N-CSR 1 c24256nvcsr.txt CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number 811-499 RIVERSOURCE INCOME SERIES, INC. (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (Address of principal executive offices) (Zip code) Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474 (Name and address of agent for service) Registrant's telephone number, including area code: (612) 671-1947 Date of fiscal year end: 1/31 Date of reporting period: 1/31 Annual Report and Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE INCOME BUILDER SERIES ANNUAL REPORT FOR THE PERIOD ENDED JANUARY 31, 2008 THIS ANNUAL REPORT DESCRIBES THREE FUNDS, EACH OF WHICH INVESTS IN OTHER RIVERSOURCE FUNDS. THE OBJECTIVE OF EACH FUND IS A HIGH LEVEL OF CURRENT INCOME AND GROWTH OF CAPITAL. RiverSource Income Builder Basic Income Fund RiverSource Income Builder Moderate Income Fund RiverSource Income Builder Enhanced Income Fund (This annual report includes a prospectus that describes in detail each Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) (ADVANCED-BUILT(SM) SOLUTIONS ICON) TABLE OF CONTENTS Fund Snapshots...................... 2 Portfolio Allocation................ 4 Investment Changes RiverSource Income Builder Basic Income Fund.................... 5 RiverSource Income Builder Moderate Income Fund........... 6 RiverSource Income Builder Enhanced Income Fund........... 7 Performance Summaries............... 8 Questions & Answers with Portfolio Management........ 12 The Fund's Long-term Performance RiverSource Income Builder Basic Income Fund.................... 14 RiverSource Income Builder Moderate Income Fund........... 16 RiverSource Income Builder Enhanced Income Fund........... 18 Fund Expenses Examples.............. 20 Investments in Affiliated Funds..... 24 Financial Statements................ 27 Notes to Financial Statements....... 34 Report of Independent Registered Public Accounting Firm........... 49 Federal Income Tax Information...... 50 Board Members and Officers.......... 53 Proxy Voting........................ 55
-------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 1 FUND SNAPSHOTS AT JAN. 31, 2008 FUND OBJECTIVE The objective of each fund is a high level of current income and growth of capital. FUND FACTS RIVERSOURCE INCOME BUILDER BASIC INCOME FUND
TICKER SYMBOL INCEPTION DATE Class A RBBAX 02/16/06 Class B RBBBX 02/16/06 Class C RBBCX 02/16/06 Class R4 -- 02/16/06 Total net assets...................... $314.3 million Number of holdings.................... 13
RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND
TICKER SYMBOL INCEPTION DATE Class A RSMAX 02/16/06 Class B RSMBX 02/16/06 Class C RSMCX 02/16/06 Class R4 -- 02/16/06 Total net assets...................... $639.8 million Number of holdings.................... 13
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND
TICKER SYMBOL INCEPTION DATE Class A RSBAX 02/16/06 Class B REIVX 02/16/06 Class C RIECX 02/16/06 Class R4 -- 02/16/06 Total net assets...................... $338.9 million Number of holdings.................... 13
Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. The RiverSource Income Builder Series funds are "funds of funds" comprised of holdings in several different RiverSource Funds, which may include small-cap, mid-cap, large-cap, money market, international, bond, and/or sector funds. Each of the underlying funds in which the portfolio invests has its own investment risks, and those risks can affect the value of the portfolio's shares and investments. There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. Non-investment grade securities generally have more volatile prices and carry more risk to principal and income than investment grade securities. International investing involves increased risk and volatility due to potential political and economic instability, currency fluctuations, and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging markets. Investments in small-and mid-capitalization companies often involve greater risks and potential volatility than investments in larger, more established companies. See the Funds' prospectus for more information on these and other risks that may be associated with the underlying funds. -------------------------------------------------------------------------------- 2 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT FUND SNAPSHOTS AT JAN. 31, 2008 PORTFOLIO MANAGERS
YEARS IN INDUSTRY Dimitris Bertsimas, Ph.D. 15 Colin Lundgren, CFA 19 Erol Sonderegger, CFA 13
TOP FIVE HOLDINGS RIVERSOURCE INCOME BUILDER BASIC INCOME FUND Percentage of portfolio assets RiverSource U.S. Government Mortgage Fund 27.3% RiverSource Dividend Opportunity Fund 9.5% RiverSource Disciplined Equity Fund 9.4% RiverSource Global Bond Fund 7.5% RiverSource Emerging Markets Bond Fund 7.2%
For further detail about these holdings, please refer to the section entitled "Investments in Affiliated Funds." RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND Percentage of portfolio assets RiverSource U.S. Government Mortgage Fund 17.6% RiverSource Floating Rate Fund 17.0% RiverSource Dividend Opportunity Fund 14.6% RiverSource Emerging Markets Bond Fund 10.2% RiverSource Disciplined Equity Fund 9.8%
For further detail about these holdings, please refer to the section entitled "Investments in Affiliated Funds." RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND Percentage of portfolio assets RiverSource Floating Rate Fund 19.9% RiverSource Emerging Markets Bond Fund 15.5% RiverSource Dividend Opportunity Fund 13.8% RiverSource High Yield Bond Fund 9.9% RiverSource Disciplined International Equity Fund 8.2%
For further detail about these holdings, please refer to the section entitled "Investments in Affiliated Funds." Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. For more information about the underlying funds that make up each RiverSource Income Builder Series funds, visit riversource.com/funds or call (888) 791-3380. Online, you can click on the Fund Documents section to view a Prospectus for each underlying fund, current Fact Sheets, Annual and Semiannual Reports, Quarterly Fund Commentary, Quarterly Holdings Filings and/or each underlying fund's Statement of Additional Information. You can download these documents or obtain free printed copies through your financial advisor. Please note when viewing performance information for each underlying fund that each RiverSource Income Builder Series fund invests only in Class I shares of underlying funds. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 3 PORTFOLIO ALLOCATION RIVERSOURCE INCOME BUILDER BASIC INCOME FUND Percentage of portfolio assets at Jan. 31, 2008 (PIE CHART) Fixed Income Funds(1) 63.6% Equity Funds(2) 25.8% Alternative Investments(3) 4.0% Cash Equivalents(4) 6.6%
(1) Includes Investment Grade 30.3%, Global Bond 7.5%, International 7.2%, Floating Rate 7.0%, Inflation Protected Securities 5.9% and High Yield 5.7%. (2) Includes Dividend Income 9.5%, U.S. Large Cap 9.4%, International 4.3% and U.S. Small Cap 2.6%. (3) Comprised of an investment in the RiverSource Absolute Return Currency and Income Fund. (4) Includes Money Market 6.6%. RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND Percentage of portfolio assets at Jan. 31, 2008 (PIE CHART) Fixed Income Funds(1) 63.0% Equity Funds(2) 31.9% Alternative Investments(3) 4.1% Cash Equivalents(4) 1.0%
(1) Includes Investment Grade 18.4%, Floating Rate 17.0%, International 10.2%, Global Bond 7.7%, High Yield 4.9% and Inflation Protected Securities 4.8%. (2) Includes Dividend Income 14.6%, U.S. Large Cap 9.8%, International 6.0% and U.S. Small Cap 1.5%. (3) Comprised of an investment in the RiverSource Absolute Return Currency and Income Fund. (4) Includes Money Market 1.0%. RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND Percentage of portfolio assets at Jan. 31, 2008 (PIE CHART) Fixed Income Funds(1) 62.8% Equity Funds(2) 29.9% Alternative Investments(3) 4.1% Cash Equivalents(4) 3.2%
(1) Includes Floating Rate 19.9%, International 15.5%, High Yield 9.9%, Global Bond 7.4%, Investment Grade 6.5% and Inflation Protected Securities 3.6%. (2) Includes Dividend Income 13.8%, International 8.2%, U.S. Large Cap 5.8% and U.S. Small Cap 2.1%. (3) Comprised of an investment in the RiverSource Absolute Return Currency and Income Fund. (4) Includes Money Market 3.2%. -------------------------------------------------------------------------------- 4 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT INVESTMENT CHANGES RIVERSOURCE INCOME BUILDER BASIC INCOME FUND Fund holdings at Jan. 31, 2008
% OF FUND'S PORTFOLIO ASSETS ---------------------------- FLOATING RATE FUNDS RiverSource Floating Rate Fund 7.0% ---------------------------- GLOBAL BOND FUNDS RiverSource Global Bond Fund 7.5% ---------------------------- HIGH YIELD FIXED-INCOME FUNDS RiverSource High Yield Bond Fund 5.7% ---------------------------- INFLATION PROTECTED SECURITIES FUNDS RiverSource Inflation Protected Securities Fund 5.9% ---------------------------- INTERNATIONAL BOND FUNDS RiverSource Emerging Markets Bond Fund 7.2% ---------------------------- INVESTMENT GRADE FIXED-INCOME FUNDS Includes government, corporate, mortgage and agency securities RiverSource Diversified Bond Fund 3.0% RiverSource U.S. Government Mortgage Fund 27.3% ---------------------------- 30.3% ---------------------------- INTERNATIONAL EQUITY FUNDS RiverSource Disciplined International Equity Fund 4.3% ---------------------------- DOMESTIC EQUITY FUNDS RiverSource Dividend Opportunity Fund 9.5% RiverSource Disciplined Equity Fund 9.4% RiverSource Disciplined Small Cap Value Fund 2.6% ---------------------------- 21.5% ---------------------------- ALTERNATIVE INVESTMENTS RiverSource Absolute Return Currency and Income Fund 4.0% ---------------------------- MONEY MARKET FUNDS RiverSource Cash Management Fund 6.6% ---------------------------- 100.0% ----------------------------
-------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 5 INVESTMENT CHANGES RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND Fund holdings at Jan. 31, 2008
% OF FUND'S PORTFOLIO ASSETS ---------------------------- FLOATING RATE FUNDS RiverSource Floating Rate Fund 17.0% ---------------------------- GLOBAL BOND FUNDS RiverSource Global Bond Fund 7.7% ---------------------------- HIGH YIELD FIXED-INCOME FUNDS RiverSource High Yield Bond Fund 4.9% ---------------------------- INFLATION PROTECTED SECURITIES FUNDS RiverSource Inflation Protected Securities Fund 4.8% ---------------------------- INTERNATIONAL BOND FUNDS RiverSource Emerging Markets Bond Fund 10.2% ---------------------------- INVESTMENT GRADE FIXED-INCOME FUNDS Includes government, corporate, mortgage and agency securities RiverSource Diversified Bond Fund 0.8% RiverSource U.S. Government Mortgage Fund 17.6% ---------------------------- 18.4% ---------------------------- INTERNATIONAL EQUITY FUNDS RiverSource Disciplined International Equity Fund 6.0% ---------------------------- DOMESTIC EQUITY FUNDS RiverSource Dividend Opportunity Fund 14.6% RiverSource Disciplined Equity Fund 9.8% RiverSource Disciplined Small Cap Value Fund 1.5% ---------------------------- 25.9% ---------------------------- ALTERNATIVE INVESTMENTS RiverSource Absolute Return Currency and Income Fund 4.1% ---------------------------- MONEY MARKET FUNDS RiverSource Cash Management Fund 1.0% ---------------------------- 100.0% ----------------------------
-------------------------------------------------------------------------------- 6 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT INVESTMENT CHANGES RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND Fund holdings at Jan. 31, 2008
% OF FUND'S PORTFOLIO ASSETS ---------------------------- FLOATING RATE FUNDS RiverSource Floating Rate Fund 19.9% ---------------------------- GLOBAL BOND FUNDS RiverSource Global Bond Fund 7.4% ---------------------------- HIGH YIELD FIXED-INCOME FUNDS RiverSource High Yield Bond Fund 9.9% ---------------------------- INFLATION PROTECTED SECURITIES FUNDS RiverSource Inflation Protected Securities Fund 3.6% ---------------------------- INTERNATIONAL BOND FUNDS RiverSource Emerging Markets Bond Fund 15.5% ---------------------------- INVESTMENT GRADE FIXED-INCOME FUNDS Includes government, corporate, mortgage and agency securities RiverSource Diversified Bond Fund 0.7% RiverSource U.S. Government Mortgage Fund 5.8% ---------------------------- 6.5% ---------------------------- INTERNATIONAL EQUITY FUNDS RiverSource Disciplined International Equity Fund 8.2% ---------------------------- DOMESTIC EQUITY FUNDS RiverSource Dividend Opportunity Fund 13.8% RiverSource Disciplined Equity Fund 5.8% RiverSource Disciplined Small Cap Value Fund 2.1% ---------------------------- 21.7% ---------------------------- ALTERNATIVE INVESTMENTS RiverSource Absolute Return Currency and Income Fund 4.1% ---------------------------- MONEY MARKET FUNDS RiverSource Cash Management Fund 3.2% ---------------------------- 100.0% ----------------------------
-------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 7 PERFORMANCE SUMMARIES RIVERSOURCE INCOME BUILDER BASIC INCOME FUND PERFORMANCE COMPARISON For the year ended Jan. 31, 2008 (BAR CHART) RiverSource Income Builder Basic Income Fund Class A (excluding sales charge) +2.49% Lehman Brothers Aggregate Bond Index (unmanaged) +8.81% Russell 3000(R) Value Index (unmanaged) -6.20% Citigroup 3-Month U.S. Treasury Bill Index (unmanaged) +4.60% Blended Index (unmanaged) +4.71%
(see "The Fund's Long-term Performance" for Index descriptions) RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND PERFORMANCE COMPARISON For the year ended Jan. 31, 2008 (BAR CHART) RiverSource Income Builder Moderate Income Fund Class A (excluding sales charge) +1.01% Lehman Brothers Aggregate Bond Index (unmanaged) +8.81% Russell 3000(R) Value Index (unmanaged) -6.20% Citigroup 3-Month U.S. Treasury Bill Index (unmanaged) +4.60% Blended Index (unmanaged) +4.92%
(see "The Fund's Long-term Performance" for Index descriptions) RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND PERFORMANCE COMPARISON For the year ended Jan. 31, 2008 (BAR CHART) RiverSource Income Builder Enhanced Income Fund Class A (excluding sales charge) -0.16% Lehman Brothers Aggregate Bond Index (unmanaged) +8.81% Russell 3000(R) Value Index (unmanaged) -6.20% Citigroup 3-Month U.S. Treasury Bill Index (unmanaged) +4.60% Blended Index (unmanaged) +5.02%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of each Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses and taxes. It is not possible to invest directly in an index. -------------------------------------------------------------------------------- 8 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT PERFORMANCE SUMMARIES RiverSource Income Builder Basic Income Fund AVERAGE ANNUAL TOTAL RETURNS
AT JAN. 31, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +2.49% +6.11% Class B (inception 2/16/06) +1.74% +5.28% Class C (inception 2/16/06) +1.76% +5.32% Class R4 (inception 2/16/06) +3.39% +6.64% WITH SALES CHARGE Class A (inception 2/16/06) -2.41% +3.51% Class B (inception 2/16/06) -3.13% +3.32% Class C (inception 2/16/06) +0.79% +5.32%
AT DEC. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +4.59% +7.06% Class B (inception 2/16/06) +3.83% +6.23% Class C (inception 2/16/06) +3.85% +6.27% Class R4 (inception 2/16/06) +5.41% +7.62% WITH SALES CHARGE Class A (inception 2/16/06) -0.36% +4.32% Class B (inception 2/16/06) -1.13% +4.19% Class C (inception 2/16/06) +2.86% +6.27%
Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class R4 shares. Class R4 is available to institutional investors only. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
NET FUND AND ACQUIRED FUND TOTAL FUND NET EXPENSES(A) (UNDERLYING FUND)(B) Class A 0.40% 0.40% 1.06% Class B 1.15% 1.15% 1.81% Class C 1.15% 1.15% 1.81% Class R4 0.37% 0.33% 0.99%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses of the Fund until Jan. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds) will not exceed 0.45% for Class A, 1.21% for Class B, 1.20% for Class C and 0.33% for Class R4. (b) In addition to the total annual Fund operating expenses that the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the underlying funds in which the Fund invests. The Fund's Acquired Fund (underlying fund) fees and expenses are based on its allocations in the acquired funds. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses for Class I shares on a number of acquired funds until the end of the acquired funds' next fiscal year end, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Before taking the fee waivers into account, the Total Fund and Acquired Fund (underlying fund) fees and expenses would have been 1.12% for Class A, 1.87% for Class B, 1.87% for Class C and 1.05% for Class R4. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 9 PERFORMANCE SUMMARIES RiverSource Income Builder Moderate Income Fund AVERAGE ANNUAL TOTAL RETURNS
AT JAN. 31, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +1.01% +5.97% Class B (inception 2/16/06) +0.26% +5.21% Class C (inception 2/16/06) +0.28% +5.27% Class R4 (inception 2/16/06) +1.25% +6.18% WITH SALES CHARGE Class A (inception 2/16/06) -3.76% +3.38% Class B (inception 2/16/06) -4.52% +3.24% Class C (inception 2/16/06) -0.67% +5.27%
AT DEC. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +4.16% +7.46% Class B (inception 2/16/06) +3.41% +6.70% Class C (inception 2/16/06) +3.43% +6.77% Class R4 (inception 2/16/06) +4.41% +7.68% WITH SALES CHARGE Class A (inception 2/16/06) -0.80% +4.71% Class B (inception 2/16/06) -1.51% +4.66% Class C (inception 2/16/06) +2.44% +6.77%
Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class R4 shares. Class R4 is available to institutional investors only. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
NET FUND AND ACQUIRED FUND TOTAL FUND NET EXPENSES(A) (UNDERLYING FUND)(B) Class A 0.38% 0.38% 1.09% Class B 1.14% 1.14% 1.85% Class C 1.13% 1.13% 1.84% Class R4 0.35% 0.33% 1.04%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses of the Fund until Jan. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds) will not exceed 0.45% for Class A, 1.21% for Class B, 1.20% for Class C and 0.33% for Class R4. (b) In addition to the total annual Fund operating expenses that the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the underlying funds in which the Fund invests. The Fund's Acquired Fund (underlying fund) fees and expenses are based on its allocations in the acquired funds. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses for Class I shares on a number of acquired funds until the end of the acquired funds' next fiscal year end, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Before taking the fee waivers into account, the Total Fund and Acquired Fund (underlying fund) fees and expenses would have been 1.14% for Class A, 1.90% for Class B, 1.89% for Class C and 0.84% for Class R4. -------------------------------------------------------------------------------- 10 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT PERFORMANCE SUMMARIES RiverSource Income Builder Enhanced Income Fund AVERAGE ANNUAL TOTAL RETURNS
AT JAN. 31, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) -0.16% +5.72% Class B (inception 2/16/06) -0.93% +4.88% Class C (inception 2/16/06) -0.90% +4.95% Class R4 (inception 2/16/06) +0.15% +5.90% WITH SALES CHARGE Class A (inception 2/16/06) -4.87% +3.13% Class B (inception 2/16/06) -5.62% +2.91% Class C (inception 2/16/06) -1.84% +4.95%
AT DEC. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR INCEPTION Class A (inception 2/16/06) +3.67% +7.43% Class B (inception 2/16/06) +2.90% +6.64% Class C (inception 2/16/06) +2.92% +6.66% Class R4 (inception 2/16/06) +4.00% +7.67% WITH SALES CHARGE Class A (inception 2/16/06) -1.26% +4.68% Class B (inception 2/16/06) -1.97% +4.60% Class C (inception 2/16/06) +1.95% +6.66%
Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class R4 shares. Class R4 is available to institutional investors only. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
NET FUND AND ACQUIRED FUND TOTAL FUND NET EXPENSES(A) (UNDERLYING FUND)(B) Class A 0.41% 0.41% 1.18% Class B 1.16% 1.16% 1.93% Class C 1.16% 1.16% 1.93% Class R4 0.38% 0.33% 1.10%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses of the Fund until Jan. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds) will not exceed 0.45% for Class A, 1.21% for Class B, 1.20% for Class C and 0.33% for Class R4. (b) In addition to the total annual Fund operating expenses that the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the underlying funds in which the Fund invests. The Fund's Acquired Fund (underlying fund) fees and expenses are based on its allocations in the acquired funds. Because acquired funds will have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred by the Fund with respect to such investments will vary. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses for Class I shares on a number of acquired funds until the end of the acquired funds' next fiscal year end, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Before taking the fee waivers into account, the Total Fund and Acquired Fund (underlying fund) fees and expenses would have been 1.21% for Class A, 1.96% for Class B, 1.96% for Class C and 1.13% for Class R4. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 11 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Portfolio Managers Dimitris Bertsimas, Colin Lundgren and Erol Sonderegger discuss the positioning and results for each RiverSource Income Builder Series fund for the period ended Jan. 31, 2008. Please note that effective Jan. 31, 2008, the fiscal year-end for RiverSource Income Builder Series funds changed from May 31 to Jan. 31. This annual report reflects that change. Q: How did each RiverSource Income Builder Series fund perform for the fiscal period? A: All three RiverSource Income Builder Series funds underperformed their respective blended benchmarks during the reporting period. All fund returns listed below are for Class A shares (excluding sales charge) for the fiscal period ended Jan. 31, 2008. - RiverSource Income Builder Basic Income Fund advanced 2.49%. The fund's blended benchmark, composed of 65% Lehman Brothers Aggregate Bond Index, 25% Russell 3000(R) Value Index and 10% Citigroup 3-Month U.S. Treasury Bill Index, returned 4.71% for the period. - RiverSource Income Builder Moderate Income Fund gained 1.01%. The fund's blended benchmark, composed of 70% Lehman Brothers Aggregate Bond Index, 25% Russell 3000(R) Value Index and 5% Citigroup 3-Month U.S. Treasury Bill Index, returned 4.92% for the period. - RiverSource Income Builder Enhanced Income Fund declined 0.16%. The fund's blended benchmark, composed of 72.5% Lehman Brothers Aggregate Bond Index, 25% Russell 3000(R) Value Index and 2.5% Citigroup 3-Month U.S. Treasury Bill Index, returned 5.02% for the period. The funds' bond benchmark, the Lehman Brothers Aggregate Bond Index, rose 8.81%. The funds' domestic equity benchmark, the Russell 3000(R) Value Index, fell 6.20%, while the Citigroup 3-Month U.S. Treasury Bill Index, a component of the Blended Index, advanced 4.60%. Index returns are for the 12-month fiscal period ended Jan. 31, 2008. A SIGNIFICANT ALLOCATION TO EQUITIES IN EACH OF THE THREE RIVERSOURCE INCOME BUILDER SERIES FUNDS HURT PERFORMANCE, AS STOCKS SIGNIFICANTLY UNDERPERFORMED BONDS DURING THE PERIOD. Q: What factors most significantly affected each fund's performance during the fiscal period? A: Each of the three RiverSource Income Builder Series funds benefited from positions in several underlying funds that outperformed their respective benchmarks during the period. The strongest performers were RiverSource Dividend Opportunity Fund, RiverSource Disciplined International Equity Fund and RiverSource Emerging Markets Bond Fund. Also, within equities, sizable allocations to RiverSource Disciplined International Equity Fund and RiverSource Disciplined Equity Fund boosted performance and helped offset the detracting effect of the funds' overall weighting in equities, as both international stocks and large-cap core U.S. stocks outpaced the broader equity market. Within fixed income, allocations to Treasury Inflation-Protected Securities (TIPS) through RiverSource Inflation Protected Securities Fund, and to international bonds through RiverSource Global Bond Fund, were bright spots during the period, as both sectors outperformed the broader fixed income market for the fiscal period. Also, the use of a currency alpha strategy through RiverSource Absolute Return Currency and Income Fund contributed positively to the funds' results. Conversely, a significant allocation to equities in each of the three RiverSource Income Builder Series funds hurt performance, as stocks significantly underperformed bonds during the period. Within equities, an emphasis on value-oriented stocks detracted, as growth stocks outperformed for the period. Also, exposure to small-cap stocks hurt, as large-cap stocks materially outpaced their smaller counterparts for the fiscal period. The funds maintained an allocation to small-cap stocks that was approximately equal to that of their respective blended benchmark throughout the annual period, muting the impact of the funds' exposure to this segment of the equity market on their performance. Within fixed income, an emphasis on the higher-yielding sectors of the bond market detracted from results. In particular, allocations to RiverSource High Yield Bond Fund and RiverSource Floating Rate Fund hurt performance, as U.S. high yield corporate bonds and high yield bank loans each posted results that lagged the Lehman Brothers Aggregate Bond Index for the period. These riskier, more credit-sensitive sectors of the bond market suffered from a swift and severe reduction in -------------------------------------------------------------------------------- 12 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT QUESTIONS & ANSWERS investor risk appetite, as liquidity and credit concerns spiked in July and continued to dominate for the rest of the period. Finally, as interest rates fell significantly during the period, a comparatively short duration stance through positioning in the underlying funds hurt the results of the Income Builder Series funds. Duration is a measure of the funds' sensitivity to changes in interest rates. Q: What changes did you make to the funds' portfolios and how are they currently positioned? A: We made gradual shifts in the funds' overall asset allocation over the fiscal period, resulting in modestly reduced allocations to both equities and lower-quality fixed income securities by the end of January. Proceeds were rotated into higher-quality bonds and cash. More specifically, on the equity side, we eliminated the funds' position in real estate investment trusts (REITs) through RiverSource Real Estate Fund by early November 2007. The REIT equity sector had fallen significantly by that point, but by fully exiting the position, we were able to avoid the impact of the sector's subsequent decline between November and January, when REITs fell an additional 15%. On the fixed income side, we decreased the Funds' exposure to high yield bonds through RiverSource High Yield Bond Fund. In RiverSource Income Builder Basic Income Fund, we also reduced exposure to high yield bank loans through RiverSource Floating Rate Fund. We correspondingly increased all three funds' exposure to high-quality international bonds and TIPS through RiverSource Global Bond Fund and RiverSource Inflation Protected Securities Fund, respectively. Both of these sectors provide somewhat of a balance to the funds' positioning in the lower-quality fixed income sectors. In our view, international bonds should continue to perform well if a U.S. economic slowdown leads to a broader cooling off of the global economy, and TIPS provide an attractive inflation hedge. We also increased each of the funds' allocations to the currency alpha strategy used in RiverSource Absolute Return Currency and Income Fund, gradually adding to this position on market dips. Though a lower-quality fixed income sector, we did modestly add to the funds' position in emerging markets bonds through RiverSource Emerging Markets Bond Fund. At the end of the period, each RiverSource Income Builder Series fund was positioned with a modest tilt away from bonds in favor of equities. Within equities, we maintained an emphasis on international stocks and U.S. large-cap stocks. We also favored core stocks and growth stocks over value stocks and maintained a neutral allocation to small-cap stocks. Within fixed income, we maintained the funds' significant exposure to the lower-quality sectors, though, as mentioned above, we had modestly reduced the funds' allocation to these sectors as the economic backdrop became less certain and data pointed to the difference in yields between these securities and those of Treasuries widening over the near term. Still, we held a position because despite the recent volatility that dramatically affected floating rate bank loans and high yield corporate bonds, we believe these securities continue to offer attractive yield compensation and represent good longer-term value. The funds also maintained their comparatively shorter duration stance through an emphasis on floating rate securities and mortgage securities. WITHIN EQUITIES, WE MAINTAINED AN EMPHASIS ON INTERNATIONAL STOCKS AND U.S. LARGE-CAP STOCKS. Q: What are the funds' tactical views and strategies for the months ahead? A: The three RiverSource Income Builder Series funds will continue to follow a quantitative discipline that seeks to generate a high level of income, capital growth and manage downside risk. Sector allocation changes are implemented monthly and may be due to changes in yields, valuations, price momentum and correlations to other asset classes. Each of the underlying funds is managed to generate competitive performance versus a benchmark as well as a peer group. Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investment, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource Fund. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 13 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE INCOME BUILDER BASIC INCOME FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Income Builder Basic Income Fund Class A shares (from 2/16/06 to 1/31/08)* as compared to the performance of two widely cited performance indices, the Lehman Brothers Aggregate Bond Index and the Russell 3000 Value Index, as well as a Blended Index, consisting of Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index and Citigroup 3-Month U.S. Treasury Bill Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. * Fund data is from Feb. 16, 2006. Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index, Citigroup 3-month U.S. Treasury Bill Index and Blended Index is from March 1, 2006. COMPARATIVE RESULTS
SINCE Results at Jan. 31, 2008 1 YEAR INCEPTION(5) RIVERSOURCE INCOME BUILDER BASIC INCOME FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,759 $10,695 Average annual total return -2.41% +3.51% LEHMAN BROTHERS AGGREGATE BOND INDEX(1) Cumulative value of $10,000 $10,881 $11,309 Average annual total return +8.81% +6.63% RUSSELL 3000 VALUE INDEX(2) Cumulative value of $10,000 $9,380 $11,086 Average annual total return -6.20% +5.53% CITIGROUP 3-MONTH U.S. TREASURY BILL INDEX(3) Cumulative value of $10,000 $10,460 $10,934 Average annual total return +4.60% +4.75% BLENDED INDEX(4) Cumulative value of $10,000 $10,471 $11,249 Average annual total return +4.71% +6.31%
Results for other share classes can be found on page 9. -------------------------------------------------------------------------------- 14 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE INCOME BUILDER BASIC INCOME FUND LINE GRAPH)
RIVERSOURCE INCOME BUILDER BASIC INCOME FUND LEHMAN BROTHERS CITIGROUP 3-MONTH CLASS A (INCLUDES AGGREGATE BOND RUSSELL 3000 VALUE U.S. TREASURY BILL SALES CHARGE) INDEX(1) INDEX(2) INDEX(3) BLENDED INDEX(4) ----------------- ------------------ ------------------ ------------------ ---------------- 2/16/2006 $ 9,525 $10,000 $10,000 $10,000 $10,000 7/31/06 9,728 10,028 10,407 10,195 10,140 1/31/07 10,436 10,394 11,820 10,453 10,743 7/31/07 10,557 10,587 11,756 10,711 10,893 1/31/08 10,695 11,309 11,086 10,934 11,249
(1) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. (2) The Russell 3000 Value Index, an unmanaged index, measures the performance of those Russell 3000(R) Index companies with lower price-to-book ratios and lower forecasted growth values. (3) The Citigroup 3-Month U.S. Treasury Bill Index, an unmanaged index, is representative of the performance of three-month Treasury bills. (4) The Income Builder Basic Income Fund Blended Index consists of 65% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Value Index and 10% Citigroup 3-Month U.S. Treasury Bill Index. The Citigroup 3-Month U.S. Treasury Bill Index is shown in the table because it is a separate component of the Blended Index. (5) Fund data is from Feb. 16, 2006. Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index, Citigroup 3-month U.S. Treasury Bill Index and Blended Index is from March 1, 2006. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 15 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Income Builder Moderate Income Fund Class A shares (from 2/16/06 to 1/31/08)* as compared to the performance of two widely cited performance indices, the Lehman Brothers Aggregate Bond Index and the Russell 3000 Value Index, as well as a Blended Index, consisting of Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index and Citigroup 3-Month U.S. Treasury Bill Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. * Fund data is from Feb. 16, 2006. Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index, Citigroup 3-month U.S. Treasury Bill Index and Blended Index is from March 1, 2006. COMPARATIVE RESULTS
SINCE Results at Jan. 31, 2008 1 YEAR INCEPTION(5) RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,624 $10,668 Average annual total return -3.76% +3.38% LEHMAN BROTHERS AGGREGATE BOND INDEX(1) Cumulative value of $10,000 $10,881 $11,309 Average annual total return +8.81% +6.63% RUSSELL 3000 VALUE INDEX(2) Cumulative value of $10,000 $9,380 $11,086 Average annual total return -6.20% +5.53% CITIGROUP 3-MONTH U.S. TREASURY BILL INDEX(3) Cumulative value of $10,000 $10,460 $10,934 Average annual total return +4.60% +4.75% BLENDED INDEX(4) Cumulative value of $10,000 $10,492 $11,269 Average annual total return +4.92% +6.41%
Results for other share classes can be found on page 10. -------------------------------------------------------------------------------- 16 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND LINE GRAPH)
RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND CLASS A LEHMAN BROTHERS CITIGROUP 3-MONTH (INCLUDES SALES AGGREGATE BOND RUSSELL 3000 VALUE U.S. TREASURY BILL CHARGE) INDEX(1) INDEX(2) INDEX(3) BLENDED INDEX(4) ----------------- ------------------ ------------------ ------------------ ---------------- 2/16/2006 $ 9,525 $10,000 $10,000 $10,000 $10,000 7/31/06 9,755 10,028 10,407 10,195 10,132 1/31/07 10,561 10,394 11,820 10,453 10,741 7/31/07 10,658 10,587 11,756 10,711 10,887 1/31/08 10,668 11,309 11,086 10,934 11,269
(1) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. (2) The Russell 3000 Value Index, an unmanaged index, measures the performance of those Russell 3000(R) Index companies with lower price-to-book ratios and lower forecasted growth values. (3) The Citigroup 3-Month U.S. Treasury Bill Index, an unmanaged index, is representative of the performance of three-month Treasury bills. (4) The Income Builder Moderate Income Fund Blended Index consists of 70% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Value Index and 5% Citigroup 3-Month U.S. Treasury Bill Index. The Citigroup 3-Month U.S. Treasury Bill Index is shown in the table because it is a separate component of the Blended Index. (5) Fund data is from Feb. 16, 2006. Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index, Citigroup 3-month U.S. Treasury Bill Index and Blended Index is from March 1, 2006. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 17 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Income Builder Enhanced Income Fund Class A shares (from 2/16/06 to 1/31/08)* as compared to the performance of two widely cited performance indices, the Lehman Brothers Aggregate Bond Index and the Russell 3000 Value Index, as well as a Blended Index, consisting of Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index and Citigroup 3-Month U.S. Treasury Bill Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. * Fund data is from Feb. 16, 2006. Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index, Citigroup 3-month U.S. Treasury Bill Index and Blended Index is from March 1, 2006. COMPARATIVE RESULTS
SINCE Results at Jan. 31, 2008 1 YEAR INCEPTION(5) RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,522 $10,619 Average annual total return -4.78% +3.13% LEHMAN BROTHERS AGGREGATE BOND INDEX(1) Cumulative value of $10,000 $10,881 $11,309 Average annual total return +8.81% +6.63% RUSSELL 3000 VALUE INDEX(2) Cumulative value of $10,000 $9,380 $11,086 Average annual total return -6.20% +5.53% CITIGROUP 3-MONTH U.S. TREASURY BILL INDEX(3) Cumulative value of $10,000 $10,460 $10,934 Average annual total return +4.60% +4.75% BLENDED INDEX(4) Cumulative value of $10,000 $10,502 $12,028 Average annual total return +5.02% +6.45%
Results for other share classes can be found on page 11. -------------------------------------------------------------------------------- 18 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND LINE GRAPH)
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND CLASS A LEHMAN BROTHERS CITIGROUP 3-MONTH (INCLUDES SALES AGGREGATE BOND RUSSELL 3000 VALUE U.S. TREASURY BILL CHARGE) INDEX(1) INDEX(2) INDEX(3) BLENDED INDEX(4) ----------------- ------------------ ------------------ ------------------ ---------------- 2/16/2006 $ 9,525 $10,000 $10,000 $10,000 $10,000 7/31/06 9,718 10,028 10,407 10,195 10,800 1/31/07 10,627 10,394 11,820 10,453 11,452 7/31/07 10,680 10,587 11,756 10,711 11,607 1/31/08 10,619 11,309 11,086 10,934 12,028
(1) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. (2) The Russell 3000 Value Index, an unmanaged index, measures the performance of those Russell 3000(R) Index companies with lower price-to-book ratios and lower forecasted growth values. (3) The Citigroup 3-Month U.S. Treasury Bill Index, an unmanaged index, is representative of the performance of three-month Treasury bills. (4) The Income Builder Enhanced Income Fund Blended Index consists of 72.5% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Value Index and 2.5% Citigroup 3-Month U.S. Treasury Bill Index. The Citigroup 3-Month U.S. Treasury Bill Index is shown in the table because it is a separate component of the Blended Index. (5) Fund data is from Feb. 16, 2006. Lehman Brothers Aggregate Bond Index, Russell 3000 Value Index, Citigroup 3-month U.S. Treasury Bill Index and Blended Index is from March 1, 2006. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 19 FUND EXPENSES EXAMPLES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include distribution and service (12b-1) fees; and other Fund fees and expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses, which each Fund bears directly, the Fund's shareholders indirectly bear the expenses of the underlying funds (also referred to as "acquired funds") in which each Fund invests. Each Fund's estimated indirect expense from investing in the underlying funds is based on the Fund's pro rata portion of the cumulative expenses charged by the underlying funds using the underlying funds expense ratio as of the most recent shareholder report. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Jan. 31, 2008. ACTUAL EXPENSES The first line of each table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Direct expenses paid during the period" to estimate the expenses you paid on your account during this period. You can also estimate the direct and indirect expenses you paid over the period by using the number in the first line under the heading "Direct and indirect expenses paid during the period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of each table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other funds. To do so, compare each 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in each table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. -------------------------------------------------------------------------------- 20 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT RiverSource Income Builder Basic Income Fund
BEGINNING ENDING DIRECT EXPENSES DIRECT AND INDIRECT ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSES PAID AUG. 1, 2007 JAN. 31, 2008 THE PERIOD(A) DURING THE PERIOD(B),(C) Class A Actual(d) $1,000 $1,013.10 $2.03 $5.43 Hypothetical (5% return before expenses) $1,000 $1,023.19 $2.04 $5.46 Class B Actual(d) $1,000 $1,009.30 $5.87 $9.27 Hypothetical (5% return before expenses) $1,000 $1,019.36 $5.90 $9.31 Class C Actual(d) $1,000 $1,009.30 $5.82 $9.22 Hypothetical (5% return before expenses) $1,000 $1,019.41 $5.85 $9.26 Class R4 Actual(d) $1,000 $1,020.70 $1.68 $5.09 Hypothetical (5% return before expenses) $1,000 $1,023.54 $1.68 $5.10
ANNUALIZED EXPENSE RATIOS
ACQUIRED FUND FUND'S ANNUALIZED (UNDERLYING FUND) NET FUND EXPENSE RATIO FEES AND EXPENSES(C) EXPENSES Class A .40% .67% 1.07% Class B 1.16% .67% 1.83% Class C 1.15% .67% 1.82% Class R4 .33% .67% 1.00%
(a) Expenses are equal to the Fund's annualized expense ratio for each class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Expenses are equal to the Fund's annualized expense ratio for each class plus the acquired fund (underlying fund) fees and expenses, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (c) The Investment Manager and its affiliates have contractually agreed to waive fees and expenses for Class I shares on a number of underlying funds until the end of the underlying funds' next fiscal year. Before taking the fee waivers into account, the acquired fund (underlying fund) fees and expenses would have been 0.73% for all classes. Had these commitments not been in place for the entire six month period ended Jan. 31, 2008, the actual expenses paid would have been $5.73 for Class A, $9.57 for Class B, $9.52 for Class C and $5.40 for Class R4; the hypothetical expenses paid would have been $5.76 for Class A, $9.62 for Class B, $9.57 for Class C and $5.41 for Class R4. (d) Based on the actual return for the six months ended Jan. 31, 2008: +1.31% for Class A, +0.93% for Class B, +0.93% for Class C and +2.07% for Class R4. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 21 RiverSource Income Builder Moderate Income Fund
BEGINNING ENDING DIRECT EXPENSES DIRECT AND INDIRECT ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSES PAID AUG. 1, 2007 JAN. 31, 2008 THE PERIOD(A) DURING THE PERIOD(B),(C) Class A Actual(d) $1,000 $1,000.90 $1.92 $5.55 Hypothetical (5% return before expenses) $1,000 $1,023.29 $1.94 $5.61 Class B Actual(d) $1,000 $ 997.10 $5.74 $9.36 Hypothetical (5% return before expenses) $1,000 $1,019.46 $5.80 $9.47 Class C Actual(d) $1,000 $ 997.10 $5.74 $9.36 Hypothetical (5% return before expenses) $1,000 $1,019.46 $5.80 $9.47 Class R4 Actual(d) $1,000 $1,002.80 $1.67 $5.30 Hypothetical (5% return before expenses) $1,000 $1,023.54 $1.68 $5.36
ANNUALIZED EXPENSE RATIOS
ACQUIRED FUND FUND'S ANNUALIZED (UNDERLYING FUND) NET FUND EXPENSE RATIO FEES AND EXPENSES(C) EXPENSES Class A .38% .72% 1.10% Class B 1.14% .72% 1.86% Class C 1.14% .72% 1.86% Class R4 .33% .72% 1.05%
(a) Expenses are equal to the Fund's annualized expense ratio for each class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Expenses are equal to the Fund's annualized expense ratio for each class plus the acquired fund (underlying fund) fees and expenses, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (c) The Investment Manager and its affiliates have contractually agreed to waive fees and expenses for Class I shares on a number of underlying funds until the end of the underlying funds' next fiscal year. Before taking the fee waivers into account, the acquired fund (underlying fund) fees and expenses would have been 0.77% for all classes. Had these commitments not been in place for the entire six month period ended Jan. 31, 2008, the actual expenses paid would have been $5.80 for Class A, $9.61 for Class B, $9.61 for Class C and $5.55 for Class R4; the hypothetical expenses paid would have been $5.86 for Class A, $9.72 for Class B, $9.72 for Class C and $5.61 for Class R4. (d) Based on the actual return for the six months ended Jan. 31, 2008: +0.09% for Class A, -0.29% for Class B, -0.29% for Class C and +0.28% for Class R4. -------------------------------------------------------------------------------- 22 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT RiverSource Income Builder Enhanced Income Fund
BEGINNING ENDING DIRECT EXPENSES DIRECT AND INDIRECT ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSES PAID AUG. 1, 2007 JAN. 31, 2008 THE PERIOD(A) DURING THE PERIOD(B),(C) Class A Actual(d) $1,000 $ 993.40 $2.06 $5.98 Hypothetical (5% return before expenses) $1,000 $1,023.14 $2.09 $6.07 Class B Actual(d) $1,000 $ 989.50 $5.87 $9.78 Hypothetical (5% return before expenses) $1,000 $1,019.31 $5.96 $9.93 Class C Actual(d) $1,000 $ 989.60 $5.87 $9.78 Hypothetical (5% return before expenses) $1,000 $1,019.31 $5.96 $9.93 Class R4 Actual(d) $1,000 $ 996.00 $1.66 $5.58 Hypothetical (5% return before expenses) $1,000 $1,023.54 $1.68 $5.66
ANNUALIZED EXPENSE RATIOS
ACQUIRED FUND FUND'S ANNUALIZED (UNDERLYING FUND) NET FUND EXPENSE RATIO FEES AND EXPENSES(C) EXPENSES Class A .41% .78% 1.19% Class B 1.17% .78% 1.95% Class C 1.17% .78% 1.95% Class R4 .33% .78% 1.11%
(a) Expenses are equal to the Fund's annualized expense ratio for each class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Expenses are equal to the Fund's annualized expense ratio for each class plus the acquired fund (underlying fund) fees and expenses, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (c) The Investment Manager and its affiliates have contractually agreed to waive fees and expenses for Class I shares on a number of underlying funds until the end of the underlying funds' next fiscal year. Before taking the fee waivers into account, the acquired fund (underlying fund) fees and expenses would have been 0.81% for all classes. Had these commitments not been in place for the entire six month period ended Jan. 31, 2008, the actual expenses paid would have been $6.13 for Class A, $9.93 for Class B, $9.93 for Class C and $5.74 for Class R4; the hypothetical expenses paid would have been $6.22 for Class A, $10.08 for Class B, $10.08 for Class C and $5.81 for Class R4. (d) Based on the actual return for the six months ended Jan. 31, 2008: -0.57% for Class A, -1.05% for Class B, -0.95% for Class C and -0.40% for Class R4. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 23 INVESTMENTS IN AFFILIATED FUNDS RiverSource Income Builder Basic Income Fund JAN. 31, 2008 (Percentages represent value of investments compared to net assets)
FIXED INCOME FUNDS (63.5%)(b) SHARES VALUE(A) FLOATING RATE (7.0%) RiverSource Floating Rate Fund 2,393,093 $21,968,591 ------------------------------------------------------------------------------------ GLOBAL BOND (7.5%) RiverSource Global Bond Fund 3,415,135 23,701,037 ------------------------------------------------------------------------------------ HIGH YIELD (5.7%) RiverSource High Yield Bond Fund 6,555,279 17,764,806 ------------------------------------------------------------------------------------ INFLATION PROTECTED SECURITIES (5.9%) RiverSource Inflation Protected Securities Fund 1,765,943 18,577,721 ------------------------------------------------------------------------------------ INTERNATIONAL (7.2%) RiverSource Emerging Markets Bond Fund 2,215,556 22,731,607 ------------------------------------------------------------------------------------ INVESTMENT GRADE (30.2%) RiverSource Diversified Bond Fund 1,901,780 9,318,722 RiverSource U.S. Government Mortgage Fund 16,825,655 85,642,581 --------------- Total 94,961,303 ------------------------------------------------------------------------------------ TOTAL FIXED INCOME FUNDS (Cost: $199,591,431) $199,705,065 ------------------------------------------------------------------------------------
EQUITY FUNDS (25.8%)(b) SHARES VALUE(A) DIVIDEND INCOME (9.5%) RiverSource Dividend Opportunity Fund 3,403,798 $29,749,196 ------------------------------------------------------------------------------------ INTERNATIONAL (4.3%) RiverSource Disciplined International Equity Fund 1,270,258 13,439,327 ------------------------------------------------------------------------------------ U.S. LARGE CAP (9.4%) RiverSource Disciplined Equity Fund 4,564,601 29,669,909 ------------------------------------------------------------------------------------ U.S. SMALL CAP (2.6%) RiverSource Disciplined Small Cap Value Fund 959,820 8,321,641 ------------------------------------------------------------------------------------ TOTAL EQUITY FUNDS (Cost: $85,504,139) $81,180,073 ------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENTS (4.0%)(b) SHARES VALUE(A) RiverSource Absolute Return Currency and Income Fund 1,247,593 $12,426,027 ------------------------------------------------------------------------------------ TOTAL ALTERNATIVE INVESTMENTS (Cost: $12,917,445) $12,426,027 ------------------------------------------------------------------------------------
CASH EQUIVALENTS (6.6%)(b) SHARES VALUE(A) MONEY MARKET RiverSource Cash Management Fund 20,720,737 $20,720,737 ------------------------------------------------------------------------------------ TOTAL CASH EQUIVALENTS (Cost: $20,720,737) $20,720,737 ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN AFFILIATED FUNDS (Cost: $318,733,752)(c) $314,031,902 ====================================================================================
NOTES TO INVESTMENTS IN AFFILIATED FUNDS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Investments in Underlying Affiliated Funds -- See Note 6 to the financial statements. (c) At Jan. 31, 2008, the cost of securities for federal income tax purposes was $318,786,099 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,385,584 Unrealized depreciation (8,139,781) -------------------------------------------------------------------------------- Net unrealized depreciation $(4,754,197) --------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 24 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT INVESTMENTS IN AFFILIATED FUNDS RiverSource Income Builder Moderate Income Fund JAN. 31, 2008 (Percentages represent value of investments compared to net assets)
FIXED INCOME FUNDS (62.9%)(b) SHARES VALUE(A) FLOATING RATE (17.0%) RiverSource Floating Rate Fund 11,822,466 $108,530,243 ------------------------------------------------------------------------------------ GLOBAL BOND (7.7%) RiverSource Global Bond Fund 7,063,826 49,022,953 ------------------------------------------------------------------------------------ HIGH YIELD (4.9%) RiverSource High Yield Bond Fund 11,636,949 31,536,132 ------------------------------------------------------------------------------------ INFLATION PROTECTED SECURITIES (4.8%) RiverSource Inflation Protected Securities Fund 2,937,695 30,904,548 ------------------------------------------------------------------------------------ INTERNATIONAL (10.1%) RiverSource Emerging Markets Bond Fund 6,325,481 64,899,435 ------------------------------------------------------------------------------------ INVESTMENT GRADE (18.4%) RiverSource Diversified Bond Fund 1,012,073 4,959,156 RiverSource U.S. Government Mortgage Fund 22,119,891 112,590,245 --------------- Total 117,549,401 ------------------------------------------------------------------------------------ TOTAL FIXED INCOME FUNDS (Cost: $409,985,970) $402,442,712 ------------------------------------------------------------------------------------
EQUITY FUNDS (31.9%)(b) SHARES VALUE(A) DIVIDEND INCOME (14.6%) RiverSource Dividend Opportunity Fund 10,713,257 $93,633,864 ------------------------------------------------------------------------------------ INTERNATIONAL (6.0%) RiverSource Disciplined International Equity Fund 3,639,023 38,500,865 ------------------------------------------------------------------------------------ U.S. LARGE CAP (9.8%) RiverSource Disciplined Equity Fund 9,606,299 62,440,942 ------------------------------------------------------------------------------------ U.S. SMALL CAP (1.5%) RiverSource Disciplined Small Cap Value Fund 1,104,573 9,576,647 ------------------------------------------------------------------------------------ TOTAL EQUITY FUNDS (Cost: $213,636,521) $204,152,318 ------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENTS (4.1%)(b) SHARES VALUE(A) RiverSource Absolute Return Currency and Income Fund 2,602,881 $25,924,692 ------------------------------------------------------------------------------------ TOTAL ALTERNATIVE INVESTMENTS (Cost: $26,731,608) $25,924,692 ------------------------------------------------------------------------------------
CASH EQUIVALENTS (1.0%)(b) SHARES VALUE(A) MONEY MARKET RiverSource Cash Management Fund 6,360,103 $6,360,103 ------------------------------------------------------------------------------------ TOTAL CASH EQUIVALENTS (Cost: $6,360,103) $6,360,103 ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN AFFILIATED FUNDS (Cost: $656,714,202)(c) $638,879,825 ====================================================================================
NOTES TO INVESTMENTS IN AFFILIATED FUNDS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Investments in Underlying Affiliated Funds -- See Note 6 to the financial statements. (c) At Jan. 31, 2008, the cost of securities for federal income tax purposes was $656,850,911 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $4,361,875 Unrealized depreciation (22,332,961) --------------------------------------------------------------------------------- Net unrealized depreciation $(17,971,086) ---------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 25 INVESTMENTS IN AFFILIATED FUNDS RiverSource Income Builder Enhanced Income Fund JAN. 31, 2008 (Percentages represent value of investments compared to net assets)
FIXED INCOME FUNDS (62.7%)(b) SHARES VALUE(A) FLOATING RATE (19.8%) RiverSource Floating Rate Fund 7,339,221 $67,374,046 ------------------------------------------------------------------------------------ GLOBAL BOND (7.4%) RiverSource Global Bond Fund 3,618,351 25,111,357 ------------------------------------------------------------------------------------ HIGH YIELD (9.9%) RiverSource High Yield Bond Fund 12,319,615 33,386,157 ------------------------------------------------------------------------------------ INFLATION PROTECTED SECURITIES (3.6%) RiverSource Inflation Protected Securities Fund 1,175,566 12,366,955 ------------------------------------------------------------------------------------ INTERNATIONAL (15.5%) RiverSource Emerging Markets Bond Fund 5,111,362 52,442,578 ------------------------------------------------------------------------------------ INVESTMENT GRADE (6.5%) RiverSource Diversified Bond Fund 487,052 2,386,557 RiverSource U.S. Government Mortgage Fund 3,842,664 19,559,161 --------------- Total 21,945,718 ------------------------------------------------------------------------------------ TOTAL FIXED INCOME FUNDS (Cost: $220,513,013) $212,626,811 ------------------------------------------------------------------------------------
EQUITY FUNDS (29.8%)(b) SHARES VALUE(A) DIVIDEND INCOME (13.7%) RiverSource Dividend Opportunity Fund 5,359,193 $46,839,349 ------------------------------------------------------------------------------------ INTERNATIONAL (8.2%) RiverSource Disciplined International Equity Fund 2,614,509 27,661,502 ------------------------------------------------------------------------------------ U.S. LARGE CAP (5.8%) RiverSource Disciplined Equity Fund 3,003,761 19,524,449 ------------------------------------------------------------------------------------ U.S. SMALL CAP (2.1%) RiverSource Disciplined Small Cap Value Fund 814,839 7,064,651 ------------------------------------------------------------------------------------ TOTAL EQUITY FUNDS (Cost: $104,709,295) $101,089,951 ------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENTS (4.1%)(b) SHARES VALUE(A) RiverSource Absolute Return Currency and Income Fund 1,387,619 $13,820,684 ------------------------------------------------------------------------------------ TOTAL ALTERNATIVE INVESTMENTS (Cost: $14,091,448) $13,820,684 ------------------------------------------------------------------------------------
CASH EQUIVALENTS (3.2%)(b) SHARES VALUE(A) MONEY MARKET RiverSource Cash Management Fund 10,818,969 $10,818,969 ------------------------------------------------------------------------------------ TOTAL CASH EQUIVALENTS (Cost: $10,818,969) $10,818,969 ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN AFFILIATED FUNDS (Cost: $350,132,725)(c) $338,356,415 ====================================================================================
NOTES TO INVESTMENTS IN AFFILIATED FUNDS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Investments in Underlying Affiliated Funds -- See Note 6 to the financial statements. (c) At Jan. 31, 2008, the cost of securities for federal income tax purposes was $350,432,448 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,335,186 Unrealized depreciation (13,411,219) --------------------------------------------------------------------------------- Net unrealized depreciation $(12,076,033) ---------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- 26 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES
RIVERSOURCE RIVERSOURCE RIVERSOURCE INCOME BUILDER INCOME BUILDER INCOME BUILDER BASIC INCOME MODERATE INCOME ENHANCED INCOME JAN. 31, 2008 FUND FUND FUND ASSETS Investments in affiliated funds, at value (identified cost $318,733,752, $656,714,202 and $350,132,725, respectively) $314,031,902 $638,879,825 $338,356,415 Capital shares receivable 630,990 1,266,156 540,600 Dividends receivable 73,323 139,879 78,567 Receivable for investments sold 2,537,032 10,242,374 9,937,919 ---------------------------------------------------------------------------------------------------------------------------- Total assets 317,273,247 650,528,234 348,913,501 ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES Capital shares payable 454,522 1,538,033 484,451 Payable for investments purchased 2,500,000 9,100,000 9,500,000 Accrued distribution fee 3,232 6,278 3,324 Accrued transfer agency fee 665 1,459 806 Accrued administration services fee 171 348 185 Other accrued expenses 49,003 70,314 52,788 ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 3,007,593 10,716,432 10,041,554 ---------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $314,265,654 $639,811,802 $338,871,947 ============================================================================================================================ REPRESENTED BY Capital stock -- $.01 par value $ 306,206 $ 626,774 $ 337,092 Additional paid-in capital 318,713,645 657,156,114 351,481,379 Accumulated net realized gain (loss) (52,347) (136,709) (1,170,214) Unrealized appreciation (depreciation) on affiliated investments (4,701,850) (17,834,377) (11,776,310) ---------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $314,265,654 $639,811,802 $338,871,947 ============================================================================================================================
Net assets applicable to outstanding shares: Class A $260,429,297 $545,269,841 Class B $ 42,117,652 $ 73,301,557 Class C $ 11,684,994 $ 21,218,944 Class R4 $ 33,711 $ 21,460 Outstanding shares of capital stock: Class A shares 25,367,943 53,399,353 Class B shares 4,110,203 7,195,090 Class C shares 1,139,130 2,080,819 Class R4 shares 3,280 2,099 Net asset value per share: Class A(1) $ 10.27 $ 10.21 Class B $ 10.25 $ 10.19 Class C $ 10.26 $ 10.20 Class R4 $ 10.28 $ 10.22 ------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares: $289,093,384 $ 36,666,708 $ 13,056,618 $ 55,237 Outstanding shares of capital stock: 28,752,778 3,651,072 1,299,870 5,493 Net asset value per share: $ 10.05 $ 10.04 $ 10.04 $ 10.06 ------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A for RiverSource Income Builder Basic Income Fund, RiverSource Income Builder Moderate Income Fund and RiverSource Income Builder Enhanced Income Fund is $10.78, $10.72 and $10.55, respectively. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 27 STATEMENTS OF OPERATIONS
RIVERSOURCE INCOME BUILDER BASIC INCOME FUND PERIOD ENDED YEAR ENDED JAN. 31, 2008(A) MAY 31, 2007 INVESTMENT INCOME Income: Dividend distributions from underlying affiliated funds $ 8,856,693 $ 5,736,778 --------------------------------------------------------------------------------------------------- Expenses: Distribution fee Class A 395,078 266,605 Class B 253,523 179,793 Class C 67,715 36,091 Transfer agency fee Class A 114,260 71,004 Class B 19,567 13,087 Class C 5,051 2,514 Class R4 26 73 Service fee -- Class R4 -- 62 Administrative services fees 38,041 25,671 Plan administration services fee -- Class R4 129 184 Custodian fees 1,068 759 Printing and postage 21,180 6,234 Registration fees 62,255 128,210 Professional fees 19,110 16,500 Other 368 6,992 --------------------------------------------------------------------------------------------------- Total expenses 997,371 753,779 Expenses waived/reimbursed by the Investment Manager and its affiliates (150) (12,724) --------------------------------------------------------------------------------------------------- 997,221 741,055 Earnings credits on cash balances (195) -- --------------------------------------------------------------------------------------------------- Total net expenses 997,026 741,055 --------------------------------------------------------------------------------------------------- Investment income (loss) -- net 7,859,667 4,995,723 --------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Sales of underlying affiliated funds (115,700) 745,270 Capital gain distributions from underlying affiliated funds 2,555,422 1,180,060 --------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 2,439,722 1,925,330 Net change in unrealized appreciation (depreciation) on affiliated investments (12,864,302) 8,303,647 --------------------------------------------------------------------------------------------------- Net gain (loss) on investments (10,424,580) 10,228,977 --------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ (2,564,913) $15,224,700 ===================================================================================================
(a) For the period from June 1, 2007 to Jan. 31, 2008. (Note 10) The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 28 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT STATEMENTS OF OPERATIONS (CONTINUED)
RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND PERIOD ENDED YEAR ENDED JAN. 31, 2008(A) MAY 31, 2007 INVESTMENT INCOME Income: Dividend distributions from underlying affiliated funds $ 20,068,681 $13,607,760 --------------------------------------------------------------------------------------------------- Expenses: Distribution fee Class A 875,976 620,930 Class B 478,229 371,546 Class C 129,187 72,544 Transfer agency fee Class A 275,510 187,698 Class B 40,115 30,253 Class C 10,526 5,802 Class R4 7 11 Service fee -- Class R4 -- 12 Administrative services fees 82,229 58,560 Plan administration services fee -- Class R4 37 17 Custodian fees 585 775 Printing and postage 40,515 22,700 Registration fees 69,650 154,474 Professional fees 18,350 16,500 Other 492 7,969 --------------------------------------------------------------------------------------------------- Total expenses 2,021,408 1,549,791 Expenses waived/reimbursed by the Investment Manager and its affiliates (39) (8) --------------------------------------------------------------------------------------------------- 2,021,369 1,549,783 Earnings credits on cash balances (491) -- --------------------------------------------------------------------------------------------------- Total net expenses 2,020,878 1,549,783 --------------------------------------------------------------------------------------------------- Investment income (loss) -- net 18,047,803 12,057,977 --------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Sales of underlying affiliated funds (1,011,432) 1,758,074 Capital gain distributions from underlying affiliated funds 5,608,819 2,689,433 --------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 4,597,387 4,447,507 Net change in unrealized appreciation (depreciation) on affiliated investments (41,636,292) 24,381,476 --------------------------------------------------------------------------------------------------- Net gain (loss) on investments (37,038,905) 28,828,983 --------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(18,991,102) $40,886,960 ===================================================================================================
(a) For the period from June 1, 2007 to Jan. 31, 2008. (Note 10) The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 29 STATEMENTS OF OPERATIONS (CONTINUED)
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND PERIOD ENDED YEAR ENDED JAN. 31, 2008(A) MAY 31, 2007 INVESTMENT INCOME Income: Dividend distributions from underlying affiliated funds $ 12,242,776 $ 9,172,700 --------------------------------------------------------------------------------------------------- Expenses: Distribution fee Class A 489,209 388,750 Class B 252,693 241,288 Class C 82,441 61,000 Transfer agency fee Class A 158,010 117,917 Class B 21,731 19,619 Class C 6,900 4,886 Class R4 20 20 Service fee -- Class R4 -- 18 Administrative services fees 45,848 37,153 Plan administration services fee -- Class R4 103 43 Custodian fees 1,024 567 Printing and postage 29,381 11,332 Registration fees 88,835 120,428 Professional fees 15,180 16,500 Other 475 4,478 --------------------------------------------------------------------------------------------------- Total expenses 1,191,850 1,023,999 Expenses waived/reimbursed by the Investment Manager and its affiliates (107) (23) --------------------------------------------------------------------------------------------------- 1,191,743 1,023,976 Earnings credits on cash balances (242) -- --------------------------------------------------------------------------------------------------- Total net expenses 1,191,501 1,023,976 --------------------------------------------------------------------------------------------------- Investment income (loss) -- net 11,051,275 8,148,724 --------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Sales of underlying affiliated funds (1,588,393) 2,214,506 Capital gain distributions from underlying affiliated funds 2,680,679 1,367,518 --------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 1,092,286 3,582,024 Net change in unrealized appreciation (depreciation) on affiliated investments (28,630,052) 17,435,810 --------------------------------------------------------------------------------------------------- Net gain (loss) on investments (27,537,766) 21,017,834 --------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(16,486,491) $29,166,558 ===================================================================================================
(a) For the period from June 1, 2007 to Jan. 31, 2008. (Note 10) The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 30 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE INCOME BUILDER BASIC INCOME FUND PERIOD ENDED YEAR ENDED PERIOD ENDED JAN. 31, 2008(A) MAY 31, 2007 MAY 31, 2006(B) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 7,859,667 $ 4,995,723 $ 94,859 Net realized gain (loss) on investments 2,439,722 1,925,330 (1,181) Net change in unrealized appreciation (depreciation) on affiliated investments (12,864,302) 8,303,647 (141,672) --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (2,564,913) 15,224,700 (47,994) --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (7,621,913) (4,704,031) (76,415) Class B (1,028,182) (661,655) (16,399) Class C (277,845) (134,563) (2,469) Class R4 (2,564) (6,530) (266) Net realized gain Class A (2,333,475) (37,577) -- Class B (370,837) (6,423) -- Class C (102,173) (1,275) -- Class R4 (308) (58) -- --------------------------------------------------------------------------------------------------------------------------- Total distributions (11,737,297) (5,552,112) (95,549) --------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 108,249,588 183,856,568 19,465,304 Class B shares 20,948,253 31,758,854 4,864,449 Class C shares 5,116,856 7,471,559 689,934 Class R4 shares -- 173,969 35,000 Reinvestment of distributions at net asset value Class A shares 9,163,939 4,277,858 65,275 Class B shares 1,280,606 627,552 14,755 Class C shares 316,036 113,576 2,176 Class R4 shares 2,361 6,124 163 Payments for redemptions Class A shares (42,539,784) (17,946,648) (247,683) Class B shares (11,621,604) (5,113,877) (106,089) Class C shares (1,319,827) (465,200) (19) Class R4 shares (72,900) (128,787) -- --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 89,523,524 204,631,548 24,783,265 --------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 75,221,314 214,304,136 24,639,722 Net assets at beginning of period 239,044,340 24,740,204 100,482(c) --------------------------------------------------------------------------------------------------------------------------- Net assets at end of period $314,265,654 $239,044,340 $24,740,204 =========================================================================================================================== Undistributed net investment income $ -- $ 31,324 $ 6,262 ---------------------------------------------------------------------------------------------------------------------------
(a) For the period from June 1, 2007 to Jan. 31, 2008. (Note 10) (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) Initial capital of $100,000 was contributed on Feb. 9, 2006. The Fund had an increase in net assets resulting from operations of $482 during the period from Feb. 9, 2006 to Feb. 16, 2006 (when shares became publicly available). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 31 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND PERIOD ENDED YEAR ENDED PERIOD ENDED JAN. 31, 2008(A) MAY 31, 2007 MAY 31, 2006(B) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 18,047,803 $ 12,057,977 $ 241,817 Net realized gain (loss) on investments 4,597,387 4,447,507 -- Net change in unrealized appreciation (depreciation) on affiliated investments (41,636,292) 24,381,476 (580,209) --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (18,991,102) 40,886,960 (338,392) --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (17,754,835) (11,538,368) (206,945) Class B (2,059,390) (1,445,188) (31,620) Class C (566,587) (283,067) (4,851) Class R4 (783) (740) (207) Net realized gain Class A (4,717,406) (96,904) -- Class B (637,741) (14,179) -- Class C (180,014) (2,705) -- Class R4 (188) (4) -- Tax return of capital Class A (756,070) -- -- Class B (88,758) -- -- Class C (24,473) -- -- Class R4 (33) -- -- --------------------------------------------------------------------------------------------------------------------------- Total distributions (26,786,278) (13,381,155) (243,623) --------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 190,882,788 405,161,074 57,688,458 Class B shares 27,762,389 62,874,133 10,479,846 Class C shares 9,297,031 13,375,001 1,921,240 Class R4 shares 2,677 58,537 50,025 Reinvestment of distributions at net asset value Class A shares 21,188,455 10,469,811 182,337 Class B shares 2,572,304 1,345,946 29,187 Class C shares 632,871 230,767 3,935 Class R4 shares 519 258 98 Payments for redemptions Class A shares (86,244,919) (37,221,790) (720,800) Class B shares (20,759,742) (8,947,264) (192,367) Class C shares (2,591,126) (860,076) (5,211) Class R4 shares -- (81,653) (20,000) --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 142,743,247 446,404,744 69,416,748 --------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 96,965,867 473,910,549 68,834,733 Net assets at beginning of period 542,845,935 68,935,386 100,653(c) --------------------------------------------------------------------------------------------------------------------------- Net assets at end of period $639,811,802 $542,845,935 $68,935,386 =========================================================================================================================== Undistributed net investment income $ -- $ 38,463 $ 10,733 ---------------------------------------------------------------------------------------------------------------------------
(a) For the period from June 1, 2007 to Jan. 31, 2008. (Note 10) (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) Initial capital of $100,000 was contributed on Feb. 9, 2006. The Fund had an increase in net assets resulting from operation of $653 during the period from Feb. 9, 2006 to Feb. 16, 2006 (when shares became publicly available). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 32 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND PERIOD ENDED YEAR ENDED PERIOD ENDED JAN. 31, 2008(A) MAY 31, 2007 MAY 31, 2006(B) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 11,051,275 $ 8,148,724 $ 233,928 Net realized gain (loss) on investments 1,092,286 3,582,024 (582,671) Net change in unrealized appreciation (depreciation) on affiliated investments (28,630,052) 17,435,810 -- --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (16,486,491) 29,166,558 (348,743) --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (10,796,758) (7,504,790) (194,160) Class B (1,194,841) (983,690) (34,517) Class C (398,867) (247,532) (6,772) Class R4 (2,392) (1,678) (191) Net realized gain Class A (3,204,892) (147,447) -- Class B (402,562) (23,066) -- Class C (139,974) (5,595) -- Class R4 (696) (30) -- Tax return of capital Class A (715,333) -- -- Class B (79,162) -- -- Class C (26,427) -- -- Class R4 (159) -- -- --------------------------------------------------------------------------------------------------------------------------- Total distributions (16,962,063) (8,913,828) (235,640) --------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares 99,646,966 219,075,982 50,658,429 Class B shares 12,244,678 32,082,197 9,771,252 Class C shares 4,706,931 8,505,388 2,089,812 Class R4 shares 41,300 1,881 22,500 Reinvestment of distributions at net asset value Class A shares 13,089,182 6,669,701 165,641 Class B shares 1,483,245 876,697 29,969 Class C shares 473,372 207,039 5,240 Class R4 shares 2,703 1,193 74 Payments for redemptions Class A shares (61,569,464) (25,861,840) (788,395) Class B shares (12,173,574) (6,377,708) (134,406) Class C shares (1,636,000) (735,578) (1,411) Class R4 shares (21,462) -- -- --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 56,287,877 234,444,952 61,818,705 --------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 22,839,323 254,697,682 61,234,322 Net assets at beginning of period 316,032,624 61,334,942 100,620(c) --------------------------------------------------------------------------------------------------------------------------- Net assets at end of period $338,871,947 $316,032,624 $61,334,942 =========================================================================================================================== Undistributed net investment income $ -- $ 43,463 $ 10,073 ---------------------------------------------------------------------------------------------------------------------------
(a) For the period from June 1, 2007 to Jan. 31, 2008. (Note 10) (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) Initial capital of $100,000 was contributed on Feb. 9, 2006. The Fund had an increase in net assets resulting from operation of $620 during the period from Feb. 9, 2006 to Feb. 16, 2006 (when shares became publicly available). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Each Fund is a series of RiverSource Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. RiverSource Income Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). Each Fund is a "fund of funds" and seeks to achieve its objective by investing in a combination of underlying affiliated funds* for which RiverSource Investments, LLC (RiverSource Investments) or an affiliate acts as investment manager or principal underwriter. RiverSource Investments is the Investment Manager for the Funds. For each Fund, on Feb. 9, 2006, Ameriprise Financial, Inc. (Ameriprise Financial), the parent company of the Investment Manager, invested $100,000 (7,000 shares for Class A; 1,000 shares for Class B; Class C and Class R4, respectively), which represented the initial capital for each class at $10 per share. On or about Aug. 31, 2007, Ameriprise Financial transferred its ownership interest in invested initial capital in each Fund to the Investment Manager. Shares of each Fund were first offered to the public on Feb. 16, 2006. The primary objective of each Fund is as follows: RiverSource Income Builder Basic Income Fund is designed for investors seeking a high level of current income and growth of capital, with a more conservative level of both risk to principal and potential for high current income, relative to RiverSource Income Builder Moderate Income Fund and RiverSource Income Builder Enhanced Income Fund. RiverSource Income Builder Moderate Income Fund is designed for investors seeking a high level of current income and growth of capital, with a higher level of both risk to principal and potential for high current income, relative to RiverSource Income Builder Basic Income Fund, and a more moderate level of risk to principal and potential for high current income relative to RiverSource Income Builder Enhanced Income Fund. RiverSource Income Builder Enhanced Income Fund is designed for investors seeking a high level of current income and growth of capital, with a higher level of both risk to principal and potential for high current income relative to RiverSource Income Builder Basic Income Fund and RiverSource Income Builder Moderate Income Fund. Each Fund offers Class A, Class B, Class C and Class R4 shares. - Class A shares are sold with a front-end sales charge. - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - Class C shares may be subject to a CDSC. - Class R4 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. * For information on the goals, investment strategies and risks of the underlying funds please refer to Appendix A and B in the Funds' most recent prospectus. Each Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF INVESTMENTS Investments in the underlying funds are valued at their net asset value at the close of each business day. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. GUARANTEES AND INDEMNIFICATIONS Under each Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to each Fund. In addition, certain of each Fund's contracts with its service providers contain general indemnification clauses. Each Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against each Fund cannot be determined and each Fund has no historical basis for predicting the likelihood of any such claims. -------------------------------------------------------------------------------- 34 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT FEDERAL TAXES Each Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Each Fund is treated as a separate entity for federal income tax purposes. The Funds have adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which are effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income and net realized gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to the reclassification of short term capital gains earned in the underlying affiliated funds and losses due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Funds. On the Statement of assets and liabilities, as a result of permanent book-to-tax differences, accumulated net realized gain (loss) and undistributed net investment income have been increased (decreased), resulting in net reclassification adjustments to additional paid-in capital by the following:
RIVERSOURCE RIVERSOURCE RIVERSOURCE INCOME BUILDER INCOME BUILDER INCOME BUILDER BASIC INCOME FUND MODERATE INCOME FUND ENHANCED INCOME FUND ---------------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain (loss) $(1,027,957) $(2,295,329) $(1,297,900) Undistributed net investment income 1,039,513 2,295,329 1,298,120 ---------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital reduction (increase) $ 11,556 $ -- $ 220 ----------------------------------------------------------------------------------------------------------------------------
The tax character of distributions paid for the periods indicated is as follows:
PERIOD ENDED YEAR ENDED PERIOD ENDED JAN. 31, 2008(A) MAY 31, 2007 MAY 31, 2006(B) ------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund CLASS A Distributions paid from: Ordinary income....................................... $ 8,234,010 $ 4,741,608 $ 76,415 Long-term capital gain................................ 1,721,378 -- -- CLASS B Distributions paid from: Ordinary income....................................... 1,125,459 668,078 16,399 Long-term capital gain................................ 273,560 -- -- CLASS C Distributions paid from: Ordinary income....................................... 304,647 135,838 2,469 Long-term capital gain................................ 75,371 -- -- CLASS R4 Distributions paid from: Ordinary income....................................... 2,645 6,588 266 Long-term capital gain................................ 227 -- --
-------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 35
PERIOD ENDED YEAR ENDED PERIOD ENDED JAN. 31, 2008(A) MAY 31, 2007 MAY 31, 2006(B) ------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder Moderate Income Fund CLASS A Distributions paid from: Ordinary income....................................... $18,980,323 $11,635,272 $206,945 Long-term capital gain................................ 3,491,918 -- -- Tax return of capital................................. 756,070 -- -- CLASS B Distributions paid from: Ordinary income....................................... 2,224,966 1,459,367 31,620 Long-term capital gain................................ 472,165 -- -- Tax return of capital................................. 88,758 -- -- CLASS C Distributions paid from: Ordinary income....................................... 613,347 285,772 4,851 Long-term capital gain................................ 133,254 -- -- Tax return of capital................................. 24,473 -- -- CLASS R4 Distributions paid from: Ordinary income....................................... 832 744 207 Long-term capital gain................................ 139 -- -- Tax return of capital................................. 33 -- -- RiverSource Income Builder Enhanced Income Fund CLASS A Distributions paid from: Ordinary income....................................... 12,195,858 7,652,237 194,160 Long-term capital gain................................ 1,805,792 -- -- Tax return of capital................................. 715,333 -- -- CLASS B Distributions paid from: Ordinary income....................................... 1,370,594 1,006,756 34,517 Long-term capital gain................................ 226,809 -- -- Tax return of capital................................. 79,162 -- -- CLASS C Distributions paid from: Ordinary income....................................... 459,977 253,127 6,772 Long-term capital gain................................ 78,864 -- -- Tax return of capital................................. 26,427 -- -- CLASS R4 Distributions paid from: Ordinary income....................................... 2,696 1,708 191 Long-term capital gain................................ 392 -- -- Tax return of capital................................. 159 -- --
(a) For the period from June 1, 2007 to Jan. 31, 2008. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. At Jan. 31, 2008, the components of distributable earnings on a tax basis for each Fund are as follows:
UNDISTRIBUTED UNDISTRIBUTED UNREALIZED ORDINARY ACCUMULATED ACCUMULATED APPRECIATION FUND INCOME LONG-TERM GAIN REALIZED LOSS (DEPRECIATION) --------------------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund............... $ -- $ -- $ -- $ (4,754,197) RiverSource Income Builder Moderate Income Fund............ -- -- -- (17,971,086) RiverSource Income Builder Enhanced Income Fund............ -- -- (870,491) (12,076,033)
RECENT ACCOUNTING PRONOUNCEMENT On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and -------------------------------------------------------------------------------- 36 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statements of operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Feb.1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of each Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions, normally shares of the underlying funds, are accounted for as of trade date. Income and capital gain distributions from the underlying funds, if any, are recorded on the ex-dividend date. 2. EXPENSES AND SALES CHARGES Under an Administrative Services Agreement, each Fund pays Ameriprise Financial a fee for administration and accounting services at an annual rate of 0.02% of each Fund's average daily net assets. Compensation to board members and certain other core expenses are paid by the affiliated underlying funds in which each Fund invests. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. Each Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: - Class A $20.50 - Class B $21.50 - Class C $21.00 Each Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of each Fund's average daily net assets attributable to Class R4 shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statements of operations. Under a Plan Administration Services Agreement with the Transfer Agent, each Fund pays an annual fee at a rate of 0.25% of each Fund's average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. Each Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to each Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an annual rate of up to 0.25% of each Fund's average daily net assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of each Fund's average daily net assets attributable to Class B and Class C shares. Sales charges received by the Distributor for distributing the Funds' shares for periods indicated are as follows:
PERIOD ENDED JAN. 31, 2008(a) FUND CLASS A CLASS B CLASS C ------------------------------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund $ 661,753 $21,857 $4,977 RiverSource Income Builder Moderate Income Fund 1,239,150 33,020 7,511 RiverSource Income Builder Enhanced Income Fund 785,824 40,912 5,245
(a) For the period from June 1, 2007 to Jan. 31, 2008.
YEAR ENDED MAY 31, 2007 FUND CLASS A CLASS B CLASS C ------------------------------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund $1,140,702 $11,561 $3,185 RiverSource Income Builder Moderate Income Fund 2,931,730 19,985 4,223 RiverSource Income Builder Enhanced Income Fund 1,657,682 18,577 2,659
In addition to the fees and expenses which each Fund bears directly, each Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which a Fund invests. Each Fund also indirectly receives a pro rata share of earnings credits from overnight cash balances of the underlying funds which reduced the underlying funds transfer agency fees. Because the -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 37 underlying funds have varied expense and fee levels and each Fund may own different proportions of underlying funds at different times, the amount of fees and expenses incurred indirectly by each Fund will vary. For the period from June 1, 2007 to Jan. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds) were as follows:
FUND CLASS R4 ------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund 0.08% RiverSource Income Builder Moderate Income Fund 0.08 RiverSource Income Builder Enhanced Income Fund 0.12
Of these waived/reimbursed fees and expenses, the transfer agency fees at the class level were as follows:
FUND CLASS R4 ------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund $21 RiverSource Income Builder Moderate Income Fund 3 RiverSource Income Builder Enhanced Income Fund 20
Of these waived/reimbursed fees and expenses, the plan administration services fees at the class level were as follows:
FUND CLASS R4 ------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund $129 RiverSource Income Builder Moderate Income Fund 36 RiverSource Income Builder Enhanced Income Fund 87
For the year ended May 31, 2007, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds) were as follows:
FUND CLASS A CLASS B CLASS C CLASS R4 ------------------------------------------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund 0.45% 1.21% 1.20% 0.29% RiverSource Income Builder Moderate Income Fund -- -- -- 0.29 RiverSource Income Builder Enhanced Income Fund -- -- -- 0.29
Of these waived/reimbursed fees and expenses, the transfer agency fees at the class level were as follows:
FUND CLASS A CLASS B CLASS C CLASS R4 --------------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund $9,791 $2,299 $405 $129 RiverSource Income Builder Moderate Income Fund -- -- -- 8 RiverSource Income Builder Enhanced Income Fund -- -- -- 23
Administrative services fees and other Fund level expenses waived for RiverSource Income Builder Basic Income Fund were $100. The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses, such that net direct expenses (excluding fees and expenses of acquired funds) will not exceed 0.45% for Class A, 1.21% for Class B, 1.20% for Class C and 0.33% for Class R4 of each Fund's average daily net assets until Jan. 31, 2009 unless sooner terminated at the discretion of the Board. For the period from June 1, 2007 to Jan. 31, 2008, each Fund's custodian fees were reduced as a result of earnings credits from overnight cash balances as follows:
FUND AMOUNT ---------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund $195 RiverSource Income Builder Moderate Income Fund 491 RiverSource Income Builder Enhanced Income Fund 242
Each Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. -------------------------------------------------------------------------------- 38 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 3. SECURITIES TRANSACTIONS For the period from June 1, 2007 to Jan. 31, 2008, cost of purchases and proceeds from sales (other than short-term obligations) aggregated for each Fund are as follows:
FUND PURCHASES PROCEEDS ----------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund $141,500,555 $53,672,718 RiverSource Income Builder Moderate Income Fund 257,234,098 118,695,395 RiverSource Income Builder Enhanced Income Fund 134,929,946 82,697,931
Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows: RiverSource Income Builder Basic Income Fund
PERIOD ENDED JAN. 31, 2008(a) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------------- Class A 10,226,133 874,238 (4,038,942) 7,061,429 Class B 1,986,573 122,432 (1,097,463) 1,011,542 Class C 484,448 30,187 (125,781) 388,854 Class R4 -- 223 (6,811) (6,588) ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------------- Class A 17,675,545 407,731 (1,704,156) 16,379,120 Class B 3,051,926 59,960 (489,695) 2,622,191 Class C 713,917 10,820 (44,411) 680,326 Class R4 17,057 587 (12,271) 5,373 ---------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED MAY 31, 2006(b) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ------------------------------------------------------------------------------------------------------------------------------- Class A 1,938,512 6,517 (24,635) 1,920,394 Class B 484,572 1,474 (10,576) 475,470 Class C 68,735 217 (2) 68,950 Class R4 3,479 16 -- 3,495 -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 39 RiverSource Income Builder Moderate Income Fund
PERIOD ENDED JAN. 31, 2008(a) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------------- Class A 17,814,698 2,007,517 (8,138,039) 11,684,176 Class B 2,598,121 244,323 (1,939,085) 903,359 Class C 867,576 60,067 (243,506) 684,137 Class R4 244 49 -- 293 ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------------- Class A 38,530,389 986,430 (3,487,818) 36,029,001 Class B 5,990,163 127,231 (853,957) 5,263,437 Class C 1,263,283 21,737 (80,210) 1,204,810 Class R4 5,880 25 (8,066) (2,161) ---------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED MAY 31, 2006(b) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ------------------------------------------------------------------------------------------------------------------------------- Class A 5,732,529 18,198 (71,551) 5,679,176 Class B 1,043,675 2,915 (19,296) 1,027,294 Class C 190,992 393 (513) 190,872 Class R4 4,965 10 (2,008) 2,967 -------------------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder Enhanced Income Fund
PERIOD ENDED JAN. 31, 2008(a) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------------- Class A 9,298,829 1,248,704 (5,842,332) 4,705,201 Class B 1,143,952 141,694 (1,137,244) 148,402 Class C 441,085 45,256 (155,560) 330,781 Class R4 3,802 258 (2,091) 1,969 ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------------- Class A 20,861,872 628,525 (2,424,619) 19,065,778 Class B 3,062,356 82,864 (604,908) 2,540,312 Class C 809,755 19,528 (69,308) 759,975 Class R4 173 113 -- 286 ---------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED MAY 31, 2006(b) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ------------------------------------------------------------------------------------------------------------------------------- Class A 5,036,375 16,546 (78,122) 4,974,799 Class B 971,755 2,994 (13,391) 961,358 Class C 207,731 523 (140) 208,114 Class R4 2,231 7 -- 2,238 -------------------------------------------------------------------------------------------------------------------------------
(a) For the period from June 1, 2007 to Jan. 31, 2008. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. -------------------------------------------------------------------------------- 40 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 5. BANK BORROWINGS Each Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between each Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of the borrowing. Each Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, each Fund paid interest on its outstanding borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Each Fund had no borrowings during the period ended Jan. 31, 2008. 6. INVESTMENTS IN UNDERLYING AFFILIATED FUNDS The Funds do not invest in the underlying funds for the purpose of exercising management or control. At Jan. 31, 2008, each Fund held the following positions, which exceed 5% of the underlying fund's shares outstanding: RiverSource Income Builder Basic Income Fund
UNDERLYING FUND PERCENT OF SHARES HELD -------------------------------------------------------------------------------------- RiverSource Disciplined Small Cap Value Fund 21.88% RiverSource U.S. Government Mortgage Fund 21.01% RiverSource Emerging Markets Bond Fund 13.95%
RiverSource Income Builder Moderate Income Fund
UNDERLYING FUND PERCENT OF SHARES HELD -------------------------------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 39.62% RiverSource U.S. Government Mortgage Fund 27.63% RiverSource Disciplined Small Cap Value Fund 25.20% RiverSource Floating Rate Fund 19.50% RiverSource Absolute Return Currency and Income Fund 8.35% RiverSource Global Bond Fund 7.30% RiverSource Disciplined International Equity Fund 6.08% RiverSource Inflation Protected Securities Fund 5.52%
RiverSource Income Builder Enhanced Income Fund
UNDERLYING FUND PERCENT OF SHARES HELD -------------------------------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 30.80% RiverSource Disciplined Small Cap Value Fund 18.59% RiverSource Floating Rate Fund 12.10%
7. CONCENTRATION OF RISK DIVERSIFICATION RISK Each Fund is non-diversified. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the Fund's performance, each Fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. 8. POST-OCTOBER LOSS Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Funds are permitted to treat net capital losses realized between November 1 and their fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Jan. 31, 2008, RiverSource Income Builder Enhanced Income Fund had a post-October loss of $870,491 that is treated for income tax purposes as occurring on Feb. 1, 2008. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 41 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS 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. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are 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 consolidated financial condition or results of operations of Ameriprise Financial. 10. CHANGE OF FUNDS' FISCAL YEAR Effective Jan. 31, 2008, each Fund changed its fiscal year end from May 31 to Jan. 31. -------------------------------------------------------------------------------- 42 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 11. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. RiverSource Income Builder Basic Income Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.79 $9.98 $10.05 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .30(d) .42 .10 Net gains (losses) (both realized and unrealized) (.39) .84 (.07) ------------------------------------------------------------------------ Total from investment operations (.09) 1.26 .03 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.36) (.45) (.10) Distributions from realized gains (.07) -- -- ------------------------------------------------------------------------ Total distributions (.43) (.45) (.10) ------------------------------------------------------------------------ Net asset value, end of period $10.27 $10.79 $9.98 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $260 $197 $19 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) .40%(g) .46% 3.62%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) .40%(g) .45% .45%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.26%(g) 4.02% 3.44%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 27% 1% ------------------------------------------------------------------------ Total return(j) (.84%)(k) 12.89% .31%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.77 $9.97 $10.05 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(d) .35 .08 Net gains (losses) (both realized and unrealized) (.39) .83 (.07) ------------------------------------------------------------------------ Total from investment operations (.14) 1.18 .01 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.31) (.38) (.09) Distributions from realized gains (.07) -- -- ------------------------------------------------------------------------ Total distributions (.38) (.38) (.09) ------------------------------------------------------------------------ Net asset value, end of period $10.25 $10.77 $9.97 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $42 $33 $5 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 1.15%(g) 1.22% 4.20%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 1.15%(g) 1.21% 1.21%(g) ------------------------------------------------------------------------ Net investment income (loss) 3.50%(g) 3.27% 2.70%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 27% 1% ------------------------------------------------------------------------ Total return(j) (1.34%)(k) 12.01% .07%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 43 RiverSource Income Builder Basic Income Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.78 $9.99 $10.05 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .25(d) .35 .09 Net gains (losses) (both realized and unrealized) (.39) .82 (.07) ------------------------------------------------------------------------ Total from investment operations (.14) 1.17 .02 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.31) (.38) (.08) Distributions from realized gains (.07) -- -- ------------------------------------------------------------------------ Total distributions (.38) (.38) (.08) ------------------------------------------------------------------------ Net asset value, end of period $10.26 $10.78 $9.99 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $8 $1 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 1.15%(g) 1.21% 4.30%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 1.15%(g) 1.20% 1.21%(g) ------------------------------------------------------------------------ Net investment income (loss) 3.53%(g) 3.27% 2.74%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 27% 1% ------------------------------------------------------------------------ Total return(j) (1.33%)(k) 11.91% .23%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.80 $9.99 $10.05 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .33(d) .43 .11 Net gains (losses) (both realized and unrealized) (.34) .84 (.07) ------------------------------------------------------------------------ Total from investment operations (.01) 1.27 .04 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.44) (.46) (.10) Distributions from realized gains (.07) -- -- ------------------------------------------------------------------------ Total distributions (.51) (.46) (.10) ------------------------------------------------------------------------ Net asset value, end of period $10.28 $10.80 $9.99 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) .37%(g) .42% 6.84%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) .08%(g) .29% .29%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.32%(g) 4.39% 3.25%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 27% 1% ------------------------------------------------------------------------ Total return(j) (.08%)(k) 13.02% .43%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. -------------------------------------------------------------------------------- 44 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT RiverSource Income Builder Moderate Income Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.99 $9.98 $10.07 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .32(d) .45 .10 Net gains (losses) (both realized and unrealized) (.64) 1.04 (.08) ------------------------------------------------------------------------ Total from investment operations (.32) 1.49 .02 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.38) (.48) (.11) Distributions from realized gains (.06) -- -- Tax return of capital (.02) -- -- ------------------------------------------------------------------------ Total distributions (.46) (.48) (.11) ------------------------------------------------------------------------ Net asset value, end of period $10.21 $10.99 $9.98 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $545 $458 $57 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) .38%(g) .42% 1.77%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) .38%(g) .42% .45%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.50%(g) 4.23% 3.59%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 29% --% ------------------------------------------------------------------------ Total return(j) (2.95%)(k) 15.22% .17%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.97 $9.96 $10.06 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .27(d) .37 .08 Net gains (losses) (both realized and unrealized) (.64) 1.04 (.08) ------------------------------------------------------------------------ Total from investment operations (.37) 1.41 -- ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.34) (.40) (.10) Distributions from realized gains (.06) -- -- Tax return of capital (.01) -- -- ------------------------------------------------------------------------ Total distributions (.41) (.40) (.10) ------------------------------------------------------------------------ Net asset value, end of period $10.19 $10.97 $9.96 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $73 $69 $10 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 1.14%(g) 1.17% 2.41%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 1.14%(g) 1.17% 1.21%(g) ------------------------------------------------------------------------ Net investment income (loss) 3.74%(g) 3.48% 2.88%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 29% --% ------------------------------------------------------------------------ Total return(j) (3.45%)(k) 14.45% (.05%)(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 45 RiverSource Income Builder Moderate Income Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $10.98 $9.97 $10.06 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .27(d) .37 .09 Net gains (losses) (both realized and unrealized) (.64) 1.04 (.08) ------------------------------------------------------------------------ Total from investment operations (.37) 1.41 .01 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.34) (.40) (.10) Distributions from realized gains (.06) -- -- Tax return of capital (.01) -- -- ------------------------------------------------------------------------ Total distributions (.41) (.40) (.10) ------------------------------------------------------------------------ Net asset value, end of period $10.20 $10.98 $9.97 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $21 $15 $2 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 1.13%(g) 1.17% 2.35%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 1.13%(g) 1.17% 1.21%(g) ------------------------------------------------------------------------ Net investment income (loss) 3.76%(g) 3.44% 2.83%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 29% --% ------------------------------------------------------------------------ Total return(j) (3.43%)(k) 14.45% .05%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $11.00 $9.98 $10.07 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .34(d) .46 .10 Net gains (losses) (both realized and unrealized) (.63) 1.05 (.08) ------------------------------------------------------------------------ Total from investment operations (.29) 1.51 .02 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.41) (.49) (.11) Distributions from realized gains (.06) -- -- Tax return of capital (.02) -- -- ------------------------------------------------------------------------ Total distributions (.49) (.49) (.11) ------------------------------------------------------------------------ Net asset value, end of period $10.22 $11.00 $9.98 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) .35%(g) .33% 5.51%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) .08%(g) .29% .20%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.78%(g) 3.92% 3.88%(g) ------------------------------------------------------------------------ Portfolio turnover rate 19% 29% --% ------------------------------------------------------------------------ Total return(j) (2.75%)(k) 15.41% .18%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. -------------------------------------------------------------------------------- 46 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT RiverSource Income Builder Enhanced Income Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $11.08 $9.96 $10.06 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .35(d) .47 .11 Net gains (losses) (both realized and unrealized) (.86) 1.15 (.09) ------------------------------------------------------------------------ Total from investment operations (.51) 1.62 .02 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.38) (.49) (.12) Distributions from realized gains (.11) (.01) -- Tax return of capital (.03) -- -- ------------------------------------------------------------------------ Total distributions (.52) (.50) (.12) ------------------------------------------------------------------------ Net asset value, end of period $10.05 $11.08 $9.96 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $289 $266 $50 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) .41%(g) .43% 2.04%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) .41%(g) .43% .45%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.93%(g) 4.51% 3.96%(g) ------------------------------------------------------------------------ Portfolio turnover rate 24% 27% --% ------------------------------------------------------------------------ Total return(j) (4.58%)(k) 16.68% .15%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $11.07 $9.96 $10.06 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .30(d) .39 .09 Net gains (losses) (both realized and unrealized) (.86) 1.15 (.09) ------------------------------------------------------------------------ Total from investment operations (.56) 1.54 -- ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.34) (.42) (.10) Distributions from realized gains (.11) (.01) -- Tax return of capital (.02) -- -- ------------------------------------------------------------------------ Total distributions (.47) (.43) (.10) ------------------------------------------------------------------------ Net asset value, end of period $10.04 $11.07 $9.96 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $37 $39 $10 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 1.16%(g) 1.19% 2.79%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 1.16%(g) 1.19% 1.21%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.15%(g) 3.77% 3.24%(g) ------------------------------------------------------------------------ Portfolio turnover rate 24% 27% --% ------------------------------------------------------------------------ Total return(j) (5.17%)(k) 15.74% .02%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 47 RiverSource Income Builder Enhanced Income Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $11.07 $9.96 $10.06 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .30(d) .39 .09 Net gains (losses) (both realized and unrealized) (.86) 1.15 (.09) ------------------------------------------------------------------------ Total from investment operations (.56) 1.54 -- ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.34) (.42) (.10) Distributions from realized gains (.11) (.01) -- Tax return of capital (.02) -- -- ------------------------------------------------------------------------ Total distributions (.47) (.43) (.10) ------------------------------------------------------------------------ Net asset value, end of period $10.04 $11.07 $9.96 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $13 $11 $2 ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) 1.16%(g) 1.18% 2.63%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) 1.16%(g) 1.18% 1.21%(g) ------------------------------------------------------------------------ Net investment income (loss) 4.19%(g) 3.73% 3.22%(g) ------------------------------------------------------------------------ Portfolio turnover rate 24% 27% --% ------------------------------------------------------------------------ Total return(j) (5.06%)(k) 15.75% .02%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) PERIOD YEAR PERIOD ENDED ENDED ENDED JAN. 31, MAY 31, MAY 31, 2008(B) 2007 2006(C) Net asset value, beginning of period $11.09 $9.97 $10.06 ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .37(d) .49 .12 Net gains (losses) (both realized and unrealized) (.86) 1.15 (.09) ------------------------------------------------------------------------ Total from investment operations (.49) 1.64 .03 ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.40) (.51) (.12) Distributions from realized gains (.11) (.01) -- Tax return of capital (.03) -- -- ------------------------------------------------------------------------ Total distributions (.54) (.52) (.12) ------------------------------------------------------------------------ Net asset value, end of period $10.06 $11.09 $9.97 ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- $-- ------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement(e),(f) .38%(g) .36% 5.75%(g) ------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement(f),(h),(i) .12%(g) .29% .29%(g) ------------------------------------------------------------------------ Net investment income (loss) 5.24%(g) 4.67% 3.66%(g) ------------------------------------------------------------------------ Portfolio turnover rate 24% 27% --% ------------------------------------------------------------------------ Total return(j) (4.49%)(k) 16.82% .27%(k) ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from June 1, 2007 to Jan. 31, 2008. (c) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (d) Per share amount has been calculated using the average shares outstanding method. (e) Expense ratio is before reduction of earnings credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction of earnings credits on cash balances. Earnings credits for the period ended Jan. 31, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. -------------------------------------------------------------------------------- 48 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD AND SHAREHOLDERS OF RIVERSOURCE INCOME SERIES, INC. We have audited the accompanying statements of assets and liabilities, including the investments in affiliated funds, of RiverSource Income Builder Basic Income Fund, RiverSource Income Builder Moderate Income Fund and RiverSource Income Builder Enhanced Income Fund (portfolios constituting the RiverSource Income Series, Inc.) (the Funds) as of January 31, 2008, and the related statements of operations, changes in net assets, and financial highlights for the period from June 1, 2007 to January 31, 2008. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial statements and the financial highlights of the Funds for each of the periods presented through May 31, 2007, were audited by other auditors whose report dated July 20, 2007, expressed an unqualified opinion on those financial statements and financial highlights. 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 audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of January 31, 2008, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 2008 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of RiverSource Income Builder Basic Income Fund, RiverSource Income Builder Moderate Income Fund and RiverSource Income Builder Enhanced Income Fund at January 31, 2008, the results of their operations, changes in their net assets, and the financial highlights for the period from June 1, 2007 to January 31, 2008, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota March 20, 2008 -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 49 FEDERAL INCOME TAX INFORMATION (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. RiverSource Income Builder Basic Income Fund For the period from June 1, 2007 to Jan. 31, 2008 CLASS A
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.17% Dividends Received Deduction for corporations......... 13.76% United States Government Obligations.................. 14.32%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03559 July 25, 2007............................................... 0.03640 Aug. 24, 2007............................................... 0.03728 Sept. 25, 2007.............................................. 0.03926 Oct. 26, 2007............................................... 0.04718 Nov. 26, 2007............................................... 0.05480 Dec. 20, 2007............................................... 0.10196 Jan. 28, 2008............................................... 0.00935 Total distributions......................................... $0.36182
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.07013 Total distributions......................................... $0.43195
CLASS B
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.17% Dividends Received Deduction for corporations......... 13.76% United States Government Obligations.................. 14.32%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.02899 July 25, 2007............................................... 0.02950 Aug. 24, 2007............................................... 0.03105 Sept. 25, 2007.............................................. 0.03242 Oct. 26, 2007............................................... 0.04035 Nov. 26, 2007............................................... 0.04815 Dec. 20, 2007............................................... 0.09688 Jan. 28, 2008............................................... 0.00137 Total distributions......................................... $0.30871
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.07013 Total distributions......................................... $0.37884
CLASS C
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.17% Dividends Received Deduction for corporations......... 13.76% United States Government Obligations.................. 14.32%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.02899 July 25, 2007............................................... 0.03013 Aug. 24, 2007............................................... 0.03104 Sept. 25, 2007.............................................. 0.03247 Oct. 26, 2007............................................... 0.04049 Nov. 26, 2007............................................... 0.04811 Dec. 20, 2007............................................... 0.09683 Jan. 28, 2008............................................... 0.00144 Total distributions......................................... $0.30950
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.07013 Total distributions......................................... $0.37963
CLASS R4
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.17% Dividends Received Deduction for corporations......... 13.76% United States Government Obligations.................. 14.32%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03570 July 25, 2007............................................... 0.03683 Aug. 24, 2007............................................... 0.03776 Sept. 25, 2007.............................................. 0.03980 Oct. 26, 2007............................................... 0.04763 Nov. 26, 2007............................................... 0.13102 Dec. 20, 2007............................................... 0.10230 Jan. 28, 2008............................................... 0.01045 Total distributions......................................... $0.44149
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.07013 Total distributions......................................... $0.51162
-------------------------------------------------------------------------------- 50 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT RiverSource Income Builder Moderate Income Fund For the period from June 1, 2007 to Jan. 31, 2008 CLASS A
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 19.46% Dividends Received Deduction for corporations......... 16.31% United States Government Obligations.................. 9.43%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03846 July 25, 2007............................................... 0.03965 Aug. 24, 2007............................................... 0.03980 Sept. 25, 2007.............................................. 0.04150 Oct. 26, 2007............................................... 0.04996 Nov. 26, 2007............................................... 0.05956 Dec. 20, 2007............................................... 0.11711 Jan. 28, 2008............................................... 0.01095 Total distributions*........................................ $0.39699
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06685 Total distributions......................................... $0.46384
CLASS B
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 19.46% Dividends Received Deduction for corporations......... 16.31% United States Government Obligations.................. 9.43%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03144 July 25, 2007............................................... 0.03255 Aug. 24, 2007............................................... 0.03338 Sept. 25, 2007.............................................. 0.03455 Oct. 26, 2007............................................... 0.04307 Nov. 26, 2007............................................... 0.05282 Dec. 20, 2007............................................... 0.11185 Jan. 28, 2008............................................... 0.00269 Total distributions**....................................... $0.34235
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06685 Total distributions......................................... $0.40920
CLASS C
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 19.46% Dividends Received Deduction for corporations......... 16.31% United States Government Obligations.................. 9.43%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03171 July 25, 2007............................................... 0.03347 Aug. 24, 2007............................................... 0.03340 Sept. 25, 2007.............................................. 0.03469 Oct. 26, 2007............................................... 0.04315 Nov. 26, 2007............................................... 0.05277 Dec. 20, 2007............................................... 0.11191 Jan. 28, 2008............................................... 0.00278 Total distributions**....................................... $0.34388
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06685 Total distributions......................................... $0.41073
CLASS R4
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 19.46% Dividends Received Deduction for corporations......... 16.31% United States Government Obligations.................. 9.43%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03930 July 25, 2007............................................... 0.03995 Aug. 24, 2007............................................... 0.04019 Sept. 25, 2007.............................................. 0.04192 Oct. 26, 2007............................................... 0.05032 Nov. 26, 2007............................................... 0.07753 Dec. 20, 2007............................................... 0.11741 Jan. 28, 2008............................................... 0.01176 Total distributions*........................................ $0.41838
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06685 Total distributions......................................... $0.48523
* $0.02 per share represents a tax return of capital. ** $0.01 per share represents a tax return of capital. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 51 RiverSource Income Builder Enhanced Income Fund For the period from June 1, 2007 to Jan. 31, 2008 CLASS A
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.13% Dividends Received Deduction for corporations......... 12.60% United States Government Obligations.................. 2.92%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.04186 July 25, 2007............................................... 0.04291 Aug. 24, 2007............................................... 0.04184 Sept. 25, 2007.............................................. 0.04602 Oct. 26, 2007............................................... 0.05225 Nov. 26, 2007............................................... 0.06797 Dec. 20, 2007............................................... 0.15705 Jan. 28, 2008............................................... 0.01248 Total distributions*........................................ $0.46238
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06197 Total distributions......................................... $0.52435
CLASS B
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.13% Dividends Received Deduction for corporations......... 12.60% United States Government Obligations.................. 2.92%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03476 July 25, 2007............................................... 0.03575 Aug. 24, 2007............................................... 0.03538 Sept. 25, 2007.............................................. 0.03891 Oct. 26, 2007............................................... 0.04539 Nov. 26, 2007............................................... 0.06119 Dec. 20, 2007............................................... 0.15187 Jan. 28, 2008............................................... 0.00418 Total distributions**....................................... $0.40743
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06197 Total distributions......................................... $0.46940
CLASS C
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.13% Dividends Received Deduction for corporations......... 12.60% United States Government Obligations.................. 2.92%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.03503 July 25, 2007............................................... 0.03658 Aug. 24, 2007............................................... 0.03547 Sept. 25, 2007.............................................. 0.03909 Oct. 26, 2007............................................... 0.04535 Nov. 26, 2007............................................... 0.06133 Dec. 20, 2007............................................... 0.15198 Jan. 28, 2008............................................... 0.00437 Total distributions**....................................... $0.4092
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06197 Total distributions......................................... $0.47117
CLASS R4
INCOME DISTRIBUTIONS - taxable as dividend income: Qualified Dividend Income for individuals............. 16.13% Dividends Received Deduction for corporations......... 12.60% United States Government Obligations.................. 2.92%
PAYABLE DATE PER SHARE June 26, 2007............................................... $0.04273 July 25, 2007............................................... 0.04338 Aug. 24, 2007............................................... 0.04238 Sept. 25, 2007.............................................. 0.04663 Oct. 26, 2007............................................... 0.05291 Nov. 26, 2007............................................... 0.08216 Dec. 20, 2007............................................... 0.15842 Jan. 28, 2008............................................... 0.01307 Total distributions*........................................ $0.48168
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 20, 2007............................................... $0.06197 Total distributions......................................... $0.54365
* $0.03 per share represents a tax return of capital. ** $0.02 per share represents a tax return of capital. -------------------------------------------------------------------------------- 52 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 96 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. INDEPENDENT BOARD MEMBERS
NAME, ADDRESS, POSITION HELD WITH FUND AGE AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS ------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member since 2006 Chief Justice, Minnesota Supreme Court, None 901 S. Marquette Ave. 1998-2006; Attorney Minneapolis, MN 55402 Age 53 ------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member since 1999 Chair, RiverSource Funds, 1999-2006; former None 901 S. Marquette Ave. Governor of Minnesota Minneapolis, MN 55402 Age 73 ------------------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member since 2007 President, Springboard -- Partners in Cross None 901 S. Marquette Ave. Cultural Leadership (consulting company) Minneapolis, MN 55402 Age 53 ------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member since 2004 Trustee Professor of Economics and None 901 S. Marquette Ave. Management, Bentley College; former Dean, Minneapolis, MN 55402 McCallum Graduate School of Business, Age 57 Bentley College ------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant None 901 S. Marquette Ave. Minneapolis, MN 55402 Age 73 ------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member since 2005 Former Managing Director, Shikiar Asset American Progressive 901 S. Marquette Ave. Management Insurance Minneapolis, MN 55402 Age 72 ------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member since 2002 President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. and Chair of the Board Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 since 2007 irrigation systems) Age 69 ------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member since 2004 Director, Enterprise Asset Management, Inc. None 901 S. Marquette Ave. (private real estate and asset management Minneapolis, MN 55402 company) Age 55 ------------------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member since 2002 Chief Executive Officer, RiboNovix, Inc. Idera 901 S. Marquette Ave. since 2003 (biotechnology); former Pharmaceuticals, Minneapolis, MN 55402 President, Forester Biotech Inc. Age 63 (biotechnology); Healthways, Inc. (health management programs) -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 53 BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, ADDRESS, POSITION HELD WITH FUND AGE AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS ------------------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member since President -- U.S. Asset Management and None 53600 Ameriprise 2001, Vice President Chief Investment Officer, Ameriprise Financial Center since 2002 Financial, Inc. and President, Chairman of Minneapolis, MN 55474 the Board and Chief Investment Officer, Age 47 RiverSource Investments, LLC since 2005; President, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 -------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The SAI has additional information about the Fund's Board members and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting riversource.com/funds. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are: FUND OFFICERS
NAME, ADDRESS, POSITION HELD WITH FUND AGE AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS --------------------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management, 172 Ameriprise Products and Marketing, RiverSource Investments, LLC since Financial Center 2006; Director and Vice President -- Asset Management, Minneapolis, MN 55474 Products and Marketing, RiverSource Distributors, Inc. since Age 42 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 --------------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income, 172 Ameriprise 2004 Ameriprise Financial, Inc. and RiverSource Investments, LLC Financial Center since 2006; Vice President -- Investments, Ameriprise Minneapolis, MN 55474 Certificate Company since 2003; Senior Vice Age 43 President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 --------------------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company 5228 Ameriprise 2006 Services, RiverSource Investments, LLC since 2006; Vice Financial Center President -- Operations and Compliance, RiverSource Minneapolis, MN 55474 Investments, LLC, 2004-2006 Age 42 --------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise 105 Ameriprise Financial, Inc. since 2002; Chief Financial Officer, Financial Center RiverSource Distributors, Inc. since 2006 Minneapolis, MN 55474 Age 52 --------------------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, General Vice President and Chief Counsel -- Asset Management, 5228 Ameriprise Counsel and Secretary Ameriprise Financial, Inc. since 2005; Chief Counsel, Financial Center since 2006 RiverSource Distributors, Inc. since 2006; Vice President, Minneapolis, MN 55474 General Counsel and Secretary, Ameriprise Certificate Age 48 Company since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, U.S. Bancorp Asset Management, 2002-2004 --------------------------------------------------------------------------------------------------------------- Jennifer D. Lammers Chief Compliance Officer U.S. Asset Management Chief Compliance Officer, RiverSource 172 Ameriprise since 2006 Investments, LLC since 2006; Director -- Mutual Funds, Financial Center Voyageur Asset Management, 2003-2006; Director of Finance, Minneapolis, MN 55474 Voyageur Asset Management, 2000-2003 Age 47 --------------------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering Officer, 2934 Ameriprise Prevention Officer since Ameriprise Financial, Inc. since 2004; Manager Anti- Money Financial Center 2004 Laundering, Ameriprise Financial, Inc., 2003-2004; Minneapolis, MN 55474 Compliance Director and Bank Secrecy Act Officer, American Age 44 Express Centurion Bank, 2000-2003 ---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 54 RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT PROXY VOTING The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES -- 2008 ANNUAL REPORT 55 (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE INCOME BUILDER SERIES 734 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource mutual funds are distributed by RiverSource Distributors, Inc., Member FNRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (C)2008 RiverSource Distributors, Inc. S-6394 E (3/08) Item 2.(a)The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees (a) Audit Fees. The fees for the year ended Jan. 31, to Ernst & Young LLP for professional services rendered for the audit of the annual financial statements for RiverSource Income Series, Inc. were as follows: 2008 - $46,950 (b) Audit - Related Fees. The fees for the year ended Jan. 31, to Ernst & Young LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 and the semiannual financial statement review for RiverSource Income Series, Inc. were as follows: 2008 - $2,385 (c) Tax Fees. The fees for the year ended Jan. 31, to Ernst & Young LLP for tax compliance related services for RiverSource Income Series, Inc. were as follows: 2008 - $8,100 (d) All Other Fees. The fees for the year ended Jan. 31, to Ernst & Young LLP for additional professional services rendered for RiverSource Income Series, Inc. were as follows: 2008 - $0 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by Ernst & Young LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2008 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees for the year ended Jan. 31, to Ernst & Young LLP by the registrant for non-audit fees and by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2008 - $723,935 (h) 100% of the services performed in item (g) above during 2008 were pre-approved by the Ameriprise Financial Audit Committee and/or the RiverSource Mutual Funds Audit Committee. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource Income Series, Inc. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date April 3, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date April 3, 2008 By /s/ Jeffrey P. Fox ---------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date April 3, 2008