Ameriprise 2005 Annual Report Download - page 30

28 |Ameriprise Financial, Inc.
significantly change the provision for income taxes recorded in
our consolidated financial statements.
In connection with the provision for income taxes, our consoli-
dated 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 realized for tax return purposes and 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 consoli-
dated U.S. federal income tax return with the other members of
our affiliated group for five tax years following the Distribution
which will result in net operating and capital losses, credits,
and other tax attributes generated by one group not being avail-
able to offset income earned or taxes owed by the other group
during the period of non-consolidation. This lack of consolida-
tion could affect our ability to fully realize certain of our
deferred tax assets, including the capital losses referred to
above.
We are required to establish a valuation allowance for any por-
tion of our deferred tax assets that our management believes
will not be realized. It is likely that our management will need
to identify and implement appropriate planning strategies to
ensure our ability to realize our deferred tax asset relating to
capital losses and avoid the establishment of a valuation
allowance with respect to it. In the opinion of our manage-
ment, 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, and, 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 2 to our consoli-
dated 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 sepa-
rate 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 poli-
cyholders and contractholders. We also earn investment income
on owned assets supporting these products. We incur various
operating costs, primarily compensation and benefit expenses,
the majority of which is related to compensating our distribution
channel, interest credited to investment certificates and fixed
annuities, and provision for losses and benefits for annuities and
protection products.
Revenues
Management, financial advice and service fees. Management,
financial advice and service fees primarily represent manage-
ment and service fees from managed assets and variable
annuity fees, including support payments from other compa-
nies whose funds are held in separate accounts, as well as
wrap account fees and fees received for financial planning and
other services. Management and service fees are generally
based on the market value of the underlying assets, whereas
financial planning fees may be a flat fee or an hourly rate.
Distribution fees. Distribution fees primarily include point-of-
sale fees (such as front-end load mutual fund fees) and
asset-based fees (such as 12b-1 distribution and servicing-
related fees) that are generally based on a contractual fee as
a percentage of assets. We also include fees received under
marketing support arrangements for sales of mutual funds and
other products of other companies, such as through our wrap
accounts, 401(k) plans and on a direct basis, as well as sur-
render charges on fixed and variable universal life insurance
and annuities and fees received from administered assets.
Net investment income. Net investment income predominantly
consists of interest earned on fixed maturity securities classi-
fied as Available-for-Sale, mortgage loans on real estate, policy
loans and cash and cash equivalents; mark-to-market impact
on trading securities and economic hedges and equity method
investment in hedge funds; and net realized gains and losses
on investments. Net realized gains and losses on investments
consist of realized gains and losses on sales of securities and
other-than-temporary impairments of securities held in our
investment portfolio and gains and losses on certain derivative
financial instruments.
Premiums. Premiums consist of revenues from the auto and
home, traditional life, disability income and long-term care
insurance products of our Protection segment.
Other revenues. Other revenues include certain charges
assessed on fixed and variable universal life insurance and
annuities, primarily the cost of insurance embedded in these
products.
Expenses
Compensation and benefits. Our principal source of
expenses is compensation and benefits, which represent
the compensation-related expenses associated with sales
commissions paid to our financial advisors and registered
representatives, and employees of our company. Most
commissions are variable, dependent upon the amount of
sales to clients or the amounts of assets managed for
clients. Field generally represents commissions, post-sale
compensation, benefits and other costs associated with
our financial advisor and registered representative net-
work. Non-field represents all other human resource costs,