-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CwdcvNbzHYFxigxyI+Axo4m40c6gJRbKo6tZOX960S/di3GjKimsUVodSGCPEfra dsjRwJwJYsKTDzF5nV+9Jw== 0001068800-06-000634.txt : 20060728 0001068800-06-000634.hdr.sgml : 20060728 20060728110428 ACCESSION NUMBER: 0001068800-06-000634 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060531 FILED AS OF DATE: 20060728 DATE AS OF CHANGE: 20060728 EFFECTIVENESS DATE: 20060728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE INCOME SERIES, INC. CENTRAL INDEX KEY: 0000052407 IRS NUMBER: 410839316 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-00499 FILM NUMBER: 06986426 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP SELECTIVE FUND INC /MN/ DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS SELECTIVE FUND INC DATE OF NAME CHANGE: 19920703 0000052407 S000003435 RiverSource Income Builder Basic Income Fund C000009499 RiverSource Income Builder Basic Income Fund Class A RBBAX C000009500 RiverSource Income Builder Basic Income Fund Class B C000009501 RiverSource Income Builder Basic Income Fund Class C C000009502 RiverSource Income Builder Basic Income Fund Class Y 0000052407 S000003436 RiverSource Income Builder Moderate Income Fund C000009503 RiverSource Income Builder Moderate Income Fund Class A RSMAX C000009504 RiverSource Income Builder Moderate Income Fund Class B C000009505 RiverSource Income Builder Moderate Income Fund Class C C000009506 RiverSource Income Builder Moderate Income Fund Class Y 0000052407 S000003437 RiverSource Income Builder Enhanced Income Fund C000009507 RiverSource Income Builder Enhanced Income Fund Class A RSBAX C000009508 RiverSource Income Builder Enhanced Income Fund Class B C000009509 RiverSource Income Builder Enhanced Income Fund Class C C000009510 RiverSource Income Builder Enhanced Income Fund Class Y N-CSR 1 incomeseries_ncsr.txt RIVERSOURCE INCOME SERIES, INC. 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) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 5/31 -------------- Date of reporting period: 5/31 -------------- Annual Report RIVERSOURCE [LOGO](SM) INVESTMENTS RIVERSOURCE(SM) INCOME BUILDER SERIES - -------------------------------------------------------------------------------- ANNUAL REPORT FOR THE PERIOD ENDED MAY 31, 2006 - -------------------------------------------------------------------------------- > 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(SM) Income Builder Basic Income Fund RiverSource(SM) Income Builder Moderate Income Fund RiverSource(SM) Income Builder Enhanced Income Fund - -------------------------------------------------------------------------------- TABLE OF CONTENTS Fund Snapshots ........................................................... 2 Portfolio Allocation ..................................................... 2 Investment Changes RiverSource Income Builder Basic Income Fund .......................... 4 RiverSource Income Builder Moderate Income Fund ....................... 5 RiverSource Income Builder Enhanced Income Fund ....................... 6 Performance Summaries .................................................... 7 Questions & Answers with Portfolio Management ............................ 9 Investments in Affiliated Funds .......................................... 12 Financial Statements ..................................................... 15 Notes to Financial Statements ............................................ 19 Report of Independent Registered Public Accounting Firm .................. 31 Federal Income Tax Information ........................................... 32 Fund Expenses Example .................................................... 34 Board Members and Officers ............................................... 38 Approval of Investment Management Services Agreement ..................... 40
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 1 - -------------------------------------------------------------------------------- FUND SNAPSHOTS AT MAY 31, 2006 - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT < - --------------------------------------------------------------------------------
PORTFOLIO MANAGERS SINCE YEARS IN INDUSTRY Dimitris Bertsimas, Ph.D. 2/06 13 Colin Lundgren, CFA 2/06 17 Erol Sonderegger, CFA 2/06 11
- -------------------------------------------------------------------------------- INCEPTION DATES < - -------------------------------------------------------------------------------- A: 2/16/06 B: 2/16/06 C: 2/16/06 Y: 2/16/06 - -------------------------------------------------------------------------------- TICKER SYMBOLS < - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND A: RBBAX B: -- C: -- Y: -- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND A: RSMAX B: -- C: -- Y: -- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND A: RSBAX B: -- C: -- Y: -- - -------------------------------------------------------------------------------- FUND OBJECTIVE < - -------------------------------------------------------------------------------- For investors seeking a high level of current income and growth of capital. RIVERSOURCE INCOME BUILDER BASIC INCOME FUND Total net assets .............................................. $24.7 million Number of holdings ............................................ 12 RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND Total net assets .............................................. $68.9 million Number of holdings ............................................ 12 RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND Total net assets .............................................. $61.3 million Number of holdings ............................................ 12
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND < - -------------------------------------------------------------------------------- PORTFOLIO ALLOCATION Percentage of portfolio assets at May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] FIXED INCOME FUNDS Floating Rate 9.9% Global Bond 8.2% High Yield 10.9% Inflation Protected Securities 9.1% International 8.0% Investment Grade 12.2% EQUITY FUNDS Dividend Income 23.5% International 1.1% Real Estate 1.8% U.S. Small Cap 0.9% CASH EQUIVALENTS Money Market 14.4%
TOP FIVE HOLDINGS Percentage of portfolio assets at May 31, 2006 - -------------------------------------------------------------- RiverSource Dividend Opportunity Fund 23.5% - -------------------------------------------------------------- RiverSource Cash Management Fund 14.4 - -------------------------------------------------------------- RiverSource U.S. Government Mortgage Fund 11.3 - -------------------------------------------------------------- RiverSource High Yield Bond Fund 10.9 - -------------------------------------------------------------- RiverSource Floating Rate Fund 9.9 - --------------------------------------------------------------
For further detail about these holdings, please refer to the section entitled "Investments in Affiliated Funds. "Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. The Income Builder 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. See the Fund's prospectus for specific risks that may be associated with the underlying 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. - -------------------------------------------------------------------------------- 2 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- FUND SNAPSHOTS - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND < - -------------------------------------------------------------------------------- PORTFOLIO ALLOCATION Percentage of portfolio assets at May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] FIXED INCOME FUNDS Floating Rate 16.0% Global Bond 3.0% High Yield 13.5% Inflation Protected Securities 5.2% International 15.7% Investment Grade 4.2% EQUITY FUNDS Dividend Income 26.5% International 3.2% Real Estate 4.3% U.S. Small Cap 1.3% CASH EQUIVALENTS Money Market 7.1%
TOP FIVE HOLDINGS Percentage of portfolio assets at May 31, 2006 - -------------------------------------------------------------- RiverSource Dividend Opportunity Fund 26.5% - -------------------------------------------------------------- RiverSource Floating Rate Fund 16.0 - -------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 15.7 - -------------------------------------------------------------- RiverSource High Yield Bond Fund 13.5 - -------------------------------------------------------------- RiverSource Cash Management Fund 7.1 - --------------------------------------------------------------
For further detail about these holdings, please refer to the section entitled "Investments in Affiliated Funds." - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND < - -------------------------------------------------------------------------------- PORTFOLIO ALLOCATION Percentage of portfolio assets at May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] FIXED INCOME FUNDS Floating Rate 19.7% Global Bond 4.2% High Yield 20.1% Inflation Protected Securities 3.1% International 17.2% Investment Grade 4.4% EQUITY FUNDS Dividend Income 17.8% International 2.6% Real Estate 4.4% U.S. Small Cap 1.2% CASH EQUIVALENTS Money Market 5.3%
TOP FIVE HOLDINGS Percentage of portfolio assets at May 31, 2006 - -------------------------------------------------------------- RiverSource High Yield Bond Fund 20.1% - -------------------------------------------------------------- RiverSource Floating Rate Fund 19.7 - -------------------------------------------------------------- RiverSource Dividend Opportunity Fund 17.8 - -------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 17.2 - -------------------------------------------------------------- RiverSource Cash Management Fund 5.3 - --------------------------------------------------------------
For further detail about these holdings, please refer to the section entitled "Investments in Affiliated Funds." - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 3 - -------------------------------------------------------------------------------- INVESTMENT CHANGES - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND < - --------------------------------------------------------------------------------
Fund holdings at May 31, 2006 % OF FUND'S PORTFOLIO ASSETS ---------------- FLOATING RATE FUNDS - -------------------------------------------------------------------------------- RiverSource Floating Rate Fund 9.9% - -------------------------------------------------------------------------------- GLOBAL BOND FUNDS - -------------------------------------------------------------------------------- RiverSource Global Bond Fund 8.2% - -------------------------------------------------------------------------------- HIGH YIELD FIXED-INCOME FUNDS - -------------------------------------------------------------------------------- RiverSource High Yield Bond Fund 10.9% - -------------------------------------------------------------------------------- INFLATION PROTECTED SECURITIES FUNDS - -------------------------------------------------------------------------------- RiverSource Inflation Protected Securities Fund 9.1% - -------------------------------------------------------------------------------- INTERNATIONAL BOND FUNDS - -------------------------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 8.0% - -------------------------------------------------------------------------------- INVESTMENT GRADE FIXED-INCOME FUNDS Includes government, corporate, mortgage and agency securities - -------------------------------------------------------------------------------- RiverSource Diversified Bond Fund 0.9% - -------------------------------------------------------------------------------- RiverSource U.S. Government Mortgage Fund 11.3% - -------------------------------------------------------------------------------- 12.2% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - -------------------------------------------------------------------------------- RiverSource Real Estate Fund 1.8% - -------------------------------------------------------------------------------- RiverSource Disciplined Small Cap Value Fund 0.9% - -------------------------------------------------------------------------------- 2.7% - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- RiverSource Disciplined International Equity Fund 1.1% - -------------------------------------------------------------------------------- SECTOR FUNDS - -------------------------------------------------------------------------------- RiverSource Dividend Opportunity Fund 23.5% - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - -------------------------------------------------------------------------------- RiverSource Cash Management Fund 14.4% - -------------------------------------------------------------------------------- 100.0% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 4 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- INVESTMENT CHANGES - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND < - --------------------------------------------------------------------------------
Fund holdings at May 31, 2006 % OF FUND'S PORTFOLIO ASSETS ---------------- FLOATING RATE FUNDS - -------------------------------------------------------------------------------- RiverSource Floating Rate Fund 16.0% - -------------------------------------------------------------------------------- GLOBAL BOND FUNDS - -------------------------------------------------------------------------------- RiverSource Global Bond Fund 3.0% - -------------------------------------------------------------------------------- HIGH YIELD FIXED-INCOME FUNDS - -------------------------------------------------------------------------------- RiverSource High Yield Bond Fund 13.5% - -------------------------------------------------------------------------------- INFLATION PROTECTED SECURITIES FUNDS - -------------------------------------------------------------------------------- RiverSource Inflation Protected Securities Fund 5.2% - -------------------------------------------------------------------------------- INTERNATIONAL BOND FUNDS - -------------------------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 15.7% - -------------------------------------------------------------------------------- INVESTMENT GRADE FIXED-INCOME FUNDS Includes government, corporate, mortgage and agency securities - -------------------------------------------------------------------------------- RiverSource Diversified Bond Fund 1.4% - -------------------------------------------------------------------------------- RiverSource U.S. Government Mortgage Fund 2.8% - -------------------------------------------------------------------------------- 4.2% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - -------------------------------------------------------------------------------- RiverSource Real Estate Fund 4.3% - -------------------------------------------------------------------------------- RiverSource Disciplined Small Cap Value Fund 1.3% - -------------------------------------------------------------------------------- 5.6% - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- RiverSource Disciplined International Equity Fund 3.2% - -------------------------------------------------------------------------------- SECTOR FUNDS - -------------------------------------------------------------------------------- RiverSource Dividend Opportunity Fund 26.5% - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - -------------------------------------------------------------------------------- RiverSource Cash Management Fund 7.1% - -------------------------------------------------------------------------------- 100.0% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 5 - -------------------------------------------------------------------------------- INVESTMENT CHANGES - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND < - --------------------------------------------------------------------------------
Fund holdings at May 31, 2006 % OF FUND'S PORTFOLIO ASSETS ---------------- FLOATING RATE FUNDS - -------------------------------------------------------------------------------- RiverSource Floating Rate Fund 19.7% - -------------------------------------------------------------------------------- GLOBAL BOND FUNDS - -------------------------------------------------------------------------------- RiverSource Global Bond Fund 4.2% - -------------------------------------------------------------------------------- HIGH YIELD FIXED-INCOME FUNDS - -------------------------------------------------------------------------------- RiverSource High Yield Bond Fund 20.1% - -------------------------------------------------------------------------------- INFLATION PROTECTED SECURITIES FUNDS - -------------------------------------------------------------------------------- RiverSource Inflation Protected Securities Fund 3.1% - -------------------------------------------------------------------------------- INTERNATIONAL BOND FUNDS - -------------------------------------------------------------------------------- RiverSource Emerging Markets Bond Fund 17.2% - -------------------------------------------------------------------------------- INVESTMENT GRADE FIXED-INCOME FUNDS Includes government, corporate, mortgage and agency securities - -------------------------------------------------------------------------------- RiverSource Diversified Bond Fund 2.0% - -------------------------------------------------------------------------------- RiverSource U.S. Government Mortgage Fund 2.4% - -------------------------------------------------------------------------------- 4.4% - -------------------------------------------------------------------------------- DOMESTIC EQUITY FUNDS - -------------------------------------------------------------------------------- RiverSource Real Estate Fund 4.4% - -------------------------------------------------------------------------------- RiverSource Disciplined Small Cap Value Fund 1.2% - -------------------------------------------------------------------------------- 5.6% - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- RiverSource Disciplined International Equity Fund 2.6% - -------------------------------------------------------------------------------- SECTOR FUNDS - -------------------------------------------------------------------------------- RiverSource Dividend Opportunity Fund 17.8% - -------------------------------------------------------------------------------- MONEY MARKET FUNDS - -------------------------------------------------------------------------------- RiverSource Cash Management Fund 5.3% - -------------------------------------------------------------------------------- 100.0% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 6 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- PERFORMANCE SUMMARIES - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON For the period ended May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Income Builder Basic Income Fund Class A (excluding sales charge) (since 2/16/06) +0.31% Lehman Brothers Aggregate Bond Index (unmanaged) (since 3/1/06) -1.27% Russell 3000(R) Value Index (unmanaged) (since 3/1/06) +1.26% Citigroup 3-Month U.S. Treasury Bill Index (unmanaged) (since 3/1/06) +1.14% Blended Index (since 3/1/06) -0.38%
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON For the period ended May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Income Builder Moderate Income Fund Class A (excluding sales charge) (since 2/16/06) +0.17% Lehman Brothers Aggregate Bond Index (unmanaged) (since 3/1/06) -1.27% Russell 3000(R) Value Index (unmanaged) (since 3/1/06) +1.26% Citigroup 3-Month U.S. Treasury Bill Index (unmanaged) (since 3/1/06) +1.14% Blended Index (since 3/1/06) -0.50%
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND - -------------------------------------------------------------------------------- PERFORMANCE COMPARISON For the period ended May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Income Builder Enhanced Income Fund Class A (excluding sales charge) (since 2/16/06) +0.15% Lehman Brothers Aggregate Bond Index (unmanaged) (since 3/1/06) -1.27% Russell 3000(R) Value Index (unmanaged) (since 3/1/06) +1.26% Citigroup 3-Month U.S. Treasury Bill Index (unmanaged) (since 3/1/06) +1.14% Blended Index (since 3/1/06) -0.56%
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 www.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 the indices do not reflect the effects of sales charges, expenses and taxes. 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. The Russell 3000(R) 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. The Citigroup 3-Month U.S. Treasury Bill Index, an unmanaged index, is representative of the performance of three-month Treasury bills. The indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. The Income Builder Basic Income Fund's 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 Income Builder Moderate Income Fund's 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 Income Builder Enhanced Income Fund's 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 indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions and other fees. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 7 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARIES - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y (INCEPTION DATES) (2/16/06) (2/16/06) (2/16/06) (2/16/06) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) NAV(5) RIVERSOURCE INCOME BUILDER BASIC INCOME FUND AT MAY 31, 2006 - ------------------------------------------------------------------------------------------------------------------------------- Since inception* +0.31% -4.45% +0.07% -4.89% +0.23% -0.77% +0.43% - ------------------------------------------------------------------------------------------------------------------------------- AT JUNE 30, 2006 - ------------------------------------------------------------------------------------------------------------------------------- Since inception* +0.58% -4.19% +0.28% -4.68% +0.33% -0.66% +0.61% - ------------------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND AT MAY 31, 2006 - ------------------------------------------------------------------------------------------------------------------------------- Since inception* +0.17% -4.59% -0.05% -5.00% +0.05% -0.94% +0.18% - ------------------------------------------------------------------------------------------------------------------------------- AT JUNE 30, 2006 - ------------------------------------------------------------------------------------------------------------------------------- Since inception* +0.56% -4.22% +0.28% -4.68% +0.48% -0.51% +0.67% - ------------------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND AT MAY 31, 2006 - ------------------------------------------------------------------------------------------------------------------------------- Since inception* +0.15% -4.61% +0.02% -4.93% +0.02% -0.97% +0.27% - ------------------------------------------------------------------------------------------------------------------------------- AT JUNE 30, 2006 - ------------------------------------------------------------------------------------------------------------------------------- Since inception* +0.46% -4.31% +0.17% -4.78% +0.28% -0.71% +0.49% - -------------------------------------------------------------------------------------------------------------------------------
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. * Not annualized - -------------------------------------------------------------------------------- 8 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Portfolio Managers Dimitris Bertsimas, Colin Lundgren and Erol Sonderegger discuss the initial positioning and target allocations for each RiverSource Income Builder Series fund during the funds' inaugural fiscal period. The three funds began operations on Feb. 16, 2006. Q: How did each RiverSource Income Builder Series fund perform since its inception? A: The three Income Builder Series funds generated positive total returns during a period that proved difficult for most bond funds. Primary factors contributing to losses in the bond markets included rising interest rates and wide-spread inflation concerns, which sparked a global increase in risk aversion among investors. RIVERSOURCE INCOME BUILDER SERIES OBJECTIVES Maximize potential yield Help protect purchasing power INCOME BUILDER SERIES Minimize downside risk All Fund returns listed below are for Class A shares (excluding sales charge) for the period. Fund returns are from the Fund's inception though May 31, 2006. RiverSource Income Builder Basic Income Fund had a total return of 0.31%, RiverSource Income Builder Moderate Income Fund returned 0.17% and RiverSource Income Builder Enhanced Income Fund returned 0.15%. In a challenging bond fund environment like that we have experienced since the Funds' inception, we would expect the most conservatively positioned Fund (i.e., Income Builder Basic Income Fund) to outperform the other two portfolios. While this will certainly happen from time to time, we expect Income Builder Enhanced Income Fund to deliver the highest returns. The Funds' bond benchmark, the Lehman Brothers Aggregate Bond Index, declined 1.27%. The Funds' domestic equity benchmark, the Russell 3000 Value Index, increased 1.26%, while the cash benchmark, the Citigroup 3-month U.S. Treasury Bill Index returned 1.14%. Index returns are from Feb. 28, 2006 though May 31, 2006. Q: How is performance of each RiverSource Income Builder Series fund measured? A: In addition to each Fund comparing its performance to the Lehman Brothers Aggregate Bond Index and the Russell 3000(R) Value Index, each fund has a blended index as described below: RIVERSOURCE INCOME BUILDER BASIC INCOME FUND -- 65% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Value Index, 10% Citigroup 3-Month U.S. Treasury Bill Index TARGET ALLOCATIONS*
ALTERNATIVE FIXED** INVESTMENT FUND EQUITY INCOME CASH STRATEGIES - ------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund 10-30% 55-85% 5-15% 0-5% - ------------------------------------------------------------------------------------------------- RiverSource Income Builder Moderate Income Fund 10-35% 55-90% 0-10% 0-10% - ------------------------------------------------------------------------------------------------- RiverSource Income Builder Enhanced Income Fund 10-40% 60-90% 0-5% 0-15%
* Market appreciation or depreciation may cause each Fund to be temporarily outside the ranges identified in the table. The investment manager may modify the target allocation ranges upon approval of the Fund's Board of Directors. ** The fixed income asset class includes the following investment categories: TIPS, Mortgages, Core Plus, High Yield Bonds, High Yield Loans, International Bonds and Emerging Markets Bonds. The long-term target allocation to generally lower quality, higher yielding fixed income investment categories -- high yield loans, high yield bonds, and emerging market bonds -- is 10% for RiverSource Income Builder Basic Income Fund, 25% for RiverSource Income Builder Moderate Income Fund and 45% for RiverSource Builder Enhanced Income Fund. The Funds' current allocation to these investment categories may vary from the long-term target based on quantitative and/or qualitative views of the portfolio management team. These variances will be within the investment category ranges set forth in the Funds' prospectus. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 9 - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND -- 70% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Value Index, 5% Citigroup 3-Month U.S. Treasury Bill Index RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND -- 72.5% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Value Index, 2.5% Citigroup 3-Month U.S. Treasury Bill Index We compare fund performance to a blended index reflecting the appropriate weightings. The blended index is unmanaged and therefore has no expenses. 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. The Russell 3000 Value Index, an unmanaged index, measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Citigroup 3-Month U.S. Treasury Bill Index, an unmanaged index, is representative of the performance of three-month Treasury bills. The indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. Q: What factors most significantly affected the funds' performance? A: The three Income Builder Series funds held an average allocation in equities of approximately 30%, or 5% more than the long-term target of 25%. The Russell 3000 Value Index, the benchmark for the equity component of the funds, generated a positive total return during a difficult, negative period for bonds. As a result, the higher exposure to equities contributed positively to performance. Q: What changes did you make to the portfolio during the inaugural fiscal period? A: The fixed income and equity mix did not change meaningfully during the period. Within fixed income, the three Income Builder Series funds reduced exposure to emerging market bonds while adding to its high yield allocation. Within equities, the funds reduced exposure to the real estate sector during the period and reallocated to small-cap value, large-cap value and international equities. By design, the long-term allocation to higher yielding, lower quality bonds increases between the funds with the lowest allocation found in RiverSource Income Builder Basic Income Fund and the greatest allocation found in RiverSource Income Builder Enhanced Income Fund. All allocation changes are relative to long-term target allocations for each fund. Q: How are you positioning the funds going forward? A: The three 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/or correlations to other asset classes. Each of the underlying funds are managed to generate competitive performance vs. a benchmark and peer group as well. - -------------------------------------------------------------------------------- 10 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
CLASS A -------------------------------------------------- Short-term Long-term Fiscal period ended Income capital gains capital gains TOTAL - -------------------------------------------------------------------------------- May 31, 2006(1) $ 0.10 $ -- $ -- $ 0.10 - --------------------------------------------------------------------------------
(1) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. RiverSource Income Builder Moderate Income Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
CLASS A -------------------------------------------------- Short-term Long-term Fiscal period ended Income capital gains capital gains TOTAL - -------------------------------------------------------------------------------- May 31, 2006(1) $ 0.11 $ -- $ -- $ 0.11 - --------------------------------------------------------------------------------
(1) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. RiverSource Income Builder Enhanced Income Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
CLASS A -------------------------------------------------- Short-term Long-term Fiscal period ended Income capital gains capital gains TOTAL - -------------------------------------------------------------------------------- May 31, 2006(1) $ 0.12 $ -- $ -- $ 0.12 - --------------------------------------------------------------------------------
(1) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 11 - -------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED FUNDS RiverSource Income Builder Basic Income Fund MAY 31, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------------------- FIXED INCOME FUNDS (58.7%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) FLOATING RATE (10.0%) RiverSource Floating Rate Fund 245,195 $ 2,469,111 - ------------------------------------------------------------------------------------- GLOBAL BOND (8.2%) RiverSource Global Bond Fund 312,268 2,039,108 - ------------------------------------------------------------------------------------- HIGH YIELD (11.0%) RiverSource High Yield Bond Fund 939,417 2,714,916 - ------------------------------------------------------------------------------------- INFLATION PROTECTED SECURITIES (9.2%) RiverSource Inflation Protected Securities Fund 235,517 2,265,675 - ------------------------------------------------------------------------------------- INTERNATIONAL (8.1%) RiverSource Emerging Markets Bond Fund 209,898 2,004,529 - ------------------------------------------------------------------------------------- INVESTMENT GRADE (12.2%) RiverSource Diversified Bond Fund 48,799 229,357 RiverSource U.S. Government Mortgage Fund 567,902 2,794,078 --------------- Total 3,023,435 - ------------------------------------------------------------------------------------- TOTAL FIXED INCOME FUNDS (Cost: $14,593,850) $ 14,516,774 - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- EQUITY FUNDS (27.4%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) DIVIDEND INCOME (23.5%) RiverSource Dividend Opportunity Fund 744,829 $ 5,824,565 - ------------------------------------------------------------------------------------- INTERNATIONAL (1.1%) RiverSource Disciplined International Equity Fund 29,572(c) 270,583 - ------------------------------------------------------------------------------------- REAL ESTATE (1.8%) RiverSource Real Estate Fund 30,930 450,338 - ------------------------------------------------------------------------------------- U.S. SMALL CAP (0.9%) RiverSource Disciplined Small Cap Value Fund 21,845(c) 224,785 - ------------------------------------------------------------------------------------- TOTAL EQUITY FUNDS (Cost: $6,834,390) $ 6,770,271 - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- CASH EQUIVALENTS (14.5%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) MONEY MARKET RiverSource Cash Management Fund 3,593,824 $ 3,593,824 - ------------------------------------------------------------------------------------- TOTAL CASH EQUIVALENTS (Cost: $3,593,824) $ 3,593,824 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN AFFILIATED FUNDS (Cost: $25,022,064)(d) $ 24,880,869 =====================================================================================
- -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN AFFILIATED FUNDS - -------------------------------------------------------------------------------- (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) See Note 6 to the financial statements. (c) Non-income producing. (d) At May 31, 2006, the cost of securities for federal income tax purposes was $25,023,214 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 23,310 Unrealized depreciation (165,655) - ------------------------------------------------------------------------------------ Net unrealized depreciation $ (142,345) - ------------------------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- 12 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED FUNDS RiverSource Income Builder Moderate Income Fund MAY 31, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------------------- FIXED INCOME FUNDS (58.4%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) FLOATING RATE (16.2%) RiverSource Floating Rate Fund 1,113,174 $ 11,209,660 - ------------------------------------------------------------------------------------- GLOBAL BOND (3.1%) RiverSource Global Bond Fund 324,751 2,120,623 - ------------------------------------------------------------------------------------- HIGH YIELD (13.7%) RiverSource High Yield Bond Fund 3,261,827 9,426,681 - ------------------------------------------------------------------------------------- INFLATION PROTECTED SECURITIES (5.2%) RiverSource Inflation Protected Securities Fund 375,126 3,608,713 - ------------------------------------------------------------------------------------- INTERNATIONAL (15.9%) RiverSource Emerging Markets Bond Fund 1,146,958 10,953,445 - ------------------------------------------------------------------------------------- INVESTMENT GRADE (4.3%) RiverSource Diversified Bond Fund 208,906 981,859 RiverSource U.S. Government Mortgage Fund 398,557 1,960,900 --------------- Total 2,942,759 - ------------------------------------------------------------------------------------- TOTAL FIXED INCOME FUNDS (Cost: $40,588,113) $ 40,261,881 - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- EQUITY FUNDS (35.8%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) DIVIDEND INCOME (26.8%) RiverSource Dividend Opportunity Fund 2,362,292 $ 18,473,127 - ------------------------------------------------------------------------------------- INTERNATIONAL (3.3%) RiverSource Disciplined International Equity Fund 247,985(c) 2,269,063 - ------------------------------------------------------------------------------------- REAL ESTATE (4.4%) RiverSource Real Estate Fund 207,094 3,015,296 - ------------------------------------------------------------------------------------- U.S. SMALL CAP (1.3%) RiverSource Disciplined Small Cap Value Fund 88,379(c) 909,421 - ------------------------------------------------------------------------------------- TOTAL EQUITY FUNDS (Cost: $24,920,236) $ 24,666,907 - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- CASH EQUIVALENTS (7.2%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) MONEY MARKET RiverSource Cash Management Fund 4,988,757 $ 4,988,757 - ------------------------------------------------------------------------------------- TOTAL CASH EQUIVALENTS (Cost: $4,988,757) $ 4,988,757 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN AFFILIATED FUNDS (Cost: $70,497,106)(d) $ 69,917,545 =====================================================================================
- -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN AFFILIATED FUNDS - -------------------------------------------------------------------------------- (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) See Note 6 to the financial statements. (c) Non-income producing. (d) At May 31, 2006, the cost of securities for federal income tax purposes was $70,497,106 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 20,545 Unrealized depreciation (600,106) - ------------------------------------------------------------------------------------ Net unrealized depreciation $ (579,561) - ------------------------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 13 - -------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED FUNDS RiverSource Income Builder Enhanced Income Fund MAY 31, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------------------- FIXED INCOME FUNDS (68.7%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) FLOATING RATE (19.7%) RiverSource Floating Rate Fund 1,202,078 $ 12,104,927 - ------------------------------------------------------------------------------------- GLOBAL BOND (4.2%) RiverSource Global Bond Fund 390,285 2,548,561 - ------------------------------------------------------------------------------------- HIGH YIELD (20.0%) RiverSource High Yield Bond Fund 4,258,516 12,307,112 - ------------------------------------------------------------------------------------- INFLATION PROTECTED SECURITIES (3.1%) RiverSource Inflation Protected Securities Fund 198,156 1,906,262 - ------------------------------------------------------------------------------------- INTERNATIONAL (17.3%) RiverSource Emerging Markets Bond Fund 1,108,281 10,584,084 - ------------------------------------------------------------------------------------- INVESTMENT GRADE (4.4%) RiverSource Diversified Bond Fund 260,434 1,224,039 RiverSource U.S. Government Mortgage Fund 301,782 1,484,768 --------------- Total 2,708,807 - ------------------------------------------------------------------------------------- TOTAL FIXED INCOME FUNDS (Cost: $42,519,731) $ 42,159,753 - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- EQUITY FUNDS (26.0%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) DIVIDEND INCOME (17.7%) RiverSource Dividend Opportunity Fund 1,393,513 $ 10,897,273 - ------------------------------------------------------------------------------------- INTERNATIONAL (2.6%) RiverSource Disciplined International Equity Fund 173,231(c) 1,585,061 - ------------------------------------------------------------------------------------- REAL ESTATE (4.5%) RiverSource Real Estate Fund 187,623 2,731,796 - ------------------------------------------------------------------------------------- U.S. SMALL CAP (1.2%) RiverSource Disciplined Small Cap Value Fund 69,605(c) 716,235 - ------------------------------------------------------------------------------------- TOTAL EQUITY FUNDS (Cost: $16,152,454) $ 15,930,365 - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------- CASH EQUIVALENTS (5.3%)(b) - ------------------------------------------------------------------------------------- SHARES VALUE(a) MONEY MARKET RiverSource Cash Management Fund 3,258,400 $ 3,258,400 - ------------------------------------------------------------------------------------- TOTAL CASH EQUIVALENTS (Cost: $3,258,401) $ 3,258,400 - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN AFFILIATED FUNDS (Cost: $61,930,586)(d) $ 61,348,518 =====================================================================================
- -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN AFFILIATED FUNDS - -------------------------------------------------------------------------------- (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) See Note 6 to the financial statements. (c) Non-income producing. (d) At May 31, 2006, the cost of securities for federal income tax purposes was $61,930,586 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 19,918 Unrealized depreciation (601,986) - ------------------------------------------------------------------------------------ Net unrealized depreciation $ (582,068) - ------------------------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- 14 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES RiverSource Income Builder Series
RIVERSOURCE RIVERSOURCE INCOME BUILDER RIVERSOURCE INCOME BUILDER MODERATE INCOME BUILDER BASIC INCOME INCOME ENHANCED INCOME MAY 31, 2006 FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------------------------------------- Investments in affiliated funds, at value (Note 1) (identified cost $25,022,064, $70,497,106 and $61,930,586, respectively) $ 24,880,869 $ 69,917,545 $ 61,348,518 Cash in bank on demand deposit 155 408 477 Capital shares receivable 699,590 1,285,576 958,088 Dividends receivable 12,205 29,790 31,377 - ----------------------------------------------------------------------------------------------------------------------------- Total assets 25,592,819 71,233,319 62,338,460 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- LIABILITIES - ----------------------------------------------------------------------------------------------------------------------------- Capital shares payable 2,418 10,000 2,960 Payable for investments purchased 814,214 2,253,873 950,855 Accrued distribution fee 4,421 11,857 10,557 Accrued transfer agency fee 48 137 117 Accrued administrative services fee 13 37 33 Other accrued expenses 31,501 22,029 38,996 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 852,615 2,297,933 1,003,518 - ----------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 24,740,204 $ 68,935,386 $ 61,334,942 ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- REPRESENTED BY - ----------------------------------------------------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 24,783 $ 69,103 $ 61,565 Additional paid-in capital 24,851,552 69,435,128 61,845,378 Undistributed net investment income 6,262 10,733 10,073 Accumulated net realized gain (loss) (Note 7) (1,198) (17) (6) Unrealized appreciation (depreciation) on investments (141,195) (579,561) (582,068) - ----------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 24,740,204 $ 68,935,386 $ 61,334,942 ============================================================================================================================= Net assets applicable to outstanding shares: Class A $ 19,244,987 $ 56,738,487 $ 49,638,491 Class B $ 4,751,862 $ 10,243,754 $ 9,581,422 Class C $ 698,459 $ 1,913,540 $ 2,082,761 Class Y $ 44,896 $ 39,605 $ 32,268 Outstanding shares of capital stock: Class A shares 1,927,394 5,686,176 4,981,799 Class B shares 476,470 1,028,294 962,358 Class C shares 69,950 191,872 209,114 Class Y shares 4,495 3,967 3,238 Net asset value per share Class A $ 9.98 $ 9.98 $ 9.96 Class B $ 9.97 $ 9.96 $ 9.96 Class C $ 9.99 $ 9.97 $ 9.96 Class Y $ 9.99 $ 9.98 $ 9.97 - -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 15 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS RiverSource Income Builder Series
RIVERSOURCE RIVERSOURCE INCOME BUILDER RIVERSOURCE INCOME BUILDER MODERATE INCOME BUILDER BASIC INCOME INCOME ENHANCED INCOME FOR THE PERIOD FROM FEB. 16, 2006(a) TO MAY 31, 2006 FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME - ----------------------------------------------------------------------------------------------------------------------------- Income: Income distributions from underlying affiliated funds $ 113,242 $ 282,290 $ 270,920 - ----------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Distribution fee Class A 5,500 14,420 12,226 Class B 6,097 10,414 10,395 Class C 897 1,572 1,978 Transfer agency fee 1,881 4,688 4,025 Incremental transfer agency fee Class A 131 383 326 Class B 94 151 128 Class C 11 27 26 Service fee -- Class Y 7 5 5 Administrative services fees and expenses 581 1,394 1,226 Custodian fees 374 208 262 Printing and postage 14,040 14,040 14,040 Registration fees 63,157 67,240 72,959 Audit fees 15,500 15,500 15,500 Other 1,355 1,196 1,284 - ----------------------------------------------------------------------------------------------------------------------------- Total expenses 109,625 131,238 134,380 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (91,242) (90,765) (97,388) - ----------------------------------------------------------------------------------------------------------------------------- Total net expenses 18,383 40,473 36,992 - ----------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 94,859 241,817 233,928 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ----------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on sales of underlying affiliated funds (Note 3) (1,181) -- -- Net change in unrealized appreciation (depreciation) on investments (141,672) (580,209) (582,671) - ----------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (142,853) (580,209) (582,671) - ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ (47,994) $ (338,392) $ (348,743) =============================================================================================================================
(a) When shares became publicly available. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource Income Builder Series
RIVERSOURCE RIVERSOURCE INCOME BUILDER INCOME BUILDER MODERATE BASIC INCOME INCOME FOR THE PERIOD FROM FEB. 16, 2006(a) TO MAY 31, 2006 FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 94,859 $ 241,817 Net realized gain (loss) on sales of underlying affiliated funds (1,181) -- Net change in unrealized appreciation (depreciation) on investments (141,672) (580,209) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (47,994) (338,392) - ------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (76,415) (206,945) Class B (16,399) (31,620) Class C (2,469) (4,851) Class Y (266) (207) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (95,549) (243,623) - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 19,465,304 57,688,458 Class B shares 4,864,449 10,479,846 Class C shares 689,934 1,921,240 Class Y shares 35,000 50,025 Reinvestment of distributions at net asset value Class A shares 65,275 182,337 Class B shares 14,755 29,187 Class C shares 2,176 3,935 Class Y shares 163 98 Payments for redemptions Class A shares (247,683) (720,800) Class B shares (Note 2) (106,089) (192,367) Class C shares (Note 2) (19) (5,211) Class Y shares -- (20,000) - ------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 24,783,265 69,416,748 - ------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 24,639,722 68,834,733 Net assets at beginning of year (Note 1) 100,482(b) 100,653(c) - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 24,740,204 $ 68,935,386 =============================================================================================================================== Undistributed net investment income $ 6,262 $ 10,733 - -------------------------------------------------------------------------------------------------------------------------------
(a) When shares became publicly available. (b) 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). (c) Initial capital of $100,000 was contributed on Feb. 9, 2006. The Fund had an increase in net assets resulting from operations of $653 during the period from Feb. 9, 2006 to Feb. 16, 2006 (when shares became publicly available). See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 17 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource Income Builder Series
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FOR THE PERIOD FROM FEB. 16, 2006(a) TO MAY 31, 2006 FUND - ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 233,928 Net change in unrealized appreciation (depreciation) on investments (582,671) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (348,743) - ------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (194,160) Class B (34,517) Class C (6,772) Class Y (191) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (235,640) - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 50,658,429 Class B shares 9,771,252 Class C shares 2,089,812 Class Y shares 22,500 Reinvestment of distributions at net asset value Class A shares 165,641 Class B shares 29,969 Class C shares 5,240 Class Y shares 74 Payments for redemptions Class A shares (788,395) Class B shares (Note 2) (134,406) Class C shares (Note 2) (1,411) - ------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 61,818,705 - ------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 61,234,322 Net assets at beginning of year (Note 1) 100,620(b) - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 61,334,942 =============================================================================================================================== Undistributed net investment income $ 10,073 - -------------------------------------------------------------------------------------------------------------------------------
(a) When shares became publicly available. (b) Initial capital of $100,000 was contributed on Feb. 9, 2006. The Fund had an increase in net assets resulting from operations of $620 during the period from Feb. 9, 2006 to Feb. 16, 2006 (when shares became publicly available). See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS RiverSource Income Builder Series 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Each Fund is a series of RiverSource Income Series, Inc. (formerly AXP 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. 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 or an affiliate acts as investment manager or principal underwriter. For each Fund, on Feb. 9, 2006, Ameriprise Financial, Inc. (Ameriprise Financial) invested $100,000 (7,000 shares for Class A; 1,000 shares for Class B; Class C and Class Y, respectively), which represented the initial capital for each class at $10 per share. 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 Y shares. o Class A shares are sold with a front-end sales charge. o 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. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) 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. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 19 - -------------------------------------------------------------------------------- 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. Net investment income and net realized gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principals. Capital accounts within the financial statements are adjusted for permanent book/tax differences. These differences are primarily due to capital loss carryforwards and losses due to wash sales and excise tax regulations. 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) $ -- $ -- $ -- Undistributed net investment income 6,930 12,517 11,762 - ----------------------------------------------------------------------------------------------------------------- Additional paid-in capital reduction (increase) $6,930 $12,517 $11,762 - -----------------------------------------------------------------------------------------------------------------
The tax character of distributions paid for the period indicated is as follows:
FOR THE PERIOD FROM FEB. 16, 2006* TO MAY 31, 2006 - ----------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND CLASS A Distributions paid from: Ordinary income .................................................................... $ 76,415 Long-term capital gain ............................................................. -- CLASS B Distributions paid from: Ordinary income .................................................................... 16,399 Long-term capital gain ............................................................. -- CLASS C Distributions paid from: Ordinary income .................................................................... 2,469 Long-term capital gain ............................................................. -- CLASS Y Distributions paid from: Ordinary income .................................................................... 266 Long-term capital gain ............................................................. -- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND CLASS A Distributions paid from: Ordinary income .................................................................... 206,945 Long-term capital gain ............................................................. -- CLASS B Distributions paid from: Ordinary income .................................................................... 31,620 Long-term capital gain ............................................................. -- CLASS C Distributions paid from: Ordinary income .................................................................... 4,851 Long-term capital gain ............................................................. -- CLASS Y Distributions paid from: Ordinary income .................................................................... 207 Long-term capital gain ............................................................. --
- -------------------------------------------------------------------------------- 20 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - --------------------------------------------------------------------------------
FOR THE PERIOD FROM FEB. 16, 2006* TO MAY 31, 2006 - ----------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND CLASS A Distributions paid from: Ordinary income .................................................................... 194,160 Long-term capital gain ............................................................. -- CLASS B Distributions paid from: Ordinary income .................................................................... 34,517 Long-term capital gain ............................................................. -- CLASS C Distributions paid from: Ordinary income .................................................................... 6,772 Long-term capital gain ............................................................. -- CLASS Y Distributions paid from: Ordinary income .................................................................... 191 Long-term capital gain ............................................................. --
* When shares became publicly available. At May 31, 2006, the components of distributable earnings on a tax basis for each Fund are as follows:
ACCUMULATED UNREALIZED UNDISTRIBUTED LONG-TERM APPRECIATION FUND ORDINARY INCOME GAIN (LOSS) (DEPRECIATION) - ------------------------------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund $ 6,262 $(48) $ (142,345) RiverSource Income Builder Moderate Income Fund 10,733 (17) (579,561) RiverSource Income Builder Enhanced Income Fund 10,073 (6) (582,068)
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. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 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. A minor portion of additional administrative service expenses paid by each Fund are consultants' fees and fund office expenses. Under this agreement, each Fund also pays taxes, audit and certain legal fees, registration fees for shares, corporate filing fees and any other expenses properly payable by the Funds and approved by the Board. The Funds do not pay additional compensation to the board members. Compensation is paid directly from the affiliated underlying funds in which each Fund invests. Under a separate 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: o Class A $20.50 o Class B $21.50 o Class C $21.00 o Class Y $18.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. The Transfer Agent charges an annual closed account 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 statement of operations. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 21 - -------------------------------------------------------------------------------- Each Fund has agreements with Ameriprise Financial Services, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, each Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of each Fund's average daily net assets attributable to Class Y shares. For the period ended May 31, 2006, the Investment Manager and its affiliates waived certain fees and expenses as follows:
FUND CLASS A CLASS B CLASS C CLASS Y - ---------------------------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund 0.45% 1.21% 1.21% 0.29% RiverSource Income Builder Moderate Income Fund 0.45 1.21 1.21 0.20 RiverSource Income Builder Enhanced Income Fund 0.45 1.21 1.21 0.29
Of these waived fees and expenses, the transfer agency fees waived are as follows:
FUND AMOUNT - ---------------------------------------------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND Class A ................................................................................................ $ 1,335 Class B ................................................................................................ 366 Class C ................................................................................................ 51 Class Y ................................................................................................ 5 The management fees waived at the Fund level were $89,485. RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND Class A ................................................................................................ 3,684 Class B ................................................................................................ 644 Class C ................................................................................................ 101 Class Y ................................................................................................ 4 The management fees waived at the Fund level were $86,332. RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND Class A ................................................................................................ 3,046 Class B ................................................................................................ 603 Class C ................................................................................................ 117 Class Y ................................................................................................ 3
The management fees waived at the Fund level were $93,619. In addition, the Investment Manager and its affiliates have agreed to waive certain fees and expenses until May 31, 2007, unless sooner terminated at the discretion of the Board, such that net direct expenses will not exceed 0.45% for Class A, 1.21% for Class B, 1.21% for Class C and 0.29% for Class Y of each Fund's average daily net assets. Sales charges received by the Distributor for distributing the Funds' shares for the period ended May 31, 2006, are as follows:
FUND CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund $128,235 $ 11 $ -- RiverSource Income Builder Moderate Income Fund 437,266 637 -- RiverSource Income Builder Enhanced Income Fund 326,533 173 1
Each Fund also pays custodian fees to Ameriprise Trust Company, an affiliate of Ameriprise Financial. 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. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses incurred indirectly by each Fund will vary. 3. TRANSACTIONS OF UNDERLYING AFFILIATED FUNDS For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006, 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 $ 25,034,641 $ 111,379 RiverSource Income Builder Moderate Income Fund 70,397,123 -- RiverSource Income Builder Enhanced Income Fund 61,830,591 --
Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- 22 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the period indicated are as follows:
RIVERSOURCE INCOME BUILDER BASIC INCOME FUND FEB. 16, 2006* TO MAY 31, 2006 CLASS A CLASS B CLASS C CLASS Y - ----------------------------------------------------------------------------------------------------- Sold 1,938,512 484,572 68,735 3,479 Issued for reinvested distributions 6,517 1,474 217 16 Redeemed (24,635) (10,576) (2) -- - ----------------------------------------------------------------------------------------------------- Net increase (decrease) 1,920,394 475,470 68,950 3,495 - -----------------------------------------------------------------------------------------------------
* When shares became publicly available.
RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND FEB. 16, 2006* TO MAY 31, 2006 CLASS A CLASS B CLASS C CLASS Y - ----------------------------------------------------------------------------------------------------- Sold 5,732,529 1,043,675 190,992 4,965 Issued for reinvested distributions 18,198 2,915 393 10 Redeemed (71,551) (19,296) (513) (2,008) - ----------------------------------------------------------------------------------------------------- Net increase (decrease) 5,679,176 1,027,294 190,872 2,967 - -----------------------------------------------------------------------------------------------------
* When shares became publicly available.
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND FEB. 16, 2006* TO MAY 31, 2006 CLASS A CLASS B CLASS C CLASS Y - ----------------------------------------------------------------------------------------------------- Sold 5,036,375 971,755 207,731 2,231 Issued for reinvested distributions 16,546 2,994 523 7 Redeemed (78,122) (13,391) (140) -- - ----------------------------------------------------------------------------------------------------- Net increase (decrease) 4,974,799 961,358 208,114 2,238 - -----------------------------------------------------------------------------------------------------
* When shares became publicly available. 5. BANK BORROWINGS Each Fund has a revolving credit agreement 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. Each Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables each Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its 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. Borrowings are payable within 60 days after such loan is executed. Each Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Each Fund had no borrowings outstanding during the period ended May 31, 2006. 6. INVESTMENTS IN UNDERLYING AFFILIATED FUNDS The Funds do not invest in the underlying funds for the purpose of exercising management or control. At May 31, 2006, 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 Emerging Markets Bond Fund ............................................................. 5.64%
RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND UNDERLYING FUND PERCENT OF SHARES HELD - ------------------------------------------------------------------------------------------------------------------------------ RiverSource Floating Rate Fund ..................................................................... 5.95% RiverSource Disciplined Small Cap Value Fund ....................................................... 6.13% RiverSource Disciplined International Equity Fund .................................................. 16.56% RiverSource Emerging Markets Bond Fund ............................................................. 31.79%
RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND UNDERLYING FUND PERCENT OF SHARES HELD - ------------------------------------------------------------------------------------------------------------------------------ RiverSource Disciplined Small Cap Value Fund ....................................................... 5.17% RiverSource Floating Rate Fund ..................................................................... 6.49% RiverSource Disciplined International Equity Fund .................................................. 11.57% RiverSource Emerging Markets Bond Fund ............................................................. 30.32%
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 23 - -------------------------------------------------------------------------------- 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs at May 31, 2006 are as follows:
FUND CARRY-OVER EXPIRATION DATE - ------------------------------------------------------------------------------------------------------------------------ RiverSource Income Builder Basic Income Fund $ 48 2014 RiverSource Income Builder Moderate Income Fund 17 2014 RiverSource Income Builder Enhanced Income Fund 6 2014
It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-overs have been offset or expire. 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. As a result of the Orders, 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. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and whether disclosures related to market timing are consistent with the SEC order and federal securities laws. 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. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. 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. - -------------------------------------------------------------------------------- 24 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- 9. 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) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.05 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 Net gains (losses) (both realized and unrealized) (.07) - -------------------------------------------------------------------------------- Total from investment operations .03 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.98 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 19 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .45%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.44%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 1% - -------------------------------------------------------------------------------- Total return(f) .31%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class A would have been 3.62% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
CLASS B - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.05 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 Net gains (losses) (both realized and unrealized) (.07) - -------------------------------------------------------------------------------- Total from investment operations .01 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.97 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 5 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.21%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.70%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 1% - -------------------------------------------------------------------------------- Total return(f) .07%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class B would have been 4.20% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 25 - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER BASIC INCOME FUND (CONTINUED)
CLASS C - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.05 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 Net gains (losses) (both realized and unrealized) (.07) - -------------------------------------------------------------------------------- Total from investment operations .02 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.99 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 1 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.21%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.74%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 1% - -------------------------------------------------------------------------------- Total return(f) .23%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class C would have been 4.30% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
CLASS Y - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.05 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11 Net gains (losses) (both realized and unrealized) (.07) - -------------------------------------------------------------------------------- Total from investment operations .04 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.99 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ -- - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .29%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.25%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 1% - -------------------------------------------------------------------------------- Total return(f) .43%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class Y would have been 6.84% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 26 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND
CLASS A - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.07 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 Net gains (losses) (both realized and unrealized) (.08) - -------------------------------------------------------------------------------- Total from investment operations .02 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.98 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 57 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .45%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.59%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .17%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class A would have been 1.77% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
CLASS B - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.06 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 Net gains (losses) (both realized and unrealized) (.08) - -------------------------------------------------------------------------------- Total from investment operations -- - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 10 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.21%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.88%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) (.05%)(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class B would have been 2.41% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 27 - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER MODERATE INCOME FUND (CONTINUED)
CLASS C - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.06 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 Net gains (losses) (both realized and unrealized) (.08) - -------------------------------------------------------------------------------- Total from investment operations .01 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.97 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 2 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.21%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.83%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .05%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class C would have been 2.35% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
CLASS Y - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.07 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 Net gains (losses) (both realized and unrealized) (.08) - -------------------------------------------------------------------------------- Total from investment operations .02 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.98 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ -- - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .20%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.88%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .18%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class Y would have been 5.51% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 28 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND
CLASS A - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.06 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11 Net gains (losses) (both realized and unrealized) (.09) - -------------------------------------------------------------------------------- Total from investment operations .02 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 50 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .45%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.96%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .15%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class A would have been 2.04% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
CLASS B - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.06 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 Net gains (losses) (both realized and unrealized) (.09) - -------------------------------------------------------------------------------- Total from investment operations -- - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 10 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.21%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.24%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .02%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class B would have been 2.79% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 29 - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER ENHANCED INCOME FUND (CONTINUED)
CLASS C - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.06 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 Net gains (losses) (both realized and unrealized) (.09) - -------------------------------------------------------------------------------- Total from investment operations -- - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 2 - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.21%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.22%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .02%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class C would have been 2.63% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
CLASS Y - -------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - -------------------------------------------------------------------------------- Fiscal period ended May 31, 2006(b) Net asset value, beginning of period $ 10.06 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .12 Net gains (losses) (both realized and unrealized) (.09) - -------------------------------------------------------------------------------- Total from investment operations .03 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) - -------------------------------------------------------------------------------- Net asset value, end of period $ 9.97 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (in millions) $ -- - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .29%(e) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.66%(e) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) --% - -------------------------------------------------------------------------------- Total return(f) .27%(g) - --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class Y would have been 5.75% for the period ended May 31, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. - -------------------------------------------------------------------------------- 30 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD AND SHAREHOLDERS 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 (funds within RiverSource Income Series, Inc.) as of May 31, 2006, the related statements of operations, changes in net assets and the financial highlights for the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2006, by correspondence with the underlying funds' transfer agent. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 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 as of May 31, 2006, and the results of their operations, changes in their net assets and the financial highlights for the period stated in the first paragraph above, in conformity with U.S. generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota July 20, 2006 - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 31 - -------------------------------------------------------------------------------- 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 Fiscal period ended May 31, 2006 CLASS A INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 24.07% Dividends Received Deduction for corporations ............... 24.20%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02666 March 27, 2006 ................................................... 0.02991 April 26, 2006 ................................................... 0.02682 May 25, 2006 ..................................................... 0.01795 Total distributions .............................................. $ 0.10134
CLASS B INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 24.07% Dividends Received Deduction for corporations ............... 24.20%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02590 March 27, 2006 ................................................... 0.02689 April 26, 2006 ................................................... 0.02166 May 25, 2006 ..................................................... 0.01273 Total distributions .............................................. $ 0.08718
CLASS C INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 24.07% Dividends Received Deduction for corporations ............... 24.20%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02195 March 27, 2006 ................................................... 0.02567 April 26, 2006 ................................................... 0.02263 May 25, 2006 ..................................................... 0.01303 Total distributions .............................................. $ 0.08328
CLASS Y INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 24.07% Dividends Received Deduction for corporations ............... 24.20%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02634 March 27, 2006 ................................................... 0.03035 April 26, 2006 ................................................... 0.02806 May 25, 2006 ..................................................... 0.01867 Total distributions .............................................. $ 0.10342
RiverSource Income Builder Moderate Income Fund Fiscal period ended May 31, 2006 CLASS A INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 20.97% Dividends Received Deduction for corporations ............... 21.16%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02877 March 27, 2006 ................................................... 0.03169 April 26, 2006 ................................................... 0.02820 May 25, 2006 ..................................................... 0.01863 Total distributions .............................................. $ 0.10729
CLASS B INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 20.97% Dividends Received Deduction for corporations ............... 21.16%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02708 March 27, 2006 ................................................... 0.02960 April 26, 2006 ................................................... 0.02404 May 25, 2006 ..................................................... 0.01431 Total distributions .............................................. $ 0.09503
CLASS C INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 20.97% Dividends Received Deduction for corporations ............... 21.16%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02628 March 27, 2006 ................................................... 0.02972 April 26, 2006 ................................................... 0.02454 May 25, 2006 ..................................................... 0.01508 Total distributions .............................................. $ 0.09562
CLASS Y INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 20.97% Dividends Received Deduction for corporations ............... 21.16%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02833 March 27, 2006 ................................................... 0.03168 April 26, 2006 ................................................... 0.02886 May 25, 2006 ..................................................... 0.01975 Total distributions .............................................. $ 0.10862
- -------------------------------------------------------------------------------- 32 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Income Builder Enhanced Income Fund Fiscal period ended May 31, 2006 CLASS A INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 17.58% Dividends Received Deduction for corporations ............... 17.85%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.03135 March 27, 2006 ................................................... 0.03287 April 26, 2006 ................................................... 0.02944 May 25, 2006 ..................................................... 0.02184 Total distributions .............................................. $ 0.11550
CLASS B INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 17.58% Dividends Received Deduction for corporations ............... 17.85%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.03010 March 27, 2006 ................................................... 0.02978 April 26, 2006 ................................................... 0.02477 May 25, 2006 ..................................................... 0.01733 Total distributions .............................................. $ 0.10198
CLASS C INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 17.58% Dividends Received Deduction for corporations ............... 17.85%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.02920 March 27, 2006 ................................................... 0.03068 April 26, 2006 ................................................... 0.02546 May 25, 2006 ..................................................... 0.01762 Total distributions .............................................. $ 0.10296
CLASS Y INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 17.58% Dividends Received Deduction for corporations ............... 17.85%
PAYABLE DATE PER SHARE Feb. 27, 2006 .................................................... $ 0.03111 March 27, 2006 ................................................... 0.03324 April 26, 2006 ................................................... 0.03002 May 25, 2006 ..................................................... 0.02264 Total distributions .............................................. $ 0.11701
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 33 - -------------------------------------------------------------------------------- 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, including distribution and service (12b-1) fees; and other Fund 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 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 (gross) as of May 31, 2006. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended May 31, 2006. 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. - -------------------------------------------------------------------------------- 34 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Income Builder Basic Income Fund
BEGINNING ENDING DIRECT EXPENSES DIRECT AND INDIRECT ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSES PAID DEC. 1, 2005 MAY 31, 2006 THE PERIOD(a) DURING THE PERIOD(b) - ----------------------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.69 $2.27 $ 6.30 - ----------------------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.09 $10.12 - ----------------------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.09 $10.12 - ----------------------------------------------------------------------------------------------------------------------- Class Y - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,023.49 $1.46 $ 5.50 - -----------------------------------------------------------------------------------------------------------------------
(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 182/365 (to reflect the one-half year period). (b) Expenses are equal to the Fund's annualized expense ratio for each class plus the estimated indirect expenses of the underlying funds, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (c) The actual values and expenses paid are not presented because the Fund does not have a full six months of history. The inception date of the Fund is Feb. 16, 2006.
TOTAL FUND'S FUND'S ESTIMATED INDIRECT ANNUALIZED EXPENSES ANNUALIZED EXPENSES OF THE AND INDIRECT EXPENSES ANNUALIZED EXPENSE RATIOS EXPENSE RATIO UNDERLYING FUNDS OF THE UNDERLYING FUNDS - --------------------------------------------------------------------------------------------------------------------------- Class A .45% .80% 1.25% - --------------------------------------------------------------------------------------------------------------------------- Class B 1.21% .80% 2.01% - --------------------------------------------------------------------------------------------------------------------------- Class C 1.21% .80% 2.01% - --------------------------------------------------------------------------------------------------------------------------- Class Y .29% .80% 1.09% - ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 35 - -------------------------------------------------------------------------------- RiverSource Income Builder Moderate Income Fund
BEGINNING ENDING DIRECT EXPENSES DIRECT AND INDIRECT ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSES PAID DEC. 1, 2005 MAY 31, 2006 THE PERIOD(a) DURING THE PERIOD(b) - ----------------------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.69 $2.27 $ 7.11 - ----------------------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.09 $10.92 - ----------------------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.09 $10.92 - ----------------------------------------------------------------------------------------------------------------------- Class Y - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,023.49 $1.46 $ 6.31 - -----------------------------------------------------------------------------------------------------------------------
(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 182/365 (to reflect the one-half year period). (b) Expenses are equal to the Fund's annualized expense ratio for each class plus the estimated indirect expenses of the underlying funds, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (c) The actual values and expenses paid are not presented because the Fund does not have a full six months of history. The inception date of the Fund is Feb. 16, 2006.
TOTAL FUND'S FUND'S ESTIMATED INDIRECT ANNUALIZED EXPENSES ANNUALIZED EXPENSES OF THE AND INDIRECT EXPENSES ANNUALIZED EXPENSE RATIOS EXPENSE RATIO UNDERLYING FUNDS OF THE UNDERLYING FUNDS - --------------------------------------------------------------------------------------------------------------------------- Class A .45% .96% 1.41% - --------------------------------------------------------------------------------------------------------------------------- Class B 1.21% .96% 2.17% - --------------------------------------------------------------------------------------------------------------------------- Class C 1.21% .96% 2.17% - --------------------------------------------------------------------------------------------------------------------------- Class Y .29% .96% 1.25% - ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 36 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Income Builder Enhanced Income Fund
BEGINNING ENDING DIRECT EXPENSES DIRECT AND INDIRECT ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSES PAID DEC. 1, 2005 MAY 31, 2006 THE PERIOD(a) DURING THE PERIOD(b) - ----------------------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.69 $2.27 $ 7.51 - ----------------------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.09 $11.33 - ----------------------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.09 $11.33 - ----------------------------------------------------------------------------------------------------------------------- Class Y - ----------------------------------------------------------------------------------------------------------------------- Actual(c) N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,023.49 $1.46 $ 6.71 - -----------------------------------------------------------------------------------------------------------------------
(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 182/365 (to reflect the one-half year period). (b) Expenses are equal to the Fund's annualized expense ratio for each class plus the estimated indirect expenses of the underlying funds, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (c) The actual values and expenses paid are not presented because the Fund does not have a full six months of history. The inception date of the Fund is Feb. 16, 2006.
TOTAL FUND'S FUND'S ESTIMATED INDIRECT ANNUALIZED EXPENSES ANNUALIZED EXPENSES OF THE AND INDIRECT EXPENSES ANNUALIZED EXPENSE RATIOS EXPENSE RATIO UNDERLYING FUNDS OF THE UNDERLYING FUNDS - --------------------------------------------------------------------------------------------------------------------------- Class A .45% 1.04% 1.49% - --------------------------------------------------------------------------------------------------------------------------- Class B 1.21% 1.04% 2.25% - --------------------------------------------------------------------------------------------------------------------------- Class C 1.21% 1.04% 2.25% - --------------------------------------------------------------------------------------------------------------------------- Class Y .29% 1.04% 1.33% - ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 37 - -------------------------------------------------------------------------------- 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 99 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme 901 S. Marquette Ave. since 2006 Court, 1998-2005 Minneapolis, MN 55402 Age 52 - ----------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, Board Services 901 S. Marquette Ave. since 1999 Corporation (provides Minneapolis, MN 55402 administrative services to Age 71 boards); former Governor of Minnesota - ----------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics 901 S. Marquette Ave. since 2004 and Management, Bentley College; Minneapolis, MN 55402 former Dean, McCallum Graduate Age 55 School of Business, Bentley College - ----------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 71 - ----------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Board member Former Managing Director, American Progressive 901 S. Marquette Ave. since 2005 Shikiar Asset Management Insurance Minneapolis, MN 55402 Age 70 - ----------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 67 - ----------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset Strategic Distribution, Inc. 901 S. Marquette Ave. since 2004 Management, Inc. (private real (transportation, Minneapolis, MN 55402 estate and asset management distribution and Age 53 company) logistics consultants) - ----------------------------------------------------------------------------------------------------------------------- Vikki L. Pryor Board member President and Chief Executive 901 S. Marquette Ave. since 2006 Officer, SBLI USA Mutual Life Minneapolis, MN 55402 Insurance Company, Inc. since Age 52 1999 - ----------------------------------------------------------------------------------------------------------------------- Alan K. Simpson Board member Former three-term United States 1201 Sunshine Ave. since 1997 Senator for Wyoming Cody, WY 82414 Age 74 - ----------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2003 (biotechnology); American Minneapolis, MN 55402 (biotechnology); former Healthways, Inc. (health Age 62 President, Forester Biotech management programs) - -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 38 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member President - U.S. Asset Management 53600 Ameriprise since 2001, and Chief Investment Officer, Financial Center Vice President Ameriprise Financial, Inc. and Minneapolis, MN 55474 since 2002 President, Chairman of the Board and Age 45 Chief Investment Officer, RiverSource Investments, LLC since 2005; 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 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer Vice President - Investment Accounting, Ameriprise 105 Ameriprise Financial Center since 2002 Financial, Inc., since 2002; Vice President - Minneapolis, MN 55474 Finance, American Express Company, 2000-2002 Age 51 - ----------------------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed Income, 172 Ameriprise Financial Center since 2004 Ameriprise Financial, Inc. and RiverSource Minneapolis, MN 55474 Investments, LLC since 2006; Senior Vice President Age 42 - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 - ----------------------------------------------------------------------------------------------------------------------- Paula R. Meyer President Senior Vice President - Mutual Funds, Ameriprise 596 Ameriprise Financial Center since 2002 Financial, Inc., since 2002 and Senior Vice Minneapolis, MN 55474 President, RiverSource Investments, LLC since 2004; Age 52 Vice President and Managing Director - American Express Funds, Ameriprise Financial, Inc., 2000-2002 - ----------------------------------------------------------------------------------------------------------------------- Leslie L. Ogg Vice President, President of Board Services Corporation 901 S. Marquette Ave. General Counsel, and Minneapolis, MN 55402 Secretary Age 67 since 1978 - ----------------------------------------------------------------------------------------------------------------------- Edward S. Dryden Acting Chief Vice President - Asset Management Compliance, 1875 Ameriprise Financial Center Compliance Officer RiverSource Investments, LLC since 2006; Chief Minneapolis, MN 55474 since 2006 Compliance Officer - Mason Street Advisors, LLC, Age 40 2002-2006 - ----------------------------------------------------------------------------------------------------------------------- Neysa M. Alecu Anti-Money Laundering Compliance Director and Anti-Money Laundering 2934 Ameriprise Financial Center Officer Officer, Ameriprise Financial, Inc. since 2004; Minneapolis, MN 55474 since 2004 Manager Anti-Money Laundering, Ameriprise Age 42 Financial, Inc., 2003-2004; Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - -----------------------------------------------------------------------------------------------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - 39 - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the Fund. Under an investment management services agreement (the "IMS Agreement"), the investment manager provides investment advice and other services to the Fund. The Fund's Board of Directors (the "Board") and the Board's Investment Review and Contracts Committee monitor these services. The independent Board members determined to approve the IMS Agreement based on the following factors: In addition to portfolio management and investment research, RiverSource Investments and its affiliates provide portfolio trading, daily net asset value calculation, management of cash flows, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. The Board also noted RiverSource Investments commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. The Board concluded that the services to be provided are consistent with services provided by investment managers to comparable mutual funds (as compiled by Lipper Analytical Services). The Board noted that RiverSource Investments will provide services to the Fund without payment of a direct management fee. Based on the foregoing, the Board determined to approve the IMS Agreement. - -------------------------------------------------------------------------------- 40 - RIVERSOURCE INCOME BUILDER SERIES - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RIVERSOURCE [LOGO](SM) INVESTMENTS RIVERSOURCE INVESTMENTS 734 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 RIVERSOURCE.COM/FUNDS RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. S-6394 C (7/06) 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 Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended May 31, to KPMG LLP for professional services rendered for the audits of the annual financial statements for RiverSource Income Series, Inc. were as follows: 2006 - $11,000; 2005 - $11,000 (b) Audit - Related Fees. The fees paid for the years ended May 31, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for RiverSource Income Series, Inc. were as follows: 2006 - $28; 2005 - $211 (c) Tax Fees. The fees paid for the years ended May 31, to KPMG LLP for tax compliance related services for RiverSource Income Series, Inc. were as follows: 2006 - $2,378; 2005 - $2,550 (d) All Other Fees. The fees paid for the years ended May 31, to KPMG LLP for additional professional services rendered for RiverSource Income Series, Inc. were as follows: 2006 - $68; 2005 - $461 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG 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 2006 and 2005 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended May 31, by the registrant for non-audit services to KPMG LLP were as follows: 2006 - $55,946; 2005 - $141,911 The fees paid for the years ended May 31, to KPMG LLP 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: 2006 - $53,500; 2005 - $138,900 (h) 100% of the services performed for item (g) above during 2006 and 2005 were pre-approved by the audit committee. *2005 represents bills paid 6/1/04 - 5/31/05 2006 represents bills paid 6/1/05 - 5/31/06 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/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date July 28, 2006 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/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date July 28, 2006 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date July 28, 2006 EX-99.CERT 2 cert_incomeseries.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 24, 2006 /s/ Paula R. Meyer -------------------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 24, 2006 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 3 cert906_incomeseries.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION RIVERSOURCE INCOME SERIES, INC. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: July 24, 2006 /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Chief Executive Officer Date: July 24, 2006 /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. EX-99.CODE ETH 4 newcode-of_ethics.txt CODE OF ETHICS RIVERSOURCE FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS PURPOSE OF THE CODE; COVERED OFFICERS This code of ethics ("Code") for the RiverSource Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and procedures of the Funds and of Ameriprise Financial, Inc. and its affiliates ("Ameriprise") are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and Ameriprise, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for Ameriprise, or for both, be involved in establishing policies and implementing decisions that will have different effects on Ameriprise and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and Ameriprise and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; o not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; and o not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. DISCLOSURE AND COMPLIANCE Each Covered Officer o should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including any member of the Board of Directors or Board of Trustees of any Fund ("Boards"), auditors, governmental regulators, and representatives of self-regulatory organizations; o should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and Ameriprise with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; o annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of Ameriprise for reports of potential violations that are made in good faith; and o notify the Funds' General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. APPLYING THE CODE The Funds' General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular -2- situation. Any approvals or waivers sought by a Covered Officers will be considered by each Board or appropriate committee of the Board. The Funds' General Counsel o shall notify the Boards whenever any evidence of a material violation has been reported, it being understood that the Funds' General Counsel may determine whether to provide such notice immediately or at the next meetings of the Boards based on the nature of the violation; o will take all appropriate action to investigate such reported violations; o shall make a determination after the investigation and o if the Funds' General Counsel believes that no violation has occurred, the Boards will be so notified and no further action is required; o if the Funds' General Counsel believes a violation has occurred, the matter shall be reported to the Boards or the committees of the Funds affected by the potential violation for further determination; o if the Boards or the committees determine that a violation has occurred the Boards will consider appropriate action, which may include: a review of applicable policies and procedures; the appropriate modifications to such policies and procedures; the notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o will cause to be made such disclosures as are required by SEC rules if any changes to or waivers of this Code is made by the Boards; and o shall maintain a record of each reported evidence of material violation, the response thereto, and all related correspondence for a period of not less than 10 years. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds or Ameriprise govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. Ameriprise's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Adopted: July 9, 2003; Amended: April 12, 2006 EXHIBIT A Persons Covered by this Code of Ethics Paula R. Meyer President Jeffrey P. Fox Treasurer -3- -----END PRIVACY-ENHANCED MESSAGE-----