (a “step-up”) in the case of favorable market performance. The GMWB offered initially guarantees that the client can withdraw 7% per year until the amount withdrawn is equal to the guaranteed amount, regardless of the performance of the underlying funds. In 2006, the Company began offering an enhanced withdrawal benefit that gives policyholders a choice to withdraw 6% per year for the life of the policyholder or 7% per year until the amount withdrawn is equal to the guaranteed amount. In 2007, the Company added a new GMWB benefit design that is available in a joint version that promises 6% withdrawals while either contractholder remains alive. In addition, once withdrawals begin, the policyholder’s funds are moved to one of the three less aggressive asset allocation models (of the five that are available prior to withdrawal). Variable annuity contract owners age 79 or younger at contract issue can also obtain a principal-back guarantee by purchasing the optional GMAB rider for an additional charge. The GMAB rider guarantees that, regardless of market performance, at the end of the 10 year waiting period, the contract value will be no less than the original investment or 80% of the highest anniversary value, adjusted for withdrawals. If the contract value is less than the guarantee at the end of the 10 year period, a lump sum will be added to the contract value to make the contract value equal to the guarantee value. 2006 Notional Amount Fair Value (in millions) Purchased options and futures Interest rate swaps Sold equity futures $6,318 202 (202) $338 2 — $1,410 359 (111) $171 (1) — Insurance Liabilities VUL/UL is the largest group of insurance policies written by the Company. Purchasers of VUL can select from a variety of investment options and can elect to allocate a portion to a fixed account. A vast majority of the premiums received for VUL contracts are held in separate accounts where the assets are held for the exclusive benefit of those contractholders. The Company also offers term and whole life insurance as well as disability products. The Company no longer offers long term care products but has inforce policies from prior years. Ameriprise Auto & Home Insurance offers auto and home coverage directly to customers and through marketing alliances. Insurance liabilities include accumulation values, unpaid reported claims, incurred but not reported claims and obligations for anticipated future claims. Threadneedle Investment Liabilities Threadneedle provides a range of unitized pooled pension funds, which invest in property, stocks, bonds and cash. These funds are part of the long term business fund of Threadneedle’s subsidiary, Threadneedle Pensions Limited. The investments are selected by the clients and are based on the level of risk they are willing to assume. All investment performance, net of fees, is passed through to the investors. The value of the liabilities represents the value of the units in issue of the pooled pension funds. Ameriprise Financial 2007 Annual Report 83
Slide 86: The following table provides summary information related to all variable annuity guarantees for which the Company has established additional liabilities: December 31, Variable Annuity Guarantees by Benefit Type(1) Contracts with GMDB providing for return of premium: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with GMDB providing for six-year reset: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with GMDB providing for one-year ratchet: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with GMDB providing for five-year ratchet: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with other GMDB: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with GGU death benefit: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with GMIB: Total contract value Contract value in separate accounts Net amount at risk(2) Weighted average attained age Contracts with GMWB: Total contract value Contract value in separate accounts Benefit amount in excess of account value Weighted average attained age Contracts with GMWB for life: Total contract value Contract value in separate accounts Benefit amount in excess of account value Weighted average attained age Contracts with GMAB: Total contract value Contract value in separate accounts Benefit amount in excess of account value Weighted average attained age (1) 2007 2006 (in millions, except age) $25,804 $23,892 $ 26 60 $20,231 $17,617 $ 167 60 $ 7,908 $ 7,143 $ 81 61 $ 1,211 $ 1,163 $ 1 58 $ $ $ 693 639 12 65 950 873 80 62 927 859 18 62 $17,418 $15,859 $ 13 61 $23,544 $20,058 $ 227 61 $ 6,729 $ 5,902 $ 26 61 $ $ $ 907 870 — 57 586 530 11 64 811 730 62 62 928 853 14 61 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5,104 $ 4,980 $ 22 62 $ 7,958 $ 7,685 $ 33 62 $ 2,260 $ 2,205 $ 3 55 $ 4,791 $ 4,761 $ — 61 $ 2,396 $ 2,349 $ — 63 $ 1,350 $ 1,340 $ — 55 (2) Individual variable annuity contracts may have more than one guarantee and therefore may be included in more than one benefit type. Variable annuity contracts for which the death benefit equals account value are not shown in this table. Represents current death benefit less total contract value for GMDB, amount of gross up for GGU and accumulated guaranteed minimum benefit base less total contract value for GMIB and assumes the actuarially remote scenario that all claims become payable on the same day. 84 Ameriprise Financial 2007 Annual Report
Slide 87: Additional liabilities (assets) and incurred claims (adjustments) were: Year Ended December 31, 2007 GMDB & GGU GMIB GMWB GMAB (in millions) Company may hedge the interest rate risks under these obligations with derivative instruments. As of December 31, 2007 and 2006, there were no outstanding derivatives to hedge these interest rate risks. Certain investment certificate products have returns tied to the performance of equity markets. The Company guarantees the principal for purchasers who hold the certificate for the full 52-week term and purchasers may participate in increases in the stock market based on the S&P 500 Index, up to a maximum return. Purchasers can choose 100% participation in the market index up to the cap or 25% participation plus fixed interest with a combined total up to the cap. Current inforce certificates have maximum returns of 6% or 7%. The equity component of these certificates is considered an embedded derivative and is accounted for separately. The change in fair values of the embedded derivative reserve is reflected in banking and deposit interest expense. As a means of economically hedging its obligation under the principal guarantee and stock market return provisions, the Company purchases and writes index options and enters into futures contracts. Changes in the fair value of these hedge derivatives are included in net investment income. The notional amounts and fair value assets (liabilities) of these options and futures were as follows: December 31, 2007 Notional Amount Fair Value Liability (asset) balance at January 1 Reported claims Liability balance at December 31 Incurred claims (adjustments) (sum of reported and change in liability (asset)) $26 3 24 $5 2 3 $ (12) — 136 $ (5) — 33 1 — 148 38 Year Ended December 31, 2006 GMDB & GGU GMIB GMWB GMAB (in millions) Liability balance at January 1 Reported claims Liability (asset) balance at December 31 Incurred claims (adjustments) (sum of reported and change in liability (asset)) $16 8 26 $4 — 5 $ 9 — (12) $1 — (5) 2006 Notional Amount Fair Value 18 1 (21) (6) Purchased options and futures Written options $ 903 (965) (in millions) The liabilities for guaranteed benefits are supported by general account assets. Changes in these liabilities are included in benefits, claims, losses and settlement expenses. Contract values in separate accounts were invested in various equity, bond and other funds as directed by the contractholder. No gains or losses were recognized on assets transferred to separate accounts for the periods presented. $ 59 (27) $ 901 (962) $104 (56) 15. Debt Debt and the stated interest rates were as follows: Outstanding Balance December 31, 2007 Stated Interest Rate December 31, 2007 5.4% 5.7 7.5 14. Customer Deposits Customer deposits consisted of the following: December 31, 2007 (in millions) 2006 (in millions) 2006 5.4% 5.7 7.5 2006 $3,540 1,041 48 91 (42) 4,678 1,176 853 $6,707 Fixed rate certificates Stock market based certificates Stock market embedded derivative reserve Other Less: accrued interest classified in other liabilities Total investment certificate reserves Brokerage deposits Banking deposits Total $2,616 1,031 32 78 (23) 3,734 1,100 1,367 $6,201 Senior notes due 2010 $ 800 $ 800 Senior notes due 2015 700 700 Junior subordinated notes due 2066 500 500 Fixed and floating rate notes due 2011: Floating rate senior notes — 84 Fixed rate notes — 86 Fixed rate senior notes — 46 Fixed rate notes — 9 Municipal bond inverse floater certificates due 2021-2036 18 19 Total $2,018 $2,244 — — — — 5.9 8.6 7.2 13.3 3.7 3.9 Investment Certificates The Company offers fixed rate investment certificates primarily in amounts ranging from $1,000 to $1 million with terms ranging from three to 36 months. The Company generally invests the proceeds from these certificates in fixed and variable rate securities. The On November 23, 2005, the Company issued $1.5 billion of unsecured senior notes (“senior notes”) including $800 million of five-year senior notes which mature November 15, 2010 and $700 million of 10-year senior notes which mature November 15, 2015, Ameriprise Financial 2007 Annual Report 85
Slide 88: and incurred debt issuance costs of $7 million. Interest payments are due semi-annually on May 15 and November 15. In June 2005, the Company entered into interest rate swap agreements totaling $1.5 billion, which qualified as cash flow hedges related to planned debt offerings. The Company terminated the swap agreements in November 2005 when the senior notes were issued. The related gain on the swap agreements of $71 million was recorded to accumulated other comprehensive income and is being amortized as a reduction to interest expense over the period in which the hedged cash flows are expected to occur. Considering the impact of the hedge credits, the effective interest rates on the senior notes due 2010 and 2015 are 4.8% and 5.2%, respectively. On May 26, 2006, the Company issued $500 million of unsecured junior subordinated notes (“junior notes”), which mature June 1, 2066, and incurred debt issuance costs of $6 million. For the initial 10-year period, the junior notes carry a fixed interest rate of 7.5% payable semi-annually in arrears on June 1 and December 1. From June 1, 2016 until the maturity date, interest on the junior notes will accrue at an annual rate equal to the three-month LIBOR plus a margin equal to 290.5 basis points, payable quarterly in arrears. The Company has the option to defer interest payments, subject to certain limitations. In addition, interest payments are mandatorily deferred if the Company does not meet specified capital adequacy, net income or shareholders’ equity levels. The fixed and floating rate notes due 2011 were non-recourse debt of a consolidated CDO, which the Company deconsolidated in the fourth quarter of 2007 after determining it was no longer the primary beneficiary of the structure as a result of the sale of a portion of its interest in the residual and rated debt tranches of the CDO structure. The municipal bond inverse floater certificates mature at various dates from 2021 through 2036 and are non-recourse debt obligations of a consolidated structured entity supported by a $30 million portfolio of municipal bonds. On September 30, 2005, the Company obtained an unsecured revolving credit facility for $750 million expiring in September 2010 from various third party financial institutions. Under the terms of the credit agreement, the Company may increase the amount of this facility to $1.0 billion. As of December 31, 2007 and 2006, no borrowings were outstanding under this facility. Outstanding letters of credit issued against this facility were $6 million and $5 million as of December 31, 2007 and 2006, respectively. The Company has agreed under this credit agreement not to pledge the shares of its principal subsidiaries and was in compliance with this covenant as of December 31, 2007 and 2006. At December 31, 2007, future maturities of debt were as follows: (in millions) 16. Related Party Transactions The Company may engage in transactions in the ordinary course of business with significant shareholders or their subsidiaries, between the Company and its directors and officers or with other companies whose directors or officers may also serve as directors or officers for the Company or its subsidiaries. The Company carries out these transactions on customary terms. Other than for the share repurchase from Berkshire Hathaway Inc. and subsidiaries described below, the transactions have not had a material impact on the Company’s consolidated results of operations or financial condition. Berkshire Hathaway Inc. (“Berkshire”) and subsidiaries owned less than 5% of the Company’s common stock at December 31, 2007 and 2006 and 12% of the Company’s common stock at December 31, 2005. On March 29, 2006, the Company entered into a Stock Purchase and Sale Agreement with Warren E. Buffet and Berkshire to repurchase 6.4 million shares of the Company’s common stock. The repurchase was completed on March 29, 2006 at a price per share equal to the March 29, 2006 closing price of $42.91. The Company’s executive officers and directors may have transactions with the Company or its subsidiaries involving financial products and insurance services. All obligations arising from these transactions are in the ordinary course of the Company’s business and are on the same terms in effect for comparable transactions with the general public. Such obligations involve normal risks of collection and do not have features or terms that are unfavorable to the Company’s subsidiaries. The Company has entered into various transactions with American Express in the normal course of business. The Company earned approximately $10 million during the nine months ended September 30, 2005 in revenues from American Express. The Company received approximately $26 million for the nine months ended September 30, 2005 of reimbursements from American Express for the Company’s participation in certain corporate initiatives. As a result of the Separation, the Company determined it appropriate to reflect certain reimbursements previously received from American Express for costs incurred related to certain American Express corporate initiatives as capital contributions rather than reductions to expense amounts. This amount was approximately $26 million for the nine months ended September 30, 2005. 17. Share-Based Compensation The Company’s share-based compensation plans consist of the amended and restated Ameriprise Financial 2005 Incentive Compensation Plan (the “2005 ICP”) and the Deferred Equity Program for Independent Financial Advisors (“P2 Deferral Plan”). In accordance with the Employee Benefits Agreement (“EBA”) entered into between the Company and American Express as part of the Distribution, all American Express stock options and restricted stock awards held by the Company’s employees which had not vested on or before December 31, 2005 were substituted with a stock option or restricted stock award issued under the 2005 ICP. All American Express stock options and restricted stock awards held by the Company’s employees that vested on or before December 31, 2005 remained American Express stock options or restricted stock awards. Current taxes payable for 2007 and 2006 were reduced by $15 million 2008 2009 2010 2011 2012 Thereafter Total future maturities 86 Ameriprise Financial 2007 Annual Report $ — — 800 — — 1,218 $2,018
Slide 89: and $35 million, respectively, for tax benefits related to the American Express awards that vested on or before December 31, 2005. The components of the Company’s share-based compensation expense, net of forfeitures, were as follows: Years Ended December 31, 2007 2006 (in millions) 2005 $22 33 — $55 Stock options Restricted stock awards Restricted stock units(1) Total (1) $ 37 51 55 $ 143 $ 35 46 32 $113 Includes expense related to restricted stock units awarded under the 2005 ICP, including the Deferred Compensation Plan, and units awarded under the P2 Deferral Plan. The dividend yield assumption assumes the Company’s average dividend payout would continue with no changes. The expected volatility for grants in 2007 was based on historical volatilities experienced by a peer group of companies, the Company’s implied volatility and the Company’s historical stock volatility for the 12 most recent months. The expected volatility for grants in 2006 and 2005 was based on historical and implied volatilities experienced by a peer group of companies and the limited trading experience of the Company’s shares in those years. The risk free interest rate for periods within the expected option life is based on the U.S. Treasury yield curve in effect at the grant date. The expected life of the option is based on experience while the Company was a part of American Express and subsequent experience after the Distribution. The weighted average grant date fair value for options granted during 2007, 2006 and 2005 was $13.69, $12.08 and $9.61, respectively. The weighted average grant date fair value of American Express options granted to the Company’s employees in 2005 was $12.59 using a Black-Scholes option-pricing model with the assumptions determined by American Express. The Company has compared the pre-distribution fair value of the American Express options as of September 30, 2005 to the post-distribution fair value of the substituted options under the 2005 ICP using the Company’s stock volatility and other applicable assumptions and determined there was no incremental value associated with the substituted awards. Therefore, the grant date fair values as determined while the Company was a part of American Express will be expensed over the remaining vesting periods for those substituted options. A summary of the Company’s stock option activity is presented below (shares and intrinsic value in millions): Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Shares Price Term (Years) Value Outstanding at January 1, 2007 Granted Exercised Forfeited Outstanding at December 31, 2007 Exercisable at December 31, 2007 12.8 2.1 (1.3) (0.4) 13.2 5.3 $34.34 58.83 28.40 40.03 $38.62 $32.83 7.5 6.9 $217 $119 For the years ended December 31, 2007, 2006, and 2005, the total income tax benefit recognized by the Company related to the sharebased compensation expense was $50 million, $39 million and $19 million, respectively. As of December 31, 2007, there was $174 million of total unrecognized compensation cost related to non-vested awards under the Company’s share-based compensation plans. That cost is expected to be recognized over a weighted-average period of 2.4 years. Amended and Restated Ameriprise Financial 2005 Incentive Compensation Plan The 2005 ICP, which was amended and approved by shareholders on April 25, 2007, provides for the grant of cash and equity incentive awards to directors, employees and independent contractors, including stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance shares and similar awards designed to comply with the applicable federal regulations and laws of jurisdiction. Under the 2005 ICP, a maximum of 37.9 million shares may be issued. Of this total, no more than 4.4 million shares may be issued in the future for full value awards, which are awards other than stock options and stock appreciation rights. Shares issued under the 2005 ICP may be authorized and unissued shares or treasury shares. Stock Options Stock options granted have an exercise price not less than 100% of the current fair market value of a share of common stock on the grant date and a maximum term of 10 years. Stock options granted generally vest ratably over three to four years. The 2005 ICP provides for accelerated vesting of option awards based on age and length of service. Stock options granted are expensed on a straight-line basis over the option vesting period based on the estimated fair value of the awards on the date of grant using a Black-Scholes option-pricing model. The following weighted average assumptions were used for stock option grants in 2007, 2006 and 2005: 2007 The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of options exercised was $43 million and $16 million during the years ended December 31, 2007 and 2006, respectively. No options granted under the 2005 ICP were exercised in 2005. Restricted Stock Awards Restricted stock awards generally vest ratably over three to four years or at the end of five years. The 2005 ICP provides for accelerated vesting of restricted stock awards based on age and length of service. Compensation expense for restricted stock awards is based on the market price of Ameriprise Financial stock on the date of grant and is amortized on a straight-line basis over the vesting period. Quarterly dividends are Dividend yield Expected volatility Risk-free interest rate Expected life of stock option (years) 1.0% 20% 4.7% 4.5 2006 1.0% 27% 4.5% 4.5 2005 1.0% 27% 4.3% 4.5 Ameriprise Financial 2007 Annual Report 87
Slide 90: paid on restricted stock, as declared by the Company’s Board of Directors, during the vesting period and are not subject to forfeiture. Certain advisors receive a portion of their compensation in the form of restricted stock awards which are subject to forfeiture based on future service requirements. The Company provides a match of these restricted stock awards equal to one half of the restricted stock awards earned. A summary of the Company’s restricted stock award activity is presented below (shares in millions): Weighted Average Grant Date Fair Value $36.50 58.89 32.65 41.11 $44.48 expense related to the Company match is recognized on a straightline basis over the vesting period. For the year ended December 31, 2007, the Company recorded expense of $1 million related to the Company’s match under the DCP. The participant deferrals are expensed when incurred. As of December 31, 2007 and 2006, the liability balance related to the DCP was $55 million and $60 million, respectively. There were 0.1 million units outstanding and vested under the DCP as of December 31, 2007. Deferred Equity Program for Independent Financial Advisors The P2 Deferral Plan, adopted as of September 30, 2005, gives certain advisors the choice to defer a portion of their commissions in the form of share-based awards, which are subject to forfeiture based on future service requirements. The Company provides a match of the share-based awards. The P2 Deferral Plan allows for the grant of share-based awards of up to 2.5 million shares of common stock. The number of units awarded is based on the performance measures, deferral percentage and the market value of Ameriprise Financial common stock on the deferral date as defined by the plan. As independent financial advisors are not employees of the Company, the awards are expensed based on the stock price of the Company’s common stock up to the vesting date. The share-based awards generally vest ratably over four years, beginning on January 1 of the year following the plan year in which the bonus was awarded. The P2 Deferral Plan allows for accelerated vesting of the share-based awards based on age and years as an advisor. Commission expense is recognized on a straight-line basis over the vesting period. For the years ended December 31, 2007 and 2006, share-based expense related to restricted stock units included $52 million and $31 million, respectively, for share-based awards under the P2 Deferral Plan. As of December 31, 2007, there were approximately 2.1 million units outstanding under the P2 Deferral Plan, of which approximately 1.2 million were fully vested. Shares Non-vested shares at January 1, 2007 Granted Vested Forfeited Non-vested shares at December 31, 2007 3.7 1.0 (1.3) (0.3) 3.1 The fair value of restricted stock vested during the years ended December 31, 2007 and 2006 was $75 million and $51 million, respectively. Restricted Stock Units In 2005, the Company awarded bonuses to advisors under an advisor and incentive bonus program called the Transition and Opportunity Bonus (“T&O Bonus”). The bonuses were converted to 2.0 million share-based awards under the 2005 ICP effective as of the vesting date of January 1, 2006. These awards will be issued in three annual installments beginning in 2006 in the form of Ameriprise Financial common stock. Separation costs of $82 million were recognized during the year ended December 31, 2005 for these bonuses. The number of restricted stock units granted was based on the T&O Bonus earned. Advisors do not have the rights of shareholders with respect to the restricted stock units held until the shares are settled for common stock. Quarterly dividend equivalent payments are made on restricted stock units during the vesting period and are not subject to forfeiture. The 2005 ICP provides for the grant of deferred share units to nonemployee directors of the Company. The director awards are fully vested upon issuance. The deferred share units are settled for Ameriprise Financial common stock upon the director’s termination of service. There were 0.9 million restricted stock units outstanding and vested as of December 31, 2007. Deferred Compensation Plan The Deferred Compensation Plan (“DCP”) gives certain employees the choice to defer a portion of their bonus, which can be invested in investment options as provided by the DCP, including the Ameriprise Financial Stock Fund. The Company provides a match if the participant deferrals are invested in the Ameriprise Financial Stock Fund. Participant deferrals vest immediately and the Company match vests after three years. Distributions are made in cash for which the Company has recorded a liability, or shares of the Company’s common stock for the portion of the deferral invested in the Ameriprise Financial Stock Fund and the related Company match, for which the Company has recorded in equity. Compensation 88 Ameriprise Financial 2007 Annual Report 18. Shareholders’ Equity and Related Regulatory Requirements Restrictions on the transfer of funds exist under regulatory requirements applicable to certain of the Company’s subsidiaries. At December 31, 2007, the aggregate amount of unrestricted net assets was approximately $2.3 billion. The National Association of Insurance Commissioners (“NAIC”) defines Risk-Based Capital (“RBC”) requirements for insurance companies. The RBC requirements are used by the NAIC and state insurance regulators to identify companies that merit regulatory actions designed to protect policyholders. These requirements apply to both the Company’s life and property casualty insurance companies. In addition, IDS Property Casualty is subject to the statutory surplus requirements of the State of Wisconsin. The Company has met its minimum RBC requirements. State insurance statutes also contain limitations as to the amount of dividends and distributions that insurers may make without providing prior notification to state regulators. For RiverSource Life Insurance Company (“RiverSource Life”), the limitation is based on the greater of the previous year’s statutory net gain from
Slide 91: operations or 10% of the previous year-end statutory capital and surplus, as prescribed by the insurance laws of the State of Minnesota. Dividends or distributions, whose fair market value, together with that of other dividends or distributions made within the preceding 12 months, exceeds this statutory limitation, are referred to as “extraordinary dividends,” require advance notice to the Minnesota Department of Commerce, RiverSource Life’s primary regulator, and are subject to their potential disapproval. Ameriprise Certificate Company (“ACC”) is registered as an investment company under the Investment Company Act of 1940 (the “1940 Act”). ACC markets and sells investment certificates to clients. ACC is subject to various capital requirements under the 1940 Act, laws of the State of Minnesota and understandings with the Securities and Exchange Commission (“SEC”) and the Minnesota Department of Commerce. The terms of the investment certificates issued by ACC and the provisions of the 1940 Act also require the maintenance by ACC of qualified assets. Under the provisions of its certificates and the 1940 Act, ACC was required to have qualified assets (as that term is defined in Section 28(b) of the 1940 Act) in the amount of $3.7 billion and $4.7 billion at December 31, 2007 and 2006, respectively. ACC had qualified assets of $4.0 billion and $5.1 billion at December 31, 2007 and 2006, respectively. Threadneedle’s required capital is based on the requirements specified by the United Kingdom’s regulator, the Financial Services Authority, under its Capital Adequacy Requirements for asset managers. The Company has four broker-dealer subsidiaries, American Enterprise Investment Services (“AEIS”), Ameriprise Financial Services, Inc. (“AFSI”), Securities America, Inc. (“SAI”) and RiverSource Distributors, Inc. (“RSD”). The broker-dealers are subject to the net capital requirements of the Financial Industry Regulatory Authority (“FINRA”) and the Uniform Net Capital requirements of the SEC under Rule 15c3-1 of the Securities Exchange Act of 1934. Ameriprise Trust Company is subject to capital adequacy requirements under the laws of the State of Minnesota as enforced by the Minnesota Department of Commerce. The initial capital of Ameriprise Bank, per Federal Deposit Insurance Corporation policy, should be sufficient to provide a Tier 1 capital to assets leverage ratio of not less than 8% throughout its first three years of operation. For purposes of completing the bank’s regulatory reporting, the Office of Thrift Supervision (“OTS”) requires Ameriprise Bank to maintain a Tier 1 (core) capital requirement based upon 4% of total assets adjusted per the OTS, and total riskbased capital based upon 8% of total risk-weighted assets. The OTS also requires Ameriprise Bank to maintain minimum ratios of Tier 1 and total capital to risk-weighted assets, as well as Tier 1 capital to adjusted total assets and tangible capital to adjusted total assets. Under OTS regulations, Ameriprise Bank is required to have a leverage ratio of core capital to adjusted total assets of at least 4%, a Tier 1 risk-based capital ratio of at least 4%, a total risk-based ratio of at least 8% and a tangible capital ratio of at least 1.5%. Government debt securities of $7 million and $18 million at December 31, 2007 and 2006, respectively, held by the Company’s life insurance subsidiaries were on deposit with various states as required by law and satisfied legal requirements. 19. Fair Value of Financial Instruments The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2007 and 2006 and require management judgment to estimate such values. These figures may not be indicative of future fair values. Additionally, management believes the value of excluded assets and liabilities is significant. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented herein. The following table discloses carrying values and fair values of financial instruments: December 31, 2007 Carrying Value Fair Value 2006 Carrying Value Fair Value (in millions) Financial Assets Assets for which carrying values approximate fair values Commercial mortgage loans, net Other investments Financial Liabilities Liabilities for which carrying values approximate fair values Fixed account reserves Separate account liabilities Investment certificate reserves Debt $95,321 3,097 291 $ 2,482 18,622 55,668 3,734 2,018 $95,321 3,076 289 $ 2,482 18,076 53,291 3,732 2,025 $90,860 3,056 252 $ 1,942 21,626 48,076 4,678 2,244 $90,860 3,150 260 $ 1,942 20,981 46,185 4,672 2,229 Ameriprise Financial 2007 Annual Report 89
Slide 92: Financial Assets Assets for which carrying values approximate fair values include cash and cash equivalents, restricted and segregated cash, consumer banking loans, brokerage margin loans, Available-for-Sale securities, trading securities, separate account assets, derivative assets and certain other assets. Generally these assets are either short-term in duration, variable rate in nature or are recorded at fair value on the Consolidated Balance Sheets. The fair value of commercial mortgage loans, except those with significant credit deterioration, were estimated using discounted cash flow analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with significant credit deterioration, fair values were based on estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections or, for collateral dependent loans, on collateral value. Other investments include the Company’s interest in syndicated loans, which are carried at amortized cost less allowance for losses. Fair values were based on quoted market prices. 20. Retirement Plans and Profit Sharing Arrangements The Company’s EBA with American Express allocated certain liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the Distribution, including the general treatment of outstanding American Express equity awards, certain outstanding annual and long term incentive awards, existing deferred compensation obligations and certain retirement and welfare benefit obligations. As of the date of the Distribution, Ameriprise Financial generally assumed, retained and became liable for all wages, salaries, welfare, incentive compensation and employee-related obligations and liabilities for all of its current and former employees. The EBA also provided for the transfer of qualified plan assets and transfer of liabilities relating to the pre-distribution participation of Ameriprise Financial’s employees in American Express’ various retirement, welfare and employee benefit plans from such plans to the applicable plans Ameriprise Financial adopted for the benefit of its employees. Defined Benefit Plans Pension Plans The Company’s employees in the United States are eligible to participate in the Ameriprise Financial Retirement Plan (the “Retirement Plan”), a noncontributory defined benefit plan which is a qualified plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), under which the cost of retirement benefits for eligible employees in the United States is measured by length of service, compensation and other factors and is currently being funded through a trust. Funding of retirement costs for the Retirement Plan complies with the applicable minimum funding requirements specified by ERISA. The Retirement Plan is a cash balance plan by which the employees’ accrued benefits are based on notional account balances, which are maintained for each individual. Each pay period these balances are credited with an amount equal to a percentage (determined by an employee’s age plus service) of compensation as defined by the Retirement Plan (which includes, but is not limited to, base pay, certain incentive pay and commissions, shift differential, overtime and transition pay). Employees’ balances are also credited daily with a fixed rate of interest that is updated each January 1 and is based on the average of the daily five-year U.S. Treasury Note yields for the previous October 1 through November 30, with a minimum crediting rate of 5%. Employees have the option to receive annuity payments or a lump sum payout at vested termination or retirement. In addition, the Company sponsors an unfunded non-qualified Supplemental Retirement Plan (the “SRP”) for certain highly compensated employees to replace the benefit that cannot be provided by the Retirement Plan due to Internal Revenue Service limits. The SRP generally parallels the Retirement Plan but offers different payment options. Most employees outside the United States are covered by local retirement plans, some of which are funded, while other employees receive payments at the time of retirement or termination under applicable labor laws or agreements. Pursuant to the EBA described previously, the liabilities and plan assets associated with the American Express Retirement Plan, Financial Liabilities Liabilities for which carrying values approximate fair values primarily include banking and brokerage customer deposits and derivative liabilities. Generally these liabilities are either short-term in duration, variable rate in nature or are recorded at fair value on the Consolidated Balance Sheets. Fair values of fixed annuities in deferral status were estimated as the accumulated value less applicable surrender charges. For annuities in payout status, fair value was estimated using discounted cash flows based on current interest rates. The fair value of these reserves excluded life insurance-related elements of $1.5 billion as of both December 31, 2007 and 2006. If the fair value of the fixed annuities were realized, the write-off of DAC and DSIC would be $308 million and $422 million as of December 31, 2007 and 2006, respectively. Fair values of separate account liabilities, excluding life insurancerelated elements of $6.3 billion and $5.8 billion as of December 31, 2007 and 2006, respectively, were estimated as the accumulated value less applicable surrender charges. If the fair value of the separate account liabilities were realized, the surrender charges received would be offset by the write-off of the DAC and DSIC associated with separate account liabilities of $2.5 billion and $2.3 billion as of December 31, 2007 and 2006, respectively. For variable rate investment certificates that reprice within a year, fair value approximated carrying value. For other investment certificates, fair value was estimated using discounted cash flows based on current interest rates. The valuations were reduced by the amount of applicable surrender charges. The fair values of the senior notes, junior notes and non-recourse debt of a consolidated CDO were estimated using quoted market prices. In 2007, the Company deconsolidated the CDO as a result of the sale of a portion of its interest in the CDO structure. The fair value approximated carrying value for the non-recourse debt of a consolidated structured entity. 90 Ameriprise Financial 2007 Annual Report
Slide 93: Supplemental Retirement Plan and a retirement plan including employees from Threadneedle were split. The split resulted in an allocation of unrecognized net losses to the surviving plans administered separately by the Company and American Express in proportion to the projected benefit obligations of the surviving plans. As a result of this allocation, the Company recorded additional pension liability in 2006 and 2005 of $5 million and $32 million, respectively. The components of the net periodic pension cost for all pension plans were as follows: Years Ended December 31, 2007 The following table provides the amounts recognized in the Consolidated Balance Sheets, which equal the funded status of the Company’s pension plans: December 31, 2007 2006 $(85) 4 $(81) (in millions) Benefit liability Benefit asset Net amount recognized $(77) 14 $(63) 2006 (in millions) 2005 $ 34 17 (19) (2) 1 1 — $ 32 The Company complies with the minimum funding requirements in all countries. The amounts recognized in accumulated other comprehensive income (net of tax) that arose as of December 31, 2007, but were not recognized as components of net periodic benefit cost included an unrecognized actuarial gain of $19 million and an unrecognized prior service credit of $1 million. The estimated amounts that will be amortized from accumulated other comprehensive income (net of tax) into net periodic benefit cost in 2008 include an actuarial loss of nil and a prior service credit of $1 million. The accumulated benefit obligation for all pension plans as of September 30, 2007 and 2006 was $292 million and $285 million, respectively. The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations that exceeded the fair value of plan assets were as follows: September 30, 2007 Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss Settlement loss Other Net periodic pension benefit cost $ 37 22 (21) (2) 1 — (2) $ 35 $ 38 20 (18) (2) 1 — — $ 39 The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets are amortized on a straight line basis over the expected average remaining service period of active participants. The Company measures the obligations and related asset values for its pension plans annually as of September 30. Effective December 31, 2008, the Company will measure plan assets and benefit obligations as of the date of the balance sheet as required by SFAS 158. The following tables provide a reconciliation of the changes in the benefit obligation and fair value of assets for the pension plans: 2007 (in millions) 2006 $31 — (in millions) Accumulated benefit obligation Fair value of plan assets $31 — The projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations that exceeded the fair value of plan assets were as follows: September 30, 2007 2006 $325 38 19 — (7) (5) (18) 4 $356 2006 Projected benefit obligation Fair value of plan assets 2006 $318 233 Benefit obligation, October 1 of prior year Service cost Interest cost Plan amendments Benefits paid Actuarial gain Settlements Foreign currency rate changes Benefit obligation at September 30 $356 37 22 1 (7) (12) (25) — $372 2007 (in millions) (in millions) $325 249 The weighted average assumptions used to determine benefit obligations for pension plans were as follows: 2007 2006 5.7% 4.1 Discount rates Rates of increase in compensation levels 6.2% 4.2 Fair value of plan assets, October 1 of prior year Actual return on plan assets Employer contributions Benefits paid Settlements Foreign currency rate changes Fair value of plan assets at September 30 The weighted average assumptions used to determine net periodic benefit cost for pension plans were as follows: 2007 $275 50 16 (7) (25) — $309 $244 27 26 (7) (18) 3 $275 Discount rates Rates of increase in compensation levels Expected long term rates of return on assets 5.7% 4.1 8.2 2006 2005 5.5% 5.7% 4.4 4.4 8.2 8.2 Ameriprise Financial 2007 Annual Report 91
Slide 94: In developing the 2007 expected long term rate of return assumption, management evaluated input from an external consulting firm, including their projection of asset class return expectations, and long term inflation assumptions. The Company also considered the historical returns on the plans’ assets. The asset allocation for the Company’s pension plans at September 30, 2007 and 2006, and the target allocation for 2008, by asset category, are below. Actual allocations will generally be within 5% of these targets. Target Allocation 2008 75% 23 2 100% Percentage of Plan Assets 2007 The recognized liabilities for the Company’s defined postretirement benefit plans are unfunded. At December 31, 2007 and 2006, the recognized liabilities were $24 million and $30 million, respectively. At December 31, 2007 and 2006, the funded status of the Company’s postretirement benefit plans was equal to the net amount recognized in the Consolidated Balance Sheet. The amounts recognized in accumulated other comprehensive income (net of tax) that arose as of December 31, 2007 but were not recognized as components of net periodic benefit cost included an unrecognized actuarial gain of $4 million and an unrecognized prior service credit of $1 million. The estimated amount that will be amortized from accumulated other comprehensive income (net of tax) into net periodic benefit cost in 2008 is approximately $1 million. The weighted average assumptions used to determine benefit obligations for other postretirement benefits were as follows: 2007 Equity securities Debt securities Other Total 2006 74% 25 24 2 2 100% 100% 73% 2006 5.9% 9.5 5.0 The Company invests in an aggregate diversified portfolio to minimize the impact of any adverse or unexpected results from a security class on the entire portfolio. Diversification is interpreted to include diversification by asset type, performance and risk characteristics and number of investments. Asset classes and ranges considered appropriate for investment of the plans’ assets are determined by each plan’s investment committee. The asset classes typically include domestic and foreign equities, emerging market equities, domestic and foreign investment grade and high-yield bonds and domestic real estate. The Company’s retirement plans expect to make benefit payments to retirees as follows: (in millions) Discount rates Healthcare cost increase rates: Following year Decreasing to the year 2016 6.2% 9.0 5.0 A one percentage-point change in the assumed healthcare cost trend rates would not have a material effect on the Company’s postretirement benefit obligation or net periodic postretirement benefit costs. The defined postretirement benefit plans expect to make benefit payments to retirees as follows: (in millions) 2008 2009 2010 2011 2012 2013-2017 $ 28 26 27 31 30 154 2008 2009 2010 2011 2012 2013-2017 $3 3 3 2 2 11 The Company expects to contribute $23 million to its pension plans in 2008. Other Postretirement Benefits The Company sponsors defined benefit postretirement plans that provide health care and life insurance to retired U.S. employees. Net periodic postretirement benefit costs were $2 million in each of 2007, 2006 and 2005. The following table provides a reconciliation of the changes in the defined postretirement benefit plan obligation: 2007 The Company expects to contribute $3 million to its defined benefit postretirement plans in 2008. Defined Contribution Plan In addition to the plans described previously, certain Company employees participate in the Ameriprise Financial 401(k) Plan (the “401(k) Plan”). The 401(k) Plan allows qualified employees to make contributions through payroll deductions up to IRS limits and invest their contributions in one or more of the 401(k) Plan investment options, which include the Ameriprise Financial Stock Fund. The Company matches 100% of the first 3% of base salary an employee contributes on a pre-tax or Roth 401(k) basis each pay period. The Company may also make annual discretionary variable match contributions, which replaced the discretionary profit sharing contributions effective January 1, 2007. The final profit sharing contribution was made in March 2007 for the 2006 plan year. The variable match contributions are based primarily on the performance of the Company. In addition, the Company makes a contribution equal to 1% of base salary each pay period. This contribution is automatically invested in the Ameriprise Financial Stock Fund, which invests 2006 $32 2 (12) 6 2 $30 (in millions) Benefit obligation, October 1 of prior year Interest cost Benefits paid Participant contributions Actuarial (gain) loss Benefit obligation at September 30 92 Ameriprise Financial 2007 Annual Report $30 2 (7) 6 (6) $25
Slide 95: primarily in the Company’s common stock, and can be redirected at any time into other 401(k) Plan investment options. Under the 401(k) Plan, employees become eligible for all contributions under the plan on the first pay period following 60 days of service. Employees must be employed on the last working day of the year to receive the Company’s variable match contributions. For plan years beginning in 2007, fixed and variable match contributions and stock contributions vest on a five-year graded schedule of 20% per year of service. For plan years 2006 and prior, match and stock contributions vested immediately. Profit sharing contributions for plan years 2006 and prior generally vest after five years of service. The Company’s defined contribution plan expense was $33 million, $34 million and $34 million in 2007, 2006 and 2005, respectively. practical. As of December 31, 2007 and 2006, the total net fair values, excluding accruals, of derivative assets were $443 million and $331 million, respectively, and derivative liabilities were $14 million and $89 million, respectively. The net notional amount of derivatives as of December 31, 2007 was $6.4 billion, consisting of $8.5 billion purchased and $2.1 billion written. Cash Flow Hedges The Company uses interest rate derivative products, primarily swaps and swaptions, to manage funding costs related to the Company’s debt and fixed annuity businesses. The interest rate swaps are used to hedge the exposure to interest rates on the forecasted interest payments associated with debt issuances. The Company uses interest rate swaptions to hedge the risk of increasing interest rates on forecasted fixed premium product sales. The following is a summary of net unrealized derivatives gains (losses) related to cash flow hedging activity, net of tax: Years Ended December 31, 2007 Threadneedle Profit Sharing Arrangements On an annual basis, Threadneedle employees are eligible for two profit sharing arrangements: (i) a profit sharing plan for all employees based on individual performance criteria, and (ii) an equity participation plan (“EPP”) for certain key personnel. This employee profit sharing plan provides for profit sharing of 30% based on an internally defined recurring pretax operating income measure for Threadneedle, which primarily includes pretax income related to investment management services and investment portfolio income excluding gains and losses on asset disposals, certain reorganization expenses, equity participation plan expenses and other non-recurring expenses. Compensation expense related to the employee profit sharing plan was $84 million, $75 million and $60 million in 2007, 2006 and 2005, respectively. The EPP is a cash award program for certain key personnel who are granted awards based on a formula tied to Threadneedle’s financial performance. The EPP provides for 50% vesting after three years and 50% vesting after four years, with required cash-out after five years. All awards are settled in cash, based on a value as determined by an annual independent valuation of Threadneedle’s fair market value. The value of the award is recognized as compensation expense evenly over the vesting periods. However, each year’s EPP expense is adjusted to reflect Threadneedle’s current valuation. Increases in value of vested awards are expensed immediately. Increases in the value of unvested shares are amortized over the remaining vesting periods. Compensation expense related to the EPP was $42 million, $48 million and $47 million for the years ended December 31, 2007, 2006 and 2005, respectively. 2006 (in millions) 2005 Net unrealized derivatives gains (losses) at January 1 Holding gains (losses), net of tax of nil, $2 and $20, respectively Reclassification of realized gains, net of tax of $2, $2 and $1, respectively Net realized derivatives losses related to discontinued operations, net of tax of nil, nil and $1, respectively Net unrealized derivatives gains (losses) at December 31 $(1) (1) (4) $6 (4) (3) — $ (1) $(28) 36 (1) (1) $6 — $(6) 21. Derivatives and Hedging Activities Derivative financial instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company does not engage in any derivative instrument trading activities other than as it relates to holdings in consolidated hedge funds. Credit risk associated with the Company’s derivatives is limited to the risk that a derivative counterparty will not perform in accordance with the terms of the contract. To mitigate such risk, counterparties are all required to be preapproved. Additionally, the Company may, from time to time, enter into master netting agreements wherever At December 31, 2007, the Company expects to reclassify $4 million of net pretax gains on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next 12 months. The $4 million net pretax gain is made up of an $8 million amortization of deferred gain related to interest rate swaps that will be recorded as a reduction to interest expense, partially offset by a $4 million amortization of deferred expense related to interest rate swaptions that will be recorded in net investment income. If a hedge designation is removed or a hedge is terminated prior to maturity, the amount previously recorded in accumulated other comprehensive income (loss) may be recognized into earnings over the period that the hedged item impacts earnings. For any hedge relationships that are discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related amounts previously recorded in accumulated other comprehensive income (loss) are recognized in earnings immediately. Effective January 1, 2007, the Company removed the cash flow hedge designation from its swaptions because the swaptions were no longer highly effective. Accordingly, all changes in the fair value of the swaptions are recorded directly to earnings. The removal of the cash flow designation did not cause any amounts in accumulated other comprehensive income (loss) to be reclassified into earnings because the forecasted transactions being hedged are still likely to occur. There were no cash flow hedges for which hedge accounting was terminated for these reasons during 2006 or 2005. No hedge relationships were discontinued during the years ended December 31, 2007, 2006 and 2005 Ameriprise Financial 2007 Annual Report 93
Slide 96: due to forecasted transactions no longer expected to occur according to the original hedge strategy. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 28 years and relates to forecasted debt interest payments. For the years ended December 31, 2007, 2006 and 2005, there were $2 million, $4 million and $2 million, respectively, in losses on derivative transactions or portions thereof that were ineffective as hedges, excluded from the assessment of hedge effectiveness or reclassified into earnings as a result of the discontinuance of cash flow hedges. of future benefits less applicable fees charged for the riders using actuarial models, which simulate various economic scenarios. The Company economically hedges the exposure related to GMWB and GMAB provisions using various equity futures, equity options, and interest rate swaps. The premium associated with certain of these options is paid semi-annually over the life of the option contract. As of December 31, 2007, the remaining payments the Company is scheduled to make for these options total $313 million through December 31, 2022. The Company earns fees from the management of equity securities in variable annuities, variable insurance, its own mutual funds and other managed assets. The amount of fees is generally based on the value of the portfolios, and thus is subject to fluctuation with the general level of equity market values. To reduce the sensitivity of the Company’s fee revenues to the general performance of equity markets, the Company from time to time enters into various combinations of financial instruments such as equity market put and collar options that mitigate the negative effect on fees that would result from a decline in the equity markets. The Company enters into financial futures and equity swaps to manage its exposure to price risk arising from seed money investments made in proprietary mutual funds for which the related gains and losses are recorded currently in earnings. The futures contracts generally mature within four months and the related gains and losses are reported currently in earnings. As of December 31, 2007 and 2006, the fair value of the financial futures and equity swaps was not significant. The Company enters into foreign exchange forward contracts to hedge its exposure to certain receivables and obligations denominated in non-functional currencies. In addition, the Company began entering into forward currency contracts during the first quarter of 2007 to manage its exposure to foreign exchange fluctuations on income from foreign operations. The forward contracts generally have maturities ranging from several months up to one year and gains and losses are reported in earnings. As of December 31, 2007 the fair value of the forward contracts was not significant. Hedges of Net Investment in Foreign Operations The Company designates foreign currency derivatives, primarily forward agreements, as hedges of net investments in certain foreign operations. For the years ended December 31, 2007, 2006 and 2005, the net amount of gains (losses) related to the hedges included in foreign currency translation adjustments was $(10) million, $(60) million and $39 million, respectively, net of tax. The related amounts due to or from counterparties are included in other liabilities or other assets. Derivatives Not Designated as Hedges The Company has economic hedges that either do not qualify or are not designated for hedge accounting treatment. The fair value assets (liabilities) of these purchased and written derivatives were as follows: December 31, 2007 2006 (in millions) Purchased Written Purchased Written Equity indexed annuities Stock market certificates GMWB and GMAB Management fees Total(1) (1) $ 43 59 340 — $ 442 $ (1) (27) — — $(28) $ 40 104 170 15 $329 $ (1) (56) — — $(57) Exchange traded equity swaps and futures contracts are settled daily by exchanging cash with the counterparty and gains and losses are reported in earnings. Accordingly, there are no amounts on the Consolidated Balance Sheets related to these contracts. Embedded Derivatives The equity component of the equity indexed annuity and stock market investment certificate product obligations are considered embedded derivatives. Additionally, certain annuities contain GMAB and non-life contingent GMWB provisions, which are also considered embedded derivatives. The fair value of embedded derivatives for annuity related products are included in future policy benefits and claims, whereas the fair value of the stock market investment certificate embedded derivative is included in customer deposits. The changes in fair value of the equity indexed annuity and investment certificate embedded derivatives are reflected in interest credited to fixed accounts and in banking and deposit interest expense, respectively. The changes in fair values of the GMWB and GMAB embedded derivatives are reflected in benefits, claims, losses and settlement expenses. At December 31, 2007 and 2006, the total fair value of these instruments, excluding the host contract and a liability for life contingent GMWB benefits of $2 million and nil, respectively, was a net liability of $252 million and $80 million, respectively. Certain annuity and investment certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the amount of expenses incurred by the Company related to equity indexed annuities and stock market certificate products will positively or negatively impact earnings. As a means of economically hedging its obligations under the provisions of these products, the Company writes and purchases index options and occasionally enters into futures contracts. Purchased options used in conjunction with these products are reported in other assets and written options are included in other liabilities. Additionally, certain annuity products contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of considerations received at the beginning of the contract period, after a specified holding period, respectively. The GMAB and the non-life contingent benefits associated with GMWB provisions are considered embedded derivatives and are valued each period by estimating the present value 94 Ameriprise Financial 2007 Annual Report
Slide 97: The Company has also recorded derivative liabilities for the fair value of call features embedded in certain fixed-rate corporate debt investments. These liabilities were $8 million and $7 million at December 31, 2007 and 2006, respectively. The change in fair values of these calls is reflected in net investment income. dividends partially offset by lower levels of tax advantaged items relative to the level of pretax income. Accumulated earnings of certain foreign subsidiaries, which totaled $169 million at December 31, 2007, are intended to be permanently reinvested outside the United States. Accordingly, U.S. federal taxes, which would have aggregated $22 million, have not been provided on those earnings. Deferred income tax assets and liabilities result from temporary differences between the assets and liabilities measured for GAAP reporting versus income tax return purposes. The significant components of the Company’s deferred income tax assets and liabilities were as follows: December 31, 2007 22. Income Taxes The components of income tax provision on income from continuing operations were as follows: Years Ended December 31, 2007 2006 (in millions) 2005 Current income tax: Federal State and local Foreign Total current income tax Deferred income tax: Federal State and local Foreign Total deferred income tax Total income tax provision 2006 $ 137 (5) 45 177 34 — (9) 25 $ 202 $ 84 19 39 142 51 (16) (11) 24 $166 $121 17 15 153 36 — (2) 34 $187 (in millions) The geographic sources of pretax income from continuing operations were as follows: Years Ended December 31, 2007 Deferred income tax assets: Liabilities for future policy benefits and claims $1,212 Investment impairments and write-downs 77 Deferred compensation 185 Unearned revenues 29 Net unrealized losses on Available-for-Sale securities 83 Accrued liabilities 64 Investment related 119 Net operating loss and tax credit carryforwards 182 Other 70 Gross deferred income tax assets 2,021 Deferred income tax liabilities: Deferred acquisition costs Deferred sales inducement costs Depreciation expense Intangible assets Other Gross deferred income tax liabilities Net deferred income tax assets 1,313 179 171 104 134 1,901 $ 120 $1,146 87 164 40 104 121 154 — 107 1,923 1,317 158 141 105 108 1,829 $ 94 2006 (in millions) 2005 $687 58 $745 United States Foreign Total $ 888 128 $1,016 $705 92 $797 The principal reasons that the aggregate income tax provision is different from that computed by using the U.S. statutory rate of 35% are as follows: Years Ended December 31, 2007 2006 2005 Tax at U.S. statutory rate Changes in taxes resulting from: Dividend exclusion Tax-exempt interest income Tax credits State taxes, net of federal benefit Taxes applicable to prior years Other, net Income tax provision 35.0% (5.2) (1.3) (6.6) (0.3) — (1.7) 19.9% 35.0% 35.0% (5.4) (5.7) (1.5) (1.4) (6.4) (8.3) 0.2 1.4 — 2.7 (1.1) 1.4 20.8% 25.1% The Company is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Included in deferred tax assets is a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but 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 five years of the year in which the capital losses are recognized for tax purposes. Based on analysis of the Company’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable the Company to utilize all of its deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of December 31, 2007 and 2006. Included in the Company’s deferred income tax assets are net operating loss carryforwards of $53 million which will expire December 31, 2025 and 2026 as well as tax credit carryforwards of $129 million which will expire December 31, 2025, 2026 and 2027. Effective January 1, 2007, the Company adopted the provisions of FIN 48. As a result of the implementation of FIN 48 the Company Ameriprise Financial 2007 Annual Report 95 The Company’s effective income tax rate decreased to 19.9% in 2007 from 20.8% in 2006 primarily due to the impact of a $16 million tax benefit related to the finalization of certain income tax audits and a $19 million tax benefit relating to the Company’s plan to begin repatriating earnings of certain Threadneedle entities through
Slide 98: recognized a $4 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended December 31, 2007 (in millions) Balance at January 1, 2007 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions for tax positions of prior years Settlements Balance at December 31, 2007 $113 42 56 (45) (2) $164 opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time, but they may result in the elimination of some or all of the separate account DRD tax benefit that the Company receives. Management believes that it is likely that any such regulations would apply prospectively only. For the year ended December 31, 2007, the Company recorded a benefit of approximately $46 million related to the current year’s separate account DRD. As a result of the Separation from American Express, the Company’s life insurance subsidiaries will not be able to file a consolidated U.S. federal income tax return with the other members of the Company’s affiliated group until 2010. The Company’s tax allocation agreement with American Express (the “Tax Allocation Agreement”), dated as of September 30, 2005, governs the allocation of consolidated U.S. federal and applicable combined or unitary state and local income tax liabilities between American Express and the Company for tax periods prior to September 30, 2005. In addition, this Tax Allocation Agreement addresses other tax-related matters. The items comprising other comprehensive loss are presented net of the following income tax provision (benefit) amounts: Years Ended December 31, 2007 If recognized, approximately $57 million and $84 million, net of federal tax benefits, of the unrecognized tax benefits as of January 1, 2007 and December 31, 2007, respectively, would affect the effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. The Company recognized a net reduction of $4 million in interest and penalties for the year ended December 31, 2007. The Company had $16 million and $12 million for the payment of interest and penalties accrued at January 1, 2007 and December 31, 2007, respectively. It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of the Company it is estimated that the total amount of unrecognized tax benefits may decrease by $75 million to $85 million in the next 12 months. The Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1997. The Internal Revenue Service (“IRS”), as part of the overall examination of the American Express Company consolidated return, commenced an examination of the Company’s U.S. income tax returns for 1997 through 2002 in the third quarter of 2005. In the first quarter of 2007, the IRS expanded the period of the examination to include 2003 through 2004. The Company’s or certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2005. On September 25, 2007, the IRS issued Revenue Ruling 2007-61 in which it announced that it intends to issue regulations with respect to certain computational aspects of the Dividends Received Deduction (“DRD”) related to separate account assets held in connection with variable contracts of life insurance companies and has added the project to the 2007-2008 Priority Guidance Plan. Revenue Ruling 2007-61 suspended a revenue ruling issued in August 2007 that purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the 96 Ameriprise Financial 2007 Annual Report 2006 (in millions) 2005 $(291) 19 (5) (1) $(278) Net unrealized securities gains (losses) $10 Net unrealized derivatives gains (losses) 2 Foreign currency translation adjustment (1) Defined benefit plans 15 Net income tax provision (benefit) $26 $(30) (4) 4 — $(30) Tax benefits related to accumulated other comprehensive income of discontinued operations for the year ended December 31, 2005 were $8 million. 23. Commitments and Contingencies The Company is committed to pay aggregate minimum rentals under noncancelable operating leases for office facilities and equipment in future years as follows: (in millions) 2008 2009 2010 2011 2012 Thereafter Total $ 79 69 66 60 51 293 $ 618 For the years ended December 31, 2007, 2006 and 2005, operating lease expense was $93 million, $88 million and $78 million, respectively.
Slide 99: The following table presents the Company’s funding commitments: December 31, 2007 2006 $ 94 427 96 $617 (in millions) Commercial mortgage loan commitments Consumer mortgage loan commitments Consumer lines of credit Total funding commitments $101 301 91 $493 financial planning clients and the delivery of financial plans, and the suitability of particular trading strategies. The number of reviews and investigations has increased in recent years with regard to many firms in the financial services industry, including Ameriprise. The Company has cooperated and will continue to cooperate with the applicable regulators regarding their inquiries. These legal and regulatory proceedings are subject to uncertainties and, as such, the Company is unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the Company’s consolidated financial condition or results of operations. Certain legal and regulatory proceedings are described below. In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona, and was later transferred to the United States District Court for the District of Minnesota. The plaintiffs alleged that they were investors in several of the Company’s mutual funds and they purported to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs alleged that fees allegedly paid to the defendants by the funds for investment advisory and administrative services were excessive. On July 6, 2007, the Court granted the Company’s motion for summary judgment, dismissing all claims with prejudice. Plaintiffs have appealed the Court’s decision. In March 2006, a lawsuit captioned Good, et al. v. Ameriprise Financial, Inc., et al. (Case No. 00-cv-01027) was filed in the United States District Court for the District of Minnesota. The lawsuit had been brought as a putative class action and plaintiffs purported to represent all of the Company’s advisors who sold shares of REITs and tax credit limited partnerships between March 2000 and March 2006. Plaintiffs sought unspecified compensatory and restitutionary damages as well as injunctive relief, alleging that the Company incorrectly calculated commissions owed advisors for the sale of these products. On January 18, 2008, the Court denied plaintiffs’ motion for class certification. The Court has requested supplemental briefs addressing whether the Court continues to have subject-matter jurisdiction over the two individual plaintiffs’ claims. The Company previously reported two adverse arbitration awards issued in 2006 by FINRA panels against SAI and former registered representatives of SAI. Those arbitrations involved customer claims relating to suitability, disclosures, supervision and certain other sales practices. Other clients of those former registered representatives have presented similar claims. In October 2007, the State of New Hampshire commenced an action against the Company captioned, “In the Matter of Ameriprise Financial, Inc., Ameriprise Financial Services, Inc. & Larry Post.” The action includes claims of New Hampshire statutory violations related to the alleged failure to deliver financial plans sold to clients, instances of forgery and failure to supervise. The parties have agreed to stay the action while discussing possible resolution. The Company’s life and annuity products all have minimum interest rate guarantees in their fixed accounts. As of December 31, 2007, these guarantees range up to 5%. To the extent the yield on the Company’s invested asset portfolio declines below its target spread plus the minimum guarantee, the Company’s profitability would be negatively affected. The Company and its subsidiaries are involved in the normal course of business in legal, regulatory and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of its activities as a diversified financial services firm. These include proceedings specific to the Company as well as proceedings generally applicable to business practices in the industries in which it operates. The Company can also be subject to litigation arising out of its general business activities, such as its investments, contracts, leases and employment relationships. Uncertain economic conditions and heightened volatility in the financial markets, such as has been experienced particularly since the summer of 2007, may increase the likelihood clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally. In the normal course of business, the Company has agreed to indemnify certain vendors for infringement and misappropriation claims arising from the use of its information, technology and intellectual property assets. As with other financial services firms, the level of regulatory activity and inquiry concerning the Company’s businesses remains elevated. From time to time, the Company receives requests for information from, and has been subject to examination by, the SEC, FINRA (then known as the National Association of Securities Dealers), OTS, state insurance regulators, state attorneys general and various other governmental and quasi-governmental authorities concerning the Company’s business activities and practices, including: sales and product or service features of, or disclosures pertaining to, financial plans, its mutual funds, annuities, insurance products and brokerage services; non-cash compensation paid to its field leaders and financial advisors; supervision of its financial advisors; and sales of, or brokerage or revenue sharing practices relating to, other companies’ real estate investment trust (“REIT”) shares, mutual fund shares or other investment products. Other open matters relate, among other things, to the administration of death claims to multiple beneficiaries under the Company’s variable annuities, the portability (or network transferability) of the Company’s RiverSource mutual funds, supervisory practices in connection with financial advisors’ outside business activities, sales practices associated with the sale of fixed and variable annuities, the suitability of product recommendations made to retail Ameriprise Financial 2007 Annual Report 97
Slide 100: 24. Earnings per Common Share The computations of basic and diluted earnings per common share are as follows: Years Ended December 31, 2007 2006 2005 (in millions, except per share amounts) Numerator: Income from continuing operations Income from discontinued operations, net of tax Net income Denominator: Basic: Weighted-average common shares outstanding Effect of potentially dilutive nonqualified stock options and other share-based awards Diluted: Weighted-average common shares outstanding $814 — $814 $631 — $631 $558 16 $574 236.2 246.5 247.1 The Company may also reacquire shares of its common stock under its 2005 ICP related to restricted stock awards. Restricted shares that are forfeited before the vesting period has lapsed are recorded as treasury shares. In addition, the holders of restricted shares may elect to surrender a portion of their shares on the vesting date to cover their income tax obligations. These vested restricted shares reacquired by the Company and the Company’s payment of the holders’ income tax obligations are recorded as a treasury share purchase. The restricted shares forfeited under the 2005 ICP and recorded as treasury shares were 0.3 million shares during both the years ended December 31, 2007 and 2006. For the years ended December 31, 2007 and 2006, the Company reacquired 0.5 million and 0.4 million shares, respectively, of its common stock through the surrender of restricted shares upon vesting and paid in the aggregate $29 million and $20 million, respectively, related to the holders’ income tax obligations on the vesting date. 3.7 239.9 2.0 248.5 $2.56 — $2.56 $2.54 — $2.54 0.1 247.2 $2.26 0.06 $2.32 $2.26 0.06 $2.32 26. Segment Information On December 3, 2007, the Company announced a change in its reportable segments. The revised presentation of previously reported segment data has been applied retroactively to all periods presented in these financial statements. During the fourth quarter of 2007, the Company completed the implementation of an enhanced transfer pricing methodology and expanded its segment presentation from three to five segments to better align with the way the Chief Operating Decision Maker views the business. This facilitates greater transparency of the relationships between the businesses and better comparison to other industry participants in the retail advisor distribution, asset management, insurance and annuity industries. In addition, the Company changed the format of its consolidated statement of income and made reclassifications to enhance transparency. These reclassifications did not result in any changes to consolidated net income or shareholders’ equity. A summarization of the various reclassifications made to previously reported balances is presented in Note 1. Changes Resulting from an Enhanced Transfer Pricing Methodology Each segment records revenues and expenses as if they were each a stand-alone business using the Company’s enhanced transfer pricing methodology. Transfer pricing uses market-based arm’s length transfer pricing rates for specific services provided. The Company will review the transfer pricing rates periodically and will make appropriate adjustments to ensure the arm’s length rates remain at current market levels. Costs related to shared services are allocated to segments based on their usage of the services provided. The largest source of intersegment revenues and expenses is retail distribution services, where segments are charged an arm’s length market rate for distribution through the Advice & Wealth Management segment. The Advice & Wealth Management segment provides distribution services for proprietary and non-proprietary products and services. The Asset Management segment provides investment management services for the Company’s owned assets and client assets, and accordingly charges investment and advisory management fees to the other segments. Earnings per Basic Common Share: Income from continuing operations $3.45 Income from discontinued operations, net of tax — Net income $3.45 Earnings per Diluted Common Share: Income from continuing operations $3.39 Income from discontinued operations, net of tax — Net income $3.39 Basic weighted average common shares for the years ended December 31, 2007, 2006 and 2005 included 1.6 million, 1.7 million and nil, respectively, of vested, nonforfeitable restricted stock units and 3.5 million, 3.7 million and 0.9 million, respectively, of non-vested restricted stock awards and restricted stock units that are forfeitable but receive nonforfeitable dividends. Potentially dilutive securities include nonqualified stock options and other share-based awards. 25. Common Share Repurchases In January 2006, the Company’s Board of Directors authorized the repurchase of up to 2 million shares of the Company’s common stock. In March 2006, the Company’s Board of Directors authorized the expenditure of up to $750 million for the repurchase of additional shares through March 31, 2008. In March 2007, the Company’s Board of Directors authorized the expenditure of up to an additional $1.0 billion for the repurchase of shares through March 15, 2009. During the years ended December 31, 2007 and 2006, the Company repurchased a total of 15.9 million shares and 10.7 million shares, respectively, of its common stock for an aggregate cost of $948 million and $470 million, respectively. As of December 31, 2007, the Company had purchased all shares under the January 2006 and March 2006 authorizations and had $418 million remaining under the March 2007 authorization. 98 Ameriprise Financial 2007 Annual Report
Slide 101: Cost Allocations to Segments All costs related to shared services are allocated to the segments based on a rate times volume or fixed basis. New Segments The Company’s five segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. Prior to this change, the Company reported results for three segments; Asset Accumulation and Income, Protection and Corporate and Other. The change from three segments to five is primarily the division of the former Asset Accumulation and Income segment into the Advice & Wealth Management, Asset Management and Annuities segments. The Advice & Wealth Management segment provides financial advice and full service brokerage and banking services, primarily to retail clients, through the Company’s financial advisors. The advisors distribute a diversified selection of both proprietary and non-proprietary products to help clients meet their financial needs. A significant portion of revenues in this segment are fee-based, driven by the level of client assets, which is impacted by both market movements and net asset flows. The Company also earns net investment income on owned assets, from primarily certificate and banking products. This segment earns revenues (distribution fees) for distributing non-proprietary products and earns intersegment revenues (distribution fees) for distributing the Company’s proprietary products and services to its retail clients. Intersegment expenses for this segment include expenses for investment management services provided by the Asset Management segment. The Asset Management segment provides investment advice and investment products to retail and institutional clients. Threadneedle Investments predominantly provides international investment advice and products, and RiverSource Investments predominantly provides domestic products and services. Domestic retail products are primarily distributed through the Advice & Wealth Management segment, and also through third-party distribution. International retail products are primarily distributed through third parties. Products accessed by consumers on a retail basis include mutual funds, variable product funds underlying insurance and annuity separate accounts, separately managed accounts and collective funds. Asset Management products are also distributed directly to institutions through an institutional sales force. Institutional asset management products include traditional asset classes separate accounts, collateralized loan obligations, hedge funds and property funds. Revenues in this segment are primarily earned as fees based on managed asset balances, which are impacted by both market movements and net asset flows. This segment earns intersegment revenue for investment management services. Intersegment expenses for this segment include distribution expenses for services provided by the Advice & Wealth Management, Annuities and Protection segments. The Annuities segment provides RiverSource Life variable and fixed annuity products to the Company’s retail clients, primarily distributed through the Advice & Wealth Management segment, and to the retail clients of unaffiliated distributors through third-party distribution. Revenues for the Company’s variable annuity products are primarily earned as fees based on underlying account balances, which are impacted by both market movements and net asset flows. Revenues for the Company’s fixed annuity products are primarily earned as net investment income on underlying account balances, with profitability significantly impacted by the spread between net investment income earned and interest credited on the fixed account balances. The Company also earns net investment income on owned assets supporting annuity benefit reserves and capital supporting the business. Intersegment revenues for this segment reflect fees paid by the Asset Management segment for marketing support and other services provided in connection with the availability of RiverSource funds under the variable annuity contracts. Intersegment expenses for this segment include distribution expenses for services provided by the Advice & Wealth Management segment, as well as expenses for investment management services provided by the Asset Management segment. The Protection segment offers a variety of protection products to address the identified protection and risk management needs of the Company’s retail clients including life, disability income and property-casualty insurance. Life and disability income products are primarily distributed through the Advice & Wealth Management segment. The Company’s property-casualty products are sold direct, primarily through affinity relationships. The primary sources of revenues for this segment are premiums, fees, and charges that the Company receives to assume insurance-related risk. The Company earns net investment income on owned assets supporting insurance reserves and capital supporting the business. The Company also receives fees based on the level of assets supporting variable universal life separate account balances. This segment earns intersegment revenues from fees paid by the Asset Management segment for marketing support and other services provided in connection with the availability of RiverSource Funds under the variable universal life contracts. Intersegment expenses for this segment include distribution expenses for services provided by the Advice & Wealth Management segment, as well as expenses for investment management services provided by the Asset Management segment. The Corporate & Other segment consists of net investment income on corporate level assets, including unallocated equity and other revenues from various investments as well as unallocated corporate expenses. This segment also includes non-recurring costs in 2007, 2006 and 2005, associated with the Company’s separation from American Express. The accounting policies of the segments are the same as those of the Company, except for the method of capital allocation and the accounting for gains (losses) from intercompany revenues and expenses, which are eliminated in consolidation. The Company allocates capital to each segment based upon an internal capital allocation method that allows the Company to more efficiently manage its capital. The Company evaluates the performance of each segment based on pretax income from continuing operations. The Company allocates certain non-recurring items, such as separation costs, to the Corporate segment. Ameriprise Financial 2007 Annual Report 99
Slide 102: The following is a summary of assets by segment: December 31, 2007 (in millions) 2006 $ 8,735 7,111 68,660 17,422 2,553 $104,481 Advice & Wealth Management Asset Management Annuities Protection Corporate & Other Total assets $ 8,146 6,661 71,556 20,347 2,520 $109,230 The following is a summary of segment operating results: Year Ended December 31, 2007 Advice & Wealth Management Revenue from external customers Intersegment revenue Total revenues Banking and deposit interest expense Net revenues Depreciation and amortization expense All other expenses Total expenses Pretax income (loss) Income tax provision Net income Year Ended December 31, 2006 Advice & Wealth Management Revenue from external customers Intersegment revenue Total revenues Banking and deposit interest expense Net revenues Depreciation and amortization expense All other expenses Total expenses Pretax income (loss) Income tax provision Net income $2,546 1,035 3,581 246 3,335 60 3,079 3,139 $ 196 Asset Management $1,745 32 1,777 26 1,751 97 1,401 1,498 $ 253 Corporate & Other $ 33 2 35 7 28 31 547 578 $(550) $ $2,992 1,057 4,049 236 3,813 69 3,459 3,528 $ 285 Asset Management $1,753 29 1,782 20 1,762 90 1,365 1,455 $ 307 Corporate & Other $ 26 4 30 6 24 34 474 508 $(484) $ Annuities Protection (in millions) Eliminations $ — (1,242) (1,242) (8) (1,234) — (1,234) (1,234) — Consolidated $8,909 — 8,909 255 8,654 780 6,858 7,638 1,016 202 $ 814 $2,199 105 2,304 — 2,304 381 1,500 1,881 $ 423 $1,939 47 1,986 1 1,985 206 1,294 1,500 $ 485 Annuities Protection (in millions) Eliminations $ — (1,188) (1,188) (7) (1,181) — (1,181) (1,181) — Consolidated $8,293 — 8,293 273 8,020 668 6,555 7,223 797 166 $ 631 $2,111 85 2,196 — 2,196 342 1,390 1,732 $ 464 $1,858 34 1,892 1 1,891 138 1,319 1,457 $ 434 100 Ameriprise Financial 2007 Annual Report
Slide 103: Year Ended December 31, 2005 Advice & Wealth Management Revenue from external customers Intersegment revenue Total revenues Banking and deposit interest expense Net revenues Depreciation and amortization expense All other expenses Total expenses Pretax income (loss) from continuing operations Income tax provision Income from continuing operations Income from discontinued operations, net of tax Net income $ $2,111 938 3,049 215 2,834 75 2,741 2,816 18 Asset Management $1,599 30 1,629 20 1,609 141 1,291 1,432 $ 177 Corporate & Other $ (26) 2 (24) 6 (30) 11 393 404 $(434) $ Annuities Protection (in millions) Eliminations $ — (1,078) (1,078) (4) (1,074) — (1,074) (1,074) — Consolidated $7,636 — 7,636 240 7,396 640 6,011 6,651 745 187 558 16 $ 574 $2,116 78 2,194 1 2,193 293 1,410 1,703 $ 490 $1,836 30 1,866 2 1,864 120 1,250 1,370 $ 494 27. Quarterly Financial Data (Unaudited) 2007 12/31 9/30 $2,170 60 217 $ 198 $ 0.84 $ 0.83 235.4 239.2 $ 0.15 $68.00 $51.31 6/30 $2,138 63 245 $ 196 $ 0.83 $ 0.81 237.4 241.0 $ 0.15 $67.45 $56.96 3/31 $2,027 85 216 $ 165 $ 0.69 $ 0.68 240.7 244.1 $ 0.11 $63.08 $53.01 2006 12/31 $2,139 123 203 $ 171 $ 0.70 $ 0.69 243.3 246.3 $ 0.11 $55.79 $46.85 9/30 $1,935 87 217 $ 174 $ 0.71 $ 0.71 244.5 246.4 $ 0.11 $47.46 $40.60 6/30 $2,024 84 186 $ 141 $ 0.57 $ 0.57 246.3 248.0 $ 0.11 $50.08 $40.49 3/31 $1,922 67 191 $ 145 $ 0.57 $ 0.57 252.3 253.5 $ 0.11 $47.25 $40.30 (in millions, except per share data) Net revenues(1) Separation costs(2) Pretax income Net income Earnings per basic common share Earnings per diluted common share Weighted average common shares outstanding: Basic Diluted Cash dividends paid per common share Common share price: High Low (1) $2,319 28 338 $ 255 $ 1.10 $ 1.08 231.4 235.4 $ 0.15 $69.25 $53.23 (2) Certain prior year amounts have been reclassified to conform to the current year’s presentation. See Note 1 for a description of the reclassifications. Revenues as previously reported were $2,202 million, $2,182 million and $2,063 million for the quarters ended September 30, 2007, June 30, 2007 and March 31, 2007, respectively, and $2,161 million, $1,977 million, $2,053 million and $1,949 million for the quarters ended December 31, 2006, September 30, 2006, June 30, 2006 and March 31, 2006, respectively. The Company incurred separation costs beginning with the quarterly period ended March 31, 2005, when the American Express Board of Directors announced the Separation. The Company continued to incur separation costs in subsequent quarterly periods which reflect the completion of the Distribution and the costs incurred by the Company to establish itself as an independent company. As of December 31, 2007, all separation costs have been incurred. Ameriprise Financial 2007 Annual Report 101
Slide 104: Statement of Cash Flows Reclassifications The Company has reclassified certain prior quarter balances in the Consolidated Statements of Cash Flows. • The Company previously classified transfers to and from the fixed account option within its variable annuity product as an operating activity in the Consolidated Statements of Cash Flows. The Company has reclassified these transfers as a financing activity in accordance with SFAS No. 97. • The Company previously classified certain customer transfers to and from cash investment products as a financing activity. The Company has reclassified the change in brokerage accounts as an operating activity in accordance with the AICPA Audit and Accounting Guide: Brokers and Dealers in Securities. The Company has also made certain other reclassifications to the Consolidated Statements of Cash Flows including those made to conform to the reclassified Consolidated Balance Sheets. The effect of these reclassifications on prior quarters’ net cash flows related to operating, investing and financing activities is summarized below. Three Months Ended March 31, 2007 2006 Net cash provided by (used in) operating activities, previous presentation Reclassification for annuity transfers Reclassification for brokerage accounts Other reclassifications Net cash provided by (used in) operating activities, as reclassified Net cash provided by investing activities, previous presentation Other reclassifications Net cash provided by investing activities, as reclassified Net cash used in financing activities, previous presentation Reclassification for annuity transfers Reclassification for brokerage accounts Other reclassifications Net cash used in financing activities, as reclassified Effects of exchange rate changes on cash, previous presentation Other reclassifications Effect of exchange rate changes on cash, as reclassified Six Months Ended June 30, 2007 2006 (in millions) Nine Months Ended September 30, 2007 2006 $ (70) 75 (42) (73) $ 107 — (49) 15 $ 73 $ (12) 145 36 (87) $ 536 19 (153) 22 $ 424 $ 1,170 (18) $ 1,152 $(2,092) (19) 153 16 $(1,942) $ 13 2 15 $ 735 (91) (77) (103) $ 716 111 (141) 6 $ 692 $ 3,390 (31) $ 3,359 $(3,292) (111) 141 46 $(3,216) $ 21 2 23 $ (110) $ 1,162 5 $ 1,167 $(1,398) (75) 42 56 $(1,375) $ 2 — $ 2 $ 82 $ 464 $ 488 (6) $ 482 $(1,421) — 49 7 $(1,365) $ 2 — 2 $ 3,370 — $ 3,370 $(2,780) (145) (36) 73 $(2,888) $ 8 1 $ 9 $ 4,181 7 $ 4,188 $(3,673) 91 77 82 $(3,423) $ 12 1 $ 13 $ $ $ 102 Ameriprise Financial 2007 Annual Report
Slide 105: Consolidated Five-Year Summary of Selected Financial Data The following table sets forth selected consolidated financial information from our audited Consolidated Financial Statements as of December 31, 2007, 2006, 2005, 2004 and 2003 and for the five-year period ended December 31, 2007. Certain prior year amounts have been reclassified to conform to the current year’s presentation. For the periods preceding our separation from American Express Company (“American Express”), we prepared our Consolidated Financial Statements as if we had been a stand-alone company. In the preparation of our Consolidated Financial Statements for those periods, we made certain allocations of expenses that our management believed to be a reasonable reflection of costs we would have otherwise incurred as a stand-alone company but were paid by American Express. Accordingly, our Consolidated Financial Statements include various adjustments to amounts in our consolidated financial statements as a subsidiary of American Express. The selected financial data presented below should be read in conjunction with our Consolidated Financial Statements and the accompanying notes included elsewhere in this report and “Management’s Discussion and Analysis.” Years Ended December 31, 2007 (1) 2006(1) 2005(1) 2004(2) 2003(3) (in millions, except per share data) Income Statement Data: Net revenues Expenses Income from continuing operations before accounting change Net income Earnings Per Share: Income from continuing operations before accounting change: Basic Diluted Income from discontinued operations, net of tax: Basic Diluted Cumulative effect of accounting change, net of tax: Basic Diluted Net income: Basic Diluted Cash Dividends Paid Per Common Share: Shareholders Cash Dividends Paid: Shareholders American Express Company $8,654 7,638 814 814 $8,020 7,223 631 631 $7,396 6,651 558 574 $6,896 5,784 825 794 $6,042 5,169 694 725 $ 3.45 $ 3.39 $ $ $ $ — — — — $ 2.56 $ 2.54 $ $ $ $ — — — — $ 2.26 $ 2.26 $ 0.06 $ 0.06 $ $ — — $ 3.35 $ 3.35 $ 0.16 $ 0.16 $ (0.29) $ (0.29) $ 3.22 $ 3.22 $ $ — — 1,325 $ 2.82 $ 2.82 $ 0.18 $ 0.18 $ (0.05) $ (0.05) $ 2.95 $ 2.95 $ $ — — 334 $ 3.45 $ 3.39 $ 2.56 $ 2.54 $ 0.44 $ 108 — $ 2.32 $ 2.32 $ 0.11 $ 27 53 $ 0.56 $ 133 — Ameriprise Financial 2007 Annual Report 103
Slide 106: December 31, 2007 2006 2005 (in millions) 2004(2) 2003(3) Balance Sheet Data: Investments Separate account assets Total assets(4) Future policy benefits and claims Separate account liabilities Customer deposits Debt Total liabilities(5) Shareholders’ equity (1) $ 30,625 $ 35,504 61,974 109,230 27,446 61,974 6,201 2,018 101,420 7,810 53,848 104,481 30,031 53,848 6,707 2,244 96,556 7,925 $39,086 41,561 93,280 32,725 41,561 6,808 1,852 85,593 7,687 $40,210 35,901 93,260 33,249 35,901 6,987 403 86,558 6,702 $38,517 30,809 85,530 32,230 30,809 5,906 463 78,242 7,288 (2) (3) (4) (5) During 2007, 2006 and 2005, we recorded non-recurring separation costs as a result of our separation from American Express. During the years ended December 31, 2007, 2006 and 2005, $236 million ($154 million after-tax), $361 million ($235 million after-tax) and $293 million ($191 million after-tax), respectively, of such costs were incurred. These costs were primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing our technology platforms and advisor and employee retention programs. Effective January 1, 2004, we adopted American Institute of Certified Public Accountants Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts,” which resulted in a cumulative effect of accounting change that reduced first quarter 2004 results by $71 million, net of tax. The consolidation of VIEs in December 2003 resulted in a cumulative effect of accounting change that reduced 2003 net income through a non-cash charge of $13 million, net of tax. Total assets as of December 31, 2004 and 2003 include assets of discontinued operations of $5,873 million and $4,807 million, respectively. Total liabilities as of December 31, 2004 and 2003 include liabilities of discontinued operations of $5,631 million and $4,579 million, respectively. 104 Ameriprise Financial 2007 Annual Report
Slide 107: Glossary of Selected Terminology Administered Assets—Administered assets include assets for which we provide administrative services such as client assets invested in other companies’ products that we offer outside of our wrap accounts. These assets include those held in clients’ brokerage accounts. We do not exercise management discretion over these assets and do not earn a management fee. These assets are not reported on our Consolidated Balance Sheets. Auto and Home Insurance—Personal auto and home protection products marketed directly to customers through marketing affiliates such as Costco Wholesale Corporation, Delta Loyalty Management Services, Inc. and Ford Motor Credit Company. We sell these products through our auto and home subsidiary, IDS Property Casualty Insurance Company (doing business as Ameriprise Auto & Home Insurance). Cash Sales—Cash sales are the dollar value volume indicator that captures gross new cash inflows which generate product revenue streams to our company. This includes primarily “client initiated” activity that results in an incremental increase in assets (owned, managed or administered) or premiums inforce (but doesn’t need to result in time of sale revenue), or activity that doesn’t increase assets or premiums inforce, but generates “fee revenue”. Deferred Acquisition Costs and Amortization—Deferred acquisition costs (“DAC”) represent the costs of acquiring new protection, annuity and certain mutual fund business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity, life, disability income and long term care insurance and, to a lesser extent, deferred marketing and promotion expenses on auto and home insurance and deferred distribution costs on certain mutual fund products. These costs are deferred to the extent they are recoverable from future profits. Financial Planning—Financial planning at Ameriprise is an ongoing process which is intended to help clients plan to meet their financial goals through disciplined management of their finances. The process involves collaboration between a client and an Ameriprise financial advisor to define the client’s goals, develop a plan to achieve the goals, and track progress against the goals, making adjustments where necessary. Financial Planning Penetration—The period-end number of current clients who have received a financial plan, or have entered into an agreement to receive and have paid for a financial plan, divided by the number of active retail client groups, serviced by branded financial advisors. Life Insurance Inforce—The total amount of all life insurance death benefits currently insured by our company. Managed External Client Assets—Managed external client assets include client assets for which we provide investment management services, such as the assets of the RiverSource family of mutual funds, assets of institutional clients and client assets held in wrap accounts (retail accounts for which we receive an advice fee based on assets held in the account). Managed external client assets also include assets managed by sub-advisors selected by us. Managed external client assets are not reported on our Consolidated Balance Sheets. Managed Owned Assets—Managed owned assets include certain assets on our Consolidated Balance Sheets for which we provide investment management services and recognize management fees, such as the assets of the general account and RiverSource Variable Products funds held in the separate accounts of our life insurance subsidiaries. Net Flows—Sales less redemptions and miscellaneous flows which may include reinvested dividends. Owned Assets—Owned assets include certain assets on our Consolidated Balance Sheets for which we do not provide investment management services and do not recognize management fees, such as investments in non-proprietary funds held in the separate accounts of our life insurance subsidiaries, as well as restricted and segregated cash and receivables. Pretax Income (Loss)—Income (loss) before income tax provision (benefit). Securities America—Securities America Financial Corporation (“SAFC”) is a corporation whose sole function is to hold the stock of its operating subsidiaries, Securities America, Inc. (“SAI”) and Securities America Advisors, Inc. (“SAA”). SAI is a registered broker-dealer and an insurance agency. SAA is an SEC registered investment advisor. Separate Accounts—Represent assets and liabilities that are maintained and established primarily for the purpose of funding variable annuity and insurance products. The assets of the separate account are only available to fund the liabilities of the variable entity contractholders and others with contracts requiring premiums or other deposits to the separate account. Clients elect to invest premiums in stock, bond and/or money market funds depending on their risk tolerance. All investment performance, net of fees, is passed through to the client. Separation Costs—Separation costs include expenses related to our separation from American Express Company. These costs are primarily associated with establishing the Ameriprise Financial brand, separating and reestablishing our technology platforms and advisor and employee retention programs. These costs ended in 2007. Ameriprise Financial 2007 Annual Report 105
Slide 108: SOP 05-1 (“Statement of Position 05-1”), “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts”—SOP 05-1 provides guidance on accounting for DAC associated with any insurance or annuity contract that is significantly modified or internally replaced with another contract. Third Party Distribution—Distribution of RiverSource products, which include a variety of equity and fixed income mutual funds, annuities and insurance products, to retail clients through unaffiliated financial institutions and broker-dealers. The Third Party channel is separate from the Branded Advisor, Threadneedle, SAFC, and Institutional sales channels. Threadneedle—Threadneedle Asset Management Holdings Limited is a holding company for the London-based Threadneedle group of companies, which provide investment management products and services. Wrap Accounts—Wrap accounts enable our clients to purchase other securities such as mutual funds in connection with investment advisory fee-based “wrap account” programs or services. We offer clients the opportunity to select products that include proprietary and non-proprietary funds. We currently offer both discretionary and non-discretionary investment advisory wrap accounts. In a discretionary wrap account, an unaffiliated investment advisor or our investment management subsidiary, RiverSource Investments, LLC, chooses the underlying investments in the portfolio on behalf of the client. In a non-discretionary wrap account, the client chooses the underlying investments in the portfolio based, to the extent the client elects, in part or whole on the recommendations of their financial advisor. Investors in our wrap accounts generally pay an asset-based fee based on the assets held in their wrap accounts. These investors also pay any related fees or costs included in the underlying securities held in that account, such as underlying mutual fund operating expenses and Rule 12b-1 fees. 106 Ameriprise Financial 2007 Annual Report
Slide 109: Performance Graph The accompanying graph compares the 27-month cumulative total return to shareholders of Ameriprise Financial, Inc.’s, common stock relative to the cumulative total returns of the S&P 500 Index and the S&P Financials index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and the two indices on October 3, 2005 and its relative performance is tracked through December 31, 2007. The indices relate only to stock prices and do not purport to provide a direct comparison to the business or financial performance of the companies included in either index. Comparison of 27-Month Cumulative Total Return* Among Ameriprise Financial, Inc., the S&P 500 Index and the S&P Financials Index $200 $150 $100 $50 Ameriprise Financial, Inc. S&P 500 S&P Financials 3/06 6/06 9/06 12/06 3/07 6/07 9/07 12/07 $0 10/05 12/05 * $100 invested on October 3, 2005 in stock or on September 30, 2005 in index— including reinvestment of dividends. Copyright © 2008, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. researchdatagroup.com/S&P .htm The stock price performance included in this graph is not necessarily indicative of future stock price performance. Ameriprise Financial 2007 Annual Report 107
Slide 110: General Information Executive Offices Ameriprise Financial Center 707 2nd Avenue South Minneapolis, MN 55474 (612) 671-3131 7 World Trade Center 250 Greenwich Street, Suite 3900 New York, NY 10007 Annual Meeting The 2008 Annual Meeting of Shareholders of Ameriprise Financial will be held at our Minneapolis headquarters at 11 a.m., Central Time: 707 2nd Avenue South Minneapolis, MN 55474, on Wednesday, April 23, 2008. A written transcript or an audiocassette of the meeting will be available upon written request to the Corporate Secretary’s Office. There will be a modest charge to defray production and mailing costs. Compliance with New York Stock Exchange Filing Requirements Under the corporate governance listing standards of the New York Stock Exchange, our chief executive officer must certify to the Exchange each year that he is not aware of any violation by our company of those listing standards, as of the date of the certification. This certification is due within 30 days of the date of our annual shareholders meeting. The 2007 Annual CEO Certification for our company was timely filed, without qualification, with the New York Stock Exchange on May 24, 2007. The Exchange acknowledged in writing its receipt of the Annual CEO Certification on that date. Information Available to Shareholders Copies of our company’s Annual Report on Form 10-K, proxy statement, press releases and other documents, as well as information on financial results and products and services, are available through the Ameriprise Financial website at ameriprise.com. Written copies of these materials, as well as a report of our company’s 2007 political contributions, are available upon written request to the Corporate Secretary’s Office. Shareholders As of February 15, 2008, there were 26,072 shareholders of record. Copies of the Ameriprise Financial Corporate Governance Guidelines, as well as the charters of the three standing committees of the Board of Directors and the Ameriprise Financial Company Code of Conduct, are available on the company’s website at ir.ameriprise.com. Our website also provides important information about how and when we grant stock options and restricted stock, including the schedule of grant dates for 2008. We provide a copy of our Long-Term Incentive Awards Policy on our website, and explain our policy for the approval of grants on a date when the Compensation and Benefits Committee of the Board of Directors or our chief executive officer is aware of material, nonpublic information about our company or its securities. Copies of these materials also are available without charge upon written request to the Corporate Secretary’s Office at the address listed above. We filed the Certifications of our chief executive officer and chief financial officer with the Securities and Exchange Commission pursuant to section 302 of the Sarbanes-Oxley Act of 2002 as exhibits 31.1 and 31.2, respectively, to our Annual Report on Form 10-K for the year ended December 31, 2007. Shareholder and Investor Inquiries Written shareholder inquiries may be sent to Computershare Shareholder Services P.O. Box 43078 Providence, RI 02940 or to the Corporate Secretary’s Office Ameriprise Financial 1098 Ameriprise Financial Center Minneapolis, MN 55474. Written inquiries from the investment community should be sent to Investor Relations at 243 Ameriprise Financial Center Minneapolis, MN 55474. Stock Exchange Listing New York Stock Exchange (Symbol: AMP) Independent Registered Public Accounting Firm Ernst & Young LLP 220 South 6th Street, Suite 1400 Minneapolis, MN 55402 Transfer Agent Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940 1 (866) 337-4999 (U.S. and Canada only) 1 (781) 575-3223 (International) Email: web.queries@computershare.com Website: computershare.com/investor Trademarks and Service Marks The following trademarks and service marks of Ameriprise Financial, Inc., and its affiliates may appear in this report: Active Accumulation Portfolios® Active Income Portfolios® Active Portfolios® Advice-Built SM Ameriprise® Ameriprise Financial® Dream Book® Dream > Plan > Track >® Money Across GenerationsSM RiverSource® Succession ProtectorSM SecureSourceSM Threadneedle® 108 Ameriprise Financial 2007 Annual Report Design: Ross Culbert & Lavery, Inc. This report is printed on paper containing post-consumer fiber. In printing this report, we used a printer that produces its own electricity and is a verified totally enclosed facility that produces virtually no volatile organic compound emissions.
Slide 111: Executive Leadership Team James M. Cracchiolo Chairman and Chief Executive Officer Walter S. Berman Board of Directors James M. Cracchiolo Chairman and Chief Executive Officer Ameriprise Financial, Inc. Ira D. Hall Executive Vice President and Chief Financial Officer Deirdre N. Davey Senior Vice President Corporate Communications and Community Relations Crispin Henderson* Former President and Chief Executive Officer Utendahl Capital Management, L.P. Warren D. Knowlton Chairman and Chief Executive Officer Graham Packaging Company, L.P. W. Walker Lewis Chief Executive Officer Threadneedle Asset Management Holdings, Ltd. Kelli A. Hunter Chairman Devon Value Advisers Siri S. Marshall Executive Vice President Human Resources John C. Junek Executive Vice President and General Counsel Glen Salow Former Senior Vice President, General Counsel and Secretary and Chief Governance and Compliance Officer General Mills, Inc. Jeffrey Noddle Executive Vice President Technology and Operations Kim M. Sharan Chairman and Chief Executive Officer SUPERVALU, INC. Richard F. Powers III Executive Vice President and Chief Marketing Officer Joseph E. Sweeney President Financial Planning, Products and Services William F. Truscott Private Investor Former President Morgan Stanley Investment Management Client Group H. Jay Sarles President U.S. Asset Management, Annuities and Chief Investment Officer John R. Woerner Private Investor Former Vice Chairman Bank of America Corporation Robert F. Sharpe, Jr. President Insurance and Chief Strategy Officer *Mr. Henderson is not an executive officer of Ameriprise Financial for purposes of Section 16 of the Securities Exchange Act of 1934, as amended. Executive Vice President Legal and External Affairs ConAgra Foods, Inc. William H. Turner Chairman International College, Beirut and New York Former Chief Executive Officer PNC Bank NJ
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